PACE loan rules finally issued by CFPB

The Consumer Financial Protection Bureau has issued a rule that requires Truth in Lending Act protections, including ability-to-repay, to Property Assessed Clean Energy loans.

The rule goes into effect on March 1, 2026.

The Mortgage Bankers Association and the National Consumer Law Center led a coalition of industry and consumer groups praising the CFPB for finally issuing this rule.

It was required as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which modified the Dodd-Frank Act and was signed by Pres. Trump in 2018. The CFPB started a rulemaking effort to enact the PACE provisions the following year, which was then relaunched in 2023.

"The CFPB's final rule is a significant step to protect consumers and reduce mortgage delinquencies by ensuring that consumers are both informed of the obligations they are signing up for when they take out a PACE loan and that they have the ability to repay the loan," the joint statement said.

In 2017, a bipartisan effort to apply TILA to these loans was introduced by two House representatives from California, Brad Sherman, Democrat, and Ed Royce, Republican.

That same year, Sens. Tom Cotton, R-Ark., Marco Rubio, R-Fla., and John Boozman, R-Ark., introduced a bill in that chamber.

Also in 2017, a federal judge ruled PACE loans were not consumer credit transactions and thus not subject to TILA or the Home Owner Equity Protection Act. That changed after the Dodd-Frank reform became law.

An issue that vexes the mortgage industry is that the PACE loan is considered a superior lien to the first mortgage. The CFPB said its research found these borrowers are more likely to fall behind on their first mortgage versus those who finance their improvements using other products.

That superior lien remains in effect and that needs to be revised, the joint statement said.

"We note, however, that the rule does not change the fact that PACE loans are provided as a 'super lien priority' through the tax assessment process, which is damaging to the housing market and to borrowers who may not be able to refinance or recoup their investment at the time of a sale due to the PACE obligation's priority status," the statement continued. "We will continue to work together to address such challenges as well as any that might arise during the implementation of the rule in states with PACE programs."

Besides the MBA and NCLC, other participants in the statement are the California Mortgage Bankers Association, Housing Policy Council, Jacksonville Area Legal Aid, Mortgage Bankers Association of Missouri, Mortgage Bankers Association of Florida and Public Counsel of California.

"Today's rule stops unscrupulous companies and salespeople from luring homeowners into unaffordable loans based on false promises of energy savings," said CFPB Director Rohit Chopra in a press release. "Homeowners deserve to know just how much they are paying when they put their home and financial future on the line."

The new rule is also a follow up to a CFPB advisory issued in August about solar panel financing. PACE loans can be used for this purpose.

The Center for Responsible Lending issued its own statement in support of the new rule.

"Lenders have exploited these loans by approving them solely based on borrowers' home equities and not their ability to repay, leaving many vulnerable homeowners in a cycle of debt and at an increased risk of foreclosure," said Anneliese Lederer, senior policy counsel for the CRL.

"This rule will particularly protect low-income homeowners and communities of color from unsustainable, predatory lending practices and reinforce equity in the clean energy market."

In its press release, CFPB noted that most PACE borrowers are eligible for other, cheaper, forms of financing.

Furthermore, PACE loans increased borrowers' property taxes by 88%, or about $2,700 per year, the CFPB claimed.

But PACENation, a membership association that advocates for this form of financing, said it had "serious concerns" regarding the CFPB'S actions.

"This decision mischaracterizes PACE financing and neglects to take into account the 'unique nature of PACE' as required by the [2018] law," its statement said.

Furthermore, the CFPB did not take into account several positive developments since the passage of that law, including those that demonstrate PACE provides positive benefits to homeowners. Consumer complaints in California about PACE are at "a statistically significant low level," the group said.

Nor does it take into account consumer protections the Florida legislature passed in July, the PACENation statement continued.