The CFPB has published today a proposal to apply the repayment ability requirements to PACE, or residential property assessed clean energy loans. The proposal, required by regulatory reform law S. 2155, would also enforce the tort provisions of the Truth in Lending Act for violations. Comments on the proposal are due by July 26.
PACE loans are funded through tax assessments and often have high priority over existing and subsequent first mortgage liens. The ABA has long called for TILA’s ATR requirements and liability penalties to be applied to these loans, emphasizing that PACE loans are “consumer credit” and therefore subject to Regulation Z.
Along with the proposed rule, the CFPB also published a report on PACE financing, which found that the loans cause an increase in the number of borrowers who fall behind on their mortgage payments, along with other negative credit outcomes. “A likely contributing factor to these results is that the PACE companies did not assess whether the consumer had the ability to pay before making most of the loans in our data,” the report noted. “We found that PACE results improved significantly in California after that state began requiring PACE businesses to consider ability to pay before making a loan.”