WASHINGTON - The banking industry applauded a decision last week by the Environmental Protection Agency to clarify lender liability for environmental cleanup.

"This is a giant step in the direction we've always needed the EPA to go," said John Byrne, senior counsel for the American Bankers Association. "This essentially clarifies and formalizes how they'll handle lenders when they hold contaminated property as security."

The guidelines, which take effect Dec. 6, mirror a 1992 EPA rule that limited the liability lenders' have for environmental cleanup of properties on which they have made loans. In February of last year, the U.S. Court of Appeals for the District of Columbia ruled that the EPA did not have statutory authority to issue the rule.

"The EPA and the lending community were left with no means by which to officially assess and determine lender liability," said Lisa Comer, an attorney in the EPA's office of site remediation enforcement.

How lenders follow the guidelines, which will be sent to each of the agency's 10 regional offices, will determine how the EPA brings enforcement actions, Ms. Comer said. "This will give us - the EPA and lenders - the direction we were looking for," she added.

However, industry representatives say there is still a pressing need for Congress to enact a law to clarify lender liability.

"Bankers will have certainty for two or three years, and then a new EPA administrator could come in and change the guidelines," said Alfred Pollard, senior director for legislative affairs at the Bankers Roundtable. He added that a law is much less subject to challenge in court than a mere guideline.

"The EPA has done what it can, but a law lends a lot more permanence and certainty," Mr. Pollard said.

Bankers are also looking to Congress because the EPA has not addressed the problems faced by bank trust departments, which have been held liable for hazardous-waste cleanups on properties they manage.

A number of lender liability measures are pending before Congress, including provisions tucked into House regulatory relief legislation.

The industry's concerns are also expected to be addressed in a soon-to- be-introduced House bill to reform the Superfund law. Rep. Michael G. Oxley, R-Ohio, who is chairman of the House Commerce Committee's hazardous- materials panel, is expected to showcase certain titles of the bill this week. A similar bill is expected to surface in the Senate next month.

"We are pretty confident that we will be mentioned prominently in both bills," said the ABA's Mr. Byrne.

Last week, the EPA published a rule that generally exempts secured creditors such as banks from liability standards that apply to owners and operators of underground storage tanks.

Despite a need for further clarifications, this rule, coupled with the new guidelines and the EPA's Brownfields Initiative, which shields banks from environmental liability on inner city development loans, has industry representatives thrilled with the agency's progress.

"This shows the deep commitment of the EPA to work with the lending community," said the ABA's Mr. Byrne. "Taking this all in aggregate, this is tremendous."

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