The Consumer Financial Protection Bureau (CFPB) has issued its final rule aimed at protecting consumers from predatory lending practices concerning Property Assessed Clean Energy (PACE) loans.
In a statement released Wednesday, director of the consumer watchdog group, Rohit Chopra, said the rule "stops unscrupulous companies and salespeople from luring homeowners into unaffordable loans based on false promises of energy savings.”
The new regulation is set to take effect March 1, 2026, and requires companies to disclose the financial impact of PACE loans, which create new liens on homes that complicate refinancing or home sales for buyers, brokers, and sellers.
The ruling comes after CFPB research uncovered that many PACE-financed homeowners could qualify for cheaper financing options to achieve commensurate energy upgrades, and were more likely to miss mortgage payments. Additionally, PACE loans were found to have higher interest rates than mortgages, and increased property taxes by about $2,700 a year.
Several states have recently passed their own legislation regarding PACE loans, with California issuing statutes curbing predatory PACE practices as early as 2017. Midwestern states like Minnesota and Ohio enacted laws that legally subordinate PACE liens to residential mortgage liens.
Accordingly, if homes with active PACE liens in those states enter foreclosure, mortgage lenders have priority claims on the property, and the PACE loan is settled only after the mortgage debt. Such guardrails protect mortgage lenders and reduce risks for homeowners.
In a press release, the Mortgage Bankers Association (MBA) championed the ruling, calling it “a significant step to protect consumers and reduce mortgage delinquencies.”
However, they noted that the CFPB's new rule does not change the 'super lien priority' status of PACE loans, stating, "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.”
