CFPB rule applies mortgage protections to clean energy loans

The Consumer Financial Protection Bureau (CFPB) on Tuesday announced a final rule governing the Property Assessed Clean Energy (PACE) loan program. The rule applies existing protections for residential mortgages to borrowers who seek PACE loans to upgrade or renovate their homes through clean energy technology.

The rule goes into effect on March 1, 2026, according to the CFPB.

PACE loans — which are often used to finance environmentally minded renovations, like the addition of solar panels — have led to financial instability for some borrowers. The rule will implement a congressional mandate to establish consumer protections for residential PACE loans. The concept of bolstering consumer protections for these loans was first announced in May 2023.

The subprime lending crisis previously induced Congress to bolster lending protections, and the new rule now applies the same safeguards to the PACE program, the bureau said.

“The rule will ensure that PACE borrowers have the right to receive standard mortgage disclosures that allow them to compare the cost of the PACE loan with other forms of financing, and the lender will be responsible for ensuring that the borrower is not set up to fail with an unaffordable loan,” the bureau said.

Making good on recent statements to a Senate committee, CFPB Director Rohit Chopra continues to move ahead with rulemaking activity despite the high likelihood that he is entering his final month as the bureau’s leader.

“Today’s rule stops unscrupulous companies and salespeople from luring homeowners into unaffordable loans based on false promises of energy savings,” Chopra said. “Homeowners deserve to know just how much they are paying when they put their home and financial future on the line.”

PACE loans are typically marketed via door-to-door sales by independent brokers who work with contractors who perform the modernization and enhancement work. But these arrangements come with several caveats, according to the CFPB.

“These companies may promise that the improvements will pay for themselves with energy savings or through enhanced disaster preparedness,” the bureau said.

And while the program often offers fast access to specialized financing for accomplishing these kinds of projects, the bureau also found that some PACE customers can qualify for other financing options with better terms. “PACE loans caused borrowers’ property taxes to increase by about $2,700 per year or an 88% increase,” according to the CFPB.

PACE borrowers were also more likely to fall behind on payments for their first mortgage compared to those who didn’t use the program. Additionally, PACE loans tend to be about 5% more expensive on average than first mortgages, “even though PACE loans get paid at a foreclosure sale before first mortgages,” the CFPB said.

A coalition of housing and consumer trade groups issued a statement Tuesday in which they lauded the implementation of the rule. The coalition includes the Mortgage Bankers Association, the National Consumer Law Center, the California Mortgage Bankers Association, the Housing Policy Council, Jacksonville Area Legal Aid, Mortgage Bankers Association of Missouri, Mortgage Bankers Association of Florida, and Public Counsel of California.

“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 groups 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. 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.”

Editor’s note: This story was updated to include comments from the Mortgage Bankers Association.