The Consumer Financial Protection Bureau (CFPB) proposed a rule to establish consumer protections for residential Property Assessed Clean Energy (PACE) loans.
Residential PACE loans finance home improvements for borrowers, who pay back the loans through increased property tax payments over time. From 2014-2020, a majority of PACE loans were for home improvements for natural disaster preparedness. The obligation to repay the loan through higher property tax payments remains with the property even if the borrower sells the property. While local governments authorize PACE lending, private companies typically administer the programs.
The proposed rule would require lenders to assess a borrower’s ability to repay a PACE loan. Further, it would provide a framework for how these loans will be treated under the Truth in Lending Act. Among other amendments, the proposed rule would adjust disclosure requirements to better fit PACE loans and to help consumers understand the loans’ impact on their property tax payments.
“When unscrupulous companies bait homeowners into unaffordable loans with exaggerated promises of energy bill savings, this can lead to serious financial distress,” CFPB Director Rohit Chopra said. “We are proposing new rules that would require sensible safeguards on these clean energy loans.”
Public comments on the proposal are due by July 26 or 30 days after publication in the Federal Register, whichever is later.
In conjunction with the proposed rule, the CFPB published a report on residential PACE loans. In it, they detail how these loans can cause an increase in borrowers falling behind on their mortgage payments, along with other negative credit outcomes. For example, in October 2022, the FTC and the State of California sued one of these private PACE administrators, Ygrene Energy Fund, to force it to stop deceptive, coercive, and fraudulent sales practices.