WASHINGTON / CATHERINE COLLINS : Lenders Disputed on Contention That Cleanup Laws Will Ruin Industry
The lending industry is amid an all-out lobbying effort in Congress to pass legislation exempting financial institutions from paying to clean up hazardous waste at Superfund sites.
Bank and thrift executives say the costs of cleaning up land obtained through foreclosure could ruin some enfeebled institutions.
But a new study shows that lenders rarely are held responsible for cleaning up hazardous waste sites. Its authors question whether a blanket exemption is necessary for the lending industry.
The Southern Finance Project, a liberal research center in Charlotte, N.C., studied Environmental Protection Agency files identifying 17,095 parties as “potentially responsible” for paying for waste cleanups. Only 40 names on the list were lenders--about 0.2% of all potentially responsible parties.
“We set out to learn whether there was anything to lenders’ claims that they are being bankrupted by environmental liability,” said Jenny Thelen, author of the report.
Its title, “Crying Wolf,” telegraphs the findings.
“The facts just don’t bear out those claims,” Thelen said. “Squeeks Donut & Sandwich Shop in Wichita, Kan., was singled out by the EPA more often than Citibank, Chase Manhattan and the rest of the nation’s money center banks combined.”
But John Byrne, senior counsel for the American Bankers Assn., said: “Their conclusion is very simplistic. If there were 40 or 40,000, it is irrelevant. If there has been one financial institution hit for liability for hazardous waste it did not cause, it is too many.”
To date, only seven lenders actually have paid fines, the study found. Only two fines were substantial; $503,000 in one case and $150,000 in another.
“But,” Byrne said, “there are a couple cases pending of small lending institutions that could be completely closed down. It is tough being a lender these days if you add Superfund liability on top of a potential recession and the real estate problems.”
Banks, Byrne warned, may restrict loans to businesses that pose hazardous-waste risks unless lenders can be exempted from cleanup responsibilities down the road.
“If I were a banker, I would start eliminating certain risks--those with potential hazardous wastes,” he said. Included would be “everyday businesses, such as dry cleaners, tool-and-die shops, even funeral parlors that have to dispose of embalming fluids.”
But environmental groups argue that lenders’ knowledge that they may ultimately be held liable spurs them to keep borrowers environmentally pure.
“Right now, banks provide the incentive for borrowers--the businesses that really do the polluting--to be clean,” said William J. Roberts, legislative director for the Environmental Defense Fund. “In today’s world, with Superfund liability the way it is, any borrowing business knows that in order to seek a loan it has to operate with sound and safe hazardous-waste management practices.”
Lenders, however, are usually last on the EPA’s list of those held financially responsible for a clean-up. To avoid liability, lenders usually perform environmental audits and require owners to clean problems before assuming ownership or management responsibilities.
“If blanket exemptions are given to lenders, then many of those requirements for vigorous audits and careful scrutiny will go by the wayside,” Roberts predicted. “That means that poor practices will beallowed to continue and future Superfund sites will be created.”
The ABA’s Byrne agreed that lenders have a role in protecting the environment but argued that they do not need a financial hammer over their head to be persuaded to assume it.
“Any prudent lender will assess property, financially and environmentally, before lending money,” the attorney said. “He doesn’t have to be required to do that. It just doesn’t make any sense to do it any other way.”
Under existing environmental laws, lenders can be held financially liable for a cleanup only if they own the site or helped operate it. The EPA is working on a clarification of the definitions of “owner” and “operator.”
Several bills pending in Congress would give lenders the broad exemption from cleanup liability that they want. And possibly to the business interests’ advantage, the battle is being waged in the committees with jurisdiction over banking and small business rather than in the environmental committees.
Rep. John LaFalce (D-N.Y.), chairman of the House Small Business Committee, sponsored HR 4494, which would exempt lenders who acquire a property through foreclosure. The bill has nearly 290 co-sponsors. Sen. Jake Garn (R-Utah), ranking Republican on the Senate Banking Committee, sponsored a similar bill (SB 2319) which has 22 co-sponsors.
Sen. Frank Lautenberg (D-N.J.), chairman of the Senate subcommittee with Superfund oversight powers, opposes the Garn bill.
EPA officials couldn’t comment on the validity of the “Crying Wolf” report. But some officials have been surprised by the intensity of the debate over lender liability, given the broader scope of such problems as the savings and loan crisis.
“All this is like yelling about the extinction of a herd of elephants because of a flea bite on the ear of one,” one official said.
Putting More Muscle in Securities Policing
Congress passed three measures last week aimed at strengthening the nation’s securities laws and reversing deregulation.
* The Securities Market Reform Act (HR 3657) would give the Securities and Exchange Commission the authority to control market volatility by prohibiting manipulative trading strategies and controlling legitimate methods that also result in large market swings.
* The Penny Stock Reform Bill (HR 5325) would give the SEC new or expanded powers for pursuing penny stock fraud and similar violations.
* Another bill, HR 1936, would reform a number of securities laws and allow the SEC to share additional information with foreign governments during investigations of securities violations.
“It’s small investor week in Washington,” said one congressional staffer.
The first two measures will go to President Bush, who is expected to sign them into law. The third proposal will go to a conference committee to work out a minor difference with the Senate version.
