WASHINGTON - Citizens Bank of Maryland is asking the U.S. Supreme Court to decide how far the industry can go to ensure that bankrupt customers pay off their loans.

The bank, in a Feb. 6 petition, said it should have the right to prevent bankrupt borrowers from withdrawing funds from checking and savings accounts.

The U.S. Court of Appeals for the Fourth Circuit ruled last year that Citizens had erred when it froze part of a customer's account to cover the balance outstanding on a car loan.

The bank asked the high court to review the Fourth Circuit's decision, saying that other federal appeals and trial courts have agreed that banks can freeze customer accounts.

Banking attorneys said they believe the justices, who hear fewer than 2% of the appeals filed, will accept this petition because of the split among the lower courts.

American Bankers Association deputy general counsel Michael Crotty said the trade association formally voted Feb. 8 to support Citizens in its fight. The association will file a friend of the court brief during the coming few months, he said.

"We think this is going to be pretty important," Mr. Crotty said.

Citizens attorney Jefferson V. Wright said all bankers should care about this case. "As a practical matter, the problem which the banks are faced with is that, once the funds are withdrawn, the horse is out of the barn, and it is unlikely that the funds will be retrieved by the bank," he said.

The case has endured a bumpy road to the high court. It began when David Strumpf filed for bankruptcy in January 1991. The filing protected him from his creditors, including the bank.

Citizens, however, asked the court in October 1991 for permission to seize $3,500 from an account to pay off Mr. Strumpf's car loan. At the same time, it froze $3,500 he held at the bank.

Mr. Strumpf challenged the freeze, saying it violated his protection from creditors. The bankruptcy court agreed, allowing Mr. Strumpf to withdraw all his money.

Citizens appealed to U.S. District Court in Baltimore, which overturned the bankruptcy court's ruling. The Fourth Circuit then overturned that decision, leading to the Supreme Court petition.

Citizens president Jeffrey R. Springer said the bank is pursuing this case to correct the law, not to recoup the money. "It is obvious that $3,500 is not something you would go to the Supreme Court over," he said.

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