WASHINGTON -- Continuing the Clinton Administration's effort to prod banks into lending more in poor and minority neighborhoods, Comptroller of the Currency Eugene A. Ludwig warned industry leaders Monday that, they "cannot afford to get the fair-lending issue wrong."

He admitted, however, that because the issues involved are so complicated, both banks and their regulators are confused about how to live up to the anti-discrimination law's requirements.

"The law is not yet clear enough to resolve many of the operational questions that banks, and bank regulators, face as we seek to make equal opportunity lending a reality in this country."

The Comptroller and five other top regulators and law enforcement officials spoke to a day-long conference here, the first of three fair-lending seminars for bank executives organized by the Federal Financial Institutions Examination Council.

Invitation or Summons?

While conference organizers said they were pleased by the turnout, several bank executives complained privately that their invitation to attend either this conference - or later ones in Chicago and San Francisco - amounted to a summons.

"To deny credit - or any other building block of prosperity - on the basis of characteristics like race or sex that have nothing to do with a person's financial condition or ability to repay is wrong," Mr. Ludwig told the 250 bank executives attending.

The audience included 29 women and five minority executives.

The Justice Department and the Department of Housing and Urban Development urged banks to police themselves.

Justice Department's Stance

On the judicial side, Paul Hancock, the housing and civil enforcement section chief for the Justice Department's Civil Rights Division, told bankers to cease the discriminatory lending practices that are prevalent throughout the industry.

Banks that discover they discriminate in lending should come clean on their own, Mr. Hancock said. He said the Justice Department would treat institutions that come forward on their own less harshly than lenders who don't.

Roberta Actenberg, HUD's assistant secretary for fair housing and equal opportunity, said her agency wants to encourage self-testing, but could not promise lenders that the test results would always be shielded from disclosure.

A Mitigating Factor

"Our goal is to encourage self-testing to the greatest extent possible," Ms. Actenberg said.

"If a lender is subjected to a Fair Housing Act complaint, HUD will consider corrective actions taken in response to self-testing as a substantial mitigating factor in determining what relief and penalties may be appropriate," she added.

Mr. Ludwig assured bankers that they would keep their flexibility to make character loans and won't be forced to make loans that are more likely to go bad.

"While lenders should expect greater attention to the analytical basis of their underwriting criteria, this Administration will not interpret the principle of disparate impact so as to make prudent underwriting unlawful," he said.

Mr. Ludwig also urged executives to change their attitudes about bank regulators' emphasis on fair lending laws.

"If you seize this issue as an opportunity, you will reap benefits in the form of new business and heightened respect from the press, the Congress, and your communities," he said.

'But if you reject it as a burden, you run the risk that fair lending concerns will spread like a cancer across the industry's reputation."

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