The American Bankers Association and 12 organizations this week said they support a proposed CFPB rule applying ability-to-repay requirements to residential property-assessed clean energy, or PACE, loans, saying the changes are needed to limit abuses that have occurred in states with active residential PACE programs.
Residential PACE loans are used to fund energy-efficient home improvements, with payments added to the borrower’s property tax bill as a voluntary assessment. As a result, borrowers who are put into unaffordable PACE loans risk losing their homes to foreclosure if they cannot pay their tax bill or their increased escrow payment. ABA has long called for the Truth-in-Lending Act’s ability-to-repay requirements and civil liability penalties to be applied to PACE loans, emphasizing that the loans are “consumer credit” and therefore subject to Regulation Z. The CFPB proposal would make those changes.
“Given their nature and potential for abusive sales tactics, PACE loans should be subject to all of the mortgage-related federal consumer protection requirements,” the groups said.
In a separate letter, ABA reiterated its support for the rule. However, it noted that because residential PACE loans are recorded as tax liens that are not readily reported to lenders or servicers, it remains difficult for a lender or servicer to know of the placement of those liens on properties. The association encouraged the bureau to work with state and local recordation officials to determine if a solution involving additional disclosures or borrower education could be undertaken at a later date.