Banking and Finance Law Daily Wrap Up, TRUTH IN LENDING—Supporters of PACE Reforms Urge Adoption of Final Rule, (Jun 4, 2024)

By George M. Gullo, J.D.

Housing rights supporters urge CFPB to take immediate steps and finalize the PACE rule intended to hinder lender predatory practices for borrowers that seek clean energy financing.

A coalition of consumer organizations—including the National Consumer Law Center (on behalf of its low-income clients) and the Center for Responsible Lending—and attorneys have sent a letter to Rohit Chopra, Director of the Consumer Financial Protection Bureau, urging adoption of a final rule concerning Property Assessed Clean Energy (PACE) loans. PACE loans provide consumer protections for homeowners seeking clean energy financing.

PACE lending. PACE loans are secured through a property tax lien on the borrower’s home and are used to finance clean energy improvements, such as solar panels or projects to prepare homes for natural disasters. A 2023 CFPB report found that homeowners with PACE loans had an increase in negative credit outcomes, primarily mortgage delinquency. Moreover, many PACE borrowers live in underserved communities.

Proposed rule. CFPB issued a proposed rule to: (1) clarify PACE financing coverage under the Truth in Lending Act (TILA) and Regulation Z through amendments to Regulation Z’s exclusion for tax assessments and tax liens from the definition of credit; (2) prescribe ability-to-repay requirements for residential PACE financing; and (3) make additional clarifications and amendments to certain provisions in Regulation Z that make clear how other rules in Regulation Z apply to PACE financing given its unique nature (see Banking and Finance Law Daily, May 2, 2023 and August 2, 2023).

Significant risk. The letter urges the Bureau to “take immediate steps” and finalize the rule because, combined with an expected delay in the effective date, low- and moderate-income homeowners, often in communities of color, will continue to endure the harm PACE has caused and the significant risk of tax and mortgage delinquency and foreclosure.

Residential lending. The letter’s authors note how residential PACE lending has increased substantially in Florida following the state’s approval for hurricane hardening. Recent legislation there will expand PACE even further by permitting its use for sewage system improvements. However, PACE in Florida has operated without any meaningful consumer protections or oversight by a state regulatory agency.

Legislation’s impact. In addition, the Florida legislation fails to:

• require meaningful cost of credit information in a usable form;

• adequately disclose the right of rescission in a manner normally expected in loans of this type;

• provide a remedy for the homeowner against the administrators of PACE for any bad acts or failure to follow the provisions set out in the bill, rendering even the weak consumer protections in the bill useless; and

• create state agency oversight of PACE loans.

Address deficiencies. The letter concludes that a final PACE regulation that is consistent with the Bureau’s proposed rule will address each of these deficiencies in Florida law and also provide consumers in that state and throughout the nation with many other critical protections and remedies available under TILA and Regulation Z.

Companies: Americans for Financial Reform Education Fund; Bet Tzedek Legal Services; Center for Responsible Lending; Consumer Action Elder Law & Advocacy; Georgia Watch; Housing and Economic Rights Advocates; Jacksonville Area Legal Aid, Inc.; Jubilee Legal; Law Office of David Valdez Jr.; Law Office of Evan Livingstone; Legal Aid Society of the Orange County Bar Assoc., Inc.; Legal Aid Society of Palm Beach County, Inc.; Maine People's Alliance; National Consumer Law Center; National Housing Law Project; New Jersey Citizen Action; Pennsylvania Utility Law Project; Public Citizen, Inc.; Public Counsel; Public Good Law Center; Seraph Legal, P.A.; The Center for Energy Poverty and Climate; TURN-The Utility Reform Network

RegulatoryActivity: CFPB ConsumerCredit CreditDebitGiftCards DebtCollection ESGNews FinancialStability Loans Mortgages TruthInLending UDAAP