[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]
=======================================================================
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.''
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\10\ See TILA section 129C(a), 15 U.S.C. 1639c(a).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\11\ See 15 U.S.C. 1602(g).
---------------------------------------------------------------------------
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
[[Page 8482]]
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