[Federal Register Volume 60, Number 173 (Thursday, September 7, 1995)]
[Rules and Regulations]
[Pages 46692-46715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21982]




[[Page 46691]]

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Part II





Environmental Protection Agency





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40 CFR Parts 280 and 281



Underground Storage Tanks--Lender Liability; Final Rule

  Federal Register / Vol. 60, No. 173 / Thursday, September 7, 1995 / 
Rules and Regulations   

[[Page 46692]]


ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 280 and 281

[FRL-5292-1]
RIN 2050-AD67


Underground Storage Tanks--Lender Liability

AGENCY: Environmental Protection Agency.

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency (EPA) is issuing this rule 
under the Resource Conservation and Recovery Act (RCRA), Subtitle I--
Regulation of Underground Storage Tanks. This rule limits the 
regulatory obligations of lending institutions and other persons who 
hold a security interest in a petroleum underground storage tank (UST) 
or in real estate containing a petroleum underground storage tank, or 
that acquire title or deed to a petroleum UST or facility or property 
on which an UST is located. This final rule specifies conditions under 
which these ``security interest holders'' may be exempted from the RCRA 
Subtitle I corrective action, technical, and financial responsibility 
regulatory requirements that apply to an UST owner and operator. This 
rule should result in additional capital availability for UST owners, 
many of whom are small businesses, and will assist them in meeting 
environmental requirements by improving their facilities.

EFFECTIVE DATE: This rule is effective December 6, 1995.

ADDRESSES: The official record for this rulemaking, Docket Number UST 
3-18, is located in the UST Docket, room M2616 of the U.S. 
Environmental Protection Agency, 401 M Street, SW., Washington, DC. The 
docket is open from 9 a.m. to 4 p.m., Monday through Friday, excluding 
Federal holidays. Docket materials, including a comprehensive document 
containing EPA's response to comments received on the proposed rule, 
may be reviewed by appointment by calling (202) 260-9720. Copies of 
docket materials may be made at a cost of $0.15 per page. The mailing 
address is U.S. Environmental Protection Agency, OUST Docket (5305), 
401 M Street, SW., Washington, DC 20460. Please note that EPA is 
planning to relocate the UST Docket to Arlington, VA during September 
1995. You may call (202) 260-9720 for up-to-date information on access 
to the docket.

FOR FURTHER INFORMATION CONTACT: For further information about this 
rule, contact the RCRA/Superfund Hotline, U.S. Environmental Protection 
Agency, Washington, DC. 20460, (800) 424-9346 (toll-free) or (703) 412-
9810 (local). For the hearing impaired, the number is (800) 553-7672 
(toll-free), or (703) 412-3323 (local). For technical information on 
this rule, contact John Heffelfinger in the EPA Office of Underground 
Storage Tanks at (703) 308-8881.

SUPPLEMENTARY INFORMATION: The contents of today's preamble are listed 
in the following outline:

I. Background
II. Description of the UST Regulatory Program
    A. UST Technical Standards
    1. Leak Prevention
    2. Leak Detection
    3. Release Reporting
    4. Closure
    5. Notification, Reporting, and Recordkeeping
    B. Corrective Action Requirements
    C. Financial Responsibility Requirements
    D. State Program Approval Regulations
    E. Scope of the UST Program
III. The UST Security Interest Exemption and Intent of Today's Rule
    A. Overview
    B. Legal Authority
    C. Real Property Used as Collateral
    D. Abandoned Tanks
    E. Liability of a Holder as an Owner of an Underground Storage 
Tank or
    Underground Storage Tank System
    1. Petroleum Production, Refining, and Marketing
    2. Indicia of Ownership
    3. Primarily to Protect a Security Interest
    4. ``Holder'' of Ownership Indicia
    5. Participating in Management
    F. Liability of a Holder as an Operator of an Underground 
Storage Tank or Underground Storage Tank System
    1. Pre-Foreclosure Operation
    2. Post-Foreclosure Operation
    3. Release Reporting Requirements Following Foreclosure
    G. Financial Responsibility Requirements
    H. State Implementation and State Program Approval
    I. Holders' Access to State Funds
    J. Outstanding Loans and Loans in Foreclosure Upon the Effective 
Date of the Rule
IV. Issues Outside the Scope of this Rule
    A. Petroleum Producers, Refiners, and Marketers
    B. Third Party Liability
    C. Trustee and Fiduciary Liability
    D. Hazardous Substance Tanks
    E. Hazardous Waste Tanks
    F. Aboveground Storage Tanks and Heating Oil Tanks
V. Economic Analysis
VI. Regulatory Assessment Requirements
    A. Executive Order 12866
    B. Regulatory Flexibility Act
    C. Paperwork Reduction Act
    D. Unfunded Mandates Reform Act

I. Background

    EPA is establishing regulatory criteria specifying which RCRA 
Subtitle I requirements are applicable to a secured creditor. Section 
9003(h)(9) of RCRA exempts from the definition of ``owner,'' for 
purposes of Sec. 9003(h)--EPA Response Program for Petroleum, those 
persons who, without participating in the management of the UST or UST 
system, and who are not otherwise engaged in petroleum production, 
refining, and marketing, maintain indicia of ownership in an UST or UST 
system primarily to protect a security interest. Those most affected by 
this ``security interest exemption'' include private lending 
institutions or other persons that provide loans secured by real estate 
containing an UST or UST system, or that acquire title to, or other 
indicia of ownership in, a contaminated UST or UST system.\1\ However, 
the security interest exemption is not limited solely to lending 
institutions; it potentially applies to any person whose indicia of 
ownership in an UST or UST system is maintained primarily to protect a 
security interest.

    \1\ Under the laws of some states, an interest in real property 
may include an interest in USTs or UST systems located on that 
property. See Sunnybrook Realty Co. Inc. v. State of New York, 
Kesbec, Inc. v. State of New York, Claim Nos. 32844, 33125, 15 Misc. 
2d 739; 182 N.Y.S. 2d 983. Of course, the loan documents may 
specifically include or exclude USTs as collateral securing the 
obligation.
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    The RCRA Subtitle I security interest exemption affects not only 
secured creditors but also UST and UST system owners who seek capital 
through the private lending market. Today's rule provides a regulatory 
exemption from the federal UST regulatory requirements for those 
persons who provide secured financing to UST and UST system owners. EPA 
expects this rule, in conjunction with the statutory exemption in 
Sec. 9003(h)(9), to encourage the extension of credit to credit-worthy 
UST owners. Until now, EPA believes that concerns over environmental 
liability have made a significant number of lenders reluctant to make 
loans to otherwise credit-worthy owners and operators of USTs. The free 
flow of credit to UST owners (many of whom are small entities that may 
rely on secured financing mechanisms for capital) is expected to assist 
UST owners in meeting their obligations to upgrade, maintain, or 
otherwise comply with RCRA Subtitle I and other environmental 
requirements. Conversely, the lack of such capital may adversely affect 
the ability of an UST owner to meet its obligations under Subtitle I, 
with concomitant adverse environmental impacts from USTs and 

[[Page 46693]]
UST systems that are out of compliance due to the lack of financing to 
make the necessary improvements.
    The Agency is also concerned that if otherwise credit-worthy UST 
owners and operators are unable to obtain financing to perform leak 
detection tests, or to upgrade or replace deficient tanks, the market 
for UST equipment could be adversely affected, thereby limiting the 
availability and/or affecting the cost of such equipment. In addition, 
a lack of adequate capital could produce a ripple effect which would 
cut across other portions of the UST-related industrial sector for 
equipment and services. For example, based on letters received from UST 
equipment manufacturers, EPA believes that this sector has suffered as 
a direct result of the capital squeeze on UST owners and operators. The 
Agency is further concerned that many UST equipment manufacturers may 
find it increasingly difficult to sustain their production of UST 
equipment. Unnecessary constrictions on the free flow of capital for 
UST improvements to meet regulatory requirements could force companies 
to abandon their production of UST equipment or to close altogether, 
and it may have adverse impacts on the environment by inhibiting future 
investment in or development of new UST technological innovations.
    The preamble to this rule is structured as follows: The following 
section briefly describes the UST program. This section is followed by 
a discussion of the rule, which includes a description of the various 
options lenders may exercise both pre- and post-foreclosure with 
respect to regulatory compliance for a secured UST or UST system. The 
rule concludes with regulatory text.

II. Description of the UST Regulatory Program

    Based on the Agency's study of the banking community's lending 
practices and discussions with representatives of both lenders and 
borrowers, EPA believes that the lending community in general is not 
particularly familiar with the UST statutory scheme and regulatory 
program. Because USTs and UST systems are likely to be used as 
collateral in securing loans to borrowers, the Agency believes that it 
is appropriate and useful to briefly describe the UST program in the 
preamble of this rule. The following discussion is general in nature 
and is intended to provide a framework for lenders or others to better 
understand the scope and intent of the program; it is not intended to 
be a substitute for the regulations themselves.
    Under the Hazardous and Solid Waste Amendments of 1984, Congress 
responded to the increasing threat to groundwater posed by leaking 
underground storage tanks by adding Subtitle I to the Resource 
Conservation and Recovery Act. Subtitle I required EPA to develop a 
comprehensive regulatory program for USTs storing petroleum or 
hazardous substances. Congress directed the Agency to publish 
regulations that would require owners and operators of new tanks and 
tanks already in the ground to prevent and detect leaks, cleanup leaks, 
and demonstrate that they are financially capable of cleaning up leaks 
and compensating third parties for resulting damages.
    EPA's UST regulations, 40 CFR Parts 280 and 281, apply to any 
person who owns or operates an UST or UST system. The term ``owner'' is 
defined in the statute generally to mean any person who owns an UST 
used for the storage, use, or dispensing of substances regulated under 
Subtitle I of RCRA (which includes both petroleum and hazardous 
substances) (Sec. 9001(3), 42 USC 6991(3)). Owners are responsible for 
complying with the ``technical requirements,'' ``financial 
responsibility requirements,'' and ``corrective action requirements'' 
specified in the statute and regulations. These requirements are 
intended to ensure that USTs are managed and maintained safely, so that 
they will not leak or otherwise cause harm to human health and the 
environment. In addition, should a leak occur, the requirements provide 
that the owner is responsible for addressing the problem. These same 
requirements apply to any person who ``operates'' an UST system. The 
term ``operator'' is very broad and means ``any person in control of, 
or having responsibility for, the daily operation of the underground 
storage tank'' (Sec. 9001(4), 42 USC 6991(4)). As with owners, there 
may be more than one operator of a tank at a given time. Each owner and 
operator has obligations under the statute and regulations. In this 
respect, it is important to understand that a person may have 
obligations under Subtitle I either as an owner or as an operator, or 
both.
    The following subsections describe briefly each of the major 
components of the UST regulatory program applicable to persons who own 
or operate USTs and UST systems.

A. UST Technical Standards

    The technical standards of 40 CFR Part 280 referred to here 
include: Subpart B--UST systems: Design, Construction, Installation, 
and Notification (including performance standards for new UST systems, 
upgrading of existing UST systems, and notification requirements); 
Subpart C--General Operating Requirements (including spill and overfill 
control, corrosion protection, reporting and recordkeeping); Subpart 
D--Release Detection; Sec. 280.50 (reporting of suspected releases) of 
Subpart E--Release Reporting, Investigation, and Confirmation; and 
Subpart G--Out of Service UST Systems (including temporary and 
permanent closure). These regulations impose obligations upon UST 
owners and operators, separate from the Subtitle I corrective action 
requirements discussed in Section II. B of this preamble.
1. Leak Prevention
    Before EPA regulations were issued, most tanks were constructed of 
bare steel and were not equipped with release prevention or detection 
features. 40 CFR Sec. 280.21 requires UST owners and operators to 
ensure that their tanks are protected against corrosion and equipped 
with devices that prevent spills and overfills no later than December 
22, 1998. Tanks installed before December 22, 1988 must be replaced or 
upgraded by fitting them with corrosion protection and spill and 
overfill prevention devices to bring them up to new-tank standards. 
USTs installed after December 22, 1988 must be fiberglass-reinforced 
plastic, corrosion-protected steel, a composite of these materials, or 
determined by the implementing agency to be no less protective of human 
health and the environment, and must be designed, constructed, and 
installed in accordance with a code of practice developed by a 
nationally recognized association or independent testing laboratory. 
Piping installed after December 22, 1988 generally must be protected 
against corrosion in accordance with a national code of practice. All 
owners and operators must also ensure that releases due to spilling or 
overfilling do not occur during product transfer and that all steel 
systems with corrosion protection are maintained, inspected, and tested 
in accordance with Sec. 280.31.
2. Leak Detection
    In addition to meeting the leak prevention requirements, owners and 
operators of USTs must use a method listed in Secs. 280.43 through 
280.44 for detecting leaks from portions of both tanks and piping that 
routinely contain product. Deadlines for compliance with the leak 
detection requirements have been phased in based on the tank's age: The 
oldest tanks, which are most likely 

[[Page 46694]]
to leak, had the earliest compliance deadlines. Phase-in of the leak 
detection requirements was completed in 1993, and all UST systems 
should now be in compliance with these requirements.
3. Release Reporting
    UST owners and operators must, in accordance with Sec. 280.50, 
report to the implementing agency within 24 hours, or another 
reasonable time period specified by the implementing agency, the 
discovery of any released regulated UST substances, or any suspected 
release. Unusual operating conditions or monitoring results indicating 
a release must also be reported to the implementing agency.
4. Closure
    Owners or operators who would like to take tanks out of operation 
must either temporarily or permanently close them in accordance with 40 
CFR part 280 subpart G--Out-of-Service UST Systems and Closure. When 
UST systems are temporarily closed, owners and operators must continue 
operation and maintenance of corrosion protection and, unless all USTs 
have been emptied, release detection. If temporarily closed for three 
months or more, the UST system's vent lines must be left open and 
functioning, and all other lines, pumps, manways, and ancillary 
equipment must be capped and secured. After 12 months, tanks that do 
not meet either the performance standards for new UST systems or the 
upgrading requirements (excluding spill and overfill device 
requirements) must be permanently closed, unless a site assessment is 
performed by the owner or operator and an extension is obtained from 
the implementing agency. To close a tank permanently, an owner or 
operator generally must: Notify the regulatory authority 30 days before 
closing (or another reasonable time period determined by the 
implementing agency); determine if the tank has leaked and, if so, take 
appropriate notification and corrective action; empty and clean the 
UST; and either remove the UST from the ground or leave it in the 
ground filled with an inert, solid material.
5. Notification, Reporting, and Recordkeeping
    UST owners who bring an UST system into use after May 8, 1986 must 
notify state or local authorities of the existence of the UST and 
certify compliance with certain technical and other requirements, as 
specified in Sec. 280.22. Owners and operators must also notify the 
implementing agency at least 30 days (or another reasonable time period 
determined by the implementing agency) prior to the permanent closure 
of an UST. In addition, owners and operators must keep records of 
testing results for the cathodic protection system, if one is used; 
leak detection performance and upkeep; repairs; and site assessment 
results at permanent closure (which must be kept for at least three 
years).

B. Corrective Action Requirements

    Owners and operators of UST systems containing petroleum or 
hazardous substances must investigate, confirm, and respond to 
confirmed releases, as specified in Secs. 280.51 through 280.67. These 
requirements include, where appropriate: Performing a release 
investigation when a release is suspected or to determine if the UST 
system is the source of an off-site impact (investigation and 
confirmation steps include conducting tests to determine if a leak 
exists in the UST or UST system and conducting a site check if tests 
indicate that a leak does not exist but contamination is present); 
notifying the appropriate agencies of the release within a specified 
period of time; taking immediate action to prevent any further release 
(such as removing product from the UST system); containing and 
immediately cleaning up spills or overfills; monitoring and preventing 
the spread of contamination into the soil and/or groundwater; 
assembling detailed information about the site and the nature of the 
release; removing free product to the maximum extent practicable; 
investigating soil and groundwater contamination; and, in some cases, 
outlining and implementing a detailed corrective action plan for 
remediation.

C. Financial Responsibility Requirements

    The financial responsibility regulations (40 CFR part 280 subpart 
H) require that UST owners or operators demonstrate the ability to pay 
the costs of corrective action and to compensate third parties for 
injuries or damages resulting from the release of petroleum from USTs. 
The regulations require all owners or operators of petroleum USTs to 
maintain an annual aggregate of financial assurance of $1 million or $2 
million, depending on the number of USTs owned. Financial assurance 
options available to owners and operators include: Purchasing 
commercial environmental impairment liability insurance; demonstrating 
self-insurance; obtaining guarantees, surety bonds, or letters of 
credit; placing the required amount into a trust fund administered by a 
third party; or relying on coverage provided by a state assurance fund.
D. State Program Approval Regulations

    Subtitle I of RCRA allows state UST programs approved by EPA to 
operate in lieu of the federal program. EPA's state program approval 
regulations under 40 CFR Part 281 set standards for state programs to 
meet.

E. Scope of the UST Program

    This rule applies only to petroleum underground storage tanks that 
are subject to Subtitle I of RCRA. There are certain types or classes 
of tanks that are excluded from Subtitle I of RCRA. Therefore, the 
provisions of this rule do not apply to holders of security interests 
in excluded tanks. Among those tanks specifically excluded by statute 
are: Farm and residential tanks of 1,100 gallons or less capacity used 
for storing motor fuel for noncommercial purposes; tanks used for 
storing heating oil for consumptive use on the premises where stored; 
tanks stored on or above the floor of underground areas (such as 
basements or tunnels); septic tanks; systems for collecting stormwater 
or wastewater; and flow-through process tanks (42 U.S.C. Sec. 6991(1)).

III. The UST Security Interest Exemption and Intent of Today's Rule

A. Overview

    Today's regulation addresses the requirements of Subtitle I that 
are applicable to a person who holds a security interest in a petroleum 
UST or UST system, or in a facility or property on which a petroleum 
UST or UST system is located, from the time that the person extends the 
credit up through and including foreclosure and re-sale. A holder of a 
security interest who satisfies the conditions in this rule will not be 
considered either an ``owner'' or an ``operator'' of an underground 
storage tank for purposes of compliance with Subtitle I regulatory 
requirements.
    The security interest exemption under Subtitle I, Sec. 9003(h)(9) 
of RCRA, 42 U.S.C. Sec. 6991b(h)(9), on which this rule is based, 
provides:

    As used in this subsection, the term ``owner'' does not include 
any person who, without participating in the management of an 
underground storage tank and otherwise not engaged in petroleum 
production, refining, and marketing, holds indicia of ownership 
primarily to protect the owner's security interest in the tank.

    While limited legislative history exists concerning the RCRA 
Subtitle I security interest exemption, EPA believes this provision is 
intended to provide protection from liability for a 

[[Page 46695]]
person whose only connection with a tank is as the holder of a security 
interest; i.e., a bank or other creditor who has made a loan to a 
borrower (commonly the tank's owner) and who has in return secured the 
loan by taking a security interest in the tank or in the property on 
which the tank is located. No guidance or other indication is available 
concerning the types of activities that Congress considered to be 
consistent with the Subtitle I security interest exemption, or about 
the types of activities that Congress considered to be impermissible 
participation in an UST or UST system's management.
    The statutory exemption explicitly addresses liability for 
corrective action at petroleum UST-contaminated sites. Other portions 
of the statute and regulations applicable to an ``owner'' of a tank 
include 40 CFR part 280 subparts B, C, D, E (Sec. 280.50 only), and G 
(hereafter referred to as the ``UST technical standards'' for purposes 
of this rule), and Subpart H--Financial Responsibility. The statute is 
silent with respect to a holder's liability for these other 
requirements solely as a consequence of having ownership rights in a 
tank primarily to protect a security interest. The Agency does not 
believe that these limited ownership rights rise to the level of full 
``ownership'' sufficient to make the holder an ``owner'' of the tank, 
as that term is used in Sec. 9001(3) of RCRA Subtitle I. Therefore, EPA 
is providing, under its broad rulemaking authority in Sec. 9003, that a 
holder who meets the criteria specified in this rule (i.e., whose only 
connection with the tank is as the bona fide holder of a security 
interest in a petroleum UST or UST system or in a facility or property 
on which a petroleum UST or UST system is located) is not subject to 
the UST technical standards, corrective action, and financial 
responsibility requirements otherwise applicable to a tank owner. EPA 
believes that this is both appropriate under the Agency's rulemaking 
authority and consistent with Congressional intent in providing the 
Sec. 9003(h)(9) exemption for those persons who provide only financing 
to owners of a tank. Accordingly, a qualifying holder will not be 
required to comply with the full panoply of EPA regulations 
implementing Subtitle I that apply to tank owners prior to or following 
foreclosure, provided that the requirements of today's rule are 
satisfied.
    With respect to a holder's potential to be an ``operator'' of a 
tank prior to foreclosure, consistent with the provisions of this rule, 
the holder typically will not be involved in the day-to-day operations 
of the tank, and will therefore not incur liability as an ``operator.'' 
2 By foreclosing, however, the holder takes affirmative action 
with respect to the tank and displaces the borrower; therefore, by 
necessity, the holder has taken ``control of * * * [and] responsibility 
for * * *'' the tank, and therefore could be considered a tank operator 
under the definition at 42 USC 6991(4). However, under today's rule, a 
foreclosing holder can avoid regulation as an UST ``operator'' in 
certain circumstances. In general, a holder will not be considered an 
UST ``operator'' if petroleum is not added to, stored in, or dispensed 
from the UST. In order to satisfy this condition, this rule allows a 
holder to empty the UST within a certain period of time after 
foreclosure, and undertake specified minimally burdensome and 
environmentally protective actions to secure and protect the UST or UST 
system. On the other hand, a holder who operates a tank by, for 
example, storing or dispensing petroleum following foreclosure will be 
subject to the full range of requirements applicable to any person 
operating a tank (including corrective action requirements).

    \2\ Of course, a lender which has control of or responsibility 
for the daily operation of a tank would be an ``operator'' under 
Sec. 9001(4), and therefore subject to all requirements applicable 
to an operator of a tank, including corrective action. Similarly, 
such acts may also constitute ``participation in the management'' of 
the tank, which would void the Sec. 9003(h)(9) exemption and 
obligate the lender to comply with these same technical, financial, 
and corrective action requirements as an owner.
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    In developing today's rule, EPA examined the potential obligations 
under Subtitle I of government entities that act as conservators or 
receivers of assets acquired from failed lending and depository 
institutions, such as the Federal Deposit Insurance Corporation (FDIC) 
and Resolution Trust Corporation (RTC). Where a government entity or 
its designee is acting as a conservator or receiver, EPA interprets the 
security interest exemption RCRA Subtitle I section 9003(h)(9) to 
preclude the imposition of the insolvent estate's liabilities against 
the government entity acting as the conservator or receiver, and 
considers the liabilities of the institution being administered to be 
limited to the institution's assets. The situation of a conservator or 
receiver of a failed or insolvent lending institution is analogous to 
that of a trustee (particularly a trustee in bankruptcy) that is 
administering an insolvent's estate and, in accordance with those 
principles, the insolvent's liabilities generally are to be satisfied 
from the estate being administered and not from the assets of the 
conservator or receiver. Therefore, satisfaction of an estate's debts 
or liabilities would not reach the general assets of the FDIC, the RTC, 
those of any other government entity acting in a similar capacity, or 
those of a private person acting on behalf of the conservator or 
receiver. (The broader issue of trustee and fiduciary liability is 
discussed in section IV.C. of this preamble.)
B. Legal Authority

    EPA is promulgating today's rule to close a gap in the Subtitle I 
security interest exemption that must be addressed in order to provide 
holders with certainty regarding their responsibility for UST 
regulatory compliance. While the statutory exemption explicitly applies 
to holders who become owners of underground storage tanks, the 
exemption does not address holders in the capacity of an UST operator. 
The Agency believes that without promulgating a rule under EPA's broad 
grant of rulemaking authority applying the protection found in the 
statutory security interest exemption to holders as operators as well 
as owners, the statutory exemption may be rendered virtually 
meaningless, since an owner of an UST is also typically an UST 
operator. EPA does not believe that Congress, in creating section 
9003(h)(9), intended for an otherwise exempt holder of a security 
interest to nonetheless fall subject to UST regulatory obligations as 
an operator. As such, EPA's exercise of its rulemaking authority in 
this rule is appropriate and, perhaps, needed to fully effectuate the 
purpose of the statute.
    In the proposed rule, EPA cited the legal authority that provides 
the basis for development of the UST lender liability rule--section 
9003(b), 42 U.S.C. 6991b(b) of RCRA Subtitle I, and briefly explained 
the difference between the statutory authority supplied under the 
Comprehensive Environmental Response, Compensation, and Liability Act 
(CERCLA) for the vacated Superfund lender liability rule and the 
authority supplied under RCRA Subtitle I for an UST lender liability 
rule. While several commenters stated their belief that EPA has 
sufficient authority under RCRA to promulgate a regulation regarding 
UST lender liability, some commenters also expressed concern that the 
rule would be challenged in light of the outcome of litigation on the 
CERCLA lender liability rule.\3\

    \3\ On Feb. 4, 1994, the U.S. Court of Appeals for the D.C. 
Circuit vacated EPA's 1992 rule on lender liability under CERCLA in 
Kelley, et al. v. EPA, No. 93-1312. The CERCLA rule interpreted a 
statutory exemption under CERCLA that is similar to that under RCRA 
Subtitle I. The Court held that ``EPA lack[ed] statutory authority 
to restrict by regulation private rights of action arising under the 
statute * * *'' Kelley, slip op. at 3. Whereas CERCLA contains a 
provision regarding private rights of action, there is no explicit 
provision for private rights of action contained in RCRA Subtitle I. 
Furthermore, Sec. 9003 of Subtitle I expressly confers EPA a broad 
rulemaking authority; to the extent that the grants of rulemaking 
authority were not sufficiently explicit under CERCLA, such is not 
the case under RCRA Subtitle I. 

[[Page 46696]]

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    EPA believes that the authority granted in section 9003 of Subtitle 
I clearly provides the Agency with broad rulemaking authority, as well 
as explicit rulemaking authority to, in its discretion, exempt certain 
classes of owners and operators (i.e., holders of security interests as 
described in this rule) from the UST technical standards, corrective 
action requirements, and financial responsibility requirements. Section 
9003 expressly directs the Agency to ``promulgate release detection, 
prevention, and correction regulations applicable to all owners and 
operators of underground storage tanks, as may be necessary to protect 
human health and the environment.'' Section 9003(b) permits the Agency, 
in promulgating regulations under Subtitle I, to make distinctions in 
its UST regulations between types or classes of tanks, based upon, 
inter alia, ``the technical capability of the owners and operators.'' 
Because security interest holders are typically not as a general matter 
engaged in the operation and maintenance of USTs (and thus do not 
possess the technical capacity of most UST owners and operators), EPA 
does not believe that requiring them to comply with highly detailed 
technical requirements is appropriate where requiring them to do so is 
not necessary for protection of human health and the environment. 
Furthermore, the Agency believes an exemption from these regulatory 
requirements is appropriate in the context of this rule, where an 
exemption will serve, albeit indirectly, to advance the goals of 
Subtitle I by making credit more available and thus aiding in the 
implementation of tank upgrading and replacement requirements.
    However, this authority is not open-ended, as section 9003(a) 
requires EPA to promulgate regulations that are protective of human 
health and the environment. Without compromising the level of 
protectiveness established by the UST program, EPA previously relied on 
its section 9003(b) authority when it excluded a group of owners and 
operators from RCRA Subtitle I requirements in the final Financial 
Responsibility Rule (53 FR 43322, Oct. 26, 1988). (In relevant part, 
the preamble to the final Financial Responsibility Rule states: ``The 
Agency does not interpret the Congressional intent of Subtitle I to 
preclude exempting any class of USTs from otherwise applicable 
requirements when the Agency has determined that such requirements are 
not necessary to protect human health or the environment.'') That rule 
exempted states and the federal government from the UST financial 
responsibility requirements since those entities were, as a class, able 
to satisfy the purpose of the financial responsibility requirements in 
the absence of regulation.
    Similarly, for purposes of this rule, EPA believes that it is 
reasonable, in light of the purposes behind this rule, to exempt a 
holder from RCRA Subtitle I technical standards, corrective action 
requirements, and financial responsibility requirements as an operator 
if its USTs are empty and secure (as explained later in today's rule) 
or if the holder chooses to also engage in environmentally beneficial 
activities (as discussed later in this preamble). Because of the 
eligibility conditions a holder must meet before enjoying this 
regulatory exemption, EPA's UST regulations will satisfy the statutory 
requirement that they be protective of human health and the 
environment.

C. Real Property Used as Collateral
    A number of commenters pointed out that the proposed rule conveys 
the impression that under common commercial practice a security 
interest holder typically holds an UST or UST system as collateral for 
a loan obligation. These commenters went on to state that such an 
impression is incorrect. They maintained that in a typical lending 
relationship, the lender holds a security interest not in the UST or 
UST system, but rather in the real property on which the UST or UST 
system is located.
    EPA recognizes that borrowers generally pledge real property as 
collateral rather than tanks, which are considered fixtures of real 
property under many state laws. While the Agency failed to refer to 
real property in its definition of the term, ``holder,'' it 
specifically defined ``security interest'' as meaning ``an interest in 
a petroleum UST or UST system or in the facility or property on which 
the UST or UST system is located, created or established for the 
purpose of securing a loan or other obligation.'' EPA acknowledges that 
the phrase, ``UST or UST system or facility or property on which the 
UST or UST system is located,'' was not used consistently throughout 
the proposed rule. This was due in part to the way in which Subtitle 
I's requirements are structured--UST compliance responsibility rests 
with the owner or operator of the UST or UST system, not the property 
on which the UST or UST system is located. Therefore, when describing a 
holder's liability as an owner or operator under Subtitle I 
requirements, EPA is obliged to address that liability in terms of how 
it relates to the ownership or operation of the UST or UST system. 
Nevertheless, in order to maintain consistency with commercial practice 
and to clarify that the exemption applies to a holder's collateral in 
the real estate containing an UST, as well as to the UST itself, the 
Agency has applied the use of the term, ``UST or UST system or facility 
or property on which the UST or UST system is located,'' throughout 
today's final rule, whenever appropriate.

D. Abandoned Tanks

    A few commenters expressed concern about the effect that the rule 
would have upon the number of contaminated sites for which there might 
be no identifiable or financially capable liable party, which might 
increase the number of abandoned tanks that would have to be cleaned up 
with public funding. There are a number of reasons why EPA does not 
expect the rule to increase the number of abandoned tanks.
    First, this regulation is intended to provide clarity and meaning 
to the existing federal statutory security interest exemption. The rule 
does not decrease the universe of regulated tanks from those currently 
regulated under Subtitle I. Further, the rule does not affect the legal 
obligations to comply with applicable Subtitle I requirements of a 
previous owner or operator who abandons a tank. Such previous UST 
owners and operators can be held liable for regulatory compliance or 
cost recovery under the Leaking Underground Storage Tank Trust Fund. 
Financial condition does not affect the liability of a tank owner or 
operator under Subtitle I.
    Second, the rule is expected to help UST owners and operators 
acquire capital to keep their businesses healthy and in compliance with 
environmental requirements, and in the process, reduce the number of 
abandoned tanks and potential petroleum releases. Furthermore, the 
Agency believes that by expanding capital availability, this rule will 
encourage early compliance with the upcoming 1998 Subtitle I 
requirement regarding tank upgrading or 

[[Page 46697]]
replacement. UST owners who acquire capital to upgrade or replace old, 
corroded tanks earlier than 1998 greatly contribute to preventing 
further petroleum contamination.
    While contemplating the effect this rule might have upon the number 
of abandoned tanks, the Agency also recognized that many holders 
currently abandon UST properties they hold as collateral rather than 
foreclosing on them and risking potential liability for cleanup costs. 
EPA believes that this rule will actually improve protection of human 
health and the environment by providing an incentive to holders who are 
interested in taking advantage of this regulatory exemption to empty 
any tanks they acquire through foreclosure, thus preventing future 
releases. As a result of the rule's increasing the number of holders 
who take advantage of the security interest exemption and subsequently 
extend more UST-related loans, EPA expects there to be fewer abandoned 
or so-called orphan tanks and fewer releases that might otherwise occur 
due to the lack of capital available for tank upgrading and 
replacement.

E. Liability of a Holder as an Owner of an Underground Storage Tank or 
Underground Storage Tank System

    The following sections describe the key terms used in this rule. 
For the most part, these are also terms used in the Sec. 9003(h)(9) 
security interest exemption. This section specifies the activities that 
are not ``participating in the management'' of a tank and which a 
holder may under today's rule, engage in consistent with Subtitle I 
regulatory requirements.
1. Petroleum Production, Refining, and Marketing
    ``Production of petroleum'' includes, but is not limited to, 
activities involved in the production of crude oil or other forms of 
petroleum, as well as the production of petroleum products from 
purchased materials, either domestically or abroad. ``Refining'' 
includes the processes of cracking, distillation, separation, 
conversion, upgrading, and finishing of refined petroleum or petroleum 
products. ``Marketing'' includes the distribution, transfer, or sale of 
petroleum or petroleum products for wholesale or retail purposes. A 
holder who stores petroleum products in USTs for on-site consumption 
only, such as to provide heat to an office building or to refuel its 
own vehicles, is not considered to be engaged in petroleum production, 
refining, or marketing for the purposes of the UST regulatory program.
2. Indicia of Ownership
    For purposes of this rule, ``indicia of ownership'' means ownership 
or evidence of an ownership interest in a petroleum UST or UST system, 
or in a facility or property on which a petroleum UST or UST system is 
located. This definition is not intended to limit or qualify type, 
quality, or quantity of ownership indicia that may be held by a person 
for the purpose of the regulatory exemption. The nature of the 
ownership interest may vary according to the type of secured 
transaction and the nature of the holder's relationship (such as that 
of a guarantor or surety). Accordingly, indicia of ownership may be 
evidence of any ownership interest or right to an UST or UST system, 
such as a security interest, an interest in a security interest, or any 
other interest in an UST or UST system. For purposes of this rule, 
examples of such indicia include, but are not limited to, a mortgage, 
deed of trust, or legal or equitable title obtained pursuant to 
foreclosure or its equivalents, a surety bond, guarantee of an 
obligation, or an assignment, lien, pledge, or other right to or form 
of encumbrance against a petroleum UST or UST system, or a facility or 
property on which a petroleum UST or UST system is located. 
Accordingly, it is not necessary for a person to hold actual title or a 
security interest in order to maintain some indicia or evidence of 
ownership in an UST or UST system.
3. Primarily To Protect a Security Interest
    The term, ``primarily to protect a security interest'' as used in 
this regulation, means a holder's indicia of ownership are held 
primarily for the purpose of securing payment or performance of an 
obligation. EPA intends this phrase to require that the ownership 
interest be maintained primarily for the purpose of, or primarily in 
connection with, securing payment or performance of a loan or other 
obligation (a security interest), and not an interest in the UST or UST 
system or facility or property on which the UST or UST system is 
located held for some other reason.
    A security interest may arise pursuant to a variety of statutory or 
common law financing transactions. While a security interest is 
ordinarily created by mutual consent, such as a secured transaction 
within the scope of Article 9 of the Uniform Commercial Code, there are 
other means by which a security interest may be created, some of which 
may or may not be the result of a consensual arrangement between the 
parties to the transaction. In general, a transaction that gives rise 
to a security interest within the ambit of this rule is one that 
provides the holder with recourse against the UST or UST system or 
facility or property on which the UST or UST system is located; the 
purpose of the interest is to secure the repayment of money, the 
performance of a duty, or of some other obligation. See generally J. 
White & R. Summers, Handbook on the Uniform Commercial Code Sec. 22 (2d 
Ed. 1980); Restatement of Security (1941).
    As a matter of general law, security interests may arise from 
transactions in which an interest in an UST or UST system is created or 
established for the purpose of securing a loan or other obligation, and 
includes mortgages, deeds of trust, liens, and title held pursuant to 
lease financing transactions. Security interests may also arise from 
transactions such as sale-and-leasebacks, conditional sales, 
installment sales, trust receipt transactions, certain assignments, 
factoring agreements or accounts receivable financing agreements, 
consignments, among others, provided that the transaction creates or 
establishes an interest in an UST or UST system for the purpose of 
securing a loan or other obligation.
    Some commenters were confused by and requested clarification of the 
term ``lease financing transaction in which the lessor does not select 
initially the leased property,'' as used is the rule. A ``lease 
financing transaction'' is a common financing transaction for equipment 
and other types of personal property, and is treated under this rule as 
a security interest. These are leases where the form of the transaction 
provides for the lessor to acquire title to the property for and at the 
discretion of the lessee. The lessor then recovers its loan (i.e., the 
purchase price of the property) through rental payments from the lessee 
and, in some cases, from the sale of the property to the lessee or a 
third party at the end of the lease. Thus, the lessee is the borrower 
and the lessor is the holder of a security interest in the property.
    At the beginning of the lease financing transactions covered by 
this rule, the lessor does not initially select the leased property. 
Instead, this is done by the lessee or a third party. Further, during 
the initial lease or any re-lease, the lessor does not control the 
daily operation and maintenance of the property. The primary reason the 
lessor holds indicia of ownership in the property is to protect its 
security interest in the event that the debtor/lessee fails to pay off 
its obligation to 

[[Page 46698]]
the lessor. If a debtor/lessee defaults, a lessor may acquire the 
property through a variety of mechanisms, and is still considered to 
hold indicia of ownership under this rule provided that it complies 
with the other provisions of this rule.
    In contrast to the preceding discussions, ``indicia of ownership'' 
held ``primarily to protect [a] security interest'' do not include 
evidence of interests in the nature of an investment in the UST or UST 
system or in the facility or property on which the UST or UST system is 
located, or an ownership interest held primarily for any reason other 
than as protection for a security interest. The person holding 
ownership indicia to protect a security interest may have additional, 
secondary reasons for maintaining the indicia in addition to protecting 
a security interest; maintaining indicia for reasons in addition to 
protecting a security interest may be consistent with the exemption and 
this rule. However, any such additional reasons must be secondary to 
protecting a security interest in the secured UST or UST system or in 
the facility or property on which the UST system is located. EPA 
recognizes that lending institutions have revenue interests in the loan 
transactions that create security interests; such revenue interests are 
not considered to be investment interests, but are considered secured 
transactions falling within the security interest regulatory exemption.
4. ``Holder'' of Ownership Indicia
    A ``holder'' as used in this regulation is a person who maintains 
ownership indicia primarily to protect a security interest, however 
acquired or held. The term ``holder'' includes the initial holder (such 
as the loan originator) and any subsequent holder, such as a successor-
in-interest, subsequent purchaser on the secondary market, loan 
guarantor, surety, or other person who maintains indicia of ownership 
primarily to protect a security interest. The term also includes any 
person acting on behalf of or for the benefit of the holder, such as a 
court-appointed receiver or a holder's agent, employee, or 
representative.
    Finally, it should be noted that lending institutions, which 
typically hold a large number of security interests, may also act in 
some trustee, fiduciary, or other capacity with respect to an UST or 
UST system. However, this rule does not address circumstances in which 
a lending institution or any person acts as a trustee, or in a non-
lending capacity, or has any interest in an UST or UST system other 
than as provided in this rule. Because this regulation, as well as the 
exemption in Sec. 9003(h)(9), addresses only persons who maintain a 
``security interest,'' any discussion of persons with other interests 
or involvement in an UST or UST system is beyond the scope of this 
rule. Of course, a trustee or other fiduciary, or any other person who 
holds indicia of ownership in the UST or UST system primarily to 
protect a security interest, may fall within this security interest 
regulatory exemption.
5. Participating in Management
    As used in this rule, ``participation in management'' means actual 
involvement in the management or control of decisionmaking related to 
the operational aspects or day-to-day operations of an UST or UST 
system by the holder. Participation in management does not include the 
mere capacity or unexercised right or ability to influence the 
operational aspects or day-to-day operations of an UST or UST system or 
facility or property on which an UST or UST system is located. For 
purposes of this rule, actual involvement in the operational aspects or 
day-to-day operation of the UST or UST system means use of the UST to 
contain petroleum, and includes the storage, filling, or dispensing of 
petroleum contained in an UST or UST system. For purposes of this rule, 
a holder performing the functions of a plant manager, operations 
manager, chief operating officer, chief executive officer, and the 
like, of the facility or business at which the UST is located is 
considered to be exercising management control or decisionmaking 
authority over the operational aspects of the UST or UST system and 
therefore, participating in management, unless the responsibilities for 
the position specifically exclude all UST operational responsibilities. 
Control over the operational aspects of management should not be 
confused, however, with those activities which constitute 
administrative or financial management, or involvement in environmental 
compliance activities or activities taken to protect human health and 
the environment. Involvement in administrative, financial management, 
or environmental compliance activities does not, by itself, constitute 
participation in management under this rule.
    The proposed rule included a two-pronged general test of management 
participation that attempted to distinguish between the scope of 
general activities acceptable for a holder to undertake, and those 
activities that could be carved out purely as operational activities 
rather than other activities related to UST or UST system 
responsibilities. However, the Agency received a number of comments on 
the proposed rule indicating that the general test merely added 
confusion in determining whether or not a holder was engaging in 
management participation. Consequently, the general test has been 
omitted in this final rule. Instead, the Agency has concluded that 
management participation is best defined as actual involvement in the 
management or control of decisionmaking related to the operational 
aspects or day-to-day operations of the UST or UST system, and not the 
financial, administrative or environmental compliance aspects of the 
UST or UST system or facility or property on which the UST or UST 
system is located.
    The following sections discuss and describe the specific activities 
of a holder that the rule defines as not being instances of 
participation in management by a person holding indicia of ownership 
primarily to protect a security interest in the UST or UST system or 
facility or property on which an UST or UST system is located. 
Therefore, conduct of these activities will not, by itself, void the 
exemption for holders of security interests provided under this rule.
    It bears repeating, however, that the activities identified in this 
rule do not specify the only activities that may be undertaken by a 
holder without losing the protection of this security interest 
regulatory exemption, and one should not infer that activities not 
specifically mentioned in this rule are automatically considered 
evidence of participation in management--those must be addressed on a 
case-by-case basis, generally determined by whether or not the holder 
is involved in the management or control of decisionmaking related to 
the operational aspects or day-to-day operations of an UST or UST 
system.
    a. Actions that are not participation in management. Participation 
in the following activities will not exclusively, in themselves, exceed 
the bounds of this regulatory exemption: Policing the loan; undertaking 
financial work out with a borrower where the obligation is in default 
or in threat of default; undertaking foreclosing and winding up 
operations (as described later in this preamble); or preparing for sale 
or liquidation of the UST or UST system or facility or property on 
which the UST or UST system is located. In addition, the holder is not 
considered to be participating in the management of the UST or UST 
system or facility or property on which the UST or UST system is 
located, by monitoring the 

[[Page 46699]]
borrower's business; by requiring or conducting environmental 
compliance activities related to the UST technical standards or other 
federal, state or local environmental laws and regulations; by 
requiring or conducting on-site investigations, including site 
assessments, inspections, and audits, of the environmental condition of 
the UST or UST system or facility or property on which the UST or UST 
system is located or of the borrower's financial condition; by 
requiring or conducting UST or UST system corrective action in 
compliance with 40 CFR part 280 subpart F or applicable state 
requirements in those states which have been delegated authority by EPA 
to administer the UST program; by monitoring other aspects of the UST 
or UST system considered relevant or necessary by the holder; by 
requiring certification of financial information or compliance with 
applicable duties, laws, or regulations, or by requiring other similar 
actions. Such oversight and obligations of compliance imposed by the 
holder are not considered part of the management of an UST or UST 
system or facility or property on which the UST or UST system is 
located. Although such oversight and obligations may inform and perhaps 
strongly influence the borrower's management of an UST or UST system, 
the holder is not considered to be participating in management where 
the borrower continues to be in control of the day-to-day operations of 
the UST or UST system.
    The following sections describe in more detail two areas of special 
interest to those who commented on the proposed rule regarding actions 
in which holders may engage without jeopardizing their security 
interest exemption.
    (1) Administrative and Financial Management. Administrative and 
financial management activities may be engaged in by a holder in the 
course of managing a loan portfolio and do not exceed the boundaries of 
the security interest exemption. Such activities may include providing 
financial or other assistance, environmental investigations or 
monitoring of the borrower's business and collateral, engaging in 
``loan work out'' activities, foreclosing on a secured UST or UST 
system or facility or property on which an UST or UST system is 
located, winding down operations following foreclosure, or divesting 
itself of the foreclosed-on property containing an UST or UST system.
    (2) Actions Taken to Protect Human Health and the Environment. In 
the proposed rule, EPA included a separate discussion of voluntary 
environmental activities undertaken by a holder to protect human health 
and the environment. A number of commenters stated that this discussion 
conflicted in part with the discussion entitled ``Participating in 
Management,'' thereby creating uncertainty regarding a holder's ability 
to conduct or to require a borrower to conduct site investigation and 
remediation activities, as well as leak prevention and leak detection 
activities. The ``Participating in Management'' section of the 
proposal's preamble contained information that simultaneously stated 
that environmental compliance activities would be considered evidence 
of participation in UST or UST system management, while describing 
several environmental compliance activities for which a lender could 
engage in without being considered to be participating in UST or UST 
system management. The Agency also stated in the proposal's preamble 
that lender actions which protect human health and the environment are 
appropriate to include within the scope of protected UST or UST system 
activities because of the special position and role played by holders 
in the Subtitle I program, and recognized by Congress in the UST 
security interest statutory exemption. Several commenters stated the 
importance of allowing security interest holders to undertake UST 
remediation to ensure that they can sell UST properties they acquire 
through foreclosure without jeopardizing protection from Subtitle I 
liability. Commenters stated that without such protection, many holders 
will remain reluctant to extend loans to UST owners and operators, 
undermining the intent of the statutory exemption. Several of these 
commenters asserted the advantage of allowing holders to take the lead 
in remediating contaminated sites, rather than waiting on state 
agencies with limited resources to conduct such cleanups. By directly 
undertaking such voluntary corrective actions, holders can more quickly 
eliminate threats to public safety, health, and the environment.
    Thus, in order to clarify EPA's original intent to allow holders to 
voluntarily conduct site remediations as well as other environmentally 
beneficial activities on properties on which they hold a security 
interest, the Agency asserts that both environmental compliance 
activities and activities that are undertaken voluntarily to protect 
human health and the environment will not be considered evidence of 
participation in the management of an UST or UST system or facility or 
property on which an UST or UST system is located. A holder who 
undertakes these actions must do so in compliance with the applicable 
requirements in 40 CFR part 280 or applicable state requirements in 
those states that have been delegated authority by EPA to administer 
the UST program pursuant to 42 USC Sec. 6991c and 40 CFR part 281.
    The following list provides examples of those activities that a 
holder can engage in without exceeding the bounds of the UST security 
interest exemption--these are examples only and do not represent all 
allowable activities: release response and corrective action for UST 
systems, environmental site investigations, tank upgrading and 
replacement, leak detection, and maintenance of corrosion protection. 
These activities are not required of a holder as a condition for 
obtaining the security interest exemption as an UST ``owner''; holders 
are allowed to participate in these activities without losing the 
protection of the exemption. Other activities that are not considered 
participation in management may be required of a holder as a condition 
for obtaining the security interest exemption as an UST ``operator.'' 
These activities are discussed later in this preamble, and include: 
tank emptying, capping and securing lines, permanent or temporary 
closure of an UST or UST system, and release reporting.
    b. Actions taken throughout the loan transaction process that are 
not participation in management. In the proposed rule, EPA described 
the major components of the loan transaction process, including 
elements of that process that occur both prior to and after 
foreclosure. Most of that discussion is included in this final rule as 
well, in order to provide clarity and guidance to those UST owners and 
operators and security interest holders interested in this rule.
    (1) Actions at the inception of the loan or other transaction 
giving rise to a security interest. Actions undertaken by a holder 
prior to the inception of a transaction in which indicia of ownership 
are held primarily to protect a security interest are not considered 
evidence of participation in the management of the UST or UST system. 
Thus, consultation and negotiation concerning the structure and terms 
of the loan or other obligation, the payment of interest, the payment 
period, and specific or general financial or other advice, suggestions, 
counseling, guidance, or other actions at or prior to the time that 
indicia of ownership are 

[[Page 46700]]
first held are not, for purposes of this rule, considered evidence of 
participation in the management of the UST or UST system or facility or 
property on which the UST or UST system is located. Activities that 
take place prior to holding indicia of ownership are not relevant for 
determining whether the holder has participated in the management of 
the UST or UST system after the time that the holder acquires indicia 
of ownership.
    In addition to such pre-loan involvement, a holder may determine 
(whether for risk management or any other business purpose) to 
undertake or require an environmental investigation (which could 
include a site assessment, inspection, and/or audit) of an UST or UST 
system securing the loan or other obligation. Such environmental 
investigation may be undertaken by the holder, for example, or the 
holder may require one to be conducted by another party (such as the 
borrower) as a condition of the loan or other transaction. Neither RCRA 
Subtitle I nor this rule require that such an environmental 
investigation be undertaken to qualify for the security interest 
exemption, and the obligations of a holder seeking to avail itself of 
the exemption cannot be based on or affected by the holder's not 
conducting or not requiring an environmental investigation in 
connection with the security interest. Similarly, a holder is not 
engaged in management participation as a result of undertaking or 
requiring an environmental investigation, and nothing in this rule 
should be understood to discourage a holder from undertaking or 
requiring such an environmental investigation in circumstances deemed 
appropriate by the holder. Because lender-conducted or required 
investigations of a borrower's business or collateral are information-
gathering in nature, such activities cannot be considered to be 
management participation by a holder.
    In the event that a pre-loan environmental investigation of an UST 
or UST system reveals contamination, the holder may undertake any one 
of a variety of responses that it deems appropriate: For example, the 
holder may refuse to extend credit or to follow through with the 
transaction or instead maintain indicia of ownership in other, non-
contaminated property as protection for the security interest. 
Alternatively, a holder may determine that the risk of default is 
sufficiently slight (or that the extent of contamination is minimal and 
does not significantly affect the value of the UST or UST system as 
collateral) to proceed to extend credit and maintain indicia of 
ownership in the UST or UST system. Additionally, the holder may 
require the borrower to report and clean up the contamination as a 
condition for extending the loan. Such activities are not considered 
participation in the management of the UST or UST system or facility or 
property on which the UST or UST system is located, and a holder that 
knowingly takes a security interest in contaminated collateral is not 
subject to compliance with the RCRA Subtitle I corrective action 
regulatory program on that basis.
    (2) Policing the security interest or loan. A holder may undertake 
actions that are consistent with holding ownership indicia primarily to 
protect a security interest which include, but are not limited to, a 
requirement that the borrower clean up a release from the UST or UST 
system which may have occurred prior to or during the life of the loan 
or security interest (as described in the last section); a requirement 
of assurance of the borrower's compliance with applicable federal, 
state, and local environmental or other laws and regulations during the 
life of the loan or security interest; securing authority or permission 
for the holder to periodically or regularly monitor or inspect the UST 
or UST system or facility or property on which the UST or UST system is 
located, or the borrower's business or financial condition, or both; or 
to comply with legal requirements to which the holder is subject; or 
other requirements or conditions by which the holder is able to police 
adequately the loan or security interest, provided that the exercise by 
the holder of such other loan policing activities are not considered 
evidence of control over the operational aspects of UST or UST system 
or facility or property on which the UST or UST system is located.
    The authority for the holder to take such actions may be contained 
in contractual (e.g., loan) documents or other relevant documents 
specifying requirements for financial, environmental, and other 
warranties, covenants, and representations or promises from the 
borrower. While the regulatory exemption in this rule requires that the 
actions undertaken by a holder in overseeing or managing the loan or 
other obligation be consistent with those of a person whose indicia of 
ownership in an UST or UST system (or facility or property on which an 
UST or UST system is located) is held primarily to protect a security 
interest, a holder is not expected to be an insurer or guarantor of 
environmental safety or quality at a secured UST or UST system. The 
inclusion of environmental warranties and covenants is not considered 
to be evidence of a holder's acting as an insurer or guarantor, and a 
finding of ``management participation'' cannot be premised on the 
existence of such terms or upon the holder's actions that ensure that 
the UST or UST system is managed in an environmentally sound manner. 
Since these actions are consistent with holding indicia of ownership 
primarily to protect a security interest, they are not considered to be 
participation in management in this rule.
    (3) Loan work out. The holder may determine that actions need to be 
taken with respect to the UST or UST system to safeguard the security 
interest from loss. These actions may be necessary when, for example, a 
loan is in default or threat of default, and are commonly referred to 
as ``loan work out'' activities. ``Loan work out'' is largely an 
undefined term but is generally understood in the financial community 
to mean those activities undertaken to prevent, mitigate, or cure a 
default by the obligor or to preserve or prevent the diminution of the 
value of the security. Loan work out activities are recognized by EPA 
as a common lender undertaking and, as such, these actions will not 
take a holder outside of the scope of the security interest exemption 
provided that such actions do not include decisionmaking control over 
the day-to-day operation of the UST or UST system or facility or 
property on which the UST or UST system is located.
    When the holder undertakes loan work out activities, provides 
financial or other advice, or similar support to a financially 
distressed borrower, the holder will remain within the scope of this 
security interest regulatory exemption only so long as the holder does 
not participate in management as defined herein under the section 
entitled ``Participating in Management.'' Loan work out actions that 
are not evidence of ``participation in management'' include, but are 
not limited to: Restructuring or renegotiating the terms of the 
security interest; requiring payment of additional rent or interest; 
exercising forbearance with regard to the security interest; requiring 
or exercising rights pursuant to an assignment of accounts or other 
amounts owing to an obligor; requiring or exercising rights pursuant to 
an escrow agreement pertaining to amounts owing to an obligor; 
providing specific or general financial or other advice, suggestions, 
counseling, or guidance; and exercising any right or remedy the holder 
is entitled to by law or under any warranties, covenants, conditions, 

[[Page 46701]]
representations, or promises from the borrower.
    (4) Foreclosure. In order to secure performance of an obligation, a 
holder often must take possession of an UST or UST system or facility 
or property on which an UST or UST system is located, as a result of a 
borrower's business failure and the subsequent foreclosure of the real 
property used to secure that obligation. The foreclosure process often 
results in the holder's taking record title or deed to the UST or UST 
system or facility or property on which an UST or UST system is 
located. Financial institutions and others who hold security interest 
exemptions are thereby justifiably concerned about the risks inherent 
in acquiring liability for compliance with the RCRA Subtitle I 
requirements for underground storage tanks.
    EPA received several comments regarding the foreclosure process and 
the use of the term ``foreclosure or its equivalents'' in the proposed 
rule to trigger the date upon which several conditional measures were 
proposed to begin. Several commenters explained the linear fashion in 
which the foreclosure process generally works, indicating that no 
specific date could be tied to the term ``foreclosure'' by itself. EPA 
recognizes that since this rule places several time-related conditions 
upon a holder to enable it to avoid liability as an UST ``operator'' 
under the security interest exemption, it is incumbent upon the Agency 
to select a precise definition of the term ``foreclosure.'' On the 
other hand, as commenters suggested, there is no one best consistently 
used and practical step in the process that can be used as a date to 
define the end of the foreclosure process. EPA has taken all of these 
facts into consideration and determined that for purposes of this rule, 
``foreclosure'' means that a legal, marketable or equitable title or 
deed has been issued, approved and recorded, and that the holder has 
obtained access to the UST, UST system, UST facility, and property on 
which the UST or UST system is located, provided that the holder acted 
diligently to acquire marketable title or deed and to gain access to 
the UST, UST system, facility and property on which the UST or UST 
system is located.
    EPA acknowledges that the definition of ``foreclosure'' used in 
this rule describes only part of the process that is generally 
associated with the foreclosure process. In response to many comments, 
however, the concept of real property ``access'' has also been included 
in the definition. The definition used in this rule was selected to 
provide a point of reference for indicating the completion of the 
foreclosure process and point at which a holder could physically access 
any USTs or UST systems located on the property acquired through the 
foreclosure process.
    Other components of the foreclosure process not referenced 
specifically in this rule's definition of foreclosure include: 
foreclosure judgment, foreclosure sale, purchase at foreclosure sale, 
acquisition or assignment of title in lieu of foreclosure, acquisition 
of a right to possession or title, or other agreement in settlement of 
the loan obligation, or any other formal or informal manner by which 
the holder acquires possession of the borrower's collateral for 
subsequent disposition in partial or full satisfaction of the 
underlying obligation. These actions associated with the foreclosure 
process are considered to fall within the scope of this regulatory 
exemption as necessary incidents to holding ownership indicia primarily 
to protect a security interest, so long as the holder's acquisition 
pursuant to foreclosure is reasonably necessary to ensure satisfaction 
or performance of the obligation, is temporary in nature, and occurs 
while the holder is actively seeking to sell or otherwise divest the 
foreclosed-on UST or UST system of facility or property on which the 
UST or UST system is located.
    In general, under this rule, a foreclosing holder must, in order to 
maintain consistency with the security interest exemption, seek to sell 
or otherwise divest itself of foreclosed-on property in a reasonably 
expeditious manner using whatever commercially reasonable means are 
available or appropriate, taking all facts and circumstances into 
account. A holder cannot, under the terms of this rule, reject or 
refuse offers for the property that represent fair consideration for 
the asset and remain within the regulatory exemption. ``Fair 
consideration,'' for purposes of this rule, is equivalent to or in 
excess of the sum of the outstanding principal (or comparable amount in 
the case of a lease that constitutes a security interest) owed to the 
holder immediately preceding the acquisition of full title (or in the 
case of a lease financing transaction, possession of an UST or UST 
system or facility or property on which an UST or UST system is 
located) pursuant to foreclosure, plus any unpaid interest, rent, or 
penalties (whether arising before or after foreclosure). ``Fair 
consideration'' also includes all reasonable and necessary costs, 
debts, fees or other charges incurred by the holder incident to work 
out, foreclosure, retention, preserving, protecting, and preparing the 
UST or UST system or facility or property on which the UST or UST 
system is located, prior to sale, re-lease pursuant to a lease 
financing transaction (whether by a new lease financing transaction or 
substitution of the lessee) or other disposition, plus environmental 
compliance costs (such as tank emptying, upgrading, replacement, and 
removal, as well as site assessment and corrective action costs); less 
any amounts received by the holder in connection with any partial 
disposition of the property and any amounts paid by the borrower 
subsequent to the acquisition of full title (or possessions in the case 
of an UST or UST system subject to a lease financing transaction) 
pursuant to foreclosure. A holder that outbids or refuses offers from 
parties offering fair consideration for the property establishes that 
the property is no longer being held primarily to protect a security 
interest. The terms of the bid are relevant for this purpose, and a 
holder is not required to accept offers that would require it to breach 
duties owed to other holders, the borrower, or other persons with 
interests in the property that are owed a legal duty. In addition, the 
term ``fair consideration'' refers to an all cash offer, which is 
intended to ensure that this rule would not require a holder to accept 
a bid that contains unacceptable conditions, such as requirements for 
indemnification agreements, non-cash offers, ``bundled'' offers, etc. 
This provision should not be read to require that a holder may accept 
only cash offers, however; a holder is always free to accept any offer 
satisfactory to the holder. The exact requirement that would be imposed 
by this regulation is that a holder may not reject a cash offer of fair 
consideration for the foreclosed-on property. If it does, or if it 
outbids others offering fair consideration, then the holder would, 
under this rule, be considered to be an owner of the UST or UST system 
or facility or property on which the UST or UST system is located in 
the same manner as any other purchaser.
    This rule's provisions defining ``fair consideration'' and 
specifying when the foreclosing holder may reject or outbid offers for 
the property were formulated to reflect the amount that the holder may 
bid at the foreclosure sale, or not reject during the foreclosure sale 
or thereafter, in order to recover on its loan or other obligation. In 
addition, there may be multiple security interests in a borrower's 
property held by secured creditors, which the definition of ``fair 
consideration'' must account for. Therefore, for a senior creditor, the 
term 

[[Page 46702]]
``fair consideration'' means a cash amount that represents a value 
equal to or greater than the outstanding obligation owed to the holder 
(including the fees, penalties, and other charges incurred by the 
holder in connection with the property). ``Fair consideration'' further 
indicates that the amount that will recover the holder's ``security 
interest'' in the property may vary depending on the seniority of the 
loan or other obligation that is being foreclosed upon. Specifically, a 
junior creditor may be required to outbid senior creditors in order to 
recover the value of its loan or other obligation. The definition of 
fair consideration therefore distinguishes between what junior or 
senior creditors may bid or not reject for purposes of maintaining the 
exemption. In addition, in order to avoid liability under law (for 
example, to the borrower), the foreclosing holder may be required to 
seek an amount at the foreclosure sale that is greater than the 
outstanding obligation owed to the foreclosing holder, or to sell the 
property in a different manner; therefore, this rule does not require a 
holder to accept an offer of ``fair consideration'' if to do so would 
subject the holder to liability under federal or state law.
    In this way the rule's provisions with respect to the sale or 
disposition of property will not conflict with the manner in which such 
sales are required to be conducted under general principles of law 
applicable to the holder and the disposition of the property including 
the UST or UST system. For purposes of this rule, the definition of 
``fair consideration'' is an objective test to determine whether the 
foreclosing holder has an investment or other interest in the property 
that is not within the exemption, or whether the holder's post-
foreclosure activities indicate that it continues to maintain its 
ownership indicia in the property primarily to protect a security 
interest, and is therefore within the protective ambit of this rule.
    While a holder may use whatever means are reasonable and 
appropriate for marketing foreclosed-on property to establish that it 
is seeking to divest itself of property in an expeditious manner, EPA 
has established the following ``bright line'' test that a holder may 
choose to use to definitely establish that it continues to hold indicia 
of ownership primarily to protect a security interest, and is not an 
``owner'' of foreclosed-on property for purposes of complying with the 
UST regulatory program. Under the ``bright line'' test a holder must, 
within 12 months following foreclosure (as defined herein under the 
section entitled ``Foreclosure''), list the property with a broker, 
dealer, or agent who deals with the type of property in question, or 
advertise the property as being for sale or disposition on at least a 
monthly basis in either a real estate publication or a trade or other 
publication suitable for the property in question, or a newspaper of 
general circulation (defined as one with a circulation over 10,000, or 
one suitable under any applicable federal, state, or local rules of 
court for publication required by court order or rules of civil 
procedure) covering the area where the property is located. If the 
holder satisfies these criteria, the holder is considered to have 
complied with the requirement in this rule that it is seeking to sell 
or otherwise divest the property in an expeditious manner. A holder 
choosing to avail itself of this bright line test will be able to 
provide clear and unambiguous evidence that it is not the UST or UST 
system's ``owner'' following foreclosure, for purposes of complying 
with the UST regulatory program.
    EPA also recognizes that market conditions, the condition of the 
property, and other factors may mean that despite reasonable efforts to 
expeditiously sell or divest foreclosed-on property, the property may 
not be quickly sold. Therefore, this regulation does not impose a time 
requirement for the ultimate disposition of foreclosed-on property. 
Provided that the property is being actively offered for sale by the 
holder and no offers of fair consideration are ignored, outbid, or 
rejected, foreclosed-on property may continue to be held by the holder 
without the holder being considered an ``owner'' of the UST or UST 
system or facility or property on which the UST or UST system is 
located.
    In the proposed rule, EPA proposed that in order for a holder to 
avoid losing the protection of the security interest exemption, the 
holder must act upon a written, bona fide, firm offer of fair 
consideration for the property within 90 days of receipt of the offer. 
A few commenters expressed a concern that 90 days would not provide a 
holder enough time to complete such a transaction in cases where the 
purchaser undertakes a site assessment before finalizing the 
transaction. The Agency has maintained the same language as that 
contained in the proposed rule, but wants to clarify that the 
requirement to ``act upon'' an offer does not mean that a purchase 
transaction must be completed with the 90-day time period. Rather, the 
holder must consider the offer, which may include, but is not limited 
to, responding to the offer and/or initiating a purchase transaction 
within 90 days. If at any time after six months following the 
acquisition of marketable title the holder outbids, rejects, or does 
not act upon within 90 days of receipt of, a written, bona fide, firm 
offer of fair consideration for the property, the holder will lose the 
protection of the rule. Under this rule, a ``written, bona fide, firm 
offer'' is a legally enforceable, commercially reasonable, offer, 
including all material terms of the transaction, from a ready, willing, 
and able purchaser who demonstrates to the holder's satisfaction the 
ability to perform. Where a holder outbids, rejects, or fails to act 
upon an offer of fair consideration, the holder is considered, for the 
purpose of this regulatory exemption, to be maintaining its indicia of 
ownership in the property as protection for investment purposes, and 
not as security for the obligation.
    (5) Winding up operations after foreclosure. In addition, in the 
post-foreclosure context, this rule provides that a holder that 
forecloses on an UST or UST system with ongoing operations may wind up 
the UST or UST system's operations without also being considered to be 
participating in management. Winding up is considered a protected 
activity by a foreclosing holder because, without such protection, 
foreclosure would not be possible where practical or commercial 
necessity dictates that the foreclosing holder undertake such actions. 
``Winding up'' in the post-foreclosure context includes those actions 
that are necessary to close down an UST or UST system's operations, 
secure the site, and otherwise protect the value of the foreclosed 
assets for subsequent sale or liquidation. In winding up an UST or UST 
system, a holder may undertake all necessary security measures or take 
other actions that protect and preserve an UST or UST system's assets, 
including steps taken to prevent or minimize the risk of a release or 
threat of release of the UST or UST system's contents.

F. Liability of a Holder as an Operator of an Underground Storage Tank 
or Underground Storage Tank System

    While the Subtitle I security interest exemption excludes a holder 
from the definition of ``owner'' for regulatory compliance purposes, 
the statute does not explicitly address a holder's responsibilities as 
an UST or UST system ``operator.'' EPA recognizes that the absence of 
explicit language in the security interest exemption regarding a 
holder's responsibility for the Subtitle I requirements as an 
``operator'' creates a potential problem for holders, since 

[[Page 46703]]
EPA's UST regulations (as described in Section II of this preamble) 
apply to both owners and operators of underground storage tanks.
    Some concern was expressed by commenters regarding the absence in 
the proposed rule of an outright exemption for holders from the 
definition of ``operator'' and the potential liability to which a 
holder could be exposed by engaging in any affirmative action in 
respect to an UST or UST system. EPA believes that Congress did not 
grant holders an outright exemption to the term ``operator'' in the 
Subtitle I security interest exemption because it may have wanted to 
ensure that holders did not engage in the day to day operations of the 
UST or UST system. The Agency believes this intent can be inferred from 
the statutory requirement that a holder may not ``participate in the 
management'' of the UST or UST system without voiding the exemption. 
EPA realizes that in order to provide meaning to the exemption, 
however, it is important to define how a holder can acquire title and 
access to an UST or UST system or facility or property on which an UST 
is located, and take affirmative actions to protect the value of their 
security interest, without losing the protection of the security 
interest exemption. Consequently, this regulation provides a road map 
that ensures that holders can utilize the security interest exemption, 
while reflecting the intent that exempted holders be prohibited from 
operating USTs or UST systems. The following sections discuss the 
actions that a holder can and cannot take to remain within the 
protective ambit of the regulatory security interest exemption.
1. Pre-Foreclosure Operation
    Prior to foreclosure, it is the borrower, not the holder, who 
generally is in control of, or has responsibility for, the daily 
operation of an UST or UST system, and is subject to the full range of 
requirements applicable to operators of USTs. During this time period, 
a holder is permitted to conduct those activities related to its 
financial and administrative obligations of managing a loan portfolio, 
as well as environmental compliance activities and activities 
undertaken voluntarily to protect human health and the environment in 
compliance with 40 CFR part 280. The holder in this position will not 
lose its ability to take advantage of this regulatory exemption as a 
result of engaging in these activities. If the holder becomes engaged 
in the daily operation of an UST or UST system, however, it becomes 
subject to the full range of requirements applicable to operators of 
USTs or UST systems.
2. Post-Foreclosure Operation
    Once a holder has foreclosed on an UST or UST system or facility or 
property on which the UST or UST system is located, it displaces the 
borrower and could become engaged in the day-to-day operation of an UST 
or UST system merely by storing product in the UST or UST system. EPA 
considers an UST to be in use and in operation if petroleum is added 
to, dispensed from, or stored in the UST. Therefore, except as provided 
in this rule, a holder cannot continue to use, store, dispense, or fill 
petroleum in an UST or UST system after obtaining marketable title and 
access to the UST or UST system or facility or property on which the 
UST or UST system is located without incurring Subtitle I liability 
(unless there is another operator available, as described later in this 
section). That does not mean, however, that a holder is barred from 
taking affirmative actions to ensure that a tank is no longer in use, 
by demonstrating that the tank is no longer storing, dispensing or 
being filled with petroleum. The holder best demonstrates this by 
emptying tanks it acquires through the foreclosure process. Thus, in 
order to qualify for the exemption, it is essential for a holder to 
empty all tanks that it knows about or should know about shortly after 
undertaking foreclosure (the time period following foreclosure is 
discussed later in this section), unless there is another operator who 
takes responsibility for complying with 40 CFR part 280 (as described 
later in this section). An UST or UST system is empty--in accordance 
with Sec. 280.70--when all materials have been removed using commonly 
employed practices so that no more than 2.5 centimeters (one inch) of 
residue, or 0.3 percent by weight, of the total capacity of the UST 
system, remain in the system. Stated simply, this means that all 
product must be removed from the UST or UST system so that only one 
inch of residue remains. To ensure that the UST system has been 
adequately secured, vent lines must be left open and functioning, and 
all other lines, pumps, manways, and ancillary equipment must be capped 
and secured (Sec. 280.70).
    Several commenters expressed concern about a blanket requirement 
for holders to discontinue operation of an UST or UST system upon 
acquisition of the UST or UST system through foreclosure, particularly 
if a lessee or other tenant was present at the site. In response to 
these commenters concerns, EPA believes that tanks can remain in use if 
there is someone who is available to take responsibility as an operator 
for compliance with the Subtitle I requirements. There may be 
situations, for example, when a lessee is willing to continue operating 
an UST or UST system as the ``operator,'' in compliance with Subtitle 
I, while a holder is in possession of the UST or UST system or facility 
or property on which the UST is located. In some instances, the holder 
may want to arrange for a different person to operate the UST or UST 
system, for example, when the existing lease expires. In those cases 
where an operator (other than the holder) exists who is in control of 
and has responsibility for the daily operation of the UST, and who can 
be held responsible for compliance with 40 CFR part 280 requirements, 
the holder would not be considered the operator. Under these 
circumstances it is not necessary, in order to retain the security 
interest exemption, for a holder to empty the tanks for which it is 
knowledgeable about upon foreclosure, or to empty tanks that it becomes 
knowledgeable of later. (The issue of known and unknown tanks is 
discussed later in this section.)
    In foreclosure, to avoid being an ``operator'' of the UST, in 
addition to emptying and securing the UST or UST system, a holder must 
also comply with the Subtitle I requirements for either temporary or 
permanent closure, in order to retain the security interest exemption. 
A holder who chooses to permanently close its UST or UST system, must 
do so in accordance with Secs. 280.71 through 280.74, Subpart G--Out of 
Service UST Systems and Closure, except the holder is not required to 
perform corrective action if contamination is discovered. A holder who 
chooses to temporarily close its tanks is required to maintain 
corrosion protection and report any known or suspected releases from 
the UST system. In accordance with Sec. 280.70(a), release detection is 
not required as long as the UST system is empty. A foreclosing holder 
who fails to satisfy the conditions established in this rule for 
retaining the security interest exemption could be an ``operator'' 
under the Subtitle I regulations and would therefore be subject to the 
full panoply of Subtitle I regulatory obligations applicable to all 
operators of tanks, including the corrective action regulations.
    a. Costs of post-foreclosure temporary closure conditions. A few 
commenters expressed concern that the costs associated with the 
proposed rule's post-foreclosure conditions to empty tanks and enter 
temporary closure 

[[Page 46704]]
would prevent lenders from making UST-related loans. EPA does not 
believe that the costs associated with performing these actions are 
significant, compared to the cost of alternatives that holders would 
otherwise face.
    First, in the absence of this regulatory exemption, as an 
``operator'' upon foreclosure, a holder would have to comply with the 
UST technical standards in some manner. Entering temporary closure is 
one way to comply with the UST technical standards. The only condition 
placed upon a holder by this rule that differs from what normally 
constitutes temporary closure under the technical standards is the 
requirement for emptying tanks. The estimated total cost of emptying 
one tank and draining the associated pipes is $950. $350 of this cost 
is attributed to the mobilization of a truck for fuel disposal, which 
remains a fixed price per site. The total estimated cost per four-tank 
facility is $2750 ($600 per tank, plus $350 for the truck). The total 
cost for securing the lines is estimated at $225 per facility. These 
costs could be as much as the cost for release detection for tanks that 
a holder does not empty and that remain in use, estimated at up to 
$2800 for a four-tank facility. Under the requirements in 40 CFR 
Sec. 280.70 for temporary closure, an owner or operator is allowed to 
either empty and secure its tanks, or perform release detection. While 
this regulatory exemption restricts a holder's choice to emptying and 
securing its tanks, no new costs are imposed upon the holder, since 
without this rule, the holder would have to pay approximately the same 
cost, whether it chose to empty its tanks or maintain release 
detection. For further information regarding the costs of emptying 
tanks and securing lines, please see the ``Background Document in 
Support of the Lender Liability Rule for Underground Storage Tanks 
Under Subtitle I of the Resource Conservation and Recovery Act'' 
located in the UST Docket at 401 M Street, SW., room 2616, Washington, 
DC 20460.
    b. Time frame for emptying USTs and securing UST systems EPA 
received the most comments regarding the period of time allowed to 
demonstrate that a holder is no longer storing product, and thereby no 
longer operating an UST or UST system. All but one person who commented 
on the 15-day time frame in the proposed rule maintained that 15 days 
was not enough time to empty tanks and complete temporary closure after 
foreclosure. EPA proposed 15 days originally because our research 
indicated that only seven days should be necessary to empty the tanks 
and secure the lines at an UST facility once a contractor had been 
selected. Another seven days was added to provide time for the holder 
to become familiar with the details of this regulatory exemption and 
identify a qualified contractor. The Agency is obliged by the 
regulatory authority under section 9003(b), 42 U.S.C. 6991b(b) of 
Subtitle I to promulgate regulations based not only upon the technical 
capability of owners and operators, but also upon what is necessary to 
protect human health and the environment. It is therefore incumbent 
upon the Agency to select the shortest time period needed by a holder 
to empty tanks and secure lines.
    Commenters listed a variety of reasons why more time would be 
needed for emptying tanks, including: special problems associated with 
rural communities such as long distances--travel time and locating a 
qualified contractor; snow, ice and other inclement weather conditions 
(thick snow and/or ice can make tanks difficult or impossible to detect 
and empty during winter months); contracting delays related to 
difficulties in locating, scheduling and negotiating a price with a 
contractor, and in some cases, in obtaining various bids; banks' 
(especially small banks') unfamiliarity with EPA regulations; multiple 
tanks at large facilities; laboratory testing requirements imposed by 
some states; and finding alternative storage arrangements, especially 
for non-marketers. Government agencies, acting in a receivership 
capacity, could face special difficulties due to protracted contract 
bidding requirements. Recommendations proposed by commenters, due to 
these various delays, ranged from 30 to 140 days.
    Based on these commenters' concerns and information that they 
provided, the Agency has concluded that 60 calendar days is a 
reasonable, minimum period of time after undergoing foreclosure, as 
that term is defined under section III. C. 5. of this preamble, to 
allow a holder to empty its known tanks (see discussion of unknown 
tanks later in this section). This decision is based upon the following 
estimated time frame developed from information received by commenters: 
approximately one week to become familiar with Subtitle I and the 
details of this regulatory exemption, and to locate all USTs and the 
extent of the UST system on the foreclosed property; 5 weeks to 
complete a contractor bidding process and hire a qualified contractor, 
perform laboratory tests if necessary (accounting for travel time and 
weather delays), and apply for and obtain approval for content disposal 
if required by the state; two weeks to schedule contractor and for 
contractor to perform and complete work related to emptying all USTs 
and securing the UST system (accounting for travel time, other 
commitments and weather delays).
    EPA also recognizes that the time needed for a holder to empty its 
tanks and secure its UST system may vary based upon the holder's 
geographic location. Extreme weather conditions in areas such as 
Alaska, special problems associated with rural communities, and 
additional requirements imposed by some states, may pose special 
problems for holders attempting to empty tanks in an expeditious 
manner. Thus, holders in some states may need more than 60 days to 
empty their tanks and secure their UST systems. Therefore, EPA believes 
that the implementing agency should have the ability to select a time 
frame that it finds most appropriate for holders, either based upon 
individual holders' needs (case-by-case determination), or based upon a 
standard time frame for all holders under the jurisdiction of that 
implementing agency. Thus, a holder who wishes to take advantage of 
this regulatory exemption, must empty its known tanks within 60 days 
after foreclosure or within 60 days after the effective date of this 
rule, whichever is later, or within another reasonable timeframe as 
specified by the implementing agency.
    c. Unknown Tanks. Many commenters noted that a holder may not know 
of the existence of an UST when, through foreclosure, it acquires title 
to an UST or UST system or facility or property on which an UST or UST 
system is located. Several examples were provided by commenters 
demonstrating the problems associated with identifying all the USTs 
that may be located on a property it acquires. Among the examples, 
commenters stated that USTs may not be registered with the state, or it 
may be difficult for a holder to know of the existence of an UST on 
agricultural property or on other non-fuel-marketer properties. 
Sometimes the borrower does not disclose the existence of any USTs or 
the exact number and location of the USTs. Even if the holder is aware 
that USTs may be located on the property, it may encounter difficulty 
in identifying the USTs' exact locations. This could be especially 
difficult when a site is covered with snow or ice during the winter. 
Furthermore, USTs are sometimes hidden under asphalt or even under 
buildings. Performing an environmental assessment or audit is no 
guarantee that USTs will be found. As one commenter asserted, even a 
phase II 

[[Page 46705]]
site assessment could fail to indicate the presence of USTs.
    Several commenters urged EPA to adopt a more practical approach to 
emptying tanks that may not be discovered by the holder until after the 
60-day time period following foreclosure. EPA believes that unless a 
holder is allowed to empty a tank upon discovering it, rather than 
potentially losing the protection of the regulatory security interest 
exemption if it fails to identify and empty all its tanks within 60 
days after foreclosure, holders will remain suspicious of extending 
credit to UST owners and operators, undermining the purpose of this 
rule. Therefore, a holder can remain within the protective ambit of 
this rule by emptying an unknown UST within 60 days after discovering 
it or within 60 days after the effective date of this rule, whichever 
is later, or within another timeframe as specified by the implementing 
agency.
    d. Permanent closure. A number of commenters objected to EPA's 
proposal pertaining to holders who had not disposed of the UST or UST 
system or facility or property on which the UST or UST system is 
located, within 12 months after foreclosure. The Agency proposed that 
in order for these holders to maintain the regulatory exemption, they 
must either enter permanent closure if they failed to dispose of the 
UST or UST system 12 months after foreclosure, or perform a site 
assessment and apply for an extension of temporary closure from the 
implementing agency. Several commenters doubted that they would be able 
to sell properties with USTs within 12 months. They argued that 
permanent closure would be burdensome and unnecessary to protect human 
health and the environment, since the requirement to empty the UST 
would eliminate the threat of contamination from further releases from 
the UST.
    Commenters also insisted that holders do not possess the technical 
capacity of the average UST owner or operator, so they should not have 
to enter permanent closure to retain the exemption. Furthermore, 
commenters did not believe that it was appropriate for a holder, who 
acts as a temporary custodian of the UST or UST system, to decide the 
ultimate fate of a facility (whether to take the tanks permanently out 
of operation). Rather, they asserted, that decision should be left up 
to the subsequent purchaser. As one commenter stated, total closure 
could severely hinder a holder's selling opportunities and eventually 
remove the property from the mainstream of commerce. Although the 
proposed rule offered holders the option of applying for an extension 
of temporary closure from the implementing agency, some states prohibit 
such extensions, which would leave holders in those states without any 
option other than permanent closure of the tanks.
    EPA agrees with commenters that the decision regarding whether or 
not a tank should be permanently closed should generally be left with 
whoever purchases the UST or UST system or facility or property on 
which the UST is located from the holder. The Agency has concluded that 
USTs that are emptied, secured and placed in temporary closure for the 
temporary period of time for which they are possessed by a holder 
should not need to be permanently removed or permanently closed in 
place in order to protect human health and the environment. Therefore, 
in this final rule, a holder may retain the regulatory exemption by 
temporarily closing but not permanently closing its USTs and UST 
systems. However, if a holder is unable to dispose of an UST property 
within 12 months, it must conduct a site assessment if the USTs are 
older and do not meet new tank performance standards (discussed later 
in this section). EPA believes that it is important for a holder to 
conduct such an assessment in order for the implementing agency to 
determine if there is any contamination on the site, and if so, make a 
determination regarding the potential amount of risk posed to human 
health and the environment and whether that risk warrants the 
implementing agency taking corrective action. (While this rule 
precludes a holder's liability for corrective action costs if the 
holder retains its eligibility for the exemption as provided in the 
rule, the implementing agency can undertake corrective action measures 
on the holder's site based upon its assessment of the risks posed by 
any contamination identified there.) As in the case of other 
temporarily closed tanks, in order to maintain protection of human 
health and the environment, contamination should not be allowed to 
remain unidentified for more than 12 months after an UST or UST system 
has been taken out of service (or in this case, more than 12 months 
after foreclosure, as that term is defined under Sec. 280.210(c) of 
this rule). For purposes of this provision, the 12-month period begins 
to run from the effective date of the rule or from the date on which 
the UST or UST system is emptied and secured, whichever is later.
    The Agency does not consider the site assessment condition to be 
unduly burdensome for several reasons. First, a holder will only need 
to perform a site assessment if the USTs that the holder has acquired 
have not been upgraded or replaced to meet the requirements of 
Sec. 280.20 for new UST systems or Sec. 280.21 for upgraded systems, or 
if no external release detection method is in operation. Many of a 
holder's USTs should be upgraded or replaced since many of the loans 
that UST owners and operators are requesting are expected to be used 
for upgrading or replacing substandard tanks. Furthermore, after 1998, 
all tanks are required to be upgraded or replaced, so holders should 
encounter few substandard USTs after that time. A site assessment can 
also be averted if one of the external release detection methods 
allowed in Sec. 280.43 (e) or (f) is operating at the end of the 12-
month period, and the release detection method operating indicates that 
no release has occurred.
    The Agency is also aware that conducting a site assessment during 
property transfers has become a standard business practice and that few 
property transactions currently take place without one. If a holder 
should have to bear the cost of performing a site assessment, that cost 
may in some cases be passed on to the subsequent purchaser, and in some 
states, the holder may be reimbursed for the cost of performing a site 
assessment through the state's petroleum assurance fund or through 
other assistance programs. While EPA cannot require states to pay or 
reimburse a holder for performing a site assessment (or for undertaking 
any other actions that would protect the environment, such as 
corrective action), the Agency encourages states to provide assistance 
to holders who wish to engage in environmental compliance activities or 
voluntary environmental actions in order to protect their security 
interest.
3. Release Reporting Requirements Following Foreclosure
    Under today's rule, upon foreclosure, a holder taking advantage of 
the regulatory exemption from corrective action regulations must 
nevertheless comply with the requirement in Sec. 280.50 that the 
discovery of any releases from the UST be reported to the implementing 
agency. Only the reporting requirement must be followed; the holder 
need not comply with Sec. 280.52, despite the reference to that 
provision in Sec. 280.50. The release reporting requirement of 
Sec. 280.50 is part of Subpart E, which details the obligations for 
reporting known or suspected releases, investigating off-site impacts, 
confirming that a release has occurred, and cleaning up spills and 

[[Page 46706]]
overfills. While Subpart E generally implements Subtitle I's corrective 
action and site investigation requirements, from which a holder may be 
excluded under today's rule, Sec. 280.50 has historically been viewed 
by EPA as part of the UST technical standards.
    A holder is responsible, following foreclosure, for reporting to 
the implementing agency, any discovery of released regulated 
substances, or any suspected release at an UST site or in the 
surrounding area. Such reporting is considered necessary to ensure 
protection of human health and the environment. By the holder's 
informing the implementing agency of a release, the implementing agency 
can then determine the appropriate response action, if any.
    In the absence of today's rule a holder, as an UST operator, would 
have to perform release investigation and confirmation in accordance 
with Secs. 280.51 through 280.53. Under today's rule, a holder who 
chooses to take the tank(s) out of service as described in this rule is 
required to follow the procedures established in Sec. 280.50 but is not 
subject to the release investigation and confirmation requirements in 
Secs. 280.51 through 280.53. A holder who elects to keep the tank(s) in 
operation, however, is obligated to comply with all of the Subpart E 
requirements, including those related to release investigation and 
confirmation, and corrective action.

G. Financial Responsibility Requirements
    RCRA Sec. 9003(c), as implemented by EPA at 40 CFR Part 280 Subpart 
H--Financial Responsibility, requires owners or operators of petroleum 
USTs to demonstrate financial responsibility for taking corrective 
action and for compensating third parties for bodily injury and 
property damage caused by accidental UST releases. As discussed earlier 
under Section III. A. of this preamble, EPA is defining, for purposes 
of its Subtitle I corrective action and technical requirements, the 
term ``owner'' to mean that a holder who maintains ownership rights in 
an UST or UST system primarily to protect a security interest does not 
rise to the level of a full ``owner,'' and therefore is not subject to 
compliance with those regulatory requirements. As described earlier, 
this approach to EPA's regulatory program is consistent with the 
Subtitle I statutory security interest exemption. Similarly, a holder 
is not subject to the financial responsibility requirements as an UST 
owner.
    The Agency is also exempting a holder as an UST ``operator'' from 
the financial responsibility requirements, provided the holder 
satisfies the conditions contained in this rule. Before a holder takes 
possession of an UST or UST system, a holder is not considered an UST 
operator, for purposes of EPA's technical and financial responsibility 
regulations, if it is acting merely as a holder and is not in control 
of the daily operation of the UST or UST system. Therefore, a holder 
typically is not subject to the UST financial responsibility 
requirements of 40 CFR Part 280 Subpart H as an operator prior to 
foreclosure.
    Under this rule a holder is exempted from corrective action as an 
operator after foreclosure if it ensures that its tanks no longer store 
petroleum and it complies with the temporary or permanent closure 
requirements specified in this rule. (See Section III. F. 2. of this 
preamble). In these situations, where the holder is not liable for 
corrective action and where the tanks are empty and pose little threat 
of release, it would serve no useful purpose to require a holder to 
demonstrate compliance with the financial responsibility requirements 
for corrective action. Therefore, the Agency is exempting holders who 
satisfy all the other requirements in this rule from demonstrating 
Subtitle I financial responsibility for UST corrective action.
    A holder's responsibility for demonstrating UST financial 
responsibility for third-party bodily injury and property damage 
compensation poses a different issue. While RCRA Subtitle I does not 
include provisions that actually impose third-party liability upon UST 
owners and operators, it does require UST owners and operators to 
demonstrate their ability to compensate third parties for bodily injury 
and property damage caused by accidental releases arising from the 
operation of an UST or UST system. The Agency believes that a holder 
who complies with all the conditions set forth in today's rule should 
not be required to comply with any of the UST financial responsibility 
requirements as an owner or operator, including those for both 
corrective action and third-party liability coverage. This regulatory 
exemption is consistent with the interpretation of that language 
adopted in the preamble to the UST financial responsibility final rule 
(53 FR at 43323). In that rule, EPA exempted tanks taken out of 
operation prior to the effective date of the rule from UST financial 
responsibility compliance. In the preamble to the final rule, EPA 
recognized that ``insurance providers would be extremely reluctant to 
assure tanks taken out of operation because of the perceived greater 
uncertainty associated with them'' (53 FR at 43327). In particular, 
insurers have indicated that in the case of foreclosed USTs, they would 
be concerned about vandalism and other threats to USTs at non-
operational, unattended gas stations or similar locations with public 
access. The preamble also states that ``even if providers of assurance 
would assure these tanks, it is unlikely that they would cover leaks 
which occurred before the effective date of the policy'' (53 FR at 
43327).
    A similar situation exists for holders who empty their tanks and 
enter temporary or permanent closure after foreclosure. EPA has 
discovered that it is practically impossible to obtain third-party 
environmental insurance coverage for a new owner of empty tanks. 
Providers of financial assurance are reluctant to provide any coverage 
for tanks that no longer store petroleum product. Further, providers 
are reluctant to provide coverage for damages that occur after the 
effective date of the policy for releases that might have occurred 
prior to the effective date of the policy. Under this rule a holder is 
required to empty its tanks in order to be exempt from corrective 
action regulatory requirements. Since providers are unlikely to provide 
any coverage for empty tanks at non-operational facilities or for 
releases that occurred prior to foreclosure, and since third-party 
damages would be extremely unlikely to stem from releases occurring 
after the holder forecloses on and empties its tanks, the Agency 
believes it is unnecessary to require third-party liability coverage 
for such tanks.
    RCRA Sec. 9003(c)(6) supports this regulatory exemption. That 
provision emphasizes the connection between the UST financial 
responsibility requirement and a tank's operational status: ``The 
regulations promulgated pursuant to this section shall include: * * * 
(6) requirements for maintaining evidence of financial responsibility 
for taking corrective action and compensating third parties for bodily 
injury and property damage caused by sudden and nonsudden accidental 
releases arising from operating an underground storage tank.'' 
[emphasis added.] The Agency believes that since a holder must 
demonstrate that its tanks are empty and that it is complying with the 
UST temporary or permanent closure requirements in order to avoid 
corrective action liability as an operator, there should be no need for 
a holder who meets these requirements to demonstrate financial 
responsibility for corrective action or third-party damages. By 
requiring the holder to empty the 

[[Page 46707]]
tank in order to be exempt from corrective action requirements, EPA is 
ensuring that damages caused by future releases from that tank will be 
minimized if not avoided altogether. As a result, holders who act in 
accordance with the requirements described in this rule are exempt from 
all Subtitle I financial responsibility requirements.

H. State Implementation and State Program Approval

    EPA received numerous comments regarding the problems associated 
with the absence of lender liability provisions in many states, as well 
as the problems generated by the variety of state UST lender liability 
provisions that currently exist. Some commenters argued that the only 
way to make today's rule effective would be for EPA to require states 
to enact state legislation regarding UST lender liability. Other 
commenters specifically addressed state program approval requirements 
and state clean up funds. In general, the comments indicate that 
several misconceptions exist regarding the role of state programs in 
implementing Subtitle I, the state program approval process and state 
clean up funds.
    First, as many commenters pointed out, today's rule only affects 
federal UST requirements, and only provides an eligible holder 
protection against federal enforcement actions. Since the UST program 
is implemented primarily through the states under state laws, a holder 
can be afforded protection against UST liability at the state level 
only if the state has enacted its own lender liability legislation, 
regulations, or policies.
    Several states have already enacted laws or regulations containing 
UST lender liability provisions. In many states without existing lender 
liability provisions, state legislatures are debating lender liability 
bills. While EPA can encourage states to enact UST lender liability 
provisions, the Agency does not have the authority to require that 
states adopt such provisions. Therefore, the Agency strongly urges 
those states without security interest exemptions to enact legislation 
similar to what is included in today's Federal rule. EPA believes that 
such action is crucial in the effort to increase the availability of 
capital to UST owners and operators.
    Several comments submitted to EPA addressed state program approval 
and whether or not states could broaden protections for holders. A 
state's lender liability legislation or regulations may affect the 
state's program approval and states need to be cognizant of that 
relationship when considering the enactment of a security interest 
exemption.
    UST state program approval, as provided for under RCRA Subtitle I 
Sec. 9004, and as implemented by 40 CFR part 281, provides states the 
ability to operate an UST regulatory program in lieu of the federal 
program if they first submit the program for review and receive 
approval from EPA. EPA approval of a state program means that the 
requirements in the state's laws and regulations will be in effect 
rather than the federal requirements. Program approval ensures that a 
single set of requirements (the state's) will be enforced in that 
state, thus eliminating the duplication and confusion that can result 
from having separate state and federal requirements. EPA considers 
state program approval to be an integral part of the UST regulatory 
program.
    EPA's approval review focuses primarily on the basic state 
authorities (laws and regulations) needed to achieve the underlying 
objectives of the federal regulations covering the UST technical 
standards, corrective action, and financial responsibility 
requirements. The UST state program approval process is also based upon 
a performance-oriented approach. The statutory test for an approvable 
state program is that it be ``no less stringent'' than the federal 
requirements and include as many categories of UST systems (or be as 
broad in scope) as the federal requirements. EPA reviews the state's 
specific statutory and regulatory provisions as well as their 
interpretation by the Attorney General of the state.
    Enactment of lender liability legislation or regulations is not a 
requirement for receiving or maintaining state program approval. A 
state program without a security interest exemption is acceptable under 
EPA's state program approval requirements, since failure to have such a 
provision would not narrow the scope of the state program, nor render 
it ``less stringent'' than the federal program. However, in order to 
fully effectuate the purpose of today's rule in expanding capital 
opportunities to UST owners and operators, EPA recommends that states 
act promptly to enact secured creditor provisions.
    If a state program includes an UST security interest exemption, EPA 
will evaluate it against the criteria in Sec. 281.39 of this rule. A 
state program that exempts a holder from UST requirements as an owner 
and operator may be approved if: The holder is maintaining indicia of 
ownership primarily to protect a security interest in a petroleum UST 
or UST system; the holder does not participate in the management or 
operation of the UST or UST system; and the holder does not engage in 
petroleum production, refining, and marketing. The state's program 
application should address the issue of UST lender liability in the 
``Scope'' section of its state program description, under Sec. 281.21 
of the State Program Approval regulations.
    A state may encounter program approval conflicts if it enacts a 
lender liability provision that is broader in scope or less stringent 
than today's federal lender liability rule. However, this rule should 
not present a barrier for states to receive state program approval. The 
program approval requirements contained in this rule are intended to 
provide enough flexibility to allow states to enact various UST lender 
liability provisions without jeopardizing their ability to receive or 
maintain approval of their state program.

I. Holders' Access to State Funds

    EPA received several comments regarding a holder's ability to apply 
for state cleanup funding to remediate an UST property acquired through 
foreclosure. Some commenters also expressed concern about a holder's 
ability to access other state assistance programs intended for UST 
owners and operators. While the EPA cannot require states to ensure 
that holders are included among those eligible for a state's cleanup 
fund, reinsurance program, loan or grant program, today's rule is not 
intended to prohibit or discourage states from allowing holders access 
to these programs.
    A few commenters highlighted the confusion that exists regarding 
the association between EPA's financial responsibility requirements and 
the state cleanup funds. EPA believes that it is important for holders 
to understand the purpose of state cleanup funds, the relationship 
between EPA and these state funds, and the relationship between the 
financial responsibility requirements and state cleanup funds.
    As described earlier under section II. C. of this preamble, the 
financial responsibility requirements were promulgated to ensure that 
UST owners and operators demonstrated their ability to pay the costs of 
conducting remediation and compensating third parties for injuries or 
damages due to UST contamination. There are an array of acceptable 
financial responsibility compliance mechanisms, including insurance, 
guarantees, letters of credit, surety bonds, fully-funded trust funds 
and state assurance funds. State assurance or cleanup funds have become 
the most common and low cost financial responsibility compliance 

[[Page 46708]]
mechanism for tank owners and operators. As described earlier in this 
preamble under section III. G., holders who are eligible for today's 
regulatory security interest exemption are not responsible for 
demonstrating financial assurance. However, as noted by commenters, 
many holders would like to obtain access to state cleanup funds to 
voluntarily remediate any contamination that might be located on an UST 
property they obtain through foreclosure in order to protect human 
health and the environment, and make the property more attractive to 
potential purchasers. Some commenters were concerned that the proposed 
lender liability rule would have the unintended effect of blocking such 
access.
    State cleanup funds have been established in many states to assist 
UST owners and operators in performing corrective action. States may 
apply to EPA for approval of its cleanup fund as a financial assurance 
mechanism. States are not, however, required by law or regulation to 
establish a cleanup fund or any other state UST assistance program, or 
to submit the fund to EPA for approval.
    Each state fully controls how its fund functions. No two state 
cleanup funds are identical; they vary in the amounts and types of 
coverage provided, in their eligibility requirements, in the amount of 
funding, funding source, method of payment, and program implementation. 
EPA's understanding is that currently, holders are eligible to apply 
for state cleanup fund monies in some states and not in others. That 
situation will likely continue upon promulgation of this rule, as this 
rule is not intended to alter the eligibility of holders to apply for 
state cleanup fund monies. While EPA cannot require that states provide 
holders access to these funds, EPA encourages states to recognize the 
benefits associated with remediating UST properties held by holders in 
terms of increased protection of human health and the environment, and 
the enhanced ability to return these properties to productive use.

J. Outstanding Loans and Loans in Foreclosure Upon the Effective Date 
of the Rule

    In the proposed rule, EPA requested comments regarding how the 
potential liability associated with a holder's current holdings 
acquired through foreclosure could affect the extension of future UST-
related loans. Many commenters expressed their concern that financial 
institutions would be unwilling to extend loans to properties 
containing USTs if those institutions incurred significant costs in 
relation to properties on which they had already foreclosed. Several 
commenters also insisted that the Subtitle I security interest 
exemption was not intended by Congress to be contingent upon EPA's 
exercise of its rulemaking authority. These commenters noted that a 
rule that does not include a holder's current UST holdings would 
effectively void the secured creditor exemption that has been part of 
RCRA since 1986, thereby denying holders the protection that Congress 
provided in the law. Commenters also expressed concern that failure to 
include in the exemption a holder's outstanding loans in foreclosure 
would create the need for a cumbersome recordkeeping system, in which 
holders would have to keep track of whether foreclosures occurred prior 
to or after the effective date of the rule. Commenters also indicated 
that enforcement would be hampered unless states began requiring 
holders to report the date on which foreclosures occur, as defined 
under Sec. 280.210(c). They stated that such a reporting requirement 
would add an additional burden on security interest holders, not 
intended by Congress' statutory exemption for security interest 
holders.
    In addition, several commenters mentioned the benefits that would 
be afforded the environment by including outstanding loans within the 
exemption's protective ambit. For example, commenters stated that 
holders would be encouraged to empty USTs and undertake voluntary 
cleanups on currently foreclosed properties containing USTs if such 
properties were included in the rule.
    Based on the comments received, EPA has concluded that there is 
sufficient evidence to indicate that the intent of the rule in 
expanding credit opportunities for UST owners and operators would be 
undermined if the rule does not cover holders of existing security 
interests and holders of security interests already in foreclosure upon 
the effective date of the rule. Furthermore, such protection for 
holders could provide additional environmental benefits; by encouraging 
holders in foreclosure at the time the rule is issued to empty their 
tanks, contamination will be curtailed at numerous UST sites throughout 
the country. Therefore, holders of existing as well as future security 
interests, including those in foreclosure upon the effective date of 
this rule, fall within the rule's protective ambit as long as the 
holder satisfies the conditions contained in this rule for the 
regulatory security interest exemption.
IV. Issues Outside the Scope of This Rule

A. Petroleum Producers, Refiners, and Marketers

    Several commenters requested that the security interest exemption 
be expanded to cover petroleum producers, refiners, and marketers who 
hold indicia of ownership primarily to protect a security interest. 
They claimed that a petroleum marketer who extends loans to UST owners 
is no different than a financial institution that extends loans to UST 
owners, except that a marketer's experience in the petroleum industry 
helps it avoid unsound practices that lead to foreclosures. Commenters 
further stated that these ``petroleum marketer-creditors'' supply loans 
to many small businesses that cannot get loans elsewhere, and that 
without an exemption for petroleum producers, refiners, and marketers, 
capital from these sources would dry up.
    The statutory exemption for security interest holders in Subtitle I 
specifically excludes petroleum producers, refiners, and marketers. 
Since the Subtitle I security interest exemption excludes petroleum 
producers, refiners, and marketers, the Agency has not extended the 
regulatory exemption to these persons.
    EPA disagrees with commenters who stated that small businesses will 
be harmed by today's rule. To the contrary, the Agency expects this 
regulatory exemption to increase the total amount of capital available 
to small businesses, who are currently most in need of capital for UST 
improvements. Financial institutions, currently reluctant to make UST-
related loans to small businesses should, as a result of this rule, 
greatly increase the total availability of capital for UST owners who 
are otherwise credit worthy.
    Although holders who engage in petroleum production, refining, and 
marketing are not covered by this regulatory exemption, they should not 
expect to automatically be held liable for cleaning up contamination 
caused by a borrower. Under the federal UST regulations, such a holder 
would need to meet the regulatory definition of either ``owner'' or 
``operator'' of the UST in order to be potentially liable for 
contamination caused by the UST. A determination as to whether or not a 
holder who engages in petroleum production, refining, and marketing is 
responsible for UST cleanup costs as an owner or operator will be based 
on the individual circumstances of the case, as has been the situation 
in the past. Thus, this rule does not affect the current liability 
scheme for holders who also 

[[Page 46709]]
engage in petroleum production, refining, and marketing. As a result, 
EPA does not believe that capital from these sources will ``dry up'' as 
some commenters stated.
    A few commenters were confused about the effect of the rule upon a 
holder's ability to extend capital to or foreclose on an UST property 
that was used by a borrower to produce, refine, or market petroleum. 
EPA believes that the restriction in the statutory security interest 
exemption was intended to prevent petroleum producers, refiners, and 
marketers from personally employing the exemption. Thus, the 
restriction in the exemption allows holders who do not engage in 
petroleum production, refining, and marketing to hold a security 
interest in an UST or UST system for a borrower who engages in these 
areas of business.

B. Third Party Liability

    Several commenters addressed the issue of a holder's protection 
from third party actions. In general, these commenters requested that 
the final rule provide protection for holders from UST litigation 
initiated by private parties (i.e., private legal actions not involving 
the United States government). Since RCRA Subtitle I does not impose 
liability pertaining to third parties, EPA has not addressed third 
party liability in this rule. Third parties who wish to recover UST 
regulatory compliance and corrective action response costs may have a 
cause of action against holders under various provisions of federal and 
state law, other than Subtitle I of RCRA.
    While this rule cannot offer protection for holders from every 
conceivable type of liability related to UST contamination on 
properties held by holders to protect a security interest, it specifies 
the types of activities that holders may engage in while remaining 
within the protective ambit of the Subtitle I security interest 
exemption. In so doing, it provides certainty for holders whose primary 
concern is fear of being held liable by the federal government under 
relevant UST statutes and regulations--not third-party actions.

C. Trustee and Fiduciary Liability Under Subtitle I

    EPA received a number of comments requesting that the security 
interest exemption be expanded to cover trustees and fiduciaries acting 
in a fiduciary capacity. Commenters stressed the importance of 
providing the trust operations of a financial institution protection 
from RCRA Subtitle I liability. They expressed concern that the 
financial institution or individual financial officer acting as a 
trustee or fiduciary could face personal liability under RCRA Subtitle 
I if any or all of a trust's assets are contaminated by an UST release. 
Commenters asserted that they should not be held personally liable for 
the cleanup of trust properties because prior to their appointment as 
trustee or fiduciary they would have no way of knowing whether the 
trust's property was contaminated, nor would they have been able to 
have prevented the contamination. They maintained that protection for 
all areas of a financial institution's operations was crucial to 
stimulate more credit for small businesses to upgrade and improve their 
UST systems. Commenters further stated that a large environmental 
expense on the trust side of a financial institution would have a 
significant, negative effect upon UST-related lending on the commercial 
side.
    EPA carefully considered the comments received regarding this 
issue, but has not provided the specific relief requested by 
commenters. Since the primary purpose of this rule is to expand the 
availability of capital to UST owners by encouraging lenders to make 
loans to credit-worthy UST owners, it is appropriate for EPA to provide 
an exemption for holders of security interests on UST-related loans. 
The Agency is not convinced, however, that it is necessary to extend 
the exemption to other persons, such as trustees, who, in their 
capacity as trustee, are not involved in making UST-related loans to 
tank owners.
    The Agency believes that in most instances, however, the liability 
of a trustee may be limited by the operation of existing trust law. 
While acknowledging the complexities of trust law as well as numerous 
jurisdictional variations, EPA believes the concepts described in the 
Restatement (Second) of Trusts (1959) 4 provide a fair 
representation of the common law of trusts, and generally would be 
applicable to trusts involving underground storage tanks.

    \4\ The Restatement (Second) of Trusts (1959) is an 
authoritative summary of the law of trusts prepared by the American 
Law Institute. Although the Restatement is not codified into law, it 
is frequently used as a guide to interpretation by courts.
---------------------------------------------------------------------------

    Under the well-established and generally accepted principles 
governing the obligations of trusts and the liability of trustees, as 
articulated in the Restatement, the trustee is technically personally 
responsible for the liability: ``The trustee is subject to personal 
liability to third persons on obligations incurred in the 
administration of the trust to the same extent that he would be liable 
if he held the property free of trust.'' Restatement (Second) of Trusts 
Sec. 261. However, the rule of personal liability is tempered by a 
right to indemnification: ``The Trustee is entitled to indemnity out of 
the trust estate for expenses properly incurred by him in the 
administration of the trust.'' ID. Sec. 244. Accordingly, the rule is 
that ordinarily the trustee may obtain indemnification from the trust 
assets for the acts within his or her official capacity. Thus, EPA 
believes that in most instances, a trust's assets would be available 
for cleanup of trust property contaminated by USTs.

D. Hazardous Substance Tanks
    Several commenters noted that hazardous substance UST systems are 
regulated under Subtitle I, and indicated that the rule would be more 
useful if holders would not have to concern themselves with determining 
which USTs contained petroleum and which contained other substances. 
They requested that the rule also apply to USTs storing hazardous 
substances. Such a rule, reasoned one commenter, would better reflect 
the actual property inspection and examination process that holders 
undertake with respect to their collateral.
    Today's regulatory exemption does not apply to non-petroleum, 
hazardous substance USTs or UST systems regulated under Subtitle I. The 
primary reasons for this are, first, the security interest exemption 
appears in one specific section of RCRA Subtitle I, titled EPA Response 
Program for Petroleum (see RCRA section 9003(h)). As the title 
indicates, the security interest provision applies to petroleum USTs 
and UST systems. Second, the primary purpose of this rule is to expand 
capital availability for small business petroleum UST owners and 
operators, particularly petroleum retailers. The Agency believes that a 
rule pertaining exclusively to petroleum USTs and UST systems will 
address the needs of this particular group of tank owners and 
operators.

E. Hazardous Waste Tanks

    As explained under section III of this preamble, the RCRA Subtitle 
I security interest exemption specifically applies to USTs that are 
regulated under Subtitle I and that are used to contain an accumulation 
of petroleum. A few commenters requested that EPA expand the exemption 
to include tanks storing hazardous waste as well.
    Today's rule only addresses petroleum USTs regulated under Subtitle 
I of RCRA. Hazardous waste is regulated under Subtitle C of RCRA. 
Section 9001(2)(A) of Subtitle I explicitly excludes USTs containing 

[[Page 46710]]
hazardous waste from regulation under Subtitle I. EPA derives its 
authority to develop today's rule in part from section 9003(h) of 
Subtitle I of RCRA--EPA Response Program for Petroleum. This authority 
applies exclusively to Subtitle I USTs and does not extend to the 
regulation of hazardous waste under Subtitle C. Thus, today's rule 
applies exclusively to EPA's RCRA Subtitle I UST program and does not 
affect any environmental requirements outside of the Subtitle I 
regulatory context.

F. Aboveground Storage Tanks and Heating Oil Tanks

    A few commenters requested that in addition to petroleum USTs, the 
proposed regulatory exemption apply to aboveground storage tanks (ASTs) 
and heating oil tanks. Neither ASTs nor tanks used to store heating oil 
for consumptive use on the premises where stored are regulated under 
RCRA Subtitle I, although they may be regulated sometimes under other 
federal laws (e.g., the Oil Pollution Act) or state laws. Today's rule 
only addresses petroleum USTs regulated under Subtitle I of RCRA. The 
rule applies exclusively to EPA's RCRA Subtitle I UST program and does 
not affect any environmental requirements outside of the Subtitle I 
regulatory context.
    While ASTs and heating oil tanks used for on-site consumption are 
excluded from the federal UST requirements, several states do regulate 
them. Under federal law, states are allowed to develop more stringent 
requirements, as well as requirements that are broader in scope than 
federal the ones. Thus, holders may find themselves responsible for 
certain state-imposed AST and/or heating oil tank requirements. States 
that are concerned about lender liability issues may choose to provide 
statutory and regulatory exclusions for holders that extend loans to 
borrowers who own or operate ASTs or heating oil tanks, particularly if 
it would have a positive influence on the ability of an UST owner or 
operator to obtain capital.

V. Economic Analysis

    In the proposed rule, EPA requested that commenters furnish 
information that would help the Agency better understand how this 
regulatory exemption would affect an UST owner or operator's ability to 
comply with UST regulations. The Agency specifically requested 
information regarding the current interest rate charged for loans when 
property with one or more USTs is used as collateral. In addition, 
holders were asked about the extent to which credit might have been 
more available in the past if the rule had been in effect.
    EPA did not receive any substantive comments or data regarding this 
request for information, and as a result, was unable to collect and 
analyze any new data that would assist the Agency in quantitatively 
evaluating further the rule's potential effects upon environmental 
protection and economic growth. For those interested in a more detailed 
discussion of the costs and benefits associated with today's rule, 
please refer to the ``Background Document in Support of the Lender 
Liability Rule for Underground Storage Tanks Under Subtitle I of the 
Resource Conservation and Recovery Act,'' located in the OUST Docket at 
401 M Street, SW., room M2616, Washington, DC 20460.

VI. Regulatory Assessment Requirements

A. Executive Order 12866

    Under Executive Order 12866 [58 FR 51735 (October 4, 1993)], the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore subject to review by the U.S. Office of Management and 
Budget (OMB) and the requirements of the Executive Order. The Order 
defines ``significant regulatory action'' as one that is likely to 
result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof, or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, it has been 
determined that this rule is a ``significant regulatory action'' 
because it raises unique or novel policy issues. Therefore, this rule 
is subject to review by OMB. OMB, however, elected to waive its review 
of the final rule. Thus, no changes were made in the final rule in 
response to OMB recommendations.

B. Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act of 1980, agencies 
must evaluate the effects of a regulation on small entities. If the 
rule is likely to have a ``significant impact on a substantial number 
of small entities,'' then a Regulatory Flexibility Analysis must be 
performed. Because this rule may actually result in cost savings for 
small entities that hold security interests in USTs or UST systems, by 
lowering the cost and increasing the availability of capital for small 
business UST owners, EPA certifies that today's rule would not have a 
significant impact on a substantial number of small entities.

C. Paperwork Reduction Act

    This rule does not contain any new information collection 
requirements under the provision of the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq.
    To the extent that this rule discusses any information collection 
requirements imposed under existing underground storage tank 
regulations, those requirements have been approved by the OMB under the 
Paperwork Reduction Act and have been assigned control number 2050-0068 
(ICR no. 1360.04).
D. Unfunded Mandates Reform Act

    Under Section 202 of the Unfunded Mandates Reform Act of 1995, 
signed into law on March 22, 1995, EPA must prepare a statement to 
accompany any rule where the estimated costs to state, local, or tribal 
governments in the aggregate, or to the private sector, will be $100 
million or more in any one year. Under Section 205, EPA must select the 
most cost-effective and least burdensome alternative that achieves the 
objective of the rule and is consistent with statutory requirements. 
Section 203 requires EPA to establish a plan for informing and advising 
any small governments that may be significantly impacted by the rule.
    EPA has determined that this rule does not include a federal 
mandate that may result in estimated costs of $100 million or more to 
either state, local or tribal governments in the aggregate, or to the 
private sector.

List of Subjects in 40 CFR Parts 280 and 281

    Hazardous substances, Insurance, Oil pollution, Reporting and 
recordkeeping requirements, Surety bonds, Water pollution control, 
Water supply.

    Dated: August 29, 1995.
Carol M. Browner,
Administrator.

    For the reasons set out in the preamble title 40, chapter I of the 
Code of Federal Regulations is amended as follows:

[[Page 46711]]


PART 280--TECHNICAL STANDARDS AND CORRECTIVE ACTION REQUIREMENTS 
FOR OWNERS AND OPERATORS OF UNDERGROUND STORAGE TANKS (UST)
    1. The authority citation for part 280 is revised to read as 
follows:

    Authority: 42 U.S.C. 6912, 6991, 6991a, 6991b, 6991c, 6991d, 
6991e, 6991f, 6991g, 6991h.

    2. Part 280 is amended by adding subpart I consisting of 
Secs. 280.200 through 280.240 to read as follows:
Subpart I--Lender Liability
Sec.
280.200  Definitions.
280.210  Participation in management.
280.220  Ownership of an underground storage tank or underground 
storage tank system or facility or property on which an underground 
storage tank or underground storage tank system is located.
280.230  Operating an underground storage tank or underground 
storage tank system.
Subpart I--Lender Liability
Sec. 280.200  Definitions.

    (a) UST technical standards, as used in this subpart, refers to the 
UST preventative and operating requirements under 40 CFR part 280, 
subparts B, C, D, G, and Sec. 280.50 of subpart E.
    (b) Petroleum production, refining, and marketing.
    (1) Petroleum production means the production of crude oil or other 
forms of petroleum (as defined in Sec. 280.12) as well as the 
production of petroleum products from purchased materials.
    (2) Petroleum refining means the cracking, distillation, 
separation, conversion, upgrading, and finishing of refined petroleum 
or petroleum products.
    (3) Petroleum marketing means the distribution, transfer, or sale 
of petroleum or petroleum products for wholesale or retail purposes.
    (c) Indicia of ownership means evidence of a secured interest, 
evidence of an interest in a security interest, or evidence of an 
interest in real or personal property securing a loan or other 
obligation, including any legal or equitable title or deed to real or 
personal property acquired through or incident to foreclosure. Evidence 
of such interests include, but are not limited to, mortgages, deeds of 
trust, liens, surety bonds and guarantees of obligations, title held 
pursuant to a lease financing transaction in which the lessor does not 
select initially the leased property (hereinafter ``lease financing 
transaction''), and legal or equitable title obtained pursuant to 
foreclosure. Evidence of such interests also includes assignments, 
pledges, or other rights to or other forms of encumbrance against 
property that are held primarily to protect a security interest. A 
person is not required to hold title or a security interest in order to 
maintain indicia of ownership.
    (d) A holder is a person who, upon the effective date of this 
regulation or in the future, maintains indicia of ownership (as defined 
in Sec. 280.200(c)) primarily to protect a security interest (as 
defined in Sec. 280.200(f)(1)) in a petroleum UST or UST system or 
facility or property on which a petroleum UST or UST system is located. 
A holder includes the initial holder (such as a loan originator); any 
subsequent holder (such as a successor-in-interest or subsequent 
purchaser of the security interest on the secondary market); a 
guarantor of an obligation, surety, or any other person who holds 
ownership indicia primarily to protect a security interest; or a 
receiver or other person who acts on behalf or for the benefit of a 
holder.
    (e) A borrower, debtor, or obligor is a person whose UST or UST 
system or facility or property on which the UST or UST system is 
located is encumbered by a security interest. These terms may be used 
interchangeably.
    (f) Primarily to protect a security interest means that the 
holder's indicia of ownership are held primarily for the purpose of 
securing payment or performance of an obligation.
    (1) Security interest means an interest in a petroleum UST or UST 
system or in the facility or property on which a petroleum UST or UST 
system is located, created or established for the purpose of securing a 
loan or other obligation. Security interests include but are not 
limited to mortgages, deeds of trusts, liens, and title pursuant to 
lease financing transactions. Security interests may also arise from 
transactions such as sale and leasebacks, conditional sales, 
installment sales, trust receipt transactions, certain assignments, 
factoring agreements, accounts receivable financing arrangements, and 
consignments, if the transaction creates or establishes an interest in 
an UST or UST system or in the facility or property on which the UST or 
UST system is located, for the purpose of securing a loan or other 
obligation.
    (2) Primarily to protect a security interest, as used in this 
subpart, does not include indicia of ownership held primarily for 
investment purposes, nor ownership indicia held primarily for purposes 
other than as protection for a security interest. A holder may have 
other, secondary reasons for maintaining indicia of ownership, but the 
primary reason why any ownership indicia are held must be as protection 
for a security interest.
    (g) Operation means, for purposes of this subpart, the use, 
storage, filling, or dispensing of petroleum contained in an UST or UST 
system.
Sec. 280.210  Participation in management.
    The term ``participating in the management of an UST or UST 
system'' means that, subsequent to the effective date of this subpart, 
December 6, 1995, the holder is engaging in decisionmaking control of, 
or activities related to, operation of the UST or UST system, as 
defined herein.
    (a) Actions that are participation in management.
    (1) Participation in the management of an UST or UST system means, 
for purposes of this subpart, actual participation by the holder in the 
management or control of decisionmaking related to the operation of an 
UST or UST system. Participation in management does not include the 
mere capacity or ability to influence or the unexercised right to 
control UST or UST system operations. A holder is participating in the 
management of the UST or UST system only if the holder either:
    (i) Exercises decisionmaking control over the operational (as 
opposed to financial or administrative) aspects of the UST or UST 
system, such that the holder has undertaken responsibility for all or 
substantially all of the management of the UST or UST system; or
    (ii) Exercises control at a level comparable to that of a manager 
of the borrower's enterprise, such that the holder has assumed or 
manifested responsibility for the overall management of the enterprise 
encompassing the day-to-day decisionmaking of the enterprise with 
respect to all, or substantially all, of the operational (as opposed to 
financial or administrative) aspects of the enterprise.
    (2) Operational aspects of the enterprise relate to the use, 
storage, filling, or dispensing of petroleum contained in an UST or UST 
system, and include functions such as that of a facility or plant 
manager, operations manager, chief operating officer, or chief 
executive officer. Financial or administrative aspects include 
functions such as that of a credit manager, accounts payable/receivable 
manager, personnel manager, controller, chief financial officer, or 
similar functions. Operational aspects of the enterprise do not include 
the financial or administrative aspects of the enterprise, 

[[Page 46712]]
or actions associated with environmental compliance, or actions 
undertaken voluntarily to protect the environment in accordance with 
applicable requirements in 40 CFR part 280 or applicable state 
requirements in those states that have been delegated authority by EPA 
to administer the UST program pursuant to 42 USC 6991c and 40 CFR part 
281.
    (b) Actions that are not participation in management pre-
foreclosure.
    (1) Actions at the inception of the loan or other transaction. No 
act or omission prior to the time that indicia of ownership are held 
primarily to protect a security interest constitutes evidence of 
participation in management within the meaning of this subpart. A 
prospective holder who undertakes or requires an environmental 
investigation (which could include a site assessment, inspection, and/
or audit) of the UST or UST system or facility or property on which the 
UST or UST system is located (in which indicia of ownership are to be 
held), or requires a prospective borrower to clean up contamination 
from the UST or UST system or to comply or come into compliance 
(whether prior or subsequent to the time that indicia of ownership are 
held primarily to protect a security interest) with any applicable law 
or regulation, is not by such action considered to be participating in 
the management of the UST or UST system or facility or property on 
which the UST or UST system is located.
    (2) Loan policing and work out. Actions that are consistent with 
holding ownership indicia primarily to protect a security interest do 
not constitute participation in management for purposes of this 
subpart. The authority for the holder to take such actions may, but 
need not, be contained in contractual or other documents specifying 
requirements for financial, environmental, and other warranties, 
covenants, conditions, representations or promises from the borrower. 
Loan policing and work out activities cover and include all such 
activities up to foreclosure, exclusive of any activities that 
constitute participation in management.
    (i) Policing the security interest or loan.
    (A) A holder who engages in policing activities prior to 
foreclosure will remain within the exemption provided that the holder 
does not together with other actions participate in the management of 
the UST or UST system as provided in Sec. 280.210(a). Such policing 
actions include, but are not limited to, requiring the borrower to 
clean up contamination from the UST or UST system during the term of 
the security interest; requiring the borrower to comply or come into 
compliance with applicable federal, state, and local environmental and 
other laws, rules, and regulations during the term of the security 
interest; securing or exercising authority to monitor or inspect the 
UST or UST system or facility or property on which the UST or UST 
system is located (including on-site inspections) in which indicia of 
ownership are maintained, or the borrower's business or financial 
condition during the term of the security interest; or taking other 
actions to adequately police the loan or security interest (such as 
requiring a borrower to comply with any warranties, covenants, 
conditions, representations, or promises from the borrower).
    (B) Policing activities also include undertaking by the holder of 
UST environmental compliance actions and voluntary environmental 
actions taken in compliance with 40 CFR part 280, provided that the 
holder does not otherwise participate in the management or daily 
operation of the UST or UST system as provided in Sec. 280.210(a) and 
Sec. 280.230. Such allowable actions include, but are not limited to, 
release detection and release reporting, release response and 
corrective action, temporary or permanent closure of an UST or UST 
system, UST upgrading or replacement, and maintenance of corrosion 
protection. A holder who undertakes these actions must do so in 
compliance with the applicable requirements in 40 CFR part 280 or 
applicable state requirements in those states that have been delegated 
authority by EPA to administer the UST program pursuant to 42 U.S.C. 
6991c and 40 CFR part 281. A holder may directly oversee these 
environmental compliance actions and voluntary environmental actions, 
and directly hire contractors to perform the work, and is not by such 
action considered to be participating in the management of the UST or 
UST system.
    (ii) Loan work out. A holder who engages in work out activities 
prior to foreclosure will remain within the exemption provided that the 
holder does not together with other actions participate in the 
management of the UST or UST system as provided in Sec. 280.210(a). For 
purposes of this rule, ``work out'' refers to those actions by which a 
holder, at any time prior to foreclosure, seeks to prevent, cure, or 
mitigate a default by the borrower or obligor; or to preserve, or 
prevent the diminution of, the value of the security. Work out 
activities include, but are not limited to, restructuring or 
renegotiating the terms of the security interest; requiring payment of 
additional rent or interest; exercising forbearance; requiring or 
exercising rights pursuant to an assignment of accounts or other 
amounts owing to an obligor; requiring or exercising rights pursuant to 
an escrow agreement pertaining to amounts owing to an obligor; 
providing specific or general financial or other advice, suggestions, 
counseling, or guidance; and exercising any right or remedy the holder 
is entitled to by law or under any warranties, covenants, conditions, 
representations, or promises from the borrower.
    (c) Foreclosure on an UST or UST system or facility or property on 
which an UST or UST system is located, and participation in management 
activities post-foreclosure.
    (1) Foreclosure. (i) Indicia of ownership that are held primarily 
to protect a security interest include legal or equitable title or deed 
to real or personal property acquired through or incident to 
foreclosure. For purposes of this subpart, the term ``foreclosure'' 
means that legal, marketable or equitable title or deed has been 
issued, approved, and recorded, and that the holder has obtained access 
to the UST, UST system, UST facility, and property on which the UST or 
UST system is located, provided that the holder acted diligently to 
acquire marketable title or deed and to gain access to the UST, UST 
system, UST facility, and property on which the UST or UST system is 
located. The indicia of ownership held after foreclosure continue to be 
maintained primarily as protection for a security interest provided 
that the holder undertakes to sell, re-lease an UST or UST system or 
facility or property on which the UST or UST system is located, held 
pursuant to a lease financing transaction (whether by a new lease 
financing transaction or substitution of the lessee), or otherwise 
divest itself of the UST or UST system or facility or property on which 
the UST or UST system is located, in a reasonably expeditious manner, 
using whatever commercially reasonable means are relevant or 
appropriate with respect to the UST or UST system or facility or 
property on which the UST or UST system is located, taking all facts 
and circumstances into consideration, and provided that the holder does 
not participate in management (as defined in Sec. 280.210(a)) prior to 
or after foreclosure.
    (ii) For purposes of establishing that a holder is seeking to sell, 
re-lease pursuant to a lease financing transaction (whether by a new 
lease financing transaction or substitution of the lessee), or divest 
in a reasonably expeditious 

[[Page 46713]]
manner an UST or UST system or facility or property on which the UST or 
UST system is located, the holder may use whatever commercially 
reasonable means as are relevant or appropriate with respect to the UST 
or UST system or facility or property on which the UST or UST system is 
located, or may employ the means specified in Sec. 280.210(c)(2). A 
holder that outbids, rejects, or fails to act upon a written bona fide, 
firm offer of fair consideration for the UST or UST system or facility 
or property on which the UST or UST system is located, as provided in 
Sec. 280.210(c)(2), is not considered to hold indicia of ownership 
primarily to protect a security interest.
    (2) Holding foreclosed property for disposition and liquidation. A 
holder, who does not participate in management prior to or after 
foreclosure, may sell, re-lease, pursuant to a lease financing 
transaction (whether by a new lease financing transaction or 
substitution of the lessee), an UST or UST system or facility or 
property on which the UST or UST system is located, liquidate, wind up 
operations, and take measures, prior to sale or other disposition, to 
preserve, protect, or prepare the secured UST or UST system or facility 
or property on which the UST or UST system is located. A holder may 
also arrange for an existing or new operator to continue or initiate 
operation of the UST or UST system. The holder may conduct these 
activities without voiding the security interest exemption, subject to 
the requirements of this subpart.
    (i) A holder establishes that the ownership indicia maintained 
after foreclosure continue to be held primarily to protect a security 
interest by, within 12 months following foreclosure, listing the UST or 
UST system or the facility or property on which the UST or UST system 
is located, with a broker, dealer, or agent who deals with the type of 
property in question, or by advertising the UST or UST system or 
facility or property on which the UST or UST system is located, as 
being for sale or disposition on at least a monthly basis in either a 
real estate publication or a trade or other publication suitable for 
the UST or UST system or facility or property on which the UST or UST 
system is located, or a newspaper of general circulation (defined as 
one with a circulation over 10,000, or one suitable under any 
applicable federal, state, or local rules of court for publication 
required by court order or rules of civil procedure) covering the 
location of the UST or UST system or facility or property on which the 
UST or UST system is located. For purposes of this provision, the 12-
month period begins to run from December 6, 1995 or from the date that 
the marketable title or deed has been issued, approved and recorded, 
and the holder has obtained access to the UST, UST system, UST facility 
and property on which the UST or UST system is located, whichever is 
later, provided that the holder acted diligently to acquire marketable 
title or deed and to obtain access to the UST, UST system, UST facility 
and property on which the UST or UST system is located. If the holder 
fails to act diligently to acquire marketable title or deed or to gain 
access to the UST or UST system, the 12-month period begins to run from 
December 6, 1995 or from the date on which the holder first acquires 
either title to or possession of the secured UST or UST system, or 
facility or property on which the UST or UST system is located, 
whichever is later.
    (ii) A holder that outbids, rejects, or fails to act upon an offer 
of fair consideration for the UST or UST system or the facility or 
property on which the UST or UST system is located, establishes by such 
outbidding, rejection, or failure to act, that the ownership indicia in 
the secured UST or UST system or facility or property on which the UST 
or UST system is located are not held primarily to protect the security 
interest, unless the holder is required, in order to avoid liability 
under federal or state law, to make a higher bid, to obtain a higher 
offer, or to seek or obtain an offer in a different manner.
    (A) Fair consideration, in the case of a holder maintaining indicia 
of ownership primarily to protect a senior security interest in the UST 
or UST system or facility or property on which the UST or UST system is 
located, is the value of the security interest as defined in this 
section. The value of the security interest includes all debt and costs 
incurred by the security interest holder, and is calculated as an 
amount equal to or in excess of the sum of the outstanding principal 
(or comparable amount in the case of a lease that constitutes a 
security interest) owed to the holder immediately preceding the 
acquisition of full title (or possession in the case of a lease 
financing transaction) pursuant to foreclosure, plus any unpaid 
interest, rent, or penalties (whether arising before or after 
foreclosure). The value of the security interest also includes all 
reasonable and necessary costs, fees, or other charges incurred by the 
holder incident to work out, foreclosure, retention, preserving, 
protecting, and preparing, prior to sale, the UST or UST system or 
facility or property on which the UST or UST system is located, re-
lease, pursuant to a lease financing transaction (whether by a new 
lease financing transaction or substitution of the lessee), of an UST 
or UST system or facility or property on which the UST or UST system is 
located, or other disposition. The value of the security interest also 
includes environmental investigation costs (which could include a site 
assessment, inspection, and/or audit of the UST or UST system or 
facility or property on which the UST or UST system is located), and 
corrective action costs incurred under Secs. 280.51 through 280.67 or 
any other costs incurred as a result of reasonable efforts to comply 
with any other applicable federal, state or local law or regulation; 
less any amounts received by the holder in connection with any partial 
disposition of the property and any amounts paid by the borrower (if 
not already applied to the borrower's obligations) subsequent to the 
acquisition of full title (or possession in the case of a lease 
financing transaction) pursuant to foreclosure. In the case of a holder 
maintaining indicia of ownership primarily to protect a junior security 
interest, fair consideration is the value of all outstanding higher 
priority security interests plus the value of the security interest 
held by the junior holder, each calculated as set forth in this 
paragraph.
    (B) Outbids, rejects, or fails to act upon an offer of fair 
consideration means that the holder outbids, rejects, or fails to act 
upon within 90 days of receipt, a written, bona fide, firm offer of 
fair consideration for the UST or UST system or facility or property on 
which the UST or UST system is located received at any time after six 
months following foreclosure, as defined in Sec. 280.210(c). A 
``written, bona fide, firm offer'' means a legally enforceable, 
commercially reasonable, cash offer solely for the foreclosed UST or 
UST system or facility or property on which the UST or UST system is 
located, including all material terms of the transaction, from a ready, 
willing, and able purchaser who demonstrates to the holder's 
satisfaction the ability to perform. For purposes of this provision, 
the six-month period begins to run from December 6, 1995 or from the 
date that marketable title or deed has been issued, approved and 
recorded to the holder, and the holder has obtained access to the UST, 
UST system, UST facility and property on which the UST or UST system is 
located, whichever is later, provided that the holder was acting 
diligently to acquire marketable title or 

[[Page 46714]]
deed and to obtain access to the UST or UST system, UST facility and 
property on which the UST or UST system is located. If the holder fails 
to act diligently to acquire marketable title or deed or to gain access 
to the UST or UST system, the six-month period begins to run from 
December 6, 1995 or from the date on which the holder first acquires 
either title to or possession of the secured UST or UST system, or 
facility or property on which the UST or UST system is located, 
whichever is later.
    (3) Actions that are not participation in management post-
foreclosure. A holder is not considered to be participating in the 
management of an UST or UST system or facility or property on which the 
UST or UST system is located when undertaking actions under 40 CFR part 
280, provided that the holder does not otherwise participate in the 
management or daily operation of the UST or UST system as provided in 
Sec. 280.210(a) and Sec. 280.230. Such allowable actions include, but 
are not limited to, release detection and release reporting, release 
response and corrective action, temporary or permanent closure of an 
UST or UST system, UST upgrading or replacement, and maintenance of 
corrosion protection. A holder who undertakes these actions must do so 
in compliance with the applicable requirements in 40 CFR part 280 or 
applicable state requirements in those states that have been delegated 
authority by EPA to administer the UST program pursuant to 42 U.S.C. 
6991c and 40 CFR part 281. A holder may directly oversee these 
environmental compliance actions and voluntary environmental actions, 
and directly hire contractors to perform the work, and is not by such 
action considered to be participating in the management of the UST or 
UST system.
Sec. 280.220  Ownership of an underground storage tank or underground 
storage tank system or facility or property on which an underground 
storage tank or underground storage tank system is located.

    Ownership of an UST or UST system or facility or property on which 
an UST or UST system is located. A holder is not an ``owner'' of a 
petroleum UST or UST system or facility or property on which a 
petroleum UST or UST system is located for purposes of compliance with 
the UST technical standards as defined in Sec. 280.200(a), the UST 
corrective action requirements under Secs. 280.51 through 280.67, and 
the UST financial responsibility requirements under Secs. 280.90 
through 280.111, provided the person:
    (a) Does not participate in the management of the UST or UST system 
as defined in Sec. 280.210; and

    (b) Does not engage in petroleum production, refining, and 
marketing as defined in Sec. 280.200(b).

Sec. 280.230  Operating an underground storage tank or underground 
storage tank system.

    (a) Operating an UST or UST system prior to foreclosure. A holder, 
prior to foreclosure, as defined in Sec. 280.210(c), is not an 
``operator'' of a petroleum UST or UST system for purposes of 
compliance with the UST technical standards as defined in 
Sec. 280.200(a), the UST corrective action requirements under 
Secs. 280.51 through 280.67, and the UST financial responsibility 
requirements under Secs. 280.90 through 280.111, provided that, after 
December 6, 1995, the holder is not in control of or does not have 
responsibility for the daily operation of the UST or UST system.

    (b) Operating an UST or UST system after foreclosure. The following 
provisions apply to a holder who, through foreclosure, as defined in 
Sec. 280.210(c), acquires a petroleum UST or UST system or facility or 
property on which a petroleum UST or UST system is located.

    (1) A holder is not an ``operator'' of a petroleum UST or UST 
system for purposes of compliance with 40 CFR part 280 if there is an 
operator, other than the holder, who is in control of or has 
responsibility for the daily operation of the UST or UST system, and 
who can be held responsible for compliance with applicable requirements 
of 40 CFR part 280 or applicable state requirements in those states 
that have been delegated authority by EPA to administer the UST program 
pursuant to 42 U.S.C. 6991c and 40 CFR part 281.

    (2) If another operator does not exist, as provided for under 
paragraph (b)(1) of this section, a holder is not an ``operator'' of 
the UST or UST system, for purposes of compliance with the UST 
technical standards as defined in Sec. 280.200(a), the UST corrective 
action requirements under Secs. 280.51 through 280.67, and the UST 
financial responsibility requirements under Secs. 280.90 through 
280.111, provided that the holder:
    (i) Empties all of its known USTs and UST systems within 60 
calendar days after foreclosure or within 60 calendar days after 
December 6, 1995, whichever is later, or another reasonable time period 
specified by the implementing agency, so that no more than 2.5 
centimeters (one inch) of residue, or 0.3 percent by weight of the 
total capacity of the UST system, remains in the system; leaves vent 
lines open and functioning; and caps and secures all other lines, 
pumps, manways, and ancillary equipment; and
    (ii) Empties those USTs and UST systems that are discovered after 
foreclosure within 60 calendar days after discovery or within 60 
calendar days after December 6, 1995, whichever is later, or another 
reasonable time period specified by the implementing agency, so that no 
more than 2.5 centimeters (one inch) of residue, or 0.3 percent by 
weight of the total capacity of the UST system, remains in the system; 
leaves vent lines open and functioning; and caps and secures all other 
lines, pumps, manways, and ancillary equipment.
    (3) If another operator does not exist, as provided for under 
paragraph (b)(1) of this section, in addition to satisfying the 
conditions under paragraph (b)(2) of this section, the holder must 
either:
    (i) Permanently close the UST or UST system in accordance with 
Secs. 280.71 through 280.74, except Sec. 280.72(b); or
    (ii) Temporarily close the UST or UST system in accordance with the 
following applicable provisions of Sec. 280.70:
    (A) Continue operation and maintenance of corrosion protection in 
accordance with Sec. 280.31;
    (B) Report suspected releases to the implementing agency; and
    (C) Conduct a site assessment in accordance with Sec. 280.72(a) if 
the UST system is temporarily closed for more than 12 months and the 
UST system does not meet either the performance standards in 
Sec. 280.20 for new UST systems or the upgrading requirements in 
Sec. 280.21, except that the spill and overfill equipment requirements 
do not have to be met. The holder must report any suspected releases to 
the implementing agency. For purposes of this provision, the 12-month 
period begins to run from December 6, 1995 or from the date on which 
the UST system is emptied and secured under paragraph (b)(2) of this 
section, whichever is later.
    (4) The UST system can remain in temporary closure until a 
subsequent purchaser has acquired marketable title to the UST or UST 
system or facility or property on which the UST or UST system is 
located. Once a subsequent purchaser acquires marketable title to the 
UST or UST system or facility or property on which the UST or UST 
system is located, the purchaser must decide whether to operate or 
close the UST or UST system in accordance with applicable requirements 
in 40 CFR part 280 or applicable state requirements in 

[[Page 46715]]
those states that have been delegated authority by EPA to administer 
the UST program pursuant to 42 U.S.C. 6991c and 40 CFR part 281.
PART 281--APPROVAL OF STATE UNDERGROUND STORAGE TANK PROGRAMS

    1. The authority citation for part 281 is revised to read as 
follows:

    Authority: 42 U.S.C. 6912, 6991 (c), (d), (e), (g).

Subpart C--[Amended]

    2. Section 281.39 is added to subpart C to read as follows:


Sec. 281.39  Lender liability.

    (a) A state program that contains a security interest exemption 
will be considered to be no less stringent than, and as broad in scope 
as, the federal program provided that the state's exemption:
    (1) Mirrors the security interest exemption provided for in 40 CFR 
part 280, subpart I; or
    (2) Achieves the same effect as provided by the following key 
criteria:
    (i) A holder, meaning a person who maintains indicia of ownership 
primarily to protect a security interest in a petroleum UST or UST 
system or facility or property on which a petroleum UST or UST system 
is located, who does not participate in the management of the UST or 
UST system as defined under Sec. 280.210 of this chapter, and who does 
not engage in petroleum production, refining, and marketing as defined 
under Sec. 280.200(b) of this chapter is not:
    (A) An ``owner'' of a petroleum UST or UST system or facility or 
property on which a petroleum UST or UST system is located for purposes 
of compliance with the requirements of 40 CFR part 280; or
    (B) An ``operator'' of a petroleum UST or UST system for purposes 
of compliance with the requirements of 40 CFR part 280, provided the 
holder is not in control of or does not have responsibility for the 
daily operation of the UST or UST system.
    (ii) [Reserved]
    (b) [Reserved]

[FR Doc. 95-21982 Filed 9-6-95; 8:45 am]
BILLING CODE 6560-50-P