ENVIRONMENTAL PROTECTION AGENCY

SUMMARY: The Environmental Protection Agency (EPA) is proposing this

rule under the Resource Conservation and Recovery Act (RCRA), Subtitle

I--Regulation of Underground Storage Tanks, 42 U.S.C. 6901 et seq., to

limit the regulatory obligations of persons maintaining indicia of

ownership in a petroleum underground storage tank (UST) or UST system

primarily to protect a security interest. The rule is proposed in

response to petitions received by the Agency in connection with the

rulemaking related to lender liability under the Comprehensive

Environmental Response, Compensation, and Liability Act (CERCLA), 42

U.S.C. 9601 et seq. (See 57 FR 18349).

The Agency is proposing conditions under which certain 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. (See 40 CFR part 280.)

DATES: Written comments on this proposed rule must be submitted on or

before August 12, 1994.

ADDRESSES: Written comments on today's proposal should be addressed to

the docket clerk at the following address: U.S. Environmental

Protection Agency, OUST Docket (5405), 401 M Street, SW., Washington,

DC 20460. The Docket is located at 401 M Street, SW., Room 2616. One

original and two copies of comments should be sent and identified by

regulatory docket reference number UST 3-16. The docket is open from 9

a.m. to 4 p.m., Monday through Friday, excluding Federal holidays.

Docket materials 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.

FOR FURTHER INFORMATION CONTACT: For further information about this

proposal, 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 (300)

553-7672 (toll-free), or (703) 412-3323 (local). For technical

information on this proposal, contact Shelley Fudge in the EPA Office

of Underground Storage Tanks at (703) 308-8886.

SUPPLEMENTARY INFORMATION: The contents of today's proposed preamble

are listed in the following outline:

1. 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

Proposed Rule

A. Overview

B. Legal Authority

C. 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

D. 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. Lenders in Foreclosure Upon the Effective Date of the Rule

4. Release Reporting Requirements Following Foreclosure

E. Actions Taken to Protect Human Health and the Environment

IV. Financial Responsibility Requirements

V. State Program Approval

VI. Economic Analysis

VII. Regulatory Assessment Requirements

A. Executive Order 12866

B. Regulatory Flexibility Act

C. Paperwork Reduction Act

I. Background

EPA is proposing to establish 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 section 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 guarantee 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.

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\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 not only affects

secured creditors but also UST and UST system owners who seek capital

through the private lending market. Today's proposed rule will provide

a regulatory exemption from corrective action 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 section section 9003(h)(9), to encourage the extension of

credit to credit-worthy UST owners. At present, EPA believes that

concerns over environmental liability are making 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 UST systems that are out of

compliance due to the lack of financing for the UST owner and operator.

(For a more detailed discussion, please refer to the Regulatory

Background Document for this proposed rule, located in the OUST Docket

at 401 M Street, SW., room 2616, Washington, DC 20460.)

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. 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 compliance and improvements could force

companies to abandon their production of UST equipment or to close

altogether, and it may have adverse impacts on the environment by

making the investment or development of new UST technological

innovations more difficult.

The preamble to this proposed rule is structured as follows: The

following section briefly describes the UST program. This section is

followed by a discussion of this proposed 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. Proposed regulatory text concludes this proposed

rule.

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 UST 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 proposed 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) (section 9001(3), 42 U.S.C. 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'' (section 9001(4), 42 U.S.C. 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 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 to leak, had the earliest

compliance deadlines.

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

There are certain types or classes of tanks that are exempt from

all or part of subtitle I's requirements. 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; flow-through process tanks; emergency spill

and overfill tanks that are expeditiously emptied after use; and tanks

holding 110 gallons or less (42 U.S.C. 6991(1)).

In addition, and of particular importance to today's proposal, the

statute excludes one type of potential ``owner'' from the corrective

action requirements applicable to owners. Specifically, the statute

excludes from the definition of owner any person ``who, without

participating in the management of an UST, 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'' (RCRA section 9003(h)(9), 42 U.S.C. 6991b(h)(9)). This statutory

provision is intended to exempt from cleanup responsibility a person

whose only connection with a tank is as the holder of a security

interest; i.e., a bank or other secured creditor who has extended

credit to a borrower (commonly the tank's owner) and who has in return

secured the loan or other obligation by taking a security interest in

the tank. EPA has promulgated regulations governing corrective action

under subtitle I. (See 40 CFR part 280, Secs. 280.51 through 280.67.)

The regulation proposed today addresses the requirements of subtitle I

that are applicable to a person who holds a security interest in a tank

(a ``security holder'' or merely ``holder'') from the time that the

person extends the credit up through and including foreclosure and re-

sale. As described in this proposed rule, a holder may face obligations

either as an owner or as an operator, depending upon the specific

activities undertaken by the holder.

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

Proposed Rule

A. Overview

The security interest exemption under subtitle I, section

9003(h)(9) of RCRA, 42 U.S.C. 6991b(h)(9), 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.

Limited legislative history exists concerning the RCRA subtitle I

security interest exemption. 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 is limited to liability for corrective

action at petroleum-contaminated sites. Since the subtitle I security

interest exemption applies only to the corrective action requirements

for petroleum--Part 280 Subpart F and portions of subpart E, one

interpretation of the statute could hold that the holder is not exempt

from complying with other portions of the statute and regulations

applicable to an ``owner'' of a tank. These other parts 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. However, the statute is

silent with respect to a holder's liability for these 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 section 9001(3) of RCRA subtitle I. Therefore, EPA is

proposing, under its broad rulemaking authority in section 9003, that a

holder who meets the criteria specified in this proposed rule (i.e.,

whose only connection with the tank is as the bona fide holder of a

security interest in the UST or UST system) is not subject to the UST

technical standards 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 section 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 proposed 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

proposed 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 is therefore a tank operator

under the definition at 42 U.S.C. 6991(4). However, under today's

proposed rule, a foreclosing holder's responsibility for corrective

action as an operator is limited in certain circumstances: In general,

a holder's obligations would be limited under the provisions of this

rule where the foreclosed-on tank is no longer storing petroleum, or

where the holder itself empties the tank within a certain time period.

In these circumstances, while a holder is an operator and therefore

subject to the UST program's technical requirements and other

obligations, a holder may remain exempt from the corrective action

requirements and satisfy the technical requirements by exercising one

of the options for compliance described in Section III. D. 2 of this

preamble. These options allow a holder to satisfy its regulatory

obligations as an ``operator'' by undertaking 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 product following foreclosure

will be subject to the full range of requirements applicable to any

person operating a tank (including corrective action requirements).

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\2\Of course, a lender which has control of or responsibility

for the daily operation of a tank would be an ``operator'' under

section 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 section 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 proposal, 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 in 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 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 government conservator or receiver.

B. Legal Authority

The legal basis for this proposed rule is the Agency's broad

authority to issue regulations interpreting and implementing the

provisions of RCRA subtitle I at issue in this proposal. Section

9003(b), 42 U.S.C. 6991b(b) provides EPA with authority 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.''3

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\3\The recent decision by the U.S. Court of Appeals for the D.C.

Circuit in Kelley, et al. v. EPA, No. 93-1312 (Feb. 4, 1994) does

not apply to or affect the rule the Agency is proposing today. The

Kelley decision vacated the Agency's rule on lender liability under

CERCLA, which interpreted a statutory exemption under CERCLA which

is similar to that under RCRA Subtitle I, because ``EPA lack[ed]

statutory authority to restrict by regulation private rights of

action arising under the statute. . .'' Kelley, slip op. at 3. As

noted above, Sec. 9003 expressly confers upon 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.

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The Agency is proposing to define the regulatory terms under which

a secured creditor may, consistent with the statutory exemption, avoid

responsibility for corrective action as an owner and operator of an

underground storage tank, as well as proposing an exemption from

certain financial responsibility requirements. As discussed elsewhere

in this preamble (See Section III.D), the statutory exemption from

corrective action liability addresses only owners of underground

storage tanks, while the statute and EPA's implementing regulations

extend liability to both owners and operators. 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 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

corrective action obligations as an operator. As such, EPA's exercise

of its rulemaking authority in the proposed rule is appropriate and,

perhaps, needed to fully effectuate the purpose of the statute.

In addition, the Agency has explicit rulemaking authority to, in

its discretion, exempt certain classes of owners and operators from

corrective action obligations (i.e., holders of security interests as

described in this proposal). 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 proposed 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 upgrade 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 proposal, EPA believes that it is

reasonable, in light of the purposes behind this proposal, to exempt a

holder from RCRA subtitle I corrective action requirements as an

operator if its USTs are empty and secure (as would be required under

today's proposal) or if the holder chooses to also engage in

environmentally beneficial activities (as discussed in Section III. E

of this preamble). Because of the requirements a holder must meet

before enjoying this proposed exemption, EPA's UST regulations will

satisfy the statutory requirement that they be protective of human

health and the environment.

C. 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 proposed

rule. For the most part, these are also terms used in the section

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 proposal, 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

EPA is proposing that ``indicia of ownership'' means ownership or

evidence of an ownership interest in a petroleum UST or UST system. EPA

is not proposing 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 proposed 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 an UST or UST system. 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

EPA is proposing that the term ``primarily to protect a security

interest'' as used in this proposed 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 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 proposed rule is one

that provides the holder with recourse against an UST or UST system of

the person pledging the security; 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.

In contrast, ``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 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 proposed rule.

However, any such additional reasons must be secondary to protecting a

security interest in the secured UST or UST system. 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 proposed security interest regulatory

exemption.

4. ``Holder'' of Ownership Indicia

A ``holder'' as used in this proposed 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 proposed regulation, as

well as the exemption in section 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 proposed rule. Of course, a trustee or other fiduciary with

respect to an UST or UST system (or any person who independent of the

status as trustee or fiduciary) who holds indicia of ownership in the

UST or UST system primarily to protect a security interest may fall

within this proposed security interest regulatory exemption.

5. Participating in Management

EPA proposes that, as used in this proposed rule, ``participation

in the management of an UST or UST system'' means the actual

involvement in the management or control of decisionmaking related to

the UST or UST system by the holder. Participation in management does

not include the mere capacity or unexercised right or ability to

influence UST or UST system operations. This proposal contains a list

of activities that is not all-inclusive, but which generally describes

activities that are not considered to be evidence that a holder is

participating in the management of an UST or UST system. In addition,

to address those other activities not specifically listed, a general

test of management participation is proposed. The general test

specifies that a holder is considered to be participating in

management, within the scope of this proposed regulatory exemption,

when it exercises decisionmaking control over the borrower's UST or UST

system, or where the holder assumes overall management responsibility

encompassing decisionmaking authority over the enterprise that includes

day-to-day operation of the UST or UST system.

Under the proposed rule, activities that are evidence that a holder

is participating in the management of an UST or UST system, and thus

acting outside the scope of this proposed regulatory exemption,

include: Exercising management control or decisionmaking authority over

operational aspects of an UST or UST system, or securing a lease

agreement, contractual arrangement, or employee relationship with any

other person to manage or operate the UST or UST system. Such

activities indicate that a holder is involved in or exercising

decisionmaking control of operations of the UST or UST system in which

the holder has a security interest.

For purposes of this proposed 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 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 non-operational activities. Such 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, winding down operations following foreclosure or its

equivalents, or divesting itself of the foreclosed-on property

containing an UST or UST system. These, as well as other actions

related to a holder's financial and administrative obligations, are

discussed in more detail in the following section.

a. General Test of Management Participation. It is not possible to

specifically cover in this proposed rule or any regulation every

conceivable situation in which a holder might act, or to make specific

provisions for every action that a holder might undertake that might

make it ineligible for the protection of the proposed security interest

regulatory exemption, voiding the security interest exemption. A

general test or standard of participation in an UST or UST system's

management has therefore been formulated to provide a framework within

which to assess the consistency of a holder's actions with the

limitations of the proposed regulatory exemption.

This proposal's two-prong test or standard of management

participation provides that while the borrower is still in possession

of an UST or UST system (i.e., pre-foreclosure), a holder participates

in the management of an UST or UST system only where the holder either

exercises decisionmaking control over the UST or UST system, or where

the holder's actions manifest or assume responsibility for the overall

management of the UST or UST system's day-to-day operations. The

general test adopts a functional approach which focuses on the holder's

actual decisionmaking involvement in the operational (as opposed to the

financial or administrative) affairs of the borrower's UST or UST

system. The first prong looks to whether the holder has exercised

decisionmaking control over the borrower's environmental compliance. If

so, the holder is ``participating in the management'' of the UST or UST

system as defined in the proposed rule. Similarly, the second prong

looks to where the holder is functioning as the overall manager by

exercising management at a level encompassing the borrower's

environmental obligations, or over all or substantially all of the

operational aspects of the borrower's enterprise, regardless of whether

decisionmaking control over compliance with the regulations governing

the UST or UST system has been explicitly assumed or not. This level of

actual involvement in the management of the UST or UST system is

sufficient to constitute management participation for purposes of this

proposed regulatory exemption.

Under the first prong of the general test, a holder cannot remain

within the scope of the exemption if it controls the borrower's

environmental compliance activities associated with the UST or UST

system. Under the second prong of the general test, the ability to

carve out environmental compliance responsibilities from other

operational aspects of the borrower's business or enterprise

demonstrates that the holder has manifested or assumed operational

responsibility at a management level that includes environmental

matters, and in doing so is considered to be participating in the UST

or UST system's management.

However, management participation does not include the unexercised

right to become involved in operational UST or UST system

decisionmaking. In other words, if the holder does not exercise its

rights to participate in the management of the UST or UST system, it

still may qualify for the security interest exemption. Whether the

exercise of rights that a holder might have--whether under contract or

other agreement (if any) or otherwise, including the enforcement of

loan terms and covenants or other rights--rises to the level of

participation in the UST or UST system's management is measured by

reference to the general test.

b. Actions that are not participation in management. Participation

in the following activities will not exclusively, in themselves, exceed

the bounds of this proposed 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 proposal), or preparing the

UST or UST system for sale or liquidation. In addition, the holder is

not considered to be participating in the management of the UST or UST

system by monitoring the borrower's business; by requiring or

conducting on-site investigations, including site assessments,

inspections, and audits, of the environmental condition of the UST or

UST system or the borrower's financial condition; 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, provided that the holder does not

otherwise participate in the management or operation of the UST or UST

system, as provided in this proposed regulation. Such oversight and

obligations of compliance imposed by the holder are not considered part

of the management of an UST or UST system. Although such requirements

and oversight 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 make

operational decisions concerning the UST or UST system.

The protected activities of a holder that are specifically

identified in this rule are consistent with the language of RCRA

section 9003(h)(9) and the overall purpose of subtitle I. Judicial

decisions construing the substantially similar language of CERCLA

section 101(20)(A) have addressed the issue of the appropriate degree

of a holder's involvement at a facility in which it held a security

interest (i.e., the standard of ``participation in management'').

Although the cases articulated the CERCLA standard using different

language, these cases generally held that the exemption is abrogated

once a holder has divested the borrower or debtor of its management

authority prior to foreclosure, such as when the holder becomes

involved in the facility's day-to-day operations, where it becomes

overly entangled in the affairs of the facility, or where its

involvement otherwise affects a facility's hazardous waste practices.

See United States v. Maryland Bank & Trust Co., 632 F. Supp. 573 (D.

Md. 1986); United States v. Mirabile, 15 Envtl. L. Rep. (Envtl. L.

Inst.) 20994 (E.D. Pa. 1985) (participation in financial management

insufficient to void the security interest exception to owner

liability); United States v. Fleet Factors Corp., 901 F.2d 1550 (11th

Cir. 1990), cert. denied, 111 S.Ct. 752 (1991).

Other cases interpreting the provisions of CERCLA established that

a holder's involvement in financially related matters--such as periodic

monitoring or inspections of secured property, loan refinancing and

restructuring, financial advice, and similar activities--will not void

the exemption. See Guidice v. BFG Electroplating and Manufacturing Co.,

732 F. Supp. 556 (W.D. Pa. 1989); United States v. Nicolet, 29 Envtl.

Rep. Cas. (BNA) 1851 (E.D. Pa. 1989); United States v. Mirabile, 15

Envtl. L. Rep. (Envtl. L. Inst.) 20994 (E.D. Pa. 1985) (participation

in financial management insufficient to void the security interest

exception to owner liability). The variations in the courts'

articulations of the standard, however, left unclear the precise degree

of involvement that could be undertaken without voiding the CERCLA

exemption. See, e.g., Fleet Factors Corp., 901 F.2d at 1557 (secured

creditor may incur CERCLA liability by participating in the financial

management of a facility to a degree indicating a capacity to influence

the corporation's treatment of hazardous waste); In re Bergsoe Metal

Corp., 910 F.2d 668 (9th Cir. 1990) (``there must be some actual

management of the facility before a secured creditor will fall outside

the exception [found in CERCLA section 101(20)(A)]''). However, more

recent cases under CERCLA have articulated a standard of management

participation that is substantially similar to that in this proposed

rule. See United States v. McLamb, 5 F. 3d 69 (4th Cir. 1993);

Waterville Industries, Inc. v. Finance Authority of Maine, 984 F 2d.

549 (1st Cir. 1993).

While the cases listed above describe particular activities and

draw a line between the actions of a holder that are and are not

evidence of management participation for purposes of CERCLA, there

remains uncertainty about the effect of activities commonly or

routinely undertaken by a holder in the course of managing a loan

secured by an UST or UST system. EPA believes that the uncertainty

created for holders examining their potential for liability under

CERCLA also exist when holders assess their potential obligations under

RCRA subtitle I. Therefore, this proposed rule is intended to specify

the compliance obligations for lenders when conducting normal business

activities and to define with greater precision the point at which a

holder's actions pass from loan oversight and advice to actual UST or

UST system management.

The following sections discuss and describe the specific activities

of a holder that the proposed rule defines as either activities that

indicate the holder's participation in the management of an UST or UST

system or those that are not instances of participation in the

management of an UST or UST system by a person holding indicia of

ownership primarily to protect a security interest in the UST or UST

system.

It bears repeating, however, that the activities identified in this

proposed rule do not specify the only activities that may be undertaken

by a holder without losing the protection of the proposed security

interest regulatory exemption, and one should not infer that activities

not specifically mentioned in this rule are automatically considered

evidence of participation in an UST or UST system's management--those

must be addressed on a case-by-case basis based on the general test

provided 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 irrelevant with

respect to the general test of participation in management, and thus

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 first held are not

considered evidence of participation in the management of the UST or

UST system for purposes of this proposed rule. 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 proposed 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 solely as a result of undertaking

or requiring an environmental investigation, and nothing in this

proposed 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,

alone, be considered to be management participation by a holder.

In the event that a pre-loan environmental investigation of a 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 clean up the contamination as a condition for

extending the loan. Such activities are not considered participation in

the UST or UST system's management, 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 solely on this 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 in which the holder possesses indicia of ownership, 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 management participation as provided in the proposed rule's

``general test'' of management participation.

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 proposed 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 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 solely 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

proposed 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 for in this proposed rule, provided that such actions are

consistent with the proposed general test of management participation.

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 the

proposed security interest regulatory exemption only so long as the

holder does not participate in management as provided by this proposed

rule's general test. 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,

representations, or promises from the borrower.

(4) Foreclosure and sale or liquidation. Foreclosure and possession

of property for purposes of sale or liquidation are often the only

remedy the holder may have to secure performance of an obligation. The

process of foreclosure and sale or liquidation of a foreclosed-on UST

or UST system often results in the exclusive possession of the UST or

UST system by the holder and may require or result in the holder's

taking record title to the UST or UST system under the laws of some

states. For purposes of this proposed rule, the term ``foreclosure or

its equivalents'' includes foreclosure, 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 are considered to fall within the

scope of the proposed regulatory exemption as necessary incidents to

holding ownership indicia primarily to protect a security interest.

However, a holder is under the coverage of the proposed rule and is not

considered an ``owner'' of a UST or UST system only 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.

To meet the requirements of the proposed rule's exemption from

regulatory compliance as an ``owner'' following foreclosure, a holder

must be acting consistently with the security interest exemption's

requirement that the ownership indicia maintained by the holder

continue to be held primarily to protect the security interest. Where a

holder's actions indicate that it is not seeking to sell or liquidate

the secured assets, the exemption is voided because such actions are

akin to holding the asset for investment purposes. This proposed

regulation describes circumstances under which a holder may avoid being

considered an ``owner'' of property on which it forecloses for purposes

of certain Subtitle I regulations. It is only by complying with the

provisions of this proposed rule that the limited ownership rights of a

security holder do not rise to the level of full ``ownership''

sufficient to make the security holder an ``owner'' of the tank, as

that term is used in EPA's UST regulations. The proposed rule first

provides a set of general criteria for offering an UST or UST system

for sale, and when and under what circumstances an offer of purchase

may or may not be rejected. In addition, even though a holder is

permitted to use whatever means are appropriate and available to sell

or otherwise divest itself of foreclosed-on property, as a measure of

certainty this proposed rule contains an objective test that, if

followed by a holder, establishes that the holder is meeting the

general obligation to divest itself of a foreclosed-on UST or UST

system in a reasonably expeditious manner. EPA believes that this

aspect of the proposed rule is consistent with the RCRA Subtitle I

security interest exemption.

In general, under this proposal, 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 the proposed rule,

reject or refuse offers for the property that represent fair

consideration for the asset and remain within the proposed regulatory

exemption. 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 proposed 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 proposed 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 proposed 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 today's proposal, be

considered to be an owner of the UST or UST system in the same manner

as any other purchaser.

This proposed rule's provisions defining ``fair consideration'' and

specifying when the foreclosing holder may reject or outbid offers for

the property are 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 ``fair consideration'' is proposed to mean 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'' is further proposed to indicate 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, the proposed 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 proposed 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. For purposes of this proposed rule, the definition of ``fair

consideration'' is an objective, ``bright-line'' 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 the proposed

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, this

proposed rule also provides a mechanism by which a holder can

definitely establish that it continues to hold indicia of ownership

primarily to protect a security interest and is not an ``owner,'' for

purposes of complying with the UST regulatory program, of foreclosed-on

property. This mechanism is intended to act as another ``bright line''

to provide clear and unambiguous evidence that a holder is not the UST

or UST system's ``owner'' following foreclosure: A holder choosing to

avail itself of this bright line test must, within 12 months following

the acquisition of marketable title, 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 the proposed rule that it is seeking

to sell or otherwise divest the property in an expeditious manner.

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 for purposes of complying with the UST regulatory program, as

detailed in this proposed rule.

Regardless of the manner in which the foreclosing holder chooses to

market the property, if at any time after six months following the

acquisition of marketable title the holder 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 proposed rule. Under this proposal, 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 the proposed regulatory exemption, to be

maintaining its indicia of ownership in the property as protection for

investment purposes, and not as security for the obligation.

The proposed exemption from regulatory compliance would also permit

a foreclosing holder to undertake actions with respect to the UST or

UST system to protect or preserve the value of the secured asset. For

example, a holder may determine that it needs to take certain actions

with respect to an UST or UST system's operations in order to preserve

the value of the foreclosed-on assets or to prevent a future release

(such as by the removal of an UST or UST system's contents as described

below), or to otherwise prepare property for safe public access

incident to sale or liquidation of assets. Precisely because a holder

in charge of an UST or UST system may need to take affirmative action

with respect to the UST or UST system incident to foreclosure and with

respect to any petroleum products that are known to be present, the

proposal provides that such actions of dominion and control over the

UST or UST system are considered necessary components of holding

ownership indicia primarily to protect a security interest, provided

such actions are undertaken to protect the asset's value and are not

undertaken for investment purposes. Therefore, under this proposed

rule, such mitigative or preventative measures are considered to be

actions that are consistent with holding ownership indicia primarily to

protect the security interest in the UST or UST system.

(5) Winding up operations after foreclosure. In addition, in the

post-foreclosure context, this proposed 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.

D. Liability of a Holder as an Operator of an Underground Storage Tank

or Underground Storage Tank System

Although this proposed rule would be promulgated under authority to

write regulations governing UST activities, EPA intends that it be

consistent with and further the purposes of the statutory security

interest exemption found at Section 9003(h)(9). One critical aspect of

the RCRA subtitle I statutory security interest exemption is that while

it excludes a holder from the definition of ``owner'' for corrective

action purposes, the statute does not explicitly address a holder's

responsibilities as an UST or UST system ``operator.''4 The

absence of explicit language in the statute regarding operators creates

a potential problem for holders, since EPA's UST corrective action

regulations (as described in Section II. B of this preamble) apply to

both owners and operators of underground storage tanks. Thus, although

RCRA subtitle I clearly exempts holders from corrective action

liability as ``owners'' of USTs, the statute does not address whether

such otherwise exempt persons face correction action liability as

``operators'' of USTs. Without clear protection from corrective action

liability as potential operators of USTs, EPA believes that lenders

will continue to be reluctant to make loans to UST-related businesses

due to continued uncertainty about their potential liability for

corrective action. This regulatory proposal therefore addresses a

holder's potential liability for RCRA subtitle I corrective action as

an ``operator'' of an UST or UST system.

---------------------------------------------------------------------------

\4\Under RCRA Subtitle I, being an ``operator'' is not

synonymous with ``participating in the management'' of an UST or UST

system. Section 9001(3)--Definitions and Exemptions--defines the

term ``operator'' to mean ``any person in control of, or having

responsibility for, the daily operation of the UST system.'' A

person may, without being an ``operator'' of an UST or UST system,

be sufficiently involved so as to be participating in the management

(as that term is defined elsewhere in this proposal) of an UST or

UST system.

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1. Pre-Foreclosure Operation

Prior to foreclosure, a holder who is in control of, or has

responsibility for, the daily operation of an UST or UST system is

subject to the full range of requirements applicable to operators of

USTs. In addition, a holder may also forfeit the protection of the

proposed regulatory security interest exemption from compliance with

the UST regulatory program as an owner if the holder participates in

the management of an UST or UST system as defined in this proposal.

However, a holder will not, as a general matter, have control of,

or responsibility for, the daily operation of an UST or UST system

prior to foreclosure in its capacity as a secured creditor who holds

indicia of ownership primarily to protect a security interest. Prior to

foreclosure, a holder is permitted to conduct those activities related

to its financial and administrative obligations of managing a loan

portfolio. The holder in this position will not lose its ability to

take advantage of the proposed regulatory exemption exclusively as a

result of engaging in these activities. See Section III.C.5 of this

preamble for a more complete discussion of this issue.

2. Post-Foreclosure Operation

If a borrower defaults on its loan obligation and the holder,

primarily to protect its security interest, forecloses on the

borrower's UST or UST system, the holder is faced with the decision to

continue or suspend the storage or dispensing of product from the UST.

As with activities prior to foreclosure, a holder who operates an UST

following foreclosure (in any manner other than placing the UST in

temporary or permanent closure as specified in this proposal) would,

under the current regulatory scheme, be an ``operator'' and subject to

all subtitle I requirements. If the holder complies with the

requirements of this rule for placing a tank into temporary or

permanent closure, a holder, although nevertheless an operator, would

be exempt from the subtitle I corrective action regulatory requirements

otherwise applicable to operators.

The strategies for complying with the UST technical standards

described in this proposal include emptying tanks, leaving vent lines

open and functioning, capping and securing lines within 15 days after

foreclosure, and performing either temporary or permanent closure of

the UST or UST system. Conversely, a foreclosing security holder who

exercises some other strategy for complying with the subtitle I

technical requirements (or who fails to comply) 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.

As long as an UST or UST system continues to store product, future

releases are possible. Consequently, EPA believes that the best way to

ensure that a holder's tanks will not contribute to contamination after

the holder has taken possession of the UST or UST system (particularly

if the holder is exempted from EPA's corrective action regulations) is

to require the holder to empty its tanks of all petroleum product. 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.

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). Under

today's proposal, holders who engage in these activities within 15 days

after foreclosure will be exempted from the corrective action

requirements applicable to ``operators.'' This is a reasonable

condition on which to base this exemption since the threat of future

contamination will have been effectively abated for the temporary

period of time that the property remains in foreclosure by emptying the

tank and complying with the other requirements of 40 CFR part 280, as

described in this proposed rule. Compliance with these requirements

will also satisfy the technical requirements applicable to foreclosing

holders as ``operators'' under the rule proposed today.

EPA is proposing that 15 days be allowed to empty the tank, and cap

and secure all lines and equipment based on its familiarity with

companies that specialize in providing UST technical services and on

the Agency's knowledge of the steps required to properly complete these

tasks. Based on this, EPA proposes that 15 days is a reasonable and

adequate time frame that limits the period of time during which a tank

containing petroleum product may be left largely unattended. However,

the Agency is interested in receiving comments from any holders who

feel that a 15-day time frame would be inadequate for a holder to

arrange for the completion of these tasks. EPA requests comments and

data about the adequacy of a 15-day time frame and information

supporting an alternative time frame. Information supporting EPA's

proposed time frame is available from the Agency OUST docket, reference

number UST 3-16.

In addition to emptying and securing the UST or UST system, a

holder who wishes to take advantage of the proposed exemption from

subtitle I corrective action regulatory requirements as an operator

must comply with the subtitle I requirements for either temporary or

permanent closure. 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. A holder who chooses

to temporarily close its tanks is required, throughout the first 12

months following foreclosure, to maintain corrosion protection and

report any known or suspected releases from the UST system. In

accordance with Sec. 280.70, release detection is not required as long

as the UST system is empty.

If, after 12 months in temporary closure status, the holder

possesses an UST or UST system that does not meet either the

performance standards in Sec. 280.20 for new UST systems or the

upgrading requirements in Sec. 280.21 (excluding the spill and overfill

equipment requirements), and the holder has not successfully disposed

of the UST or UST system, the holder must either permanently close the

UST system in accordance with Secs. 280.71 through 280.74 or perform a

site assessment in accordance with Sec. 280.72(a) and apply for an

extension through the appropriate implementing agency.

A holder will only need to perform a site assessment if it has

failed to sell or otherwise divest of its UST or UST system property

within 12 months after entering temporary closure and only if the tanks

it 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. (UST systems that are adequately protected from

corrosion and equipped with leak detection devices pose a significantly

lower threat to human health and the environment than do substandard

tanks.) The site assessment requirement can also be satisfied 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. For

those who are still in possession of tanks 12 months after foreclosure,

many are expected to possess upgraded or replaced tanks since much of

the credit that is expected to be extended subsequent to this rule

should be used for upgrading or replacing substandard tanks. Under

these circumstances, the holder would be allowed to remain in temporary

closure indefinitely. Therefore, EPA believes that few situations

should call for a site assessment while the holder is in temporary

closure. For those cases in which a holder will find it necessary to

perform a site assessment and apply for a temporary closure extension,

EPA does not believe that such a requirement will pose a significant

additional burden upon the holder, since it is increasingly a standard

business practice for a site assessment to be conducted upon most

transfers of commercial property. (See Guidelines for an Environmental

Risk Program, Federal Deposit Insurance Corporation, February 25,

1993.) While in some cases the requirement may oblige a holder to

perform a site assessment sooner (within 12 months after foreclosure)

rather than later (upon the date of sale or disposition of the UST or

UST system), EPA expects that in most cases a site assessment will, in

all probability, be performed before the UST or UST system is

transferred to a subsequent purchaser.

The purpose of the provision that requires an UST owner and

operator to perform a site assessment in order to apply for an

extension 12 months after entering temporary closure (if a substandard

UST or UST system has not been replaced or upgraded) was to allow a

variance mechanism for UST owners to avoid permanent closure of tanks,

on a case-by-case basis. The reason for requiring the site assessment

before applying for an extension was based on EPA's concerns that prior

contamination could have occurred and could continue to spread from a

temporarily closed UST system. Although a holder would not be required

to comply with EPA's UST corrective action regulations if contamination

is discovered (provided, of course, the holder satisfies the

requirements of this proposed rule), it would be required to report

evidence of the contamination to the implementing agency (as discussed

in the following subsection), who can then decide on the appropriate

course of action.

Of course, a holder may choose to continue to operate the UST by

storing or dispensing product after foreclosure, or otherwise not

exercise either of the options described above. The holder may

determine that its interests will be best served by forgoing the

security interest exemption, continuing operation of the UST system,

and perhaps realizing a greater return of capital on the security

interest by selling the property with the UST system as a going

concern. In such cases, the tank would be regulated in the same manner

as a tank operated by any other person, and the holder would be fully

responsible as an operator for compliance with RCRA subtitle I

regulations, including corrective action, the UST technical standards,

and financial responsibility requirements.

EPA believes that the environment is adequately protected where a

holder chooses either of the post-foreclosure options described above

for complying with the technical requirements of Subtitle I. Where the

tank is removed from service and emptied of its contents, the threat of

an unknown or undetected leak resulting in environmental contamination

is abated; accordingly, the Agency believes it is appropriate to exempt

a foreclosing holder from UST corrective action regulatory requirements

under these circumstances.

3. Lenders in Foreclosure Upon the Effective Date of the Rule

The Agency recognizes that some lenders may already hold UST

properties through foreclosure or its equivalents at the time the final

rule is promulgated. Although EPA is primarily concerned about the

future availability of capital to UST owners and operators, rather than

loans that have already been extended, the Agency recognizes that

holders may be concerned about their potential liability associated

with current holdings acquired through foreclosure or its equivalents

affecting the extension of future UST loans. A holder who possesses an

UST property at the time the rule is promulgated may have tanks that

still store product. It would be difficult to determine whether or not

contamination caused by a release from such tanks had occurred during

the time that the holder had possession of the UST property. A holder,

therefore, could potentially be held liable as an UST operator if he

has possession of a tank at the time the final rule is promulgated.

EPA requests comments on this aspect of today's proposal. We are

interested in collecting data that will clarify whether future UST loan

decisions would be negatively affected if the security interest

exemption is not extended to holders possessing UST properties through

foreclosure or its equivalents upon promulgation of this rule. In

addition, EPA is interested in comments addressing whether and how an

exemption from the UST regulatory requirements could be structured for

holders of such tanks. Finally, we are also interested in receiving

comments addressing the extent to which such a regulatory exemption

could impact human health and the environment.

4. Release Reporting Requirements Following Foreclosure

Under today's proposal, upon foreclosure, a holder taking advantage

of the proposed 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

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 proposed rule, Sec. 280.50 has historically been

viewed by EPA as part of the UST technical standards.

A holder is responsible, following foreclosure or its equivalents,

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 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 proposed rule, a holder would have to

perform release investigation and confirmation in accordance with

Secs. 280.51 through 280.53. Under today's proposal, a holder who

chooses to take the tank(s) out of service as described in this

proposal 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 is obligated to comply with all

of the Subpart E requirements, including those related to release

investigation and confirmation, and corrective action.

E. Actions Taken to Protect Human Health and the Environment

Because of the special position and role played by bona fide

holders, as has been recognized by Congress in creating the statutory

exemption from corrective action liability, the Agency believes that it

is appropriate to include within the scope of protected UST or UST

system activities certain lender actions which protect human health and

the environment. EPA believes that there are a number of activities in

which a holder may engage after foreclosure which can contribute to the

protection of human health and the environment and in which the holder

may engage and still meet the terms of the proposed rule's exemption

from regulatory requirements. Such activities include: Release response

and corrective action for UST systems, permanent or temporary closure

of an UST or UST system, tank upgrades or replacements, environmental

investigations, maintenance of corrosion protection, and release

reporting. The Agency believes that protection of human health and the

environment can be advanced by allowing a holder to participate in

activities associated with environmental compliance either prior to or

following foreclosure on an UST or UST system. Environmental compliance

activities are generally considered to be integral to the daily

operations of an UST or UST system, and a person who participates in

those activities would typically be considered an operator. However, a

reasonable holder may also undertake such activities in the course of

maintaining its indicia of ownership in the tank to protect its

security interest. Therefore, the Agency believes that it is

appropriate to propose that environmental compliance activities, if

undertaken by a holder, will nevertheless allow the holder to take

advantage of the proposed exemption from regulatory requirements. The

Agency is not proposing that these activities be required of a holder

as a condition for obtaining the security interest exemption as an UST

owner, but that holders be able to participate in these activities

without losing the protection of the proposed exemption.

Prior to foreclosure, therefore, and where the holder is otherwise

permitted,5 a holder may require the borrower to comply, or itself

undertake to ensure compliance, with the subtitle I regulations

applicable to the tank owner and operator (typically, the borrower),

without being deemed an ``operator'' under the provisions of this

proposed rule. EPA believes that a holder who is ensuring that a tank

is operated as specified in 40 CFR part 280 (even if the holder is

itself performing the activities authorized or required by part 280) is

acting both to preserve the collateral (and therefore acting consistent

with its capacity as a security interest holder) and to protect human

health and the environment. It is appropriate for a holder to intervene

in such circumstances in which human health and the environment are

threatened by an UST owner or operator's improper management or

operation of its tank(s). However, undertaking activities that bring

the tank(s) into compliance (i.e., regulatory compliance actions such

as tank testing, leak detection, upgrading, etc.) will not exempt a

holder from complying with the UST corrective action regulatory

requirements if the holder is otherwise involved in the day-to-day

operation of the tank(s). All other acts of operation undertaken by a

holder (such as filling the tank(s) with product, selling and/or

dispensing tank product, performing overall management functions, etc.)

are not shielded activities under this proposed rule because by doing

so the holder displaces the borrower as the primary operator of the

tank(s).

---------------------------------------------------------------------------

\5\For example, where the lender is permitted pursuant to the

loan document or under applicable state laws.

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Furthermore, following foreclosure, where the holder chooses to

take advantage of the conditional exemption from the corrective action

regulations by emptying and removing the tank from operation, as

specified above, the Agency proposes that the holder may--without

losing the protection of the proposed rule--undertake cleanup

activities consistent with the corrective action requirements of 40 CFR

part 280, subpart F at or in connection with the UST or UST system. EPA

specifically requests comments on this aspect of today's proposal.

IV. Financial Responsibility Requirements

RCRA section 9003(d), 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 proposal, 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 level of a full ``owner,'' and

therefore is not subject to compliance with those regulatory

requirements. As described earlier, this proposed revision of EPA's

corrective action regulatory program is consistent with the Subtitle I

statutory security interest exemption. Similarly, the Agency believes

that a holder is not subject to the financial responsibility

requirements as an UST owner. The Agency is also proposing to exempt a

holder as an UST operator from the financial responsibility

requirements.

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. EPA is today proposing that a holder

be 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. D. 2 of this preamble). In these situations,

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 proposing to exempt holders who satisfy all

the other requirements in this proposed 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 proposal

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. EPA has

chosen to propose this exemption based on the statutory authority

provided in section 9003. The proposed exemption is consistent with the

interpretation of that language adopted in the preamble to the UST

financial responsibility final rule (53 FR 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 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 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 very 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 proposed

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 section 9003(c)(6) supports this proposed 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 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, EPA is proposing that holders who act in

accordance with the requirements described in this proposed rule be

exempt from all subtitle I financial responsibility requirements.

V. State Program Approval

RCRA subtitle I section 9004, 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.

Today's proposed rule is not intended to present a barrier for

states to receive state program approval. A state is not required to

have enacted a security interest exemption in order to receive approval

of its program from EPA, since failure to have such a provision would

merely make the state program broader in scope than the federal one.

However, EPA encourages states to adopt statutory and/or regulatory

provisions comparable to the final federal UST lender liability rule so

that credit-worthy UST owners and operators will have access to funds

to upgrade or replace their tanks.

If a state program includes an UST security interest exemption, EPA

will evaluate it against the criteria in Sec. 281.39, as proposed in

this notice. These criteria stem from the key components contained in

this proposed rule. A state program that exempts a holder from UST

corrective action, financial responsibility, and technical requirements

as an owner 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 of the

UST or UST system; and the holder does not engage in petroleum

production, refining, and marketing. In addition, a state program may

be approved if it exempts a holder from corrective action and financial

responsibility as an operator and if, in addition to the three previous

criteria, it requires the holder to demonstrate that its tanks have

been emptied and secured, and that it has either permanently or

temporarily closed the UST or UST system.

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(a)(3) of the State Program Approval

regulations.

VI. Economic Analysis

As discussed elsewhere in this proposal, EPA believes that concerns

over environmental liability are making a significant number of lenders

reluctant to make loans to otherwise credit-worthy owners and operators

of USTs. A more analytical approach to describing the current lending

climate and the potential effects associated with today's proposal is

through a discussion of lending rates that UST owners are currently

faced with, in comparison to those that may prevail after promulgation

of a final rule.

In analytical terms, prior to final promulgation of today's

proposed rule, the rate that lenders charge now when considering making

an UST-related loan can be described as:

rmarket-i=rb+re

where:

rmarket=Prevailing interest rate on UST-related loans

i=Risk-free rate of return

rb=Risk premium banks charge for loans to small businesses. (This

factor includes the financial risk for a business with certain assets

that is unable to repay its loan.)

re=Risk premium charged for UST owners. (This factor includes the

financial risk that a lender may have to pay for contamination, or

uncertainty regarding the true value of collateral, in the event of

contamination.)

Due to the current uncertainty regarding a holder's obligations to

comply with the UST regulatory requirements, the risk premium

``re'' that banks have to charge in order to be adequately

compensated for their risk in an UST-related loan may often be so high

that it effectively precludes lenders from making loans at this level.

A related barrier to lending is that since all UST owners bear a

systematic risk imposed by government regulations, lenders cannot

diversify to substantially reduce or eliminate the UST-related risk

premium, re, by holding a portfolio of UST-related loans with

different characteristics and risks. Since most UST owners and

operators are small businesses that cannot self finance, they will

either forego or delay UST facility improvements. While many UST-

related loans are expected to be used for financing tank upgrades or

replacements, these loans may also be used to provide additional

services at the facility (e.g., an expanded area for food items at a

convenience store). If lenders are precluded from making UST-related

loans, both environmental protection and economic growth may suffer.

By providing the exemption for holders from UST regulatory

requirements contained in this proposed rule and thus reducing the

uncertainty associated with making an UST-related loan, the risk

premium is expected to be significantly reduced. The interest rate

relationship after final promulgation of today's proposed rule can be

described as:

rmarket (post rule)=i+rb+re (post rule)

where:

rmarket (post rule)=Prevailing interest on UST-related loans after

final promulgation of today's proposed rule

re (post rule)=Risk premium charged for UST owners after final

promulgation of today's proposed rule

Although re (post rule) will still exist, it is expected to be

significantly less than re. The result would be the reduction of

the prevailing interest rate on UST-related loans to a level,

rmarket (post rule), that is both adequate to compensate lenders

for their perceived risk and at the same time affordable for credit-

worthy UST owners.

There are social costs associated with owners' and operators'

inability to use the least costly financial mechanism to comply with

the existing UST regulations. By reducing the risk premium to a level

at which lenders are both willing and able to make UST-related loans,

this proposed regulation is expected to increase the ability of UST

owners and operators to comply with subtitle I regulations, thereby

reducing these social costs. To the extent that loans are made for

environmental compliance purposes, social costs would also be reduced

by decreasing the number and severity of releases from old USTs that

might otherwise occur in the absence of upgrading or replacing tanks.

The Agency is interested in obtaining comments on how this proposed

rule might allow UST owners and operators to use less costly financial

mechanisms to comply with UST regulations. Specifically, the Agency

requests information from lenders on the current interest rate charged

for loans when property with one or more USTs is used as collateral.

The Agency also requests information from lenders regarding the extent

to which credit might have been extended to UST owners and operators in

the past had this proposed rule been in effect.

Further information and a more detailed discussion of the costs and

benefits associated with today's proposal is contained in the

``Regulatory Background Document'' for this proposed rule, located in

the OUST Docket at 401 M Street, SW.; room 2616; Washington, DC 20460.

VII. Regulatory Assessment Requirements

A. Executive Order 12866

Under Executive Order 12866 (58 FR 51,735 (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 proposed rule is a ``significant regulatory

action'' because it raises policy issues. As such, this action was

submitted to OMB for review. Changes made in response to OMB

suggestions or recommendations will be documented in the public record.

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 proposed rule may actually result in cost

savings for small entities that hold security interests in USTs or UST

systems, EPA certifies that today's proposed rule would not have a

significant impact on a substantial number of small entities.

C. Paperwork Reduction Act

This proposed rule does not contain any new information collection

requirements under the provision of the Paperwork Reduction Act, 44 USC

3501 et seq.

To the extent that this proposed 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).

List of Subjects in 40 CFR Parts 280 and 281

Environmental liability, Financial institutions, Ground water,

Lender liability, Oil pollution, Petroleum, State program approval,

Underground storage tanks, Water pollution control.

Dated: June 3, 1994.

Carol M. Browner,

Administrator.

For the reasons set out in the preamble, chapter I, title I of the

Code of Federal Regulations is proposed to be amended as follows:

PART 280--TECHNICAL STANDARDS AND CORRECTIVE ACTION REQUIREMENTS

FOR OWNERS AND OPERATORS OF UNDERGROUND STORAGE TANKS (USTs)

1. The authority citation for part 280 continues to read as

follows:

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

6991f, 6991h.

2. Part 280 is proposed to be amended by adding subpart I

consisting of Secs. 280.200 through 280.250 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.

280.230 Operating an underground storage tank or underground

storage tank system.

280.240 Actions taken to protect human health and the environment

under 40 CFR part 180.

280.250 Financial responsibility.

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 to real or personal

property acquired incident to foreclosure or its equivalents. 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''), legal or equitable title obtained pursuant to

foreclosure, and their equivalents. 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 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. 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 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 the 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.

Sec. 280.210 Participation in management.

The term participating in the management of an UST or UST system

means that the holder is engaging in acts of petroleum UST or UST

system management, as defined herein.

(a) Actions that are participation in management pre-foreclosure.

Participation in the management of an UST or UST system means, for

purposes of this subpart, actual participation in the management or

control of decisionmaking related to the UST or UST system by the

holder and 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 management, while the borrower is still in

possession of the UST or UST system encumbered by the security

interest, only if the holder either:

(1) Exercises decisionmaking control over the borrower's

environmental compliance, such that the holder has undertaken

responsibility for the borrower's UST or UST system management; or

(2) 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:

(i) Environmental compliance; or

(ii) All, or substantially all, of the operational (as opposed to

financial or administrative) aspects of the enterprise other than

environmental compliance. Operational aspects of the enterprise include

functions such as that of facility or plant manager, operations

manager, chief operating officer, or chief executive officer. Financial

or administrative aspects include functions such as that of credit

manager, accounts payable/receivable manager, personnel manager,

controller, chief financial officer, or similar functions.

(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 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 UST's or UST system's management.

(2) Loan policing and workout. 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 workout activities cover and include all such

activities up to foreclosure or its equivalents, exclusive of any

activities that constitute participation in management.

(i) Policing the security interest or loan. A holder who engages in

policing activities prior to foreclosure will remain within the

exemption provided that the holder does not by such actions participate

in the management of the UST or UST system as provided in

Sec. 280.210(a). Such 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 (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).

(ii) Loan work out. A holder who engages in work out activities

prior to foreclosure or its equivalents will remain within the

exemption provided that the holder does not by such action 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 or its

equivalents, 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 and participation in

management activities post-foreclosure--(1) Foreclosure. Indicia of

ownership that are held primarily to protect a security interest

include legal or equitable title acquired through or incident to

foreclosure or its equivalents. For purposes of this subpart, the term

foreclosure or its equivalents includes purchase at foreclosure sale;

acquisition or assignment of title in lieu of foreclosure; termination

of a lease or other repossession; acquisition of a right to title or

possession; an agreement in satisfaction of the obligation; or any

other formal or informal manner (whether pursuant to law or under

warranties, covenants, conditions, representations, or promises from

the borrower) by which the holder acquires title to or possession of

the secured UST or UST system. 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 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 in a

reasonably expeditious manner, using whatever commercially reasonable

means are relevant or appropriate with respect to the UST or UST

system, taking all facts and circumstances into consideration, and

provided that the holder did not participate in management (as defined

in Sec. 280.210(a)) prior to foreclosure or its equivalents. For

purposes of establishing that a holder is seeking to sell, re-lease an

UST or UST system held pursuant to a lease financing transaction

(whether by a new lease financing transaction or substitution of the

lessee), or divest an UST or UST system in a reasonably expeditious

manner, the holder may use whatever commercially reasonable means as

are relevant or appropriate with respect to the UST or UST system, 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, 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 did not participate in management prior to foreclosure or

its equivalents, may sell, re-lease an UST or UST system held pursuant

to a lease financing transaction (whether by a new lease financing

transaction or substitution of the lessee), liquidate, wind up

operations, and take measures to preserve, protect, or prepare the

secured UST or UST system prior to sale or other disposition. The

holder may conduct these activities without voiding the exemption,

subject to the requirements of this subpart.

(i) A holder establishes that the ownership indicia maintained

following foreclosure or its equivalents 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 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 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 UST or UST system is

located. For purposes of this provision, the 12-month period begins to

run from the time that the holder acquires marketable title, provided

that the holder, after the expiration of any redemption or other

waiting period provided by law, was acting diligently to acquire

marketable title. If the holder fails to act diligently to acquire

marketable title, the 12-month period begins to run on the date of

foreclosure or its equivalents.

(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 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, is the value of the security interest as defined in this

section. The value of the security interest 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 an UST or UST system subject

to a lease financing transaction) pursuant to foreclosure or its

equivalents, plus any unpaid interest, rent, or penalties (whether

arising before or after foreclosure or its equivalents), plus all

reasonable and necessary costs, fees, or other charges incurred by the

holder incident to work out, foreclosure or its equivalents, retention,

preserving, protecting, and preparing the UST or UST system prior to

sale, re-lease of an UST or UST system held pursuant to a lease

financing transaction (whether by a new lease financing transaction or

substitution of the lessee) or other disposition, plus environmental

investigation and corrective action costs incurred under Secs. 280.51

through 280.67; 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 possession

in the case of an UST or UST system subject to a lease financing

transaction) pursuant to foreclosure or its equivalents. 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 the

preceding sentence.

(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 of a written, bona fide, firm offer of

fair consideration for the UST or UST system received at any time after

six months following foreclosure or its equivalents. A ``written, bona

fide, firm offer'' means a legally enforceable, commercially

reasonable, cash offer solely for the foreclosed UST or UST system,

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 the time that the holder acquires marketable

title, provided that the holder, after the expiration of any redemption

or other waiting period provided by law, was acting diligently to

acquire marketable title. If the holder fails to act diligently to

acquire marketable title, the six-month period begins to run on the

date of foreclosure or its equivalents.

Sec. 280.220 Ownership of an underground storage tank or underground

storage tank system.

(a) Ownership of an UST or UST system for purposes of corrective

action. A holder is not an ``owner'' of a petroleum UST or UST system

for purposes of compliance with corrective action requirements under

Secs. 280.51 through 280.67, provided the person:

(1) Does not participate in the management of the UST or UST system

as defined in Sec. 280.210; and

(2) Does not engage in petroleum production, refining, and

marketing.

(b) Ownership of an UST or UST system for purposes of the UST

technical standards. A holder is not an ``owner'' of a petroleum UST or

UST system for purposes of the UST technical standards provided that

the holder:

(1) Does not participate in the management of the UST or UST system

as defined in Sec. 280.210; and

(2) Does not engage in petroleum production, refining, and

marketing.

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 or its equivalents, is not an ``operator'' of a

petroleum UST or UST system for purposes of compliance with the

corrective action requirements of Secs. 280.51 through 280.67 and the

UST technical standards, provided 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.

(1) A holder who has not participated in management prior to

foreclosure and who acquires a petroleum UST or UST system through

foreclosure or its equivalents is not an ``operator'' of the UST or UST

system for purposes of compliance with the corrective action

requirements under Secs. 280.51 through 280.67, provided that the

holder within 15 days following foreclosure or its equivalents, empties

all of its USTs and UST systems 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.

(2) In addition, 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

applicable provisions of Sec. 280.70 as follows:

(A) A holder may remain in temporary closure for up to 12 months

by:

(1) Continuing operation and maintenance of corrosion protection in

accordance with Sec. 280.31; and

(2) Reporting suspected releases to the implementing agency.

(B) If the UST system is temporarily closed for more than 12

months, the holder must permanently close the UST system if it 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. A

substandard UST system must be permanently closed in accordance with

Secs. 280.71 through 280.74, except Sec. 280.72(b), unless the

implementing agency provides an extension of the 12-month temporary

closure period. The holder must complete a site assessment in

accordance with Sec. 280.72(a) before such an extension can be applied

for.

(3) A holder who acquires a petroleum UST or UST system through

foreclosure or its equivalents is not an ``operator'' of the UST or UST

system for purposes of 40 CFR part 280, subparts B, C, and D of the

technical standards for the first 15 days following foreclosure or its

equivalents, provided the holder complies with Sec. 280.230(b).

Sec. 280.240 Actions taken to protect human health and the environment

under 40 CFR part 280.

A holder is not considered to be an operator of an UST or UST

system or to be participating in the management of an UST or UST system

solely on the basis of undertaking actions under 40 CFR part 280,

subparts B through H, provided that the holder does not otherwise

participate in the management or daily operation of the UST or UST

system. Such actions include, but are not limited to, 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.

Sec. 280.250 Financial responsibility.

A holder is exempt from the requirement to demonstrate financial

responsibility under subpart H--Financial Responsibility, provided the

holder:

(a) Does not participate in the management of the UST or UST system

as defined in Sec. 280.210;

(b) Does not engage in petroleum production, refining, and

marketing as defined in Sec. 280.200(b); and

(c) Complies with the requirements of Sec. 280.230.

PART 281--APPROVAL OF STATE UNDERGROUND STORAGE TANK PROGRAMS

1. The authority citation for part 281 continues to read as

follows:

Authority: Sections 2002, 9004, 9005, 9006 of the Solid Waste

Disposal Act, as amended by the Resource Conservation and Recovery

Act of 1976, as amended (42 U.S.C. 6912, 6991 (c), (d), (e)).

Subpart C--[Amended]

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

Sec. 281.39 Lender liability.

(a) A state is not required to have a security interest exemption

to obtain or maintain RCRA Subtitle I program approval. If a state

enacts a security interest exemption provision, it does not have to be

as extensive as the security interest exemption provided for in 40 CFR

part 280, subpart I, as defined in Secs. 280.200 through 280.250, to

obtain or maintain RCRA subtitle I program approval. However, a state's

security interest exemption cannot be broader in scope or less

stringent than the security interest exemption provided for in 40 CFR

part 280, subpart I.

(b) A state program will be considered to be no less stringent

than, and as broad in scope as, the federal program provided that the

state provision:

(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, who does not participate in the management of the UST or UST

system as defined under Sec. 280.210 and who does not engage in

petroleum production, refining, and marketing as defined under

Sec. 280.200(a) is not:

(A) An ``owner'' of a petroleum UST or UST system for purposes of

compliance with 40 CFR part 280 requirements;

(B) An ``operator'' of a petroleum UST or UST system for purposes

of compliance with 40 CFR part 280 requirements prior to foreclosure or

its equivalents, provided the holder is not in control of or does not

have responsibility for the daily operation of the UST or UST system;

(C) An ``operator'' of a petroleum UST or UST system for purposes

of compliance with 40 CFR part 280 corrective action and financial

responsibility requirements after foreclosure or its equivalents,

provided the holder complies with the requirements of Sec. 280.230(b).

(ii) [Reserved]

[FR Doc. 94-14173 Filed 6-10-94; 8:45 am]

BILLING CODE 6560-50-P