As we reported previously, the Economic Growth, Regulatory Relief and Consumer Protection Act (Act) subjects Property Assessed Clean Energy (PACE) financing to Truth in Lending Act (TILA) ability-to-repay (ATR) requirements under rules to be adopted by the CFPB. The CFPB recently issued an advance notice of proposed rulemaking to solicit information regarding PACE financing. Comments will be due 60 days from publication of the notice in the Federal Register.
For purposes of the Act, a PACE financing is defined as financing to cover the costs of home improvements that result in a tax assessment on the real property of the consumer. The Act provides that the CFPB regulations must carry out the purposes of the TILA ATR requirements and apply the TILA civil liability provisions to violations of those requirements, accounting “for the unique nature of” PACE financing. The Act also provides that in connection with adopting regulations, the CFPB may collect such information and data that it determines is necessary, and must consult with state and local governments and bond-issuing authorities.
The CFPB seeks information dealing with five main categories and numerous sub-categories of information:
- Written materials associated with PACE financing transactions.
In particular, the CFPB requests (a) materials provided to consumers before they sign a PACE financing agreement, (b) PACE financing agreements, and (c) bills or statements that provide payment information to consumers.
- Descriptions of current standards and practices in the PACE financing origination process.
Among other items of information, the CFPB requests information regarding (a) the collection and verification of information from consumers and third parties, (b) current underwriting standards, and whether those standards include a determination of a consumer’s ability to repay, (c) the process of approving or denying financing applications, (d) the parties to whom PACE financing obligations are “initially payable on the face” of the financing agreements, (e) the role of state or local governments in the origination and underwriting of PACE financing, and (f) the relationship between the PACE financing agreement and the home improvement agreement.
- Information relating to civil liability under TILA for violations of the ATR requirements in connection with PACE financing, as well as rescission and borrower delinquency and default.
The CFPB notes that this information request is intended to help the CFPB identify to whom TILA civil liability might apply and which parties would in fact bear the risk of any such liability. The CFPB requests information regarding (a) the assignment, sale or securitization of PACE financing agreements, (b) any indemnification agreements that are commonly part of PACE financing transactions, (c) the rescission rights available to consumers with respect to PACE financing agreements or home improvement contracts, and (d) what happens to PACE financing obligations when a consumer becomes delinquent or defaults, including information regarding any loss mitigation programs.
- Information about what features of PACE financing make it unique and how the Bureau should address those unique features.
The CFPB seeks information on a number of topics, including information regarding (a) any public or private financing options that satisfy the Act’s definition of a PACE financing, whether or not the options are commonly understood to be PACE financing, (b) the source of funding for PACE financing, (c) the role of public bonds in PACE financing, (d) consumer repayment, (e) how PACE financing is integrated with local property tax systems and how specific information about the PACE financing is distinguished from other real property tax obligations in the tax system, (f) the financial costs to consumers that may be associated with PACE financing, (g) any costs savings associated with home improvement projects funded with PACE financing, (h) whether the addition of PACE financing affects consumers’ ability to meet their financial obligations, (i) the liens associated with PACE financing, and (j) the treatment of PACE financing obligations by servicers of mortgage loans that were placed on the property before the PACE financing encumbrance,
- Views concerning the potential implications of regulating PACE financing under TILA.
The CFPB requests information regarding (a) any likely effects on state and local governments or bond-issuing authorities if existing TILA ATR requirements were to apply to PACE financing, (b) the likely effects on consumers and PACE financing industry participants resulting from the application of such requirements to PACE financing, (c) which specific TILA ATR requirements, if applied to PACE financing, would conflict with existing state or local legal requirements, (d) which specific TILA ATR provisions would be difficult for market participants to apply to current PACE financing origination practices, bond processes, or laws and practices implicating real property tax systems, (e) which specific TILA ATR provisions would be beneficial for consumers, (f) how the existing TILA ATR requirements could be tailored to account for the unique nature of PACE financing, (g) any likely impacts on consumers or PACE financing market participants resulting from the application of TILA civil liability provisions to PACE financing, and (h) whether the CFPB should address the application of other TILA provisions to PACE financing.