RE: Docket No. CFPB-2019-0011 RIN 3170-AA84
Dear Director Kraninger:
The American Bankers Association is pleased to provide comments on the Consumer FinancialProtection Bureau’s (“the Bureau”) advance notice of proposed rulemaking (“ANPR”) solicitinginformation relating to residential Property Assessed Clean Energy (PACE) financing.The ABA was strongly supportive of Section 307 of the Economic Growth and RegulatoryRelief and Consumer Protection Act (EGRRCPA) which mandates that the Bureau prescriberegulations to apply to residential PACE financing the purposes of the Truth in Lending Act’s(TILA) Ability to Repay (ATR) requirements as well as the general civil liability provisions ofviolations of ATR.
On October 15, 2018, ABA joined a number of other trade association and civil rights, andcommunity and consumer advocacy groups in a letter to then acting Director Mulvaney urgingthe Bureau to promulgate ability to repay regulations for residential PACE loans and to explicitlyincorporate residential PACE into TILA’s overall mortgage protections.
In that letter we noted:
"PACE loans often have little connection to the promised energy savings either due tooverzealous or deceptive marketing, or consumer usage patterns that undermine theexpected cost saving. While these problems exist in the home improvement marketgenerally, consumers that use home improvement lending products benefit fromconsumer protections that do not apply to PACE loans. As this is a form of consumercredit, PACE loans should be subject to the same rules as all other forms of consumercredit used for home improvement, especially when the consumer uses their home ascollateral for the loan."
As explained in our letter of October, 2018, residential PACE loans are “consumer credit” underTILA and its implementing regulation, Regulation Z and should be subject to Regulation Zgenerally, including its disclosure and right of rescission provision. While residential PACE’srepayment mechanism differs from a traditional loan, it is beyond dispute that the raison d’etrefor residential PACE is to finance a consumer product for home improvement. The method ofrepayment does not change the underlying nature of the transaction - credit, which Regulation Zdefines as “the right to defer payment of debt” The fact that the indebtedness attaches to theproperty rather than to the borrower makes the loan akin to an assumable property-collateralizedloan.
The purpose of TILA is “to assure a meaningful disclosure of credit terms so that the consumerwill be able to compare more readily the various credit terms available to him and avoid theuninformed use of credit…” In addition, Congress specifically found that “economicstabilization would be enhanced and the competition among the various financial institutions andother firms engaged in the extension of consumer credit would be strengthened by the informeduse of credit.” Clearly, residential PACE loans are promoted and function as credit forconsumer purposes, and consumers would benefit from the ability to understand the PACE loanterms and to compare those terms with alternative credit. Clearly, the ability to compare wouldpromote competition, as Congress envisioned. In addition, given that failure to repay aresidential PACE loan can result in a significant loss to consumers — loss of their home — it isimperative that consumer protections and disclosures on par with those provided to loan typessubject to TILA also apply to residential PACE loans.
Our colleagues at the National Consumer Law Center (one of the other co-signers of the October15, 2018 letter) have done considerable research and analysis to support the conclusion thatPACE loans are consumer credit subject to Regulation Z. We agree with their findings, analysis,and conclusion, and we include their analysis as an attachment to this letter. In summary, theymake clear that PACE loans are “consumer credit” under Regulation Z. They distinguishresidential PACE loans from tax liens and tax assessments, which are excluded from RegulationZ’s definition of credit, pointing out that, unlike tax assessments, residential PACE loans arevoluntary transactions. Congressional intent in passing Section 307 of EGRRCPA was to clarifythat the Bureau, in applying the ATR provisions to residential PACE loans, should take intoaccount “the unique nature of Property Assessed Clean Energy financing.” Simply put, the intentwas not to limit TILA’s application only to ATR requirements, but to address the unique featuresof residential PACE loans when applying the ATR aspects of TILA.
The three day right of rescission afforded to certain transactions, including opening or extendingan open-end credit plan, found at 15 USC Section 1035, applies to (among other products) homeequity lines and loans offered by banks and other lenders, and should also be applied toresidential PACE financing. It provides a prospective borrower a “cooling off” period as well astime to compare financing costs and features. This is a protection that is especially important forresidential PACE loans, which are frequently presented to borrowers in their home, with littletime to compare or shop before agreeing to the loan. If PACE advocates truly believe inproviding borrowers with affordable and beneficial financing options for energy efficiency andrelated products and services, they should be willing to provide a borrower with the right tocompare financing options as afforded by this important consumer protection set forth by TILA.
We commend the Bureau for issuing an ANPR to gain information on the nature and specifics ofPACE financing in the various jurisdictions that have authorized programs. We believe thatsound regulation must be based upon a solid knowledge of the products and services beingregulated. The ANPR process should provide the Bureau with details on the specific nature ofthe various programs offered across the nation so that any necessary accommodation can bemade for features unique to the various programs. Moreover, the Bureau should use thisopportunity in clarifying the application of the ATR provisions of Regulation Z to residentialPACE loans to explicitly apply the disclosure and other substantive provisions of TILA andRegulation Z that apply to all other consumer credit. Providing uniform disclosures and otherprotections will promote the goals and purpose of TILA by informing consumers so theyunderstand and can compare options as well as promote competition.
Thank you for this opportunity to provide comments on this important issue. We stand ready toassist the Bureau as it moves forward with developing a regulation to apply TILA protections toresidential PACE borrowers and we urge you to do so expeditiously. If you have questions orwish to discuss any of our comments in greater detail, please contact the undersigned at(202)663-5480 or at [email protected].
Sincerely,
Senior Vice President and Sr. Counsel
American Bankers Association
Download Comment Letter to view attachment.