Republican Senator Tom Cotton of Arkansas is expected to introduce a bill on Wednesday aimed at curtailing what many have characterized as predatory lending practices in a federal program known as Property Assessed Clean Energy (PACE). Democratic congressman Brad Sherman of California is also said to be preparing a similar bill in the House of Representatives later this week.
The proposed legislation would amend the Truth in Lending Act to require PACE lenders to follow the same regulations as banks and mortgage lenders. If enacted, PACE lenders would have to disclose to borrowers the amount they would owe over the lifetime of the loan and to devise a method for reporting the terms of the loans to borrowers.
Oversight of the lenders, now nonexistent at the federal level and only spotty at the state and local level, would be put under the eye of a federal regulator, most likely the Consumer Financial Protection Bureau, according to a report in The Wall Street Journal.
PACE loans were established to help homeowners buy energy-efficient solar panels, window insulation and air conditioning units. The program is also the fastest growing loan program in the country. About $3.7 billion in PACE loans had been made as of the end of March, according to The Wall Street Journal, which also notes some details of the program:
PACE loans range in size from about $5,000 to more than $100,000, with an average of about $25,000, and charge interest rates of 6% to 9% over a repayment period of usually five to 25 years.
The loans have been popular because they have been packaged and securitized and sold to investors, in much the same manner as subprime mortgages once were. What makes them particularly attractive is that the PACE loans sit at the head of the line to be repaid if a homeowner defaults on the loan, meaning that a borrower’s property can be seized as collateral and sold to repay the lender even if mortgage payments are being paid in a timely manner.
At least one lender, Renew Financial, supports additional consumer protections for PACE loans. Cisco DeVries, the company’s CEO, told The Wall Street Journal:
There is no question that PACE should have disclosures and other requirements that are robust, if not more robust, than other types of consumer finance.
It appears that Democrats, Republicans, lenders and borrowers for once agree on something. This might be too good to be true.
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