Banking and Finance Law Daily Wrap Up, CONSUMER CREDIT—Industry group sues CFPB over PACE rule, alleging federal overreach on tax assessments, (May 29, 2025)

By Shashi Kant, BALLB, LLM

The trade group claims the PACE rule illegally extends mortgage laws to tax assessments and risks home clean-energy financing.

Building Resilient Infrastructure & Developing Greater Equity Inc. (BRIDGE) has filed a complaint in the federal district court in Tampa, Florida to stop the Consumer Financial Protection Bureau’s January 2025 “Final PACE Rule,” contending that the Bureau unlawfully converted voluntary Property Assessed Clean Energy (PACE) tax assessments into the functional equivalent of mortgage credit (Building Resilient Infrastructure & Developing Greater Equity, Inc. v. CFPB, No. 8:25-cv-01367 (M.D. Fla. May 28, 2025)).

Key allegations. BRIDGE contends that the rule imports, or “grafts,” three major mortgage-finance statutes onto PACE programs: (i) the Truth in Lending Act (TILA), which since 1968 has required lenders to provide uniform cost disclosures and to verify a borrower’s ability to repay; (ii) the Real Estate Settlement Procedures Act (RESPA), a 1974 law that mandates detailed settlement-cost disclosures and bans kickbacks in real-estate closings; and (iii) the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) of 2008, which obliges states to license and supervise mortgage-loan originators.

BRIDGE argues that by layering these comprehensive federal regimes onto what states treat as local tax assessments, well beyond Congress’s narrow instruction to adapt only TILA’s ability-to-repay test, the CFPB has exceeded its statutory mandate, invaded state taxing authority, and threatened to dismantle a climate-resilience financing tool relied on by thousands of homeowners.

Background. PACE financing allows homeowners to pay for energy-efficiency, renewable-energy, or disaster-mitigation improvements through a voluntary tax assessment attached to the property. On Dec. 18, 2024, the CFPB finalized a rule, mandated by Congress in 2018, that, for the first time, subjects residential PACE assessments to federal mortgage-loan protections (Banking and Finance Law Daily, Dec. 18, 2024). Under the rule, effective Mar. 1, 2026, PACE administrators (often private companies operating on behalf of local governments) must:

• provide TILA-RESPA Integrated Disclosures (Loan Estimate and Closing Disclosure) within existing timing triggers;

• make affirmative “reasonable ability-to-repay” determinations, verifying income, employment, and debt-to-income ratio; and

• comply with high-cost-mortgage and appraisal requirements, as well as certain SAFE Act licensing mandates.

Core arguments. BRIDGE argues that the CFPB “exceeded its statutory authority” by taking Congress’s targeted directive, apply the TILA ability-to-repay requirements to the “unique nature” of PACE assessments, and inflating it into an all-encompassing regime that layers almost the entirety of TILA, the RESPA, and the SAFE Act onto what are, in essence, state and local tax assessments.

On that foundation, the complaint advances four causes of action:

• First, an Administrative Procedure Act claim alleging that the rule unlawfully “applies essentially all of TILA’s provisions” to PACE transactions, exceeding Congress’s limited mandate.

• Second, a Tenth Amendment claim, asserting that the rule “commandeers” state taxing power by forcing state and local governments to administer federal disclosures and underwriting protocols, infringing core state sovereignty.

• Third, a procedural-defect claim, contending that the CFPB skipped the Small Business Review Panel required under the Regulatory Flexibility Act, even though thousands of small municipalities, contractors, and PACE firms will be affected.

• Fourth, an arbitrary-and-capricious claim, asserting that the Bureau relied on a “fatally flawed” Data Point study, showing only a 2.5-percentage-point uptick in mortgage delinquencies, and disregarded significant post-2018 state reforms when promulgating the rule.

Standing and harm. BRIDGE asserts associational standing on behalf of members such as Renew Financial Group and Ygrene Energy Fund. Both companies forecast steep implementation expenses, up to $2.5 million for Renew and more than $1.9 million for Ygrene, and they predict a 72 percent contraction in PACE financing volume once the rule becomes effective on Mar. 1, 2026. The complaint alleges that the cost burden, together with forced mortgage-style underwriting, will “destroy the PACE industry” and eliminate a key source of funding for resiliency and clean-energy retrofits.

Relief sought. Among other remedies, BRIDGE asks the court to declare the CFPB’s final rule invalid, vacate §307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act on constitutional grounds, and issue both preliminary and permanent injunctions barring enforcement during the litigation. The plaintiffs also seek costs and attorneys’ fees.

Attorneys: John S. Gibbs (Troutman Pepper Locke LLP) for Building Resilient Infrastructure & Developing Greater Equity, Inc.

Companies: Building Resilient Infrastructure & Developing Greater Equity, Inc.; Renew Financial Group; Ygrene Energy Fund

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