Just as PACE programs have started to grow up they’re getting hit with federal legislation that, if passed, could cripple future growth. At least that’s the industry's fear.
Property-assessed clean energy (PACE) financing funds building efficiency upgrades and rooftop solar panels through loans that are paid off in tandem with property taxes. The popularity of such residential programs has grown dramatically in recent years and are now reaching close to $4 billion in transactions across 140,000 American homes, supporting 35,000 jobs.
By many measures the programs, which are sponsored by state and local governments, are among the most successful energy efficiency financing tools in U.S. history. However, the industry has also been hit with major concerns about a lack of consumer protections and accountability over energy savings. PACE providers have been actively seeking to address those issues this year, particularly in California where the bulk of the programs operate.
Now the industry will also have to defend itself against federal legislation, which is using consumer protections as its calling card.
Last week Senator Tom Cotton, a Republican from Arkansas, introduced the “Protecting Americans from Credit Exploitation or (PACE) Act,” which requires PACE issuers to follow the same regulations and disclosures as banks and mortgage lenders. It would do so by subjecting PACE financing to the Truth in Lending Act that requires certain disclosures for mortgages.
Cotton said in a statement that the legislation seeks to “protect Americans from credit exploitation,” and will “reduce the advantage that PACE loan sharks have over hard-working Americans.” Cotton was joined by former Presidential candidate Senator Marco Rubio, a Republican from Florida, and Senator John Boozman, a Republican from Arkansas.
Cotton went as far as calling PACE financing “a scam” and said: “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.”
At the same time, House Representatives Brad Sherman, a Democrat from California, and Edward Royce, a Republican from California, introduced a companion bill, which called for the same changes as Cotton’s bill.
Sherman was less inflammatory in his statement than Cotton and said that while PACE programs “provide an important source of financing for consumers looking to make energy-efficient changes to their homes…. the current process presents homeowners with many challenges and can result in homeowners being misled about the terms of their loan.”
The PACE industry was swift to react to the bills, calling them “anti-PACE,” and potential residential PACE killers. While the industry publicly recognizes that more consumer protections should be in place, it contends that these bills would not protect consumers but would hamper the very nature of how PACE financing works.
The industry also contends that banking interests, which see PACE financing as competition, are a strong force behind the measures. The Mortgage Bankers Association and the California Association of Realtors have issued statements supporting the measures.
The largest PACE provider in the U.S., Renovate America, released a statement from its CEO, J.P. McNeill, which said that the new legislation would “destroy jobs and small businesses, result in higher utility bills for families, and prevent Americans from investing in their homes.” Renovate America is calling for new federal legislation that would add new consumer protections for PACE, but would not equate PACE with mortgages.
Another large PACE provider, Renew Financial, also issued a statement from its CEO, Cisco DeVries, opposing the bills. DeVries called the bills “extremely misguided” and said they would lead to “job losses” and “reduced economic activity.”
PACENow, a non-profit PACE industry group, called the bills “a thinly disguised effort to kill PACE by subjecting it to extraneous federal regulations.” The group accused the bills of “being driven by banking interests that only see PACE as competition for market share.”
Other environmental research groups, which have been supporters of PACE in the past, have come out in opposition of the bills as well. The Natural Resources Defense Council called the Cotton bill “a blunt instrument that threatens the progress of PACE programs rather than carefully implementing additional consumer protections.”
The Rocky Mountain Institute released a detailed letter explaining why treating PACE financing as a mortgage product is “ill-informed.” The letter says that the change would “jeopardize the fundamental and unique attributes of PACE,” and would “undermine existing robust consumer protection standards.”
On the other hand, the Mortgage Bankers Association said the new bills would “protect low-income and elderly Americans from risky financial products.” The group said that “PACE loans are, in substance, mortgage-related financing and should adhere to federal mortgage financing rules.”
The California Association of Realtors said the bills would “allow the Consumer Financial Protection Bureau to regulate the companies selling PACE loans and protect consumers from hard sales tactics that often lead to abuse.”
It’s pretty clear that in the early days of PACE there were some issues with weak consumer protections and a lack of oversight of contractors that install the energy upgrades. There have been a variety of media reports of homeowners who couldn’t afford to pay off their PACE bill and feared losing their home.
Renovate America has lawsuits from three homeowners accusing it of charging excessive and deceptive fees. Renovate America and co-defendant Western Riverside Council of Governments (the local government that administered the accused PACE program) filed a motion to dismiss the suit, and Renovate America said the case has “no merit.”
At the same time, the industry said that it’s come a long way in adding more consumer protections and contractor management programs. A new California law, enacted this year, added consumer protections for PACE. Another California law currently in the works is adding additional safeguards.
Brian Grow, managing director of the credit agency Morningstar, who co-authored a report on misconceptions of PACE, said, “The industry has come a long way. There are a lot of incentives for investors and providers to push for standards.”
PACE providers will surely continue to make this case as Congress considers the new legislation.