A loan program allowing homeowners to pay for clean energy upgrades through property tax bills will still be subject to tighter lending rules next year, a federal judge ordered.
The Property Assessed Clean Energy (PACE) program allows borrowers to pay for home improvements, from storm hardening to solar panels, via future property tax assessments. The Consumer Financial Protection Bureau last December
A trade group for PACE participants, Building Resilient Infrastructure and Developing Greater Equity [BRIDGE], sued the bureau in May, arguing the upcoming regulation will be too burdensome and costly for participants. A federal judge in Florida this week denied BRIDGE's motion for a preliminary injunction, allowing the upcoming rules to proceed.
In a footnote in his order, U.S. District Judge Tom Barber wrote that the group's accusation that the CFPB violated the Tenth Amendment, in interfering with the tax aspect of PACE loans, was unlikely to succeed.
"Simply put, it does not appear from the briefing to date that PACE financing transactions are a tax," wrote Barber, suggesting the trade group focus on other arguments.
Neither attorneys for BRIDGE nor the CFPB responded to requests for comment this week.
How PACE works
A PACE administrator pays a contractor for home improvement work, and the property owner repays via a tax assessment against the property over a 5-to-30 year term. The program uses property-based underwriting rather than credit scores, and is categorized as a super-priority lien, ahead of pre-existing mortgage liens.
Homeowners don't have to pay an upfront, out-of-pocket cost, and are expected to recoup savings on their energy bills. PACE administrators today provide written financial estimates and disclosures, ensuring a property owner is current on all property-related debts and taxes. California, Florida and Missouri all have PACE programs.
Why trade groups oppose the new laws
Republicans have sought to add protections to the loans
BRIDGE says the CFPB exceeded its
"The CFPB's unlawful power grab over PACE financing with the final PACE rule will end PACE financing as a legally and commercially viable enterprise," their lawsuit read.
The trade group described the expected financial impact to two Florida-based administrators.
Renew Financial Group, which enrolls over 5,000 contractors, claims the new regulations will result in a 72% reduction in their funding volume. The administrator said it recorded over $215 million of PACE financing in fiscal year 2024, and has a delinquency rate of around 1.4%.
It serves primarily lower-income customers, and largely undertakes roofing and storm-hardening projects. Renew says it prohibits certain lending scenarios, such as balloon payments or homes with reverse mortgages. The company anticipates over $2.5 million in new compliance costs before the March implementation date.
Ygrene Energy Fund, another Florida administrator with over 1,500 contractors, is similarly situated in serving lower-income property owners, and claims a delinquency rate of 4%. It also expects to spend at least $600,000 in the next year on compliance efforts, in addition to hiring more staff and buying TILA-tolerant technology.
What's next in the court case
BRIDGE also accuses the CFPB for violating the Administrative Procedures Act for its arbitrary and capricious rulemaking. The law's fate still faces further legal hurdles.
"The court believes that the issues presented are highly complex and are better resolved at the summary judgment stage of the proceedings, with a more developed factual record," Judge Barber wrote this week.
The CFPB's final rule last year was supported by groups including the Mortgage Bankers Association. A contested 2023 bureau study found PACE borrowers were more likely to fall behind on their mortgages versus those who finance improvements with other products.
