CFPB proposes rule to apply TILA requirements to PACE loans

The CFPB today released a proposal for applying ability-to-repay requirements to residential property assessed clean energy, or PACE, loans. The proposal, required by the S. 2155 regulatory reform law, would also apply civil liability provisions of the Truth in Lending Act for violations. Comments on the proposal are due July 26.

PACE loans are financed through tax assessments and often take super priority over existing and subsequent first mortgage liens. ABA has long called for TILA’s ATR requirements and civil 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 released a report on PACE financing, which found that the loans cause an increase in borrowers falling behind on their mortgage payments, along with other negative credit outcomes. “It is likely that a contributing factor behind these results is that the PACE companies did not evaluate whether the consumer had the ability to repay before making most of the loans in our data,” the report noted. “We find that PACE outcomes improved significantly in California after that state began requiring PACE companies to consider ability to pay before making a loan.”