CFPB lays down stricter rules for PACE loans

Proposed rule would require "sensible safeguards" on these clean energy loans

CFPB lays down stricter rules for PACE loans

The Consumer Financial Protection Bureau (CFPB) has proposed a rule requiring lenders of Property Assessed Clean Energy (PACE) loans to consider a borrower's ability to repay when issuing a new PACE loan.

PACE loans finance clean energy improvements such as solar panels for borrowers, who pay back the loans through increased property tax payments over time. However, the CFPB's report showed that some risks of PACE loans are higher property taxes and interest rates, increased mortgage delinquencies, and credit card balances.

The proposed rule would require lenders to assess a borrower's ability to repay a PACE loan, as well as adjust disclosure requirements to better fit PACE loans and to help consumers understand the loans' impact on their property tax payments. The CFPB would also provide a framework for how these loans will be treated under the Truth in Lending Act.

"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. "We are proposing new rules that would require sensible safeguards on these clean energy loans."

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"From 2014-2020, a majority of PACE loans were for home improvements for natural disaster preparedness," the CFPB wrote. "The obligation of paying the loan back through higher property tax payments remains with the property even if the borrower sells the property. Although PACE lending is authorized by local governments, private companies typically administer the programs, which can include marketing of the loans, managing originations, and making the lending decisions."

In October 2022, the Federal Trade Commission 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.

The new proposed rule comes five years after the Trump administration signed the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which ordered the CFPB to prescribe ability-to-repay rules for PACE financing and to apply the civil liability provisions of the Truth in Lending Act for violations.

The CFPB accepts public comments on the proposal until July 26 or 30 days after publication in the Federal Register, whichever is later.

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