Broader Shield Is Sought Against Cleanup Liability
WASHINGTON - Bank representatives urged a House Banking subcommittee Wednesday to broaden protections from environmental liability under rules proposed recently by the Bush administration.
Lenders, the Resolution Trust Corp., and the Federal Deposit Insurance Corp. may now be required to pay for cleanup of hazardous wastes on properties they get by foreclosure. In June the Environmental Protection Agency proposed to protect lenders for at least year after foreclosure and on acquisitions from failed institutions.
Average Tab: $25 Million
The EPA has estimated that the average cost of a cleanup is $25 million, and bankers are lobbying aggressively to limit their liability.
Lenders and regulators warned Wednesday that the credit crunch has worsened for small businesses, which are among those most likely to face hazardous waste problems. Gasoline stations, dry cleaners, pest control firms, and printers are among those hardest hit, according to an FDIC report.
"The reaction of lenders is not to incur a lot of liability cases but to curtail credit," Oliver Ireland, counsel to the Fed, told the House Banking Committee sub-committee on policy research and insurance.
The extent of the problem is difficult to assess, said Alfred Pollard, senior vice president of Security Pacific Corp. "The word gets out on the street" so that many potential borrowers do not seek loans.
Presliminary results of an American Bankers Association survey indicate that 63% of 7,041 lenders responding have rejected loan applications for fear of hazardous-waste liability. for the same reason, more than 275 institutions had abandoned property held as collateral rather than foreclose on loans.
Ms. Healy writes for the Medill News Service.