EPA Proposal Would Protect Banks from Cleanup Liability

WASHINGTON -- Lenders who repossess contaminated properties would be shielded from Superfund cleanup liability under a rule proposed Wednesday by the Environmental Protection Agency.

Government officials said the proposal, in the works for nearly a year, should encourage banks to revive lending to small businesses, farmers, and manufacturers. Many lenders have tightened credit policies in the wake of court rulings that held banks liable for cleanup costs.

"Banks are basically not making any loans on any property that could be considered environmentally sensitive," said Bart Colwell, executive vice president of First State Bank, Brazil, Ind.

Better Loan Climate Expected

By reassuring lenders that they won't be exposed to costly litigation, the proposal should "significantly improve the lending climate," said Deputy Treasury Secretary John Robson.

"We do not want Superfund unnecessarily to impede financial flows," F. Henry Habicht, EPA's deputy administrator, told reporters at a briefing.

The proposal makes it clear that lenders will not be subject to liability under the Superfund toxic waste cleanup law when they work with troubled borrowers or take steps to protect the value of collateral.

The rule would permit lenders to foreclose on loans and sell the collateral without being considered the collateral's owner or operator. Lenders could be considered owner/operators only if they actively participated in the management of a property or directed its waste management activities.

The Fleet Case

This provision would narrow a landmark ruling last May by the U.S. Court of Appeals for the 11th Circuit, which held Fleet/Norstar Corp. liable for cleanup costs because it was in a position to influence hazardous-waste-producing practices of a printing company to which it made a loan.

Lenders would have 12 months after a foreclosure to initiate sale of contaminated sites. They would be protected from the cleanup costs and penalties as long as they made "reasonable efforts" to sell the property, whether or not those efforts succeeded.

So far, the Superfund law has been invoked against only a handful of banks; just $1.5 million of the $3 billion recovered by EPA in the past decade has come from lenders. "But with recent court decisions, concern has intensified quite a bit," Mr. Habicht said.

Worries about being hit with cleanup costs have prompted some banks to shut off credit.

"It's as if you bought a used car and the prior owner had run over someone and killed him, and you were liable just by virtue of owning the car," said Mr. Colwell. He thinks the proposed rule will give lenders significant relief from this strict interpretation of liability standards. "I see this as a tremendous step in the right direction."

But Congress may need to step in to solve other environmental liability issues, said Charles E. Waterman, chairman of the American Bankers Association's government relations council.

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