The Justice Department, to the dismay of two consumer subcommittee chairmen in Congress, has proposed settling a dispute over the safety of motorized, all-terrain vehicles (ATVs) without forcing manufacturers to make refunds to consumers.

Congressional critics of the proposed settlement said yesterday that it appears to kill efforts to force $1 billion to $2 billion in refunds, one of the Consumer Product Safety Commission's key proposals for dealing with the ATVs.

"This was the basic and most significant provision, which the majority of the commission insisted on last year, and now it is simply dropped," said Rep. Doug Barnard Jr. (D-Ga.), chairman of the House commerce, consumer and monetary affairs subcommittee in a letter to the commission. "Thus, the only meaningful remedy -- the refund program -- is surrendered with very little in return. And this is after a year of study by the Justice Department!"

Under the proposed settlement, the industry would agree to cease sales of three-wheeled ATVs, the most dangerous version of the vehicles, which the product safety commission has determined represent an "imminent hazard." The settlement, which would be filed in court with a proposed lawsuit, would require the manufacturers to issue written warnings to past ATV purchasers and begin a media safety campaign and a training program to curb the rate of injuries involving the vehicles. The safety commission has associated ATVs with an estimated 20 deaths and 7,000 injuries a month.

The question of what to do with the thousands of vehicles, made mostly in Japan, has been debated for years with congressional consumer panels repeatedly accusing both the safety commission and the Justice Department of delays. When the commission voted a year ago to refer the issue to the Justice Department, estimates in industry newsletters indicated that refunds could cost the industry between $1.1 billion and $2.4 billion. As such, they would be the most costly action ever proposed by the 14-year-old consumer agency.

Rep. James J. Florio (D-N.J.), chairman of the House commerce, consumer protection and competitiveness subcommittee, and committee member Rep. Dennis E. Eckart (D-Ohio) called the action against the three-wheel vehicles "more a retreat than a victory." They said that Japanese manufacturers have stopped making these models, but a safety commission spokesman said that claim was incorrect and that "thousands" of the three-wheelers are in dealer inventories.

The industry has hired Washington lawyer Lloyd Cutler, who has handled negotiations over the settlement, to represent it in the possible lawsuit.

Justice Department officials declined to discuss the status of the negotiations or the congressional criticism. "As we do with all our clients, we will give our best analysis as to what we think are the chances of success in the courts," said a spokesman. "We think we have a good case. Once we present the options as we see them, the commission will decide what to do."

Barnard said in his letter that he understood that the commission had voted on Wednesday to accept the proposed settlement with the industry. Florio and Eckart spoke of "a secret deal with the Japanese manufacturers" and in a joint statement added, "If these shocking reports are true, this is a cruel holiday present for the children of America."

James V. Lacy, general counsel for the safety commission, reacted angrily to congressional statements, suggesting that disclosure of negoiations "is not in the interests of consumers and those who have been injured" on ATVs. "This is not the time to make ATVs a polticial football," he said. "The federal government is in the process of taking very strong action."

On Dec. 12, 1986, the safety commission voted to seek refunds for the three-wheeled models and adult-sized models that were sold to children under 16. The refunds were to be voluntary; that is, it would be up to the individual ATV owner to turn in the vehicle for the refund.

The agency also proposed a number of other steps, including a requirement for warning labels and training programs to reduce the number of ATV accidents. Government lawyers say the industry refused for years to resolve these issues until Sen. Albert Gore Jr. (D-Tenn.) several months ago introduced legislation requiring negotiations.

Congressional staffers said they understood that Justice Department officials have told industry officials they have until Thursday to accept the settlement or face a lawsuit Dec. 30. Meanwhile, the Justice Department will file a lawsuit along with the consent decree, giving a federal judge oversight on whether industry complies with the settlement and allowing the department to raise other issues.

Barnard in his letter said he was troubled that Justice Department officials had pressured the safety commission to settle by saying that a lawsuit would cost "$3 million per year for three years," a sum large enough to force the agency to seek a supplemental appropriation.

"About the only thing I can say is that the industry is having discussions with the government," said Kurt Antonius, a spokesman for American Honda Motor Co., one of the major ATV importers.