WASHINGTON - Bankers may take some comfort from the loan bias settlement the Justice Department reached last week with Huntington Mortgage Co., even though it takes the department's enforcement efforts to new heights.

But should they?

Industry observers appear split on the true meaning of the deal. One camp argues that it proves Justice will go easy on banks that cooperate, while the other asserts that the deal shows the government hasn't changed its policy at all.

Justice claimed that the mortgage company's policy of rewarding loan officers who secured higher rates and points - a practice known as charging overages - wasn't applied fairly. It said the policy caused blacks to pay more than whites, regardless of credit history or income.

The first camp, led by Richard Ritter, a fair-lending consultant and former federal prosecutor, says Justice lived up to its pledge to go easy on banks that take solid steps to correct loan bias problems.

"Justice is really sending a signal with its carrot-and-stick approach," Mr. Ritter said. "This is the first time Justice has ever done this."

The department didn't hit Huntington with any civil money damages, nor did it ask the court for a permanent injunction preventing the bank from charging minorities higher fees for home mortgages. It didn't even file a formal consent decree, as it has in all prior cases. Instead, the parties filed a "settlement agreement," which is much harder to enforce if Huntington decides to break its word.

"If you just have an agreement without an injunction, then the government can't go back and claim you are in contempt and seek fines," Mr. Ritter said.

The bank also doesn't have to reach too far into its pocketbook. The $420,000 settlement was smaller than the other Justice Department deals.

Justice also has taken its policy of recognizing voluntary corrective actions a step further. Previously, it only credited a bank that worked to fix the problem before Justice became involved. This case shows that it now will reward banks that don't act until the department has started a probe, said Robert Ledig, a partner at Fried, Frank, Harris, Shriver & Jacobson in Washington.

The case also stands in sharp contrast to the August 1994 settlement with Chevy Chase Federal Savings Bank, the last time Justice unveiled a new fair-lending theory.

The Chevy Chase case ignited storms of protest from bankers, who charged that Justice lacked the authority to prosecute an institution for not branching into all segments of its market.

The Huntington case provoked a much tamer response. Everyone appeared to understand that charging minorities higher fees and rates was illegal, even though Justice hadn't previously brought an overages case.

Not everyone saw the Huntington case as benignly. The second camp, led by a variety of banking and community advocates, said Justice vastly expanded its authority.

Allen Fishbein, general counsel at the Center for Community Change, said Justice went easy on Huntington because it wanted to send the industry a message about the use of overages.

"The question of overages is new ground, and I think they were firing a warning shot across the industry's bow," Mr. Fishbein said.

"This was their first effort saying we are going to watch these actions closely, and subsequent efforts will be tougher," he added. "I think they were being used as an illustration of what might happen."

Paul H. Schieber, a partner at Blank, Rome, Comisky & McCauley in Philadelphia, said any overages case should scare the industry. Many banks use overages, even though regulators have never explained what precautions institutions should take to comply with the fair-lending laws.

"I'm not sure how it will play out," Mr. Schieber said. "Overages are an unsettled area. It would have been nicer if the government gave us some guidelines first."

Andrew Sandler, a partner at Skadden, Arps, Slate, Meagher & Flom, said Justice is shifting its focus to fees and rates, rather than rejections. That changed mission could spell trouble for the industry, which still needs to address many of these pricing issues.

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