Lawmakers Introduce ABA-Backed Bills Targeting PACE Loans

Sens. Tom Cotton (R-Ark.), Marco Rubio (R-Fla.) and John Boozman (R-Ark.) and Reps. Brad Sherman (D-Calif.) and Ed Royce (R-Calif.) today introduced American Bankers Association-supported legislation requiring more consumer disclosures for Property Assessed Clean Energy loans, a controversial financial product that allows homeowners to pay for energy-efficient retrofitting — such as solar panels and high-efficiency air conditioners — through their property tax assessments.

The bill would subject PACE loan originators and sales personnel to Truth in Lending Act requirements, enhancing pre-origination disclosures of total loan amounts and loan terms and bringing the loans explicitly under the oversight of the Consumer Financial Protection Bureau. ABA has for years expressed concerns about the lack of consumer protections for PACE loans, which puts consumers — especially older Americans, who are often targeted for these products — at greater risk for deceptive or predatory lending tactics and foreclosure.

“While PACE loans serve a laudable purpose, allowing borrowers to finance energy efficiency improvements to their homes, they are all too often abused by those who do not have the borrowers’ best interests at heart,” ABA said in a letter sent to Capitol Hill. “We strongly support providing PACE borrowers with the important protections required under TILA.”

More than 30 states allow PACE loans, which may take a first-lien position over the primary mortgage on a residence. For this reason, the Federal Housing Finance Agency has blocked Fannie Mae and Freddie Mac from buying mortgages for homes with outstanding first-lien PACE loans, limiting home sale options for PACE borrowers and potentially harming borrowers and lenders who rely on the certainty of the first-lien position on mortgages for affordable financing.