MBA, Trade Groups Urge Bureau to Regulate PACE Loans

The Mortgage Bankers Association and more than a half-dozen industry trade groups asked the Bureau of Consumer Financial Protection to issue regulations governing consumer and lender protections for Property Assessed Clean Energy (PACE) loans.

Under Section 307 of the recently passed Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), the Bureau is required to initiate a rulemaking process to implement the statute’s “Ability to Repay” requirements for PACE loans. The statute also requires the Bureau to apply remedy provisions in the Truth in Lending Act to PACE loans, so that consumers may recover damages and have access to foreclosure defense and other remedies for violations of the PACE regulations.

In addition, Section 307 directs the Bureau to account for the unique nature of PACE loans (such as that it makes use of the tax collection system), permits the Bureau to collect information and data necessary for issuing such rules, and mandates that it consult with state and local governments and bond issuing authorities.

While MBA believes energy efficient home improvements can be beneficial for homeowners, it has long-expressed significant concerns when PACE loans present lien priority risks to lenders, investors and guarantors. Accordingly, MBA supported S.2155, which enacted federal legislation to provide the authority to subject residential PACE loans to TILA consumer protections. MBA has also urged Congress to introduce legislation requiring PACE loan subordination in accordance with long-established lien priority standards.

In the letter, MBA and other trade groups asked the Bureau to account for the unique nature of PACE loans (such as that it makes use of the tax collection system); permits the Bureau to collect information and data necessary for issuing such rules; and mandates that it consult with state and local governments and bond issuing authorities. The letter also urges the Bureau to consult with consumer and mortgage lender stakeholders, as these groups will be impacted by any PACE rulemaking; and called on the Bureau to hold field hearings in those markets most impacted by residential PACE programs.

“Accounting for the unique nature of PACE will allow the Bureau to ensure that defenses to tax lien collection actions are incorporated into the protections and that other TILA provisions are adapted as necessary to accommodate the role of government taxing authorities,” the letter said. “The Bureau already has the authority to clarify that TILA’s mortgage protections apply to PACE loans and should do so while implementing section 307’s requirements, tailoring TILA’s disclosure regime to PACE and applying TILA’s remedy scheme accordingly.”

The letter said problems faced by homeowners receiving unaffordable PACE loans and obtaining limited or misleading information; the looming spread of PACE loans throughout the country; and the hidden way in which PACE loans have developed outside our consumer protection framework compel the Bureau to initiate rulemaking.

“Action is needed to address some of the well-documented consumer problems identified in media reports and by some of our organizations,” the letter said. “In many residential settings, PACE loans often have little connection to the promised energy savings either due to overzealous or deceptive marketing, or consumer usage patterns that undermine the expected cost savings. While these problems exist in the home improvement market generally, consumers that use home improvement lending products benefit from consumer protections that do not apply to PACE loans.”

As PACE loans are a form of consumer credit, MBA and the trade groups said such loans should be subject to the same rules as all other forms of consumer credit used for home improvement, especially when the consumer uses their home as collateral for the loan. “Therefore, we urge you to act and carry out Congress’s directive to promulgate ability to repay regulations for PACE loans and to explicitly incorporate PACE into TILA’s overall mortgage protections.”

Joining MBA in the letter: the American Bankers Association; Americans for Financial Reform; the Center for Responsible Lending; the Consumer Federation of America; Independent Community Bankers of America; National Association of Realtors; the National Consumer Law Center; and Public Citizen.