United States
Environmental Protection
Agency
Solid Waste and
Emergency Response
Washington, DC 20460
5401W
EPA510-F-94-002
June 1994
Office of Underground Storage Tanks
EPA Proposes a Lender Liability
Rule for Underground Storage
Tanks
Background
Action Taken
Many underground storage tank (UST) owners and operators,
particularly small businesses, are in need of capital to make improvements to
their facilities to comply with a broad spectrum of environmental regulations.
EPA is particularly concerned about the ability of UST owners and operators
to comply with federal UST upgrading and replacement requirements. The
uncertainty of the liability of secured creditors (financial institutions and
others who extend secured loans) regarding UST properties that they hold as
collateral has had a chilling effect on lenders' willingness to make loans to
UST owners. Once promulgated, this rule should result in the removal of a
current barrier to the financing of UST facilities and result in greater capital
availability for UST owners and operators.
Subtitle I of the Resource Conservation and Recovery Act (RCRA)
contains a "security interest exemption" that provides secured creditors
("lenders") a limited statutory exemption from corrective action (cleanup)
liability for releases from petroleum USTs. However, many lenders are
unaware of the existence of this exemption and many others are uncertain
about its scope of coverage. Further confusion has resulted from various
court cases regarding Superfund lender liability. The D.C. Circuit Court of
Appeals recently vacated EPA's Superfund lender liability rule, which
attempted to clarify the security interest exemption in the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA). The
court decision and EPA Superfund rule were limited to actions taken under
CERCLA and do not affect today's proposed UST rule.
The UST-specific lender liability proposed rule proposes regulatory
criteria specifying conditions under which certain secured lenders may be
exempted from RCRA Subtitle I regulatory requirements. Under the
proposal, a lender is eligible for an exemption, both prior to and after
foreclosure, from compliance with all Subtitle I requirements as an UST
"owner," and from the Subtitle I corrective action and financial responsibility
requirements as an UST "operator" if the lender: 1) holds an ownership
interest in an UST, or in a property on which the UST is located, in order to
protect its security interest (a lender typically holds property as collateral as
part of the loan transaction), 2) does not engage in petroleum production,
refining and marketing, 3) does not participate in the management or
operation of the UST, and 4) does not store petroleum in the UST after
foreclosure.
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Discussion
Contact
The proposed rule contains the following major elements:
Lenders' Regulatory Obligations as UST Owners: EPA believes that
a lender holds only limited ownership rights when it takes possession of an
UST property primarily to protect a security interest. These limited
ownership rights do not rise to the level of full ownership sufficient to make
the lender an "owner" of the UST(s) under RCRA Subtitle I. Therefore, the
Agency is, under its broad rulemaking authority in Subtitle I, proposing to
exempt from the UST regulatory requirements those lenders who meet the
criteria specified in today's proposal (i.e., hold indicia of ownership primarily
to protect a security interest without participating in management or engaging
in petroleum production, refining, and marketing).
Lenders' Regulatory Obligations as UST Operators: Prior to
foreclosure, a lender typically will not be involved in the day-to-day
operations of an UST and will therefore not incur liability as an "operator."
By foreclosing, however, a lender takes affirmative action with respect to the
UST(s), and therefore, by necessity, takes control of and responsibility for the
UST, thus subjecting it to all Subtitle I requirements as an operator.
However, under today's proposal, a lender is exempted from UST corrective
action regulatory requirements under the following circumstances: 1) where
the foreclosed-on UST(s) is no longer storing petroleum, or where the lender
empties the UST(s) within 15 days after foreclosure, and 2) where the lender
either temporarily or permanently closes the UST(s).
A lender who chooses to continue operation of its USTs would not be
eligible for the proposed regulatory exemption and would face potential UST
regulatory responsibility for corrective action in the event of a release. The
lender would also be responsible for compliance with the UST technical
standards and financial responsibility requirements under Subtitle I.
Lenders' Regulatory Obligations for UST Financial Responsibility:
EPA proposes to exempt lenders from demonstrating financial responsibility
for UST corrective action if they meet the criteria specified in today's
proposal and are thus exempted from UST corrective action regulatory
compliance. EPA also proposes to exempt lenders from demonstrating
financial responsibility for third party liability. Lenders must empty then-
tanks following foreclosure, thereby preventing the likelihood of future
contamination. The only coverage lenders would need in this situation would
be for the costs of contamination that might have occurred prior to the tanks'
being emptied. Lenders may find such coverage for pre-existing conditions
extremely difficult to obtain. EPA therefore believes that it is impractical and
unnecessary to require lenders to demonstrate their ability to cover the costs
of third-party liability.
The Environmental Protection Agency encourages the public to
comment on this proposed rule, which was published in the Federal Register
on June 13, 1994. The Agency will accept comments for 60 days (until
August 12, 1994). For additional information or for a copy of the Federal
Register notice, contact EPA's RCRA/Superfund Hotline, Monday through
Friday, 8:30 a.m. to 7:30 p.m. EST. The national toll-free number is 1 800
424-9346; for the hearing impaired, the number is TDD 800 553-7672.
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