[Federal Register Volume 84, Number 46 (Friday, March 8, 2019)]
[Proposed Rules]
[Pages 8479-8482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04177]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2019-0011]
RIN 3170-AA84


Advance Notice of Proposed Rulemaking on Residential Property 
Assessed Clean Energy Financing

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
issuing this Advance Notice of Proposed Rulemaking (ANPR) to solicit 
information relating to residential Property Assessed Clean Energy 
(PACE) financing. The Bureau will consider the information it receives 
in response to this ANPR in implementing section 307 of the Economic 
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). In 
relevant part, EGRRCPA section 307 amends the Truth in Lending Act 
(TILA) to mandate that the Bureau prescribe certain regulations 
relating to PACE financing. Specifically, the regulations must carry 
out the purposes of TILA's ability-to-repay (ATR) requirements, 
currently in place for residential mortgage loans, with respect to PACE 
financing, and apply TILA's general civil liability provision for 
violations of the ATR requirements the Bureau will prescribe for PACE 
financing. The regulations must ``account for the unique nature'' of 
PACE financing. This ANPR solicits information to better understand the 
PACE financing market and the unique nature of PACE financing.

DATES: Comments must be received by May 7, 2019.

ADDRESSES: You may submit responsive information and other comments, 
identified by Docket No. CFPB-2019-0011, by any of the following 
methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include Docket No. 
CFPB-2019-0011 in the subject line of the message.
     Mail: Comment Intake, Bureau of Consumer Financial 
Protection, 1700 G Street NW, Washington, DC 20552.
     Hand Delivery/Courier: Comment Intake, Bureau of Consumer 
Financial Protection, 1700 G Street NW, Washington, DC 20552.
    Instructions: When responding to a particular question, please note 
the question number at the top of the response. Also, where applicable, 
please note whether any information provided is relevant to a PACE 
financing program that is specific to a particular jurisdiction or 
administrator.
    You are not required to answer all questions to receive 
consideration of your comments. The Bureau encourages the early 
submission of comments. All submissions must include the document title 
and docket number.
    Because paper mail in the Washington, DC area and at the Bureau is 
subject to delay, commenters are encouraged to submit comments 
electronically. In general, all comments received will be posted 
without change to http://www.regulations.gov. In addition, comments 
will be available for public inspection and copying at 1700 G Street 
NW, Washington, DC 20552, on official business days between the hours 
of 10:00 a.m. and 5:00 p.m. eastern standard time. You can make an 
appointment to inspect the documents by telephoning 202-435-7275.
    All submissions, including attachments and other supporting 
materials, will become part of the public record and subject to public 
disclosure. Sensitive personal information, such as account numbers or 
Social Security numbers, or names of other individuals, should not be 
included. Submissions will not be edited to remove any identifying or 
contact information.

FOR FURTHER INFORMATION CONTACT: Rachel Ross, Attorney-Advisor; Joel 
Singerman, Counsel; or Nora Rigby, Senior Counsel; at (202)-435-7700. 
If you require this document in alternative electronic format, please 
contact CFPB_Accessibility.cfpb.gov.

SUPPLEMENTARY INFORMATION: The Bureau is issuing this ANPR to solicit 
information relating to residential PACE financing.\1\ The Bureau will 
consider the information it receives in implementing EGRRCPA section 
307, which was enacted by Congress on May

[[Page 8480]]

22, 2018, and signed into law on May 24, 2018.\2\
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    \1\ Although some jurisdictions may make PACE financing 
available for commercial projects, this ANPR solicits information 
relating only to residential PACE financing, in accord with EGRRCPA 
section 307, which defines PACE financing as available for home 
improvements. The Bureau is not soliciting information about 
commercial PACE financing.
    \2\ Public Law 115-174, 132 Stat. 1296 (2018).
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    As defined in EGRRCPA, PACE financing is ``financing to cover the 
costs of home improvements that results in a tax assessment on the real 
property of the consumer.'' \3\ Section 307 amends TILA to direct 
regulatory action on PACE financing. It provides in relevant part that 
the Bureau shall prescribe regulations that (1) carry out the purposes 
of TILA section 129C(a), and (2) apply TILA section 130 with respect to 
violations under TILA section 129C(a) with respect to PACE financing, 
which shall account for the unique nature of PACE financing.\4\
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    \3\ EGRRCPA section 307, amending TILA section 129C(b)(3)(C)(i), 
15 U.S.C. 1639c(b)(3)(C)(i).
    \4\ EGRRCPA section 307, amending TILA section 
129C(b)(3)(C)(ii), 15 U.S.C. 1639c(b)(3)(C)(ii). EGRRCPA section 307 
also includes amendments authorizing the Bureau to ``collect such 
information and data that the Bureau determines is necessary'' in 
prescribing the regulations and requiring the Bureau to ``consult 
with State and local governments and bond-issuing authorities.''
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    This provision directs the Bureau to prescribe regulations that 
achieve two objectives and account for the unique nature of PACE 
financing. As to the first objective, the regulations must ``carry out 
the purposes of'' TILA's existing ATR requirements. In general, the 
existing ATR requirements prohibit creditors from making a residential 
mortgage loan unless the creditor makes a reasonable and good faith 
determination based on verified and documented information that, at the 
time the loan is consummated, the consumer has a reasonable ability to 
repay the loan according to its terms, and all applicable taxes, 
insurance, and assessments.\5\ In making that determination, a creditor 
is required to consider specific factors about the consumer's finances, 
including, for example, the consumer's income, assets, and debt 
obligations, and to verify the income or asset amounts it relied upon 
to determine the consumer's repayment ability.\6\ TILA states that the 
purpose of the ATR requirements is ``to assure that consumers are 
offered and receive residential mortgage loans on terms that reasonably 
reflect their ability to repay the loans and that are understandable 
and not unfair, deceptive, or abusive.'' \7\
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    \5\ The ATR requirements are set forth in TILA section 129C(a), 
15 U.S.C. 1639c(a). The Bureau has issued regulations implementing 
TILA's ATR requirements. See 12 CFR 1026.43.
    \6\ See TILA section 129C(a), 15 U.S.C. 1639c(a).
    \7\ TILA section 129B(a)(2), 15 U.S.C. 1639b(a)(2).
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    As to the second objective, the regulations implementing EGRRCPA 
section 307 must apply TILA's general civil liability provision for 
violations of the ATR rules that will apply to PACE financing. That 
provision sets forth damages for TILA violations generally,\8\ as well 
as specific penalties for violations of the current ATR 
requirements.\9\
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    \8\ See generally TILA section 130, 15 U.S.C. 1640.
    \9\ See TILA section 130(a)(4), 15 U.S.C. 1640(a)(4) (providing 
liability for failure to comply with requirements in the ATR 
provisions in ``an amount equal to the sum of all finance charges 
and fees paid by the consumer, unless the creditor demonstrates that 
the failure to comply is not material.''); see also TILA section 
130(k), 15 U.S.C. 1640(k) (generally providing that consumers facing 
foreclosure may assert a violation of the ATR provisions, among 
other provisions, as a defense by recoupment or setoff).
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    The Bureau is soliciting information through this ANPR that it 
believes will be helpful in developing a proposed rule that will meet 
these objectives and accounts for the unique nature of PACE financing. 
The Bureau is seeking five categories of information: (1) Written 
materials associated with PACE financing transactions; (2) descriptions 
of current standards and practices in the PACE financing origination 
process; (3) information relating to civil liability under TILA for 
violations of the ATR requirements in connection with PACE financing, 
as well as rescission and borrower delinquency and default; (4) 
information about what features of PACE financing make it unique and 
how the Bureau should address those unique features; and (5) views 
concerning the potential implications of regulating PACE financing 
under TILA. The Bureau anticipates that the information solicited will 
enable the Bureau to better understand the market and unique nature of 
PACE financing. This will help the Bureau formulate proposed 
regulations in a balanced manner, achieving the statutory objectives 
discussed above while avoiding the imposition of unnecessary or undue 
burden on industry.
    The Bureau hopes to receive information reflecting the diversity of 
residential PACE financing transactions in the market. Where 
applicable, please specify whether any information provided applies to 
a PACE financing program that is specific to a particular jurisdiction 
or administrator. When responding to a particular question, please note 
the question number at the top of the response.
    The Bureau invites comment on all aspects of the ANPR from all 
interested parties, including consumers, consumer advocacy groups, 
State and local governments, other PACE financing industry 
participants, or other members of the public. In the event that a 
respondent may have concerns about revealing proprietary or personal 
information, the Bureau welcomes comments from attorneys, consumer 
advocacy organizations, trade associations, or other representatives 
that do not identify their clients.

I. Written Materials Associated With PACE Financing Transactions

    To better understand PACE financing transactions and potential 
areas of consumer risk, the Bureau is interested in receiving samples 
of any written materials used in PACE financing transactions. Please 
consider submitting samples of, for example, any contractual 
agreements, written materials provided to consumers before they sign a 
PACE financing agreement, and bills or statements that provide payment 
information to consumers. Please redact any personally identifiable 
information before submission.

II. Current Standards and Practices in the PACE Financing Origination 
Process

    As described above, EGRRCPA section 307 requires the Bureau to 
prescribe regulations for PACE financing that carry out the purposes of 
TILA's existing ATR requirements while accounting for the unique nature 
of PACE financing. In general, TILA's existing ATR requirements 
prohibit creditors from making a residential mortgage loan unless the 
creditor makes a reasonable and good faith determination based on 
verified and documented information that, at the time the loan is 
consummated, the consumer has a reasonable ability to repay the loan 
according to its terms, and all applicable taxes, insurance, and 
assessments.\10\ Developing an ATR rule for PACE financing that takes 
into account its unique nature will require a thorough understanding of 
origination and underwriting processes, including the roles and 
responsibilities of participating parties. Questions in this category 
solicit information to that end.
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    \10\ See TILA section 129C(a), 15 U.S.C. 1639c(a).
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    1. Please provide information about the process of obtaining a 
consumer's application for PACE financing, including what documentation 
is required from consumers or third parties, what information is 
verified, and how any information is collected. What information 
gathered as part of the application process relates to the consumer's 
ability to repay? Which parties collect the application information? 
How are policies and procedures relevant to the application process 
established?
    2. Please describe current underwriting standards and how they

[[Page 8481]]

are established. Does underwriting commonly include a determination of 
consumers' ability to repay the financing? If so, which parties conduct 
that analysis, and what factors are considered in that determination?
    3. Please provide information about the process for approving or 
denying PACE financing applications. For example, which parties 
determine consumer eligibility or make any offer to the consumer? Which 
parties are involved in determining the financing terms, and how do 
they do so for each consumer?
    4. Please provide information about any written information 
provided to consumers before they sign a PACE financing agreement, 
including relevant contracts or written disclosures. Who delivers these 
materials, in what format, and when during the origination process?
    5. Please describe any information provided to consumers orally 
before they sign a PACE financing agreement. Who provides the 
information and at what point during the origination process?
    6. TILA's existing ATR requirements apply to ``creditors,'' defined 
in part as the parties to whom debt obligations are ``initially payable 
on the face'' of the agreements.\11\ In PACE financing transactions, to 
which parties may the obligations be made ``initially payable on the 
face'' of the financing agreements? Please describe any requirements in 
State or local law governing to which parties PACE financing 
obligations may be made initially payable on the face of the financing 
agreements.
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    \11\ See 15 U.S.C. 1602(g).
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    7. To the extent not addressed above, please describe the role of 
State or local governments in the origination and underwriting of PACE 
financing.
    8. Please describe any relationship between the PACE financing 
agreement and the home improvement agreement. For example, do they 
involve separate contracts? Do consumers sign them concurrently? If a 
consumer is denied for the PACE financing, what is the effect on the 
consumer's obligations under the home improvement contract?
    9. To the extent not already addressed, please provide any 
information that may help the Bureau understand the origination process 
or any risks or benefits it produces for consumers.

III. Civil Liability Under TILA for Violations of ATR Requirements in 
Connection With PACE Financing, as Well as Rescission and Borrower 
Delinquency and Default

    As noted above, EGRRCPA section 307 requires that the Bureau 
prescribe regulations that apply TILA section 130 to violations of the 
ATR rules that will apply to PACE financing, and that account for the 
unique nature of PACE financing. Section 130 sets forth TILA's general 
civil liability requirements; and, with respect to violations of the 
existing ATR requirements, it allows for recovery of an amount equal to 
the sum of all finance charges and fees paid by the consumer and 
provides borrowers a foreclosure defense. In conjunction with questions 
elsewhere in this ANPR, the information solicited in this category is 
intended to help the Bureau identify the parties in a PACE financing 
transaction to whom TILA section 130 might apply and which parties 
would in fact bear the risk of any such liability. Additionally, this 
category of questions solicits information about any rescission rights 
available to consumers and what occurs when a homeowner becomes 
delinquent on a PACE financing obligation.
    10. Please provide any information about the assignment or sale, 
including securitization, of PACE financing agreements or the rights 
and obligations therein, and the circumstances surrounding any 
assignment or sale.
    11. Please describe any indemnification agreements that are 
commonly part of PACE financing transactions, whether involving local 
governments, private parties administering PACE financing programs, 
secondary market participants, home improvement companies, or others.
    12. Please describe any rescission rights available to consumers 
with respect to PACE financing agreements or home improvement 
contracts, whether by virtue of the agreements or applicable State or 
local law.
    13. Please provide information about what happens to PACE financing 
obligations when a consumer becomes delinquent or defaults. For 
example, please provide information about any loss mitigation programs 
available to consumers, any pre-foreclosure collection attempts, or 
foreclosure processes when applicable. Which parties are involved, and 
what are their roles?

IV. Features of PACE Financing That Make It Unique and How the Bureau 
Should Address Those Unique Features

    As noted above, the regulations implementing EGRRCPA section 307 
must account for the ``unique nature'' of PACE financing. Questions in 
this category solicit information that may be relevant to understanding 
the unique nature of PACE financing. They include questions about the 
structure, funding, and repayment of PACE financing transactions, and 
the relationship to local property tax systems.
    14. EGRRCPA section 307 defines PACE financing as ``financing to 
cover the costs of home improvements that results in a tax assessment 
on the real property of the consumer.'' Please identify any public or 
private financing options that may satisfy this definition, whether or 
not commonly understood to be PACE financing.
    15. Please provide information about the source of funding for PACE 
financing transactions. For example, are the transactions funded with 
public or private capital? Which parties supply the capital used to pay 
the contractors installing the home improvement projects?
    16. Please describe the role of public bonds in PACE financing 
transactions. Please identify the bond-issuing authorities. What is the 
timing of bond issuance? Who purchases the bonds, and what effect does 
the purchase have? Where public bonds are not involved in PACE 
financing transactions, please describe the role of any other public 
financing mechanisms.
    17. Please provide information about consumer repayment. For 
example:
    i. When does repayment begin after the financing agreement is 
signed?
    ii. How frequently are payments made?
    iii. Are payments roughly equal throughout a consumer's full 
financing term, or can payments change? Are interest rates fixed or 
variable? Are balloon payments required? If so, in what circumstances? 
Do PACE financing agreements always provide for full amortization?
    iv. To which parties do consumers make payments? Does the party to 
which consumers make payments ever change over the life of the 
financing agreement? If so, in what circumstances does this occur and 
why?
    v. After a consumer remits a payment, how is the payment 
distributed, and by whom?
    vi. Please describe any changes to payments or payment processes 
when a consumer becomes delinquent or defaults.
    vii. Please describe any differences to payments or payment 
processes when a consumer has a mortgage loan with an escrow account 
for taxes.
    18. Please describe how PACE financing is integrated with local

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property tax systems and how specific information about the PACE 
financing obligation is distinguished from other real property tax 
obligations in the tax system. Who monitors repayment of the PACE 
financing?
    19. To the extent not addressed above, please describe the role of 
State and local governments in PACE financing programs or individual 
PACE financing transactions following origination. Please identify any 
State or local government entities with regulatory or oversight 
authority over PACE financing or industry participants.
    20. Please describe any financial costs to consumers that may be 
associated with PACE financing transactions, including, for example, 
costs resulting from interest, points, fees, or penalties. How do costs 
for home improvement projects financed using PACE financing compare to 
costs for comparable projects financed through other means?
    21. Please describe any cost savings associated with home 
improvement projects funded with PACE financing, including, for 
example, utility savings or tax credits authorized under State or 
Federal law for PACE-eligible projects. Are projected savings 
calculated before PACE financing contracts are executed? If so, how, 
and over what period of time? Are actual savings tracked, and, if so, 
how do they compare with the projections?
    22. In general, does the addition of PACE financing affect 
consumers' ability to meet their financial obligations? Please describe 
any such effects and why they may occur.
    23. Please provide information about the liens associated with PACE 
financing. How do they differ from liens securing other property tax 
obligations that may encumber residential real property? Do PACE 
financing liens arise by operation of law or contract?
    24. Please provide information about the treatment of PACE 
financing obligations by servicers of mortgage loans responsible for 
servicing mortgages that were placed on the property before the PACE 
financing encumbrance. For example, do mortgage servicers typically 
administer PACE financing obligations through escrow accounts? Please 
describe the relevant processes and any effects on the mortgage 
servicer or the consumer. How quickly after PACE assessments are added 
do mortgage servicers learn about the increase to the consumer's 
property tax bill? How quickly do mortgage servicers adjust consumers' 
escrow payments, where applicable, to reflect the change?
    25. To the extent not already addressed, please provide any 
additional information about the unique nature of PACE financing, how 
the Bureau's regulations should account for the unique nature, and any 
risks or benefits to consumers or industry participants attributable to 
the unique nature.

V. Potential Implications of Regulating PACE Financing Under TILA

    As described above, EGRRCPA section 307 requires the Bureau to 
issue regulations applying TILA's ATR and general civil liability 
provisions (as implemented through Regulation Z) to PACE financing, 
accounting for the unique nature of PACE financing. In this category of 
questions, the Bureau solicits information relating to how the existing 
TILA and Regulation Z provisions could be applied to PACE financing to 
implement EGRRCPA section 307. This information will assist the Bureau 
in developing a proposed rule adapting existing TILA and Regulation Z 
standards in light of potential impacts on consumers and industry and 
any implementation challenges specific to PACE financing.
    26. If existing ATR requirements in TILA and Regulation Z were to 
apply to PACE financing transactions, please describe any likely 
effects on State and local governments or bond-issuing authorities.
    27. Please describe any likely effects of such application on 
consumers or PACE financing industry participants.
    28. If applied to PACE financing transactions, which specific ATR 
provisions under TILA and Regulation Z, if any, would conflict with 
existing State or local legal requirements, and how? What steps could 
the Bureau take to mitigate those conflicts?
    29. Which specific ATR provisions under TILA and Regulation Z would 
be difficult for market participants to apply to current PACE financing 
origination practices, bond processes, or laws and practices 
implicating real property tax systems, and why would they be difficult 
to apply?
    30. Which specific ATR provisions under TILA and Regulation Z, if 
any, would be beneficial for consumers, and how? Which, if any, would 
not provide consumer benefits, and why not?
    31. How could TILA's existing ATR requirements be tailored to 
account for the unique nature of PACE financing? Are there unique 
aspects of PACE financing that are relevant to whether and how the 
existing ATR requirements should apply, including the documentation and 
verification requirements or the specific information required as part 
of the analysis?
    32. As described above, EGRRCPA section 307 requires the Bureau to 
apply TILA section 130 to violations of the ATR requirements that the 
Bureau will prescribe for PACE financing. Please provide your views on 
any likely impacts on consumers or PACE financing market participants 
of applying TILA section 130. Please describe any other concerns 
associated with applying TILA liability to PACE financing, including 
but not limited to TILA section 130.
    33. Please share your views on whether the Bureau should address 
the application of TILA and Regulation Z provisions other than the ATR 
requirements to PACE financing, including any potential impacts on 
consumers, industry, or other stakeholders that may result from any 
such application.
    34. Please share any other comments or concerns about implementing 
EGRRCPA section 307 under TILA and Regulation Z.

    Dated: March 4, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-04177 Filed 3-7-19; 8:45 am]
 BILLING CODE 4810-AM-P