While California has stepped up regulation of a type of financing that allows homeowners to fund energy-saving improvements with an assessment on their properties, the industry now faces new proposed federal legislation that it says could threaten the industry.
Under property-assessed clean energy, or PACE, lending programs the cost of various improvements such as energy-rated water heaters, windows, and solar panels can be repaid through annual payments on property tax bills.
PACE financing was started in California in 2007. The state is a leader in this industry, with Santa Rosa-based Ygrene Energy Fund as a major player.
Such residential programs have grown dramatically in recent years, reaching close to $4 billion in transactions across 140,000 American homes, supporting 35,000 jobs, according to PACENation, a nonprofit group that helps support program financing.
With the rapid growth have come concerns about “predatory business practices” from lawmakers and other organizations that cite a lack of consumer protections and accountability over energy savings.
The Boston-based National Consumer Law Center recently warned that an absence of federal protections are leading to complaints that elderly and low-income property owners in California, where PACE originated, are being targeted by third-party contractors for expensive improvements and being extended credit they cannot afford to repay. Some consumers have also been mislead into believing the loans could be passed from home seller to buyer, when in most cases they cannot.
The federal Protecting Americans from Credit Exploitation Act (PACE Act) would require PACE providers to follow the same regulations and disclosures as banks and mortgage lenders. It would do so by subjecting PACE financing to the Truth in Lending Act (TILA) that requires disclosures about the manner in which costs associated with borrowing are calculated and disclosed.
Arkansas Sen. Tom Cotton, one of the bill’s sponsors, called the program “a scam,” stating that PACE loans require no underwriting and have high interest fees, with rates of 8 percent–12 percent. PACE lenders also receive first priority of repayment, before mortgage brokers. And currently, there is no standardized rate or fee disclosure required for PACE loans.
“Predatory green-energy lenders are changing state and local laws to trick seniors into taking out high-interest rate loans for 20 years, along with liens on their homes, for technology that could be obsolete in a few years,” he said. “Requiring disclosure will reduce the advantage that PACE loan sharks have over hard-working Americans. It’s just the accountability we need.”
PACENow, a nonprofit advocacy group for the industry, called the bill “a thinly disguised effort to kill PACE by subjecting it to extraneous federal regulations.” The group stated the bill is being “driven by banking interests that only see PACE as competition for market share.”
PACE-enabling legislation is active in 33 states and the District of Columbia, and programs are launched and operating in 19 states and the district, according to PACENation. Residential PACE loans currently are currently active in California, Florida and Missouri.
Last fall, California enacted AB 2693. Provisions limit the amount of annual property taxes and assessments to 5 percent of the property’s market value, provides a three-day right to cancel the assessment, and a notice to borrowers that they may not be able to refinance or sell without paying off the PACE loan.
The bill’s author, Assemblyman Matt Dababneh, said the purpose of the bill was not to dismantle the program, but to empower homeowners and create a more stable market and opportunities for PACE providers.