WASHINGTON—The CFPB has finalized a rule mandated by Congress that applies existing residential mortgage protections to Property Assessed Clean Energy (PACE) loans, the agency announced.
PACE loans are used by homeowners for clean energy upgrades and disaster readiness that are paid back through their property tax bills. Because of concerns about subprime-style lending that puts homeowners at risk of losing their home, Congress required the CFPB to enhance protections, the CFPB said.
The rule will ensure that PACE borrowers have the right to receive standard mortgage disclosures that allow them to compare the cost of the PACE loan with other forms of financing, and the lender will be responsible for ensuring that the borrower is not set up to fail with an unaffordable loan, the CFPB said.
“Today’s rule stops unscrupulous companies and salespeople from luring homeowners into unaffordable loans based on false promises of energy savings,” said CFPB Director Rohit Chopra. “Homeowners deserve to know just how much they are paying when they put their home and financial future on the line.”
While PACE financing can provide quick cash for home improvements, the CFPB said it research shows:
- Most PACE borrowers are eligible for other forms of financing, often at much cheaper rates than PACE loans
- PACE loans caused borrowers’ property taxes to increase by about $2,700 per year or an 88% increase
- PACE borrowers were more likely to fall behind on their first mortgage than people who chose not to finance home improvements with PACE
- PACE loans tend to be more expensive – around five percentage points higher -- than first mortgages, even though PACE loans get paid at a foreclosure sale before first mortgages
“The CFPB has been carefully monitoring the fast-growing market for loans used for clean energy financing, including those not paid back through property taxes. In August 2024 CFPB issued a report and advisory warning consumers about predatory solar loans that found some residential solar lenders are misleading homeowners about the terms and costs of their loans, their payment plan, misrepresenting the energy and tax savings, and cramming markup fees into borrowers’ loan balances,” the agency said.