Fearing Toxics Liability, Lenders Limit Some Loans

Farmers, furniture refinishers and funeral homes are being denied credit because lenders fear being stuck with cleanup costs if pollution is found on the properties, the president of a small Ohio bank told Congress on Thursday.

Businesses that use chemicals such as auto paint and embalming fluids and properties with underground storage tanks are considered undesirable loan risks because of recent court interpretations of the 10-year-old federal Superfund law, said R. Duane Lillibridge, president of Farmers Savings Bank in Northwood, Ohio.

Farmland “is considered highly suspect, and unfortunately we are being forced to wind down our loans in this critical sector of our economy,” Lillibridge told the House transportation and hazardous materials subcommittee.

“If we are unable to obtain some relief . . . Ohio bankers will soon be unable to look to real estate as collateral,” he said in prepared testimony.

The Superfund law gave the federal government the power to move in on heavily polluted properties, clean up the contamination and then force the property owners to pay for it. In May, the 11th U.S. Circuit Court of Appeals ruled that a lender that forecloses on a polluted property could be held liable for cleanup costs under Superfund.

The subcommittee’s chairman, Rep. Thomas Luken, D-Ohio, said the court rulings on Superfund liability could have an ominous impact on the $500-billion taxpayer cost of the savings and loan bailout and “inflate these astronomical figures even more.”

The Federal Deposit Insurance Corp. submitted testimony estimating that 270 properties in its possession may have Superfund problems, Luken said.

“All American taxpayers have an important stake in how these problems are resolved,” said Luken, who supports a bill by Rep. John LaFale (D-N.Y.) to exempt lenders from Superfund liability when they foreclose on contaminated property.

Rep. Frank Pallone (D-N.J.) criticized the bill this week in a letter to fellow House members. “The bill condones bad loans to polluting businesses and tells lenders that the government will clean up after them,” he wrote.

The Environmental Protection Agency submitted testimony announcing that it intends to resolve the question by issuing a rule “expeditiously.”

The EPA agrees that lender liability “needs to be as certain and predictable as possible,” testified James M. Strock, the agency’s assistant administrator for enforcement.