The Consumer Financial Protection Bureau has relaunched efforts to put safeguards around clean energy loans, the agency announced Monday.
Proposed rulemaking by the government watchdog would establish
Specifically, the rule would adjust disclosure requirements to help consumers understand the loans' impact on their property tax payments. One such change requires creditors to consider a consumer's monthly payments to their escrow accounts as a factor when making a repayment ability determination.
The regulation would also extend the civil liability provisions of the Truth in Lending Act (TILA) to these types of transactions, allowing the CFPB to hold PACE lenders liable for potential violations. Commentary from the public is due by July 26.
PACE loans have faced their fair share of controversy. Consumer advocates have expressed concerns about deceptive practices associated with these loans, and their overly high costs, which can result in a borrower's delinquency. Some housing agencies have also deemed this product as too risky.
"When unscrupulous companies bait homeowners into unaffordable loans with exaggerated promises of energy bill savings, this can lead to serious financial distress," said CFPB Director Rohit Chopra in a written statement Monday. "We are proposing new rules that would require sensible safeguards on these clean energy loans."
The repayment of PACE loans is attached to a property — not the homeowners — through a property tax lien, with installments typically paid over 15 to 20 years. PACE loans have a senior lien position ahead of a mortgage.
This has been problematic for some housing agencies such as Fannie Mae and Freddie Mac. The government sponsored enterprises typically
As of December 31, 2022, 323,000 home upgrades have been financed with PACE loans, totaling $7.7 billion. Currently, 19 states and the District of Columbia have legislation allowing PACE loans, though out of these states, only three have active programs, including California, Florida and Missouri, the bureau wrote in its proposed rule.
The process of setting guardrails around these loans has been underway since 2018, when Congress directed the CFPB to enact regulations that deal with "the unique nature" of PACE financing. A year later, in advance of rulemaking, the CFPB solicited feedback from the public.
At the time, some industry stakeholders expressed concerns that the super-priority lien associated with PACE transactions creates incentives for home improvement contractors to originate loans on the spot, without regard to affordability. Others made allegations of deceptive or aggressive sales tactics, and argued that these loans can result in unexpected tax payment spikes that can lead to delinquency, late fees and foreclosure actions.
Since 2019, two PACE companies have settled with regulators over their alleged conduct.
Renovate America, Inc. reached a $4 million settlement with six counties and one city in California over failing to make adequate disclosures. Following the settlement, the company's license was revoked. Three years later, Ygrene Energy Fund Inc. reached a $22 million settlement with the Federal Trade Commission (FTC) and the State of California over allegations regarding its conduct in the PACE marketplace.
