Counties are encouraged to continue to engage with the Consumer Finance Protection Bureau on its ongoing efforts to write consumer protection rules for Residential Property Assessed Clean Energy programs.
On March 8, 2019, the Consumer Financial Protection Bureau (CFPB) initiated a process to develop new rules to the Residential Property Assessed Clean Energy (R-PACE) financing program by publishing an Advanced Notice of Proposed Rulemaking (ANPRM). The ANPRM was published to solicit information relating to the agency’s implementation of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) – signed into law in 2018 – and will inform the CFPB throughout its rulemaking process. The ANPRM comment period closed on May 7.
PACE is a financing mechanism issued by state and local governments to incentivize renewable energy and energy efficiency improvements – such as energy efficient boilers, upgraded insulation, new windows and solar panel installations – to homes and businesses. Structured as a traditional tax assessment, local governments participating in PACE startup funding through bonds or third-party entities. Once financing is secured, counties make PACE financing available to residents and businesses for energy efficient improvements. These low-interest and long-term assessments are attached to the property, not the homeowner or business, and are paid back on an annual or biannual basis through a special property tax assessment on the property.
Primarily focused on the banking industry, EGRRCPA instructs the CFPB to determine whether Truth-in-Lending Act (TILA) requirements should be applied to R-PACE programs. TILA is a federal law that was passed in 1968 to protect citizens from unfair credit practices. Under Section 307, the Bureau must set regulations for residential PACE financing that “carry out the purposes” of the TILA ability to repay (ATR) requirements for residential mortgages, apply the civil liability provisions of TILA to violations of these new regulations, and “account for the unique nature” of R-PACE.
EGRRCPA does not authorize the Bureau to apply other aspects of TILA to R-PACE. Since R-PACE assessments and liens are a form of property tax assessments, they are not associated with the personal debt of the real property owner. Instead, R-PACE obligations are attached to the property, regardless of current ownership. As a result, these assessments are not considered “consumer credit” and, as such, TILA does not apply to such transactions.
Currently, 36 states have PACE enabling laws and 20 states have active PACE programs. Three states – California, Florida and Missouri – have active residential PACE programs. These states, along with other states considering residential PACE, will be impacted by this rulemaking effort.
In May 2019, NACo submitted comments on the CFPB’s ANPRM on R-PACE financing programs. In the letter, counties stressed the importance of PACE for both local communities, residents and businesses to meet energy goals while reducing costs. Additionally, the comments emphasized the unique nature of PACE financing as traditional tax assessments, which differentiates PACE from other types of loans.Standard