The coalition pressing for legislation that would limit lender liability under two antipollution laws still hopes it will succeed this year, even though Congress plans to spend less than a month in town when it returns from its recess.

"We're trying to get agreement on language that would encourage banks and thrifts to lend, rather than language that puts a stick over them," said Alfred Pollard, director of government relations for the Savings and community bankers of America.

"People seem to be negotiating in good faith," added Pollard, who previously had been chief Washington lobbyist for Security Pacific Corp. and then briefly for Bank of America N.A. after its merger with Security Pacific.

The current focus of attention is the National Waste Reduction, Recycling and Management Act (H.R. 3865). which was approved by the Energy and Commerce Committee and is awaiting action by the full House. Rep. Jim Slattery, D-Kan., is expected to propose a floor amendment specifying the limits of lender liability, particularly when a lender forecloses on polluted property.

The Senate attached a lender liability provision to a bill (S. 2733) that sets up a new regulatory scheme for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Several other banking amendments, many of them controversial, were also added to the bill and there has been no agreement yet between House and Senate leaders about how to resolve the impasse.

Pollard said he saw no immediate threat to the lenders from claims filed by the state of Michigan and the Chemical Manufacturers of America. Those two challenged the legality of a regulation published in April by the Environmental Protection Agency that accomplishes some of the objectives of the Senate provision.

The EPA regulation applies only to the Comprehensive Environmental Response, Compensation and Liability Act--the Superfund law. The legislation would cover actions under Cercla and the Resource Conservation and Recovery Act .

The EPA regulation clarifies activities that lenders may conduct under Cercla while remaining exempt from responsibility for cleanup cost under the law's "security interest" exemption. That exemption holds true only if the lender does not "participate in the management of the property."

The final rule revises the test for participation in management. It provides that a lender "participates in management when it assumes or manifests responsibility for either the overall management of the enterprise encompassing the day-to-day decision making over the enterprise's environmental compliance of all, or substantially all, the operational aspects of the enterprise other than environmental compliance."

The issue had become controversial because the conditions for being eligible for the exemption are not specified in the law. Court interpretations of how much a lender can be involved in the management of a property or business without being considered to be participating in management have been construed by lenders as substantially narrowing the exemption.

Opponents of the rule and the legislation assert that the lenders have vastly overstated the threat. "The banking community would have you believe that if it is not granted special protection from liability, its future is in jeopardy." said Frank J. Kelley, Michigan attorney general. "Those are groundless fears. Studies have shown that of all those who could be held responsible for environmental damage, only two-tenths of 1% were lenders.

"The new rule will encourage banks to foreclose quickly on small businesses. It may well create an incentive for a bank to begin operating a contaminated facility, knowing that lit] will be immune from liability for the environmental hazards."

Michigan has a suit pending against Manufacturers National Bank of Detroit, which the state claims loaned money to Auto Specialties Manufacturing and later played an active role in management and ignored environmental contamination at several sites.

Kelly's views were disputed by Margaret V. Hathaway, partner in the Washington office of the law firm Thacher Proffitt & Wood.

"First of all, that study did not even include the initial lender liability case in which the Maryland National Bank accepted responsibility for the cleanup of a polluted property," she said. "Also, lenders must look to the future and the case law has not been going well. If you knew that someone had a gun and had permission to shoot you, you'd certainly want to do something to take away that gun."

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