CFPB Proposes Rule Implementing Consumer Protections for "PACE" Loans

The CFPB proposed a rule to implement consumer protections for residential "Property Assessed Clean Energy" ("PACE") loans. PACE loans are used as a way to finance home improvements including clean energy solar panels or to aid in disaster preparedness. PACE loans "result[] in a tax assessment on the real property of the consumer."

Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act ("EGRRCPA") allows the CFPB to direct the "ability-to-repay" rules for PACE financing. The proposed rule establishes (i) requirements for lenders to assess a borrower's ability to repay a PACE loan through increased property taxes and (ii) guidelines for how to apply the civil liability provisions of the Truth in Lending Act for violations. The clean energy home improvements addressed by the proposed rule include both energy and water efficiency upgrades, along with preparations for natural disasters.

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

The CFPB also released the PACE Financing Report, which provided the results of a survey on PACE lending during the 2014-2020 period and focused primarily on PACE loans made in California and Florida - two states where PACE financing was active during the sample period. The CFPB found that most PACE loans in California were for solar panels and most in Florida were for disaster preparedness. The CFPB found that PACE loan interest rates were higher than most home equity lines of credit and, the use of PACE loans caused credit card balances for borrowers to increase. Further, the CFPB said that PACE lenders approved loans without regard to a borrower's ability to repay the loan. However, when consumers defaulted on their PACE loans, the delinquency negatively affected their credit and financial health in many ways.