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CFPB issues rule on PACE financing

The Consumer Financial Protection Bureau has announced a final rule mandated by Congress (section 307 of the Economic Regulatory Relief and Consumer Protection Act (EGRRCPA)) that applies existing residential mortgage protections to Property Assessed Clean Energy (PACE) loans.

PACE loans are used by homeowners for clean energy upgrades and disaster readiness that are paid back through their property tax bills. Because of concerns about subprime-style lending that puts homeowners at risk of losing their home, Congress required the CFPB to enhance protections. The rule will ensure that PACE borrowers have the right to receive standard mortgage disclosures that allow them to compare the cost of the PACE loan with other forms of financing, and the lender will be responsible for ensuring that the borrower is not set up to fail with an unaffordable loan.

While PACE financing can provide quick cash for home improvements, CFPB research shows that:

Most PACE borrowers are eligible for other forms of financing, often at much cheaper rates than PACE loans.
PACE loans caused borrowers’ property taxes to increase by about $2,700 per year or an 88 percent increase.
PACE borrowers were more likely to fall behind on their first mortgage than people who chose not to finance home improvements with PACE.
PACE loans tend to be more expensive – around five percentage points higher -- than first mortgages, even though PACE loans get paid at a foreclosure sale before first mortgages.

The rule amends Regulation Z to make PACE loans subject to the regulation and its TRID disclosure and ability-to-repay requirements. The amendments will become effective March 1, 2026.