CFPB Rule Promises Stronger Consumer Protections in the PACE Financing Market, Where Abuses Have Grown

WASHINGTON, D.C.— Legal Director and Securities Specialist Stephen Hall issued the following statement on the filing of Better Markets’ Comment Letter to the Consumer Financial Protection Bureau (CFPB) in support of the agency’s proposed rule to strengthen consumer protections in Property Assessed Clean Energy (PACE) financing programs:

“The CFPB’s proposed rule will address a range of customer abuses, along with some potentially systemic concerns, surrounding PACE loans.  This largely unnoticed lending program allows property owners to finance energy efficiency, renewable energy, and water conservation improvements on their properties. PACE loans enable property owners to obtain up-front funding for these types of projects and repay the financing over an extended period through an additional assessment on their property tax bill.  These programs stand to become increasingly popular as climate concerns and the ESG movement grows.

“Unfortunately and predictably, predatory practices have become a prominent feature in this financing sector.  Sponsoring state or local governments rely heavily on private companies to operate the programs and those companies in turn rely heavily on home improvement contractors to handle much of the promotion and negotiation with homeowners. The fact is that PACE loans carry heightened risks, under-deliver their promised green benefits, and harm many vulnerable borrowers. Some key problems associated with PACE loans include high pressure sales tactics, excessive fees, increased property taxes, bloated interest rates, increased mortgage delinquencies, increased credit card balances, and a disproportionately adverse impact on the elderly, non-native English speakers, and Black and Hispanic neighborhoods. They even have parallels to the mortgage lending abuses that fueled the 2008 financial crisis, since they come with relaxed underwriting standards.

“Congress directed the CFPB to promulgate a rule addressing these concerns, and the Bureau has faithfully implemented its mandate.  Specifically, the Bureau’s proposed rule: (1) clarifies that PACE loans qualify as “credit” under the Truth in Lending Act; (2) strengthens the disclosure requirements for PACE loans to equip PACE borrowers with better and more standardized  information; (3) applies the Truth in Lending Act’s Ability-to-Repay requirements to PACE transactions; and (4) applies the Truth in Lending Act’s civil liability and remedy provisions to PACE transactions.  As we explain in our comment letter, these reforms will significantly improve sorely needed consumer protections in this financing market.”

You can find the comment letter here.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.