A Maryland law that goes into effect in October will protect sensitive bank compliance review documents from being subpoenaed in civil cases.
Maryland bankers and attorneys say the law will enable compliance review committees for the first time to criticize the internal operations of a bank without fear that critical comments will be used against the institution in court.
They also contend the law will put a stop to plaintiff "fishing expeditions."
"For banks, it will have significance for a while to come," said D. Robert Enten, a partner with the Baltimore law firm of Weinberg and Green, and legislative counsel to the Maryland Bankers Association. "We are under a microscope in a lot of ways. We needed some level of protection."
Like Doctors' Protections
The law applies to any federal or state chartered commercial bank, savings and loan, or credit union in Maryland.
Under the laa. internal bank information generated from compliance review committees is "confidential and is not discoverable or admissible in evidence in any civil action."
The law was patterned after an existing Maryland law that protects doctors and hospitals' from their own self-review being used against them in court.
Bankers complained that federal laws require them to look more critically at their operations to make sure they are in compliance with regulations. But they argued that these self-examinations could expose them to law sults or force them to settle cases out of court.
"We felt like there should be some protection against double jeopardy," said John B. Bowers Jr., executive vice president of the Maryland Bankers Association. "We looked at what was happening in Maryland, and obviously due to a lot of loan foreclosures; we candidly saw a lot of lawsuits coming back on the banks."
Guarding |lnternal Debate'
Joseph R. Crouse, general counsel with Baltimore-based Maryland National Bank, who lobbied for the legislation, said the new law will help "protect the internal debate that is going on."
Mr. Crouse said bank compliance review committees typically look at the way loans are made, or how the bank complies with state and federal laws. The committee may find that the bank has discriminated against a borrower based on race or sex, or it may discover violations of the Truth-in-Lending Act, which requires banks to disclose annual percentage rate on loans.
The compliance committee spells out the bank's mistake and how the situation can be remedied.
|Fishing Expeditions'
"In the hands of an adversary, any of the negative comments the reviewing officer would have made is great ammunition," Mr. Crouse said. "It puts pressure on you to settle a case that you really shouldn't have settled."
Mr. Crouse said if a loan officer is critical of a bad loan and the comments end up in court, it could have a damaging effect.
"Once that loan officer gets slapped around in the court room ... he is going to be more guarded in the future as to how candid he is going to be in assessing the performance of the bank," he said.
Mr. Enten said the law will help reduce bank litigation fees.
"We get these huge document requests. They want to see all documents created by every committee for the last five years," he said. "They are going on fishing expeditions."
Attracting Attention
Already, a number of state banking trade groups are looking at the Maryland legislation to see if they want to lobby for a similar law.
"We are looking at it carefully," said Jeffrey D. Quayle, general counsel with the Ohio Bankers Association. "It is an important development. I'm sure Ohio won't be the only one looking at it."
Mr. Crouse said he hopes the Maryland law will be adopted at the federal level.
