Dear Board of Directors:
The purpose of this letter is to inform all federally insured credit unions of potential liability to your members, and possibly to the credit union, when environmental contamination is discovered on real property financed by the credit union. While environmental liability can occur with any real estate secured loan, it is generally more likely to occur with non-residential real estate (i.e., commercial use properties). All credit unions granting real estate secured loans need to be aware of this issue and credit unions granting member business loans secured by real estate should establish policies and procedures to help ensure liability in this regard is minimized.
The need and extent of environmental risk education and risk management will vary depending on the types of loans granted and the likelihood of an environmental hazard existing in the credit union’s trade area. Federal laws provide defenses against the potential liability of having to pay for cleaning up a contaminated site for members as owners of real property and for a credit union in cases where foreclosure becomes necessary. If a member or credit union cannot invoke an established defense, the potential fines and costs for cleanup of a property could be substantial.1 With the continued growth of residential and member business real estate secured loans in the credit union industry, it is important that we consider environmental liability as an element of risk in the lending process. I encourage you to use this letter to assist in informing staff of environmental risk considerations, including ways to mitigate risk.
If you have any questions or concerns, please contact your NCUA Regional Office or State Supervisory Authority.
JoAnn M. Johnson
1 The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), of 1980 and subsequent amendments establish fines and costs for particular environmental hazards, including daily and aggregate maximum amounts. CERCLA is just one federal environmental protection law to consider.