April 24, 2017

NAFCU, others back consumer protections in PACE loans

NAFCU and 27 other trade associations on Monday lodged strong support for legislation that would bring financing for Property Assessed Clean Energy (PACE) loans under the same Truth in Lending Act consumer protections required of other mortgage products.

The "Protecting Americans from Credit Entanglements Act of 2017" (S. 838/H.R. 1958) would require federal TILA-rooted requirements and considerations for PACE loans – including the CFPB's ability-to-repay and qualified mortgage rules, among other standards.

PACE loans enable mortgage borrowers to finance environmentally friendly home upgrades, such as solar panels and energy efficient appliances. Since the loans are typically initiated by the private companies making these improvements, the financing is raised by issuing municipal revenue bonds. These bonds, secured by the payments on the PACE loan obligation, are added to the borrower's property tax bill and are paid through property tax installments.

"Although PACE loan obligations have all the attributes of a mortgage product, they are not subject to federal consumer protection requirements – as this alternative financing structure has been misclassified as a tax assessment rather than a loan," stated the letter, which went to the Senate bill authors, Sens. John Boozman, R-Ark., Tom Cotton, R-Ark., and Marco Rubio, R-Fla.; and House bill authors, Reps. Ed Royce, R-Calif., and Brad Sherman, D-Calif.

"PACE loans are – in substance – consumer loans secured by real property and should be subject to federal consumer protection requirements, not dependent on a patchwork of limited or non-existent state/municipal laws that do not adequately protect homeowners."