Lenders would be banned from “setting borrowers up to fail” for loans on clean energy – such as those for solar panels — and disaster readiness loans paid back through property tax bills under a new rule adopted Tuesday by the federal consumer financial protection agency.
The rule by the Consumer Financial Protection Bureau (CFPB) would affect so-called “Property Assessed Clean Energy (PACE) loans” by subjecting the loans to existing residential mortgage protections. The agency said that the rule was mandated by Congress, following concerns about subprime-style lending that puts homeowners at risk of losing their home.
More specifically, the agency said the final rule:
- amends Regulation Z’s exclusion of tax assessments and tax liens from the definition of credit to clarify that voluntary tax assessments and tax liens, such as PACE financing, are not excluded under TILA and Regulation Z;
- recognizes PACE financing as meeting the definition of credit under TILA and Regulation Z;
- prescribes ability-to-repay requirements for residential PACE financing; and
- makes other amendments and exemptions to make clear how other rules in Regulation Z apply to PACE financing.
CFPB said its final rule includes model “Loan Estimate and Closing Disclosure” forms to be used to comply with the TILA-RESPA Integrated Disclosure (TRID) Rule for PACE transactions.
The agency 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.