WASHINGTON -- Federal banking regulators have quietly called off a plan to conduct loan-bias probes jointly with the Justice Department.

When the plan was announced in February, the four regulatory agencies said it demonstrated their commitment to enforcing fair-lending laws. But now community groups are charging that the regulators are too cozy with the industry.

"This gets to the agencies' desire to protect the institutions they regulate as much as possible." said Deepak Bhargava of the Association of Community Organizations for Reform Now, known as Acorn.

The agencies' public commitment to working with the Justice Department "will be difficult to back away from," he added.

Coming Up with Targets

The Justice Department wanted the agencies first to help comb through loan files and lending data at 200 banks and thrifts -- from a list supplied by the department -- for evidence if discrimination. Each agency would then identify about five for further investigation.

Then one institution for each of the four regulators would be chosen for a full-blown probe along the lines of one that led to a $1 million settlement at Decatur Federal Savings Bank in Georgia.

But the Justice Department wanted the regulators to pay for a huge chunk of the investigation, and the regulators balked. This does not mean the bias probe is dead, however. The Justice Department is continuing its own efforts. And bank regulators claim they are still working closely with the department, albeit on an informal basis.

Negotiations Bogged Down

A kraft of technical problems made a formal liaison an impossibility, officials at each of the banking agencies said.

Despite months of negotiations, the groups couldn't agree on the most basic elements of the plan, including who would foot the bill and whether they would go into banks jointly to review loan files.

Other unanswered questions concerned which government agency would actually be in charge, whether joint investigations would break privacy laws, and the implications of sharing lists of banks targeted for review.

Activists Cry Foul

Public advocates, who have been looking for tougher action from the agencies, said it is less a matter of technical details than it is a case of cold feet among the regulators.

Many regulators saw the Justice Department's proposal as a "witch-hunt" against banks, they say, and have been dragging their feet in any way possible. They also portray the negotiations as a turf battle between Justice officials and bank regulators, and between career and politically appointed staff within the bank agencies.

Federal Reserve Governor Lawrence B. Lindsey and Comptroller of the Currency Eugene Ludwig, after a meeting last month with senior Justice Department officials, said that as far as they were concerned, the joint effort was off.

The two agencies would not formally respond to the Justice Department's request for lists of banks to target, Mr. Lindsey said, but would cooperate in other ways.

"We are going ahead with our investigations and our enforcement plan," said Paul Hancock, chief of the housing section of the Justice Department's civil rights division. "Nothing has changed from that."

"It the Justice Department has any suspects they want to forward to us for special intensive review during one of our supervisory sessions, we'll be happy, to investigate," Mr. Lindsey said. "We've made the offer and we think that should take care of things."

Steve Cross, deputy comptroller of the currency for compliance management, said, "The sense of our meeting was. that it was better for us not to do joint investigations. We are, however, consulting with the Justice Department constantly."

Representatives of the Office of Thrift Supervision and Federal Deposit Insurance Corp. were not a part of the Fed-OCC meeting and have taken a lower profile the issue of cooperation.

While the OTS has not responded to the Justice Department's request to pare down a list of about 50 thrifts under suspicion, the list will be used as part of the agency's internal reviews, said Timothy Burniston, OTS deputy assistant director for policy.

"We're working with that list to identify possible institutions that we would want to cooperate with the Justice Department on," he said. "That cooperation would come through our normal exam process and responsibility to make referrals to the Justice Department."

The FDIC is the only agency that has sent the department a formal list of banks to investigate.

"We'd like to cooperate in whatever manner we are able to, but there are a lot of questions yet to be resolved -- both from a legal and a practical sense," said Ken Quincy, chief compliance officer of the FDIC, which named nine targets.

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