CFPB Finalizes Stricter Rules for PACE Loans Amid Predatory Lending Concerns

A worker installs solar panels on the rooftop of a house in Pomona, Calif., on Oct. 19, 2023. Mario Tama/Getty Images

The Consumer Financial Protection Bureau (CFPB) has finalized a rule that imposes stricter regulations on Property Assessed Clean Energy (PACE) loans, a financing tool for clean energy upgrades and disaster preparedness projects repaid through property tax bills.

The new rule, announced on Dec. 17, applies Truth in Lending Act (TILA) protections to PACE financing and imposes ability-to-repay requirements to prevent lending practices that saddle homeowners with loans they can’t afford to repay.

PACE loans, which often target homeowners through aggressive door-to-door sales, finance projects such as solar panel installations that lenders often promise will pay for the loans through energy savings. Such loans often lead to unintended financial strain, according to CFPB, which notes that PACE borrowers see an average 88 percent property tax increase—around $2,700 annually—and are more likely to default on their primary mortgages than those using traditional financing. Despite promises of energy savings, PACE loans are typically costlier, with interest rates around five percentage points higher than first mortgages.

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

Under the new rule, lenders and PACE companies—defined as private firms administering PACE programs—are held accountable for assessing a borrower’s ability to repay. Specifically, they are now required to carry out a reasonable and good faith determination of repayment capacity, considering factors such as income, debt, and potential property tax increases. Third-party verification of financial data, such as escrow payments, is now mandatory to ensure accurate assessment of a borrower’s ability to repay and prevent misrepresentation or oversight of existing obligations that could lead to unaffordable loans.

The CFPB’s new rule also provides greater disclosure transparency, requiring PACE lenders to offer loan estimates and closing disclosures similar to those used for mortgages. This includes clear breakdowns of payment terms, late fees, and impacts on escrow accounts. Lenders must also communicate in clear terms—potentially substituting PACE with recognizable program names to avoid confusion—and provide Spanish-language versions of key disclosures.

However, in order to address the unique structure of PACE loans, which are repaid through property taxes in annual or semiannual intervals, the new rule includes two exemptions from TILA requirements. The final rule excludes PACE transactions from the Higher-Priced Mortgage Loans (HPML) Escrow Rule, which mandates escrow accounts for certain loans, and from the periodic statement requirements under the Mortgage Service Rule.

The rule’s effective date is March 1, 2026, with the CFPB saying that the long timeline provides for a smooth transition, giving stakeholders ample time to adjust their practices.

The watchdog’s announcement of the final rule comes amid Republican opposition to any new rulemaking in the waning days of the Biden administration.

“Administrations of both stripes tend to overwhelm Congress at the end of their term with hundreds of new rules—known as ”midnight rules“—representing billions of dollars of new regulatory burden,” House Rules Committee Chairman Rep. Michael Burgess (R-Texas) said in a statement on Dec. 16. His remark came on the same day that the House Rules Committee adopted a resolution that provides for streamlined House consideration of the Midnight Rules Relief Act (H.R. 115), a measure allowing lawmakers to review rules en bloc, meaning multiple rules all at once rather than one by one, for possible annulment.

“H.R. 115 makes a small tweak to existing law to allow Congress to catch up to this expected onslaught of new regulations as the Biden–Harris administration leaves office,” Burgess said, with the proposed measure now awaiting consideration by the full House.

President-elect Donald Trump has pledged to roll back regulations he deems unnecessary or detrimental to economic growth as part of his sweeping pro-business agenda.