Removing Barriers Blog

Rep. Sherman Requests CFPB Review of Property Tax Assessed Clean Energy (PACE) programs
Posted May 17, 2016 by CUNA Advocacy

Recently, Rep. Brad Sherman (D-CA) wrote a letter to CFPB Director Richard Cordray outlining concerns about Property Tax Assessed Clean Energy (PACE) programs. PACE programs allow governments, when authorized by state law, to finance loans for energy improvements on commercial and residential properties. There have been attempts to expand these programs statewide in Alaska, California, Kansas, Nebraska and Tennessee. PACE loans are troublesome for credit unions in their role as lienholders, because PACE loans take first priority and must be paid before borrowers can refinance or sell their property. 

In his letter, Rep. Sherman noted the following specific issues with PACE loans: (1) the lack of consumer disclosure requirements imposed on issuers; (2) the issuers’ lack of underwriting standards and compliance; and (3) the issuers’ receipt of super-priority liens on consumers’ homes. He also requested the CFPB to review the lack of consumer protection requirements and investigate the potential consumer abuses associated with the loans.

In California, the League is supporting A 2693, which addresses some consumer protection issues surrounding PACE programs that credit unions and their members have begun to encounter. The bill will subordinate the PACE liens to a holder of a note secured by a deed of trust for purchase money, or a refinanced purchase money obligation in the case of default or foreclosure. The bill will also require a substantial consumer disclosure that will mirror TRID requirements (TILA-RESPA Integrated Disclosure), with some language additions to reflect the unique aspects of PACE loans. However, A 2693 will not address the lack of underwriting standards or compliance.

Because of the terms of the loans, consumers who use PACE financing may be precluded from refinancing or selling their home. Ultimately, a borrower needing to refinance or sell their property will be forced to pay the entirety of the PACE loan balance, sometimes in the tens of thousands of dollars. Depending on the amount financed and the homeowner's financial condition, he or she may not have the ability to pay off the loan.  

CUNA and the Leagues have been working closely to track this issue as it progresses through the states, and potentially to Washington.