The Consumer Financial Protection Bureau (CFPB) has proposed a rule to implement a Congressional mandate to establish consumer protections for residential Property Assessed Clean Energy (PACE) loans.
According to the CFPB, 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. PACE loans are secured by a property tax lien on the borrower’s home, and they are often promoted for financing clean energy improvements such as solar panels. The obligation of paying the loan back through higher property tax payments remains with the property even if the borrower sells the property.
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.
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 Regulation Z 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 or 30 days after publication in the Federal Register, whichever is later.
“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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