Banking and Finance Law Daily CFPB announces proposed rulemaking on residential PACE financing
Tuesday, March 5, 2019

CFPB announces proposed rulemaking on residential PACE financing

By Nicole D. Prysby, J.D.

The Bureau has issued a notice of proposed rulemaking seeking information to implement regulations for PACE financing as required by the EGRRCPA.

On March 4, 2019, the Consumer Financial Protection Bureau announced an Advanced Notice of Proposed Rulemaking on residential Property Assessed Clean Energy (PACE) financing. PACE loans are a financing program that provides homeowners with clean energy or other similar housing improvements in exchange for a lien on the home and increased property tax payments for up to 20 years. The May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act amended the Truth in Lending Act to mandate that the CFPB enact regulations to carry out the purposes of TILA’s ability-to-repay (ATR) requirements (currently in place for residential mortgage loans) with respect to PACE financing, and apply TILA’s general civil liability provision for violations of the ATR requirements the CFPB prescribes. The notice solicits information to better understand the PACE financing market and the unique nature of PACE financing.

The notice explains that the CFPB is seeking five categories of information:

  • Written materials associated with PACE financing transactions, such as materials provided to consumers before they sign a PACE financing agreement.
  • Descriptions of current standards and practices in the PACE financing origination process, such as the documentation required from consumers or third parties, current underwriting standards, details on the PACE financing approval process, the role of state or local governments in underwriting PACE financing, and the relationship between the PACE financing agreement and the home improvement agreement.
  • Information relating to civil liability under TILA for violations of the ATR requirements in connection with PACE financing, as well as rescission and borrower delinquency and default. This may include information about the assignment or sale (including securitization) of PACE financing agreements, indemnification agreements, consumer rescission rights, and the effect on PACE financing obligations when a consumer becomes delinquent or defaults.
  • Information about what features of PACE financing make it unique and how the CFPB should address those features, such as details about funding sources, public bonds, consumer repayment logistics, integration with local property tax systems, and the treatment of PACE financing obligations by mortgage servicers responsible for servicing mortgages that were placed on the property before the PACE financing encumbrance.
  • Views concerning the potential implications of regulating PACE financing under TILA. For example, likely effects on state or local governments of applying existing ATR requirements in TILA and Regulation Z to PACE financing transactions.

Congressional response. Following the announcement, Sen. Tom Cotton (R-Ark) released a statement in support of the proposed rulemaking, pointing out that the initiative is due to his Protecting Americans from Credit Exploitation legislation and stated that the rules could protect consumers from predatory, high-interest green-energy loans

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