Unsatisfied with new federal guarantees, California bankers have pushed through legislation protecting unsecured lenders and fiduciaries from having to pay for toxic waste cleanup under state or local law.
The new statute, effective Jan. 1, significantly expands on limited protections provided by Congress in the recently passed thrift insurance fund rescue. By enacting immunity under all state codes, observers say, California has set a precedent that other states might copy.
"California builds on what other states have done in a very positive way," said Alfred M. Pollard, lobbyist for the Bankers Roundtable in Washington.
The new law is a step in bankers' battle for relief from environmental liability when they foreclose on contaminated properties. So far, about a dozen states have enacted laws protecting lenders and even fiduciaries from liability under different circumstances.
Maurine C. Padden, a lobbyist for the California Bankers Association, said the state is the first to grant exemptions from all state and local statutes, regulations, and ordinances.
Bankers applauded the move but cautioned that more must be done. "There must be some ways to protect the bank, or it's not going to make the loan," said Herbert C. Foster, chairman and chief executive of Oakland-based Civic Bancorp. "The government has to understand that we're a lender, not an owner."
Ms. Padden said the state bankers group has already shared its achievement with colleagues in other western states, including Hawaii, Washington, Oregon, Alaska, Colorado, Nevada, North Dakota, and Idaho.
"It would certainly be something they'd look at," said Ellen Lamb, spokeswoman for the Conference of State Bank Supervisors, a national trade group. "The banks are going to look at the federal law and see if it addresses their concerns. If they find that it doesn't, they may seek additional remedy at the state level."
Ms. Lamb also noted that California's environmental laws are the toughest in the country, so lenders there may have wanted more protection than their counterparts in other states need.
Like the protective language in the thrift fund rescue, the California law declares that a lender will not be held liable for cleanup costs if it was not responsible for the contamination and did not participate in managing the property before seizing it.
But whereas the federal law only protects lenders with a security interest in a property, California lawmakers extended the guarantee to unsecured lenders who decide to foreclose on a borrower's other assets to recoup their losses.
The California law also protects banks acting as fiduciaries from being held responsible for cleaning up properties, even if they're considered owners for purposes of fulfilling trust responsibilities.
"We think it's an important first step in providing a road map for lenders who are interested in commercial lending and who may be considering lending for environmental cleanup," Ms. Padden said.
The law also limits liability to the amount of unpaid principal at foreclosure, plus attorneys fees.
And most significantly, the state law also protects lenders and fiduciaries under all state and local water codes, fish and game codes, and many local ordinances.
While praising the new law, however, Ms. Padden and Mr. Pollard cautioned that it conditions exemptions on lenders' fulfilling certain responsibilities. Among these, lenders are supposed to suspend operations on a property when a leak is suspected, remove all hazardous materials, report all known or suspected releases, and fence in hazards.
