CFPB should bolster PACE disclosures, consumer protections

The Consumer Financial Protection Bureau (CFPB) should quickly promulgate a Property Assessed Clean Energy (PACE) financing rule that subjects PACE programs to the Truth in Lending Act, plus additional disclosures, CUNA wrote to the CFPB Tuesday. PACE financing permits a property owner to finance the purchase of energy efficiency improvements and pay for the purchase through an assessment on the property.

The CFPB issued an advance notice of proposed rule-making on PACE financing earlier this year on changes required by the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155).

In general, CUNA recommends the CFPB’s PACE Financing Rule address:

  • Proper underwriting requirements for PACE financing, including an “ability-to-repay” (ATR) analysis based on verified and documented information about the borrower;
  • Clear, understandable disclosures of the key terms, repayment and potential impacts of a PACE lien provided to the homeowner prior to the execution of the contract;
  • Debt-to-income (DTI) ratios should not exceed the ratio established for traditional mortgage loans;
  • Its application to any type of residential PACE lending, regardless of brand name or how the program is marketed to the consumer; and 
  • Preemption of state laws, unless a state has established a higher standard of consumer protection.

CUNA also recommends the CFPB continue to work with other relevant regulators and industry stakeholders during the development of a PACE financing rule. 

“Although the Bureau is likely unable to address the issue of lien status, CUNA would like to reiterate our concern with PACE lending’s first lien status under several state laws, and we oppose any type of lien priority that makes PACE loans preferable to other loan options,” the letter adds.