Summary: Advanced Notice of Proposed Rulemaking on Residential Property Assessed Clean Energy (PACE) Financing

12 CFR Part 1026

Consumer Financial Protection Bureau
Prepared by the NASCUS Legislative & Regulatory Division
March 2019

The Consumer Financial Protection Bureau (Bureau) issued an ANPR to solicit information relating to residential PACE financing.  The Bureau will consider the information received when implementing Section 307 of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA). This particular section amends the Truth in Lending Act (TILA) to mandate the Bureau issue regulations that require the application of TILA’s “ability to repay” (ATR) requirements and TILA’s civil liability provisions to residential PACE financing.  The ANPR is seeking information to help it gain a better understanding of the PACE financing market and the unique nature of PACE financing.

The ANPR can be found here.   Comments are due to the Bureau no later than May 7, 2019.

Summary

Under EGRRCPA, PACE financing is defined as “financing to cover the costs of home improvements that results in a tax assessment on the real property of the consumer.”  Section 307 of EGRRCPA requires the Bureau to issue regulations to achieve two objectives:

  • Apply TILA’s ability to repay requirements to residential PACE financing.  Generally, current ATR requirements prohibit creditors from making a residential mortgage loan unless the creditor makes a reasonable and good faith determination (based on verified and documented information) that at the time of loan consummation, the consumer has a reasonable ability to repay the loan according to its terms, as well as all applicable taxes, insurance and assessments.  Creditors are required to consider specific factors about the consumer’s finances such as the consumer’s income, assets and debt obligations.  Creditors are also required to verify the income/asset amounts relied upon to determine the consumer’s repayment ability.
  • Apply TILA’s general civil liability provisions, which set forth damages for general violations of TILA and damages related to specific violations of TILA’s ATR requirements. 

The Bureau is seeking information about the following:

  • Written materials associated with PACE financing transactions such as samples of any written materials used in PACE financing transactions.
  • Descriptions of current standards/practices in the PACE financing origination process such as:
    • information about the process of obtaining a consumer’s application for PACE financing;
    • current underwriting standards and how they are established;
    • information about the process of approving/denying PACE finance applications;
    • information about any written information provided to consumers before they sign a PACE financing agreement;
    • information provided orally to consumers before they sign a PACE financing agreement;
    • any requirements in state or local law governing to which parties PACE financing obligations may be made initially payable on the face of the financing agreement;
    • the role of state/local governments in the origination/underwriting process of PACE financing;
    • any relationship between the PACE financing agreement and the home improvement agreement and any information that may help the Bureau understand the origination process or any risks or benefits it produces for consumers.
  • Information related 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 such as:
    • assignment or sale (including securitization) of PACE financing agreements or the rights/obligations under the agreements;
    • information about indemnification agreements that are commonly part of PACE financing transactions;
    • any rescission rights available to consumers with respect to PACE financing agreements or home improvement contracts and information about what happens to PACE financing obligations when a consumer becomes delinquent or defaults.
  • Information about what features of PACE financing make it unique and how the Bureau should address those unique features such as:
    • the source of funding for PACE financing; the role of public bonds in PACE financing transactions;
    • information about consumer repayment of PACE financing;
    • how PACE financing is integrated with local property tax systems;
    • the role of state/local governments in PACE financing programs or individual PACE financing transactions;
    • any financial costs to consumers related to PACE financing; any cost savings associated with home improvement projects funded by PACE financing;
    • whether the addition of PACE financing affects a consumer’s ability to meet their financial obligations;
    • information about liens association with PACE financing;
    • treatment of PACE financing obligations by servicers of mortgage loans responsible for servicing mortgages that were placed on the property before the PACE financing encumbrance; and
    • any additional information about the unique nature of PACE financing.
  • Views concerning the potential implications of regulating PACE financing under TILA such as :
    • any likely effects on state and local government or bond-issuing authorities related to the application of ATR requirements;
    • any likely effects related to the application of the ATR requirements on consumers or PACE financing industry participants;
    • which ATR provisions (if any) would conflicts with existing state/local legal requirements and how;
    • which ATR provisions (if any) would be difficult for market participants to apply to current PACE financing origination practices, bond processes, etc.;
    • which specific ATR requirements would be beneficial for consumers and how; how could TILA’s existing ATR requirements be tailored to account for the unique nature of PACE financing;
    • any concerns related to the application of TILA liability provisions to PACE financing; and
    • whether the Bureau should address the application of other TILA and Regulation Z provisions (other than the ATR requirements) to PACE financing.

    03/25/19