A federal judge yesterday ruled the Depository Institutions Deregulaton Committee had the authority to modify the differential given to savings institutions on money market and small savers certificates rates but that it should have notified the public first.

U.S. District Judge Norma H. Johnson sent the regulations issued in May 1980 back to the DIDC for reconsideration, but she said they will remain in effect pending further DIDC action. A DIDC spokesman couldn't be reached for comment last night.

In March 1980 Congress approved the phasing out of maximum interest rates and dividends paid on deposits and accounts by financial institutions over six years. Soon thereafter the DIDC acted to reduce the differential that provided a competitive advantage for savings and loan institutions and mutual savings banks over commercial banks in attracting funds from savers through money market certificates.

Before the changes, savings and loans and mutual savings banks were allowed to pay slightly more on six-month certificates. But the DIDC allowed banks to pay the same rate that had made the thrifts more competitive.The DIDC also established a minimum ceiling for bank and thrift institution payments on money market certificates which eliminated the thrift's differential.

The United States League of Savings Associations several weeks later filed suit against the DIDC claiming the agency exceeded its statutory authority in nearly eliminating its traditional differential. The association contended Congress wanted a phase-out of the differential over a six-year period and not as quickly as the DIDC acted.

In addition, the association alleged the DIDC failed to give notice of proposed rulemaking and provide an opportunity for public comment.

The DIDC had said it decided against public comment on the issue because rpidly declining interest rates in April and May 1980 required it to take immediate action to protect banks and thrifts. In addition, advance notice of interest-rate increases could lead to speculation by investors, the DIDC said.

However, Johnson, in rejecting all but one of the association's claims against the DIDC, said the agency didn't exceed it's authority. The DIDC intended to modify, not eliminate, the housing differential on money market and small savers certificates, and under some circumstances the differential will still exist, Johnson said.

As for giving thrifts a six-year breathing period before implementing the regulations, Johnson said Congress gave the agency broad discretion in making changes and instructed the DIDC to act "as soon as feasible."

But Johnson disagreed with the DIDC's contention that advance notice of the modifications would have disrupted the financial community and that failing to publish the proposed regulations was more than just a technical violation of the Administrative Procedures Act.