An obscure provision in the year-2000 liability bill passed recently by the Senate could destabilize banks and the economy, federal regulators said Wednesday.

The provision, which House and Senate conferees are expected to address today in conference committee, would prohibit banks and other creditors from taking "adverse action" against a person or business that fails to meet contractual obligations due to a year-2000 problem.

Adverse actions might include foreclosure on a mortgage or negative reports to a credit agency.

Bank and thrift regulators said the consumer protection language is excessively broad. In a letter to senior lawmakers, they warned that the provision could be applied by virtually any consumer to almost any contract.

"It is difficult to overstate the disruptions that a broad reading of this amendment could cause," the four regulators wrote.

Under the provision, a dairy farmer whose refrigeration system failed due to a year-2000 flaw-and who could not bring milk to market- theoretically could claim protection under the provision. Creditors would not be able to take action against the farmer for, say, nonpayment of a mortgage until a "reasonable time" after the refrigerator was fixed.

The provision does not define "reasonable time." It also does not say how the creditor would be notified or who would assess the claim's reasonability.

"With language this ambiguous, this is going to generate litigation," not reduce it, said Gordon Glaza, regulatory counsel at the American Bankers Association.

The legislation's goal is to prevent frivolous litigation tied to computer errors caused by the date change on Jan. 1, 2000.

The controversial provision was drafted by Sen. Ernest F. Hollings, D- S.C., a vocal opponent of the legislation. It was slipped into an amendment and approved unanimously by the Senate, which approved the bill June 15.

Various observers have speculated that Sen. Hollings introduced the language to kill the bill. His spokesman denied that, but did confirm the lawmaker's opposition to the bill as a whole.

The bill "creates a federal tort system ... so big companies can get protection for delivering faulty products to American consumers," the spokesman said. "This is a joke."

By Wednesday afternoon, senior lawmakers were preparing to amend the Hollings provision. A spokesman for House Majority Leader Richard K. Armey said a House-Senate conference committee would meet today solely to resolve concerns about the Hollings provision, and that he expects the House and Senate to vote on the amended bill by Friday.

"That seems to me a constructive way to deal with the problem," said Beth L. Climo, the ABA's director of financial affairs.

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