Capital Briefs: Banks Praise EPA Stance on Lender Liability

Industry representatives are applauding a new Environmental Protection Agency policy statement clarifying the liability of lenders that foreclose on contaminated property.

The statement mirrors a 1992 EPA rule that said a secured lender is liable for cleanup costs only if it participated in the management of the company responsible for the pollution.

"This is a big positive," said Alfred M. Pollard, senior director of legislative affairs at the Bankers Roundtable. "The EPA is doing everything it can to let lenders know how to avoid being sued."

The original rule was voided in 1994 when the U.S. Court of Appeals for the District of Columbia ruled that the regulation exceeded the agency's authority. Lawmakers reversed the decision in 1996, giving EPA permission to issue the rule. But, the law barred EPA from writing additional lender liability rules.

The new law also clarified the responsibilities of bank trust departments, saying that fiduciaries are liable if their negligence causes or contributes to the release of a hazardous substance on properties they hold in trust.

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