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Consumer Financial Protection Bureau Proposes Consumer Protection Rule for PACE Loans

The Consumer Financial Protection Bureau has proposed a rule to establish consumer protections for residential Property Assessed Clean Energy loans.

PACE loans, secured by a property tax lien on a borrower’s home, are often promoted as a way to finance clean energy improvements such as solar panels.

The proposed rule would require lenders to assess a borrower’s ability to repay a PACE loan and would provide a framework for how these loans will be treated under the Truth in Lending Act.

The CFPB also published a report on residential PACE loans, which found that the loans cause an increase in borrowers falling behind on their mortgage payments, along with other negative credit outcomes.

Residential PACE loans finance home improvements for borrowers, who pay back the loans through increased property tax payments over time. Eligible upgrades can include energy and water efficiency projects, or projects to prepare homes for natural disasters. From 2014-2020, a majority of PACE loans were for home improvements for natural disaster preparedness. 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 FTC and State of California sued one of these private PACE administrators , Ygrene Energy Fund Inc., to force it to stop deceptive, coercive, and fraudulent sales practices.

If finalized, the proposed rule would require PACE creditors and PACE companies to consider a consumer’s ability to repay when issuing a new PACE loan, and it would amend a regulation to address how the Truth in Lending Act applies to PACE transactions.

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.

Public comments on the proposal are due by July 26, 2023, or 30 days after publication in the Federal Register, whichever is later.