Legislation has been introduced in both the House and Senate that would subject Property Assessed Clean Energy (PACE) loans to the same Truth in Lending Act (TILA) consumer protections required of other mortgage products.
Sens. Tom Cotton (R-Ark.), Marco Rubio (R-Fla.) and John Boozman (R-Ark.) introduced S.838 and Reps. Brad Sherman (D-Calif.) and Ed Royce (R-Calif.) introduced its companion in the House, H.R. 1958. The bills are called the Protecting Americans from Credit Entanglements Act.
PACE loans allow homeowners to pay for energy efficient home upgrades, including solar panels and insulation, with a lien paid back through property tax payments.
According to the National Association of Realtors (NAR), the loans require little to no underwriting, carry interest rates that are substantially higher than other available financing options and contain repayment terms (typically 15 to 20 years) that often extend beyond the useful life of the financed improvements.
Industry groups such as NAR and the Mortgage Bankers Association (MBA) have expressed concerns regarding the construction of the PACE loan program.
“PACE loans are, in substance, mortgage-related financing and should adhere to federal mortgage financing rules,” MBA President and CEO David Stevens said, applauding the bills’ introduction. “This legislation will subject PACE loans to the same Truth in Lending Act consumer protections required of other applicable mortgage products. We look forward to continuing to work with Congress on this very important issue.”
While Consumer Financial Protection Bureau (CFPB) Director Richard Cordray appeared before the House Financial Services Committee on April 5, Sherman asked Cordray about when the proposed amendments to TRID would be finalized and whether PACE loans would be included under the CFPB’s jurisdiction.
Cordray did not have a definitive date for when the new TRID amendments will be finalized.
“And we have these PACE loans, which are home improvement loans for alternative energy, but they are structured as part of the property tax bill. Are you sure your agency can’t – I mean, they are basically home improvement loans – can’t exert jurisdiction in this area?” Sherman asked.
“It is a pretty complicated subject is what I have learned,” Cordray replied, “because in the states where those exist, typically the state legislature has passed state laws that provide for priority liens, which involves the government in both the making and collection of those loans, and that is a very significant complicating factor for us. It is something that we have a team of people looking and trying to work through because we are hearing enough about it to be concerned, as I think you are here, as well.”
Rep. Nydia Velazquez (D-N.Y.) also asked Cordray about what the CFPB might do in response to complaints from consumers regarding abusive or deceptive acts by solar companies in their sales, financing and marketing practices.
“So we have been hearing two different things, and increasing amounts about both,” Cordray responded. “One is the sale of solar panels directly may involve abuses of consumers. There are limitations around our jurisdiction if it is a loan in connection with the sale of a retail product, so that is difficult for us. But we are talking to attorneys general and others to try to understand who can do what on that problem.
“There is a separate issue that may or may not be what you are referring to, which has to do [with] so-called PACE loans,” Cordray continued, “where one of the ways in which the solar panels are financed is that states have set up a superior priority tax lien on the property to be able to finance the energy efficiency changes, and that creates some real complexities in the real estate market that we are hearing a lot about from mortgage lenders and others and that we are trying to think about carefully and talk to FHFA and others about those.”