CFPB Issues Advance Notice Of Proposed Rulemaking

On March 4, 2019, the Consumer Financial Protection Bureau (CFPB) issued an advance notice of proposed rulemaking (ANPR) on residential property assessed clean energy financing (PACE financing).1 The CFPB is seeking information to support implementation of section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Section 307 amends the Truth in Lending Act (TILA) to require the CFPB to issue regulations for PACE financing that "carry out the purposes of" TILA's ability-to-repay requirements for mortgages, and apply TILA's civil liability provisions to PACE financing. In crafting the regulations, the CFPB is required to take into account "the unique nature of PACE financing."

PACE financing is currently authorized in California, Florida and Missouri. The typical PACE financing arrangement consists of a homeowner agreeing to a voluntary tax assessment to fund energy efficiency and other improvements to the home. PACE financing involves private "administrators" who contract with governmental authorities to carry out PACE financing programs, and work with home improvement contractors who market and install PACE-financed improvements for homeowners. The PACE financing assessment is on the property, is paid over a term as short as 5 years or as long as 20 years, and is senior to any mortgages. If the homeowner sells the home with an assessment in place, the new owner takes the home subject to the assessment.

The CFPB's ANPR requests information about residential PACE financing including: (i) documentation associated with PACE financing; (ii) current PACE financing origination standards and practices; (iii) application of TILA's civil liability provisions, the right of rescission, and borrower delinquency and default to PACE financing; (iv) features unique to PACE financing and how the regulations should reflect those features; and (v) the potential implications of "regulating PACE financing under TILA." Comments are due May 7, 2019.

The EGCRRPA's directives present some interesting issues for residential PACE financing. Notably, the EGRRCPA does not require the CFPB to apply TILA's ability to repay requirement for mortgages to PACE financing, instead it requires the CFPB to apply the purposes of ability-to-repay to PACE financing. The purpose of TILA's ability-to-repay requirement is "to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to...