Senate banking bill would put PACE under consumer watchdog
Rooftop solar, efficient heaters aided by local tax provision
A financing program that’s let more than 180,000 homeowners pay for solar panels and clean-energy appliances through their local tax bills is poised to survive an effort by Republicans to add regulations that would have effectively shut it down.
The program, known as Property Assessed Clean Energy, had faced a challenge from U.S. senators led by Arkansas Republican Tom Cotton, who dubbed it a "scam" that often led unsuspecting buyers into financial ruin. In April, he proposed legislation that would regulate it like mortgages, a change that proponents said would have effectively shut it down.
Now, however, after behind-the-scenes negotiations among Senate staffers, consumer groups, mortgage lenders and PACE proponents, the GOP lawmakers reached a compromise that may, instead, rescue it. Cotton supports that compromise, which was part of a larger banking overhaul bill passed overwhelmingly this month by the Senate Banking Committee.
The legislation is a rare win for solar and energy efficiency proponents under President Donald Trump and Republicans in Congress. While Trump has axed the Clean Power Plan, which would have helped renewable-energy, and stalled energy-efficiency standards, this is an example of the smaller, targeted programs that continue to thrive despite the overall hostility from Washington.
PACE is not a federal program. It happens at the local level, but is often facilitated by state legislation. In communities that allow it, primarily in California, property owners can finance the cost of energy upgrades -- from rooftop solar panels to efficient water heaters -- through an individual tax assessment.
This is an approach that has been used for years for projects like replacing sewer pipes or burying power lines; the innovation was to apply it to individual energy upgrades.
"We want PACE to be done right everywhere in the country," said Cisco DeVries, the chief executive officer of Renew Financial Group, which handles PACE financing. "We’re stepping up and protecting PACE and improving PACE and demonstrating its importance."
DeVries came up with the idea for the program in 2006 while working for the mayor of Berkeley, California.
Because it’s a tax assessment, the financing cost can be lower than a typical home-improvement loan and the term longer. The repayment is the homeowner’s responsibility at no cost to other taxpayers and can be passed on to new owners if the property is sold. In many cases the cut in energy costs is enough to cover the borrowing costs.
Initially welcomed as an innovative way to get consumers to cut their energy use or install solar power, the idea has drawn opposition from both mortgage bankers and consumer advocates. Regulators, including the Federal Housing Administration, have determined that federally-insured mortgages would not be available to buyers of homes with PACE assessments.
The complaints from Washington have cast a pall on residential PACE loans. There are currently only three states that offer the residential loans: California, Florida and Missouri. California homeowners are the biggest users of the program. Commercial PACE loans, which could allow a factory to put solar panels on its roof or an office building to upgrade its heating system, are offered in 20 states, according to PACENation. In total, residential and commercial loans have financed $4.8 billion in energy upgrades.
But the National Consumer Law Center has highlighted a series of ways that consumers have been duped by predatory lending under PACE and linked it to the worst aspects of the mortgage boom before the 2008 crash. Mortgage lenders worry that PACE financing moves to the head of the queue in the case of a bankruptcy, ahead of their loans.
Alys Cohen, an attorney for the National Consumer Law Center, said abuses of the program "look just like what we saw leading up to the financial crisis."
In April, Cotton had pushed legislation that would have subjected PACE loans to provisions under the Truth in Lending Act, which proponents of the program say would have required local governments to change the way they do property taxes, making it difficult if not impossible for the program to work as intended.
"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 then. "Residential PACE loans are a scam."
Cotton still believes PACE is "a scam that homeowners should avoid," but supports the compromise legislation, the senator’s spokeswoman Caroline Tabler said in an email.
But after a bipartisan group of Senate staff members sat down with representatives of PACE companies, consumer groups and mortgage lenders, the Senate Banking Committee worked out a compromise that gives the Consumer Financial Protection Bureau the authority to regulate the program and establish standards for lending, specifically an ability to repay. That standard is similar to protections the state of California imposed after reports of fraud accumulated there.
The banking bill, S. 2155, was approved by the Senate Banking Committee Dec. 5 in a 16-7 vote, with a number of Democrats joining with Republicans to support it.
The Senate bill "subjects PACE product to an ability to re-pay requirement," said Pete Mills, a senior vice president of the Mortgage Bankers Association. "We think that’s a good first step but it doesn’t go as far as it could have or should have. We think they should be covered as a mortgage."