# Residential Property Assessed Clean Energy Financing (Regulation Z) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2023-09468 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** May 11, 2023 - **Citation:** 88 FR 30388 ## Text CONSUMER FINANCIAL PROTECTION BUREAU 12 CFR Part 1026 [Docket No. CFPB-2023-0029] RIN 3170-AA84 Residential Property Assessed Clean Energy Financing (Regulation Z) AGENCY: Consumer Financial Protection Bureau. ACTION: Proposed rule; request for public comment. SUMMARY: Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) directs the Consumer Financial Protection Bureau (CFPB or Bureau) to prescribe ability-to-repay rules for Property Assessed Clean Energy (PACE) financing and to apply the civil liability provisions of the Truth in Lending Act (TILA) for violations. PACE financing is financing to cover the costs of home improvements that results in a tax assessment on the real property of the consumer. In this notice of proposed rulemaking, the Bureau proposes to implement EGRRCPA section 307 and to amend Regulation Z to address how TILA applies to PACE transactions to account for the unique nature of PACE. DATES: Comments must be received on or before July 26, 2023. ADDRESSES: You may submit comments, identified by Docket No. CFPB-2023-0029 or RIN 3170-AA84, by any of the following methods: • Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments. • Email: 2023-NPRM-PACE@cfpb.gov. Include Docket No. CFPB-2023-0029 or RIN 3170-AA84 in the subject line of the message. • Mail/Hand Delivery/Courier: Comment Intake—PACE, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. Instructions: The CFPB encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the CFPB is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to https://www.regulations.gov. All submissions, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or 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: Luke Diamond, Daniel Tingley, Counsels; Kristin McPartland, Amanda Quester, Alexa Reimelt, or Joel Singerman, Senior Counsels, Office of Regulations, at 202-435-7700. If you require this document in an alternative electronic format, please contact CFPB_Accessibility@cfpb.gov. SUPPLEMENTARY INFORMATION: I. Summary of the Proposed Rule Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) directs the Bureau to prescribe ability-to-repay (ATR) rules for Property Assessed Clean Energy (PACE) financing and to apply the civil liability provisions of the Truth in Lending Act (TILA) for violations. 1 In this notice of proposed rulemaking, the Bureau proposes to implement EGRRCPA section 307 and to amend Regulation Z to address the application of TILA to “PACE transactions” as defined in proposed § 1026.43(b)(15). 1 15 U.S.C. 1639c(b)(3)(C). The proposed rule would: • Clarify an existing exclusion to Regulation Z's definition of credit that relates to tax liens and tax assessments. Specifically, the CFPB is proposing to clarify that the commentary's exclusion to “credit,” as defined in § 1026.2(a)(14), for tax liens and tax assessments applies only to involuntary tax liens and involuntary tax assessments. • Make a number of adjustments to the requirements for Loan Estimates and Closing Disclosures under §§ 1026.37 and 1026.38 that would apply when those disclosures are provided for PACE transactions, including: ○ Eliminating certain fields relating to escrow account information; ○ Requiring the PACE transaction and other property tax payment obligations to be identified as separate components of estimated taxes, insurance, and assessments; ○ Clarifying certain implications of the PACE transaction on the property taxes; ○ Requiring disclosure of identifying information for the PACE company; ○ Requiring various qualitative disclosures for PACE transactions that would replace disclosures on the current forms, including disclosures relating to assumption, late payment, servicing, partial payment policy, and the consumer's liability after foreclosure; and ○ Clarifying how unit-periods would be disclosed for PACE transactions. • Provide new model forms under H-24(H) and H-25(K) of appendix H for the Loan Estimate and Closing Disclosure, respectively, specifically designed for PACE transactions. • Exempt PACE transactions from the requirement to establish escrow accounts for certain higher-priced mortgage loans, under proposed § 1026.35(b)(2)(i)(E). • Exempt PACE transactions from the requirement to provide periodic statements, under proposed § 1026.41(e)(7). • Apply Regulation Z's ATR requirements in § 1026.43 to PACE transactions with a number of specific adjustments to account for the unique nature of PACE financing, including requiring PACE creditors to consider certain monthly payments that they know or have reason to know the consumer will have to pay into the consumer's escrow account as an additional factor when making a repayment ability determination for PACE transactions extended to consumers who pay their property taxes through an escrow account. • Provide that a PACE transaction is not a qualified mortgage (QM) as defined in § 1026.43. • Extend the ATR requirements and the liability provisions of TILA section 130 to any “PACE company,” as defined in proposed § 1026.43(b)(14), that is substantially involved in making the credit decision for a PACE transaction. • Provide clarification regarding how PACE and non-PACE mortgage creditors should consider pre-existing PACE transactions when originating new mortgage loans. The Bureau proposes that the final rule, if adopted, would take effect at least one year after publication of the final rule in the Federal Register , but no earlier than the October 1 which follows by at least six months Federal Register publication. The Bureau requests comment on all aspects of the proposed rule and on whether there are any other provisions of TILA or Regulation Z that the Bureau should address with respect to PACE transactions. II. Background A. PACE Market Overview 1. How does PACE financing work? PACE financing is a mechanism that enables property owners to finance certain upgrades to real property through an assessment on their real property. 2 Eligible upgrade types vary by locality but often include upgrades to promote energy efficiency or to help prepare for natural disasters. The voluntary financing agreements (PACE loans) are made between the consumer and the consumer's local government or a government entity operating with the authority of several local governments, 3 and they leverage the property tax system for administration of payments. PACE financing is repaid through the property tax system along with the consumer's other property tax payment obligations. The assessments are typically collected through the same process as real property taxes. 4 Local governments typically fund PACE transactions through bond issuance, with these bonds in turn collateralized and sold as securitized obligations. 2 Some States authorize PACE financing for residential and commercial property. In this proposal, the term PACE financing refers only to residential PACE financing unless otherwise indicated. 3 Although PACE financing programs may be sponsored by individual local governments, many are sponsored by intergovernmental organizations whose membership consists of multiple local governments. 4 See, e.g., Cal. Sts. & Hwys. Code sec. 5898.30; Fla. Stat. 163.08; Fla. Stat. 197.3632(8)(a); Mo. Stat. 67.2815(5). PACE assessments are secured by a lien on the consumer's real property. The liens securing PACE loans typically have priority under State law similar to that of other real property tax liens, which are superior to other mortgage liens on the property, including those that predated the PACE lien. 5 In a foreclosure sale, this superior lien position means that any amount due on the PACE loan is paid with the foreclosure sale proceeds before any proceeds will flow to other liens. The PACE assessment is tied to the property, not the property owner. As such, the repayment obligation remains with the property when property ownership transfers unless paid off at the time of sale. 5 See, e.g., Cal. Sts. & Hwys. Code sec. 5898.30 (providing for “the collection of assessments in the same manner and at the same time as the general taxes of the city or county on real property, unless another procedure has been authorized by the legislative body or by statute . . . .”); Fla. Stat. 163.08(8) (“The recorded agreement shall provide constructive notice that the assessment to be levied on the property constitutes a lien of equal dignity to county taxes and assessments from the date of recordation.”). However, authorizing statutes in some PACE States provide for subordinated-lien status for PACE financing. See, e.g., Minn. Stat. 216C.437(4); Me. Stat. tit. 35A 10156(3), (4); 24 V.S.A. 3255(b). Although some local governments operate PACE financing programs directly, most contract with private PACE companies to operate the programs. These private companies generally handle the day-to-day operations, including tasks such as marketing PACE financing to consumers, training home improvement contractors to sell PACE to consumers, overseeing originations, performing underwriting, and making decisions about whether to extend the loan. The PACE companies may also contract with third-party companies to administer different aspects of the loans after origination. Typically, PACE companies purchase PACE bonds that are issued by local governments to fund the programs, which generate revenue for the PACE companies from interest on consumer payments. PACE companies are also sometimes involved in securitizing the bond obligations for sale as asset-backed securities. Additionally, PACE companies often earn various fees related to the transactions. 6 6 See, e.g., Energy Programs Consortium, R-PACE, Residential Property Assessed Clean Energy, A Primer for State and Local Energy Officials (Mar. 2017), http://www.energyprograms.org/wp-content/uploads/2017/03/R-PACE-Primer-March-2017.pdf. PACE companies often rely heavily upon home improvement contractors both to sell PACE loans to consumers and to facilitate the origination of those loans. Home improvement contractors frequently market PACE financing directly to consumers in the course of selling their home improvement contracts, often door-to-door. They often serve as the primary point of contact with consumers during the origination process, typically collecting any application information that the PACE companies use to make underwriting and eligibility determinations. The contractors may also deliver disclosures relating to the PACE transaction and obtain the consumer's signature on the financing agreement. 2. Origin and Growth of PACE Programs In 2008, California passed Assembly Bill no. 811 to enable the first PACE programs. The Bureau is aware of 19 States plus the District of Columbia that currently have enabling legislation for residential PACE financing programs, but only a small number of states have had active programs, primarily California, Florida, and Missouri. 7 7 See infra note 329. There has been pilot program activity for residential PACE financing in some states. See, e.g., DevelopOhio, Lucas County PACE program benefits homeowners (Aug. 16, 2019), https://www.developohio.com/post/detail/lucas-county-pace-program-benefits-homeowners-234705. Some States that previously authorized residential PACE financing programs have amended their statutes such that PACE financing is no longer authorized for single-family residential properties. See, e.g., 2021 Wis. Act 175 (codified at Wis. Stat. sec. 66.0627). During the early years of PACE financing, lending activity appears to have been relatively limited, with cumulative obligations of around $200 million through 2013. 8 In 2014, PACE financing activity accelerated, reaching peak production in 2016 with over $1.7 billion in investment. 9 This level of activity was maintained in 2017, but it declined between 2018 and 2021, with an average investment of $769 million per year during those years. 10 Overall, as of December 31, 2021, the PACE financing industry had financed 323,000 home upgrades, totaling over $7.7 billion. 11 8 See PACENation, Market Data, https://www.pacenation.org/pace-market-data/ (last visited Mar. 30, 2023). 9 See id. 10 See id. The latest data available on the PACE financing industry trade association's website is for 2021. 11 See id. 3. Common Financing Terms According to data analyzed in a report that the Bureau is releasing concurrently with this proposal (“PACE Report”), the term of PACE loans that were originated between July 2014 and June 2020 was most often 20 years, but ranged between five and 30 years. 12 The Report also finds that the interest rates for those loans clustered around 7 to 8 percent with annual percentage rates (APRs) averaging approximately a percentage point higher. 13 Fees vary by program, but the CFPB has reviewed agreements that include fees for application, origination, tax administration, lien recordation, title, escrow, bond counsel, processing, title, underwriting, and fund disbursement. The Bureau is not aware of any PACE obligations that are open-end or have a negative-amortization feature. 12 See CFPB, PACE Financing and Consumer Financial Outcomes at Table 2 (May 2023), https://files.consumerfinance.gov/f/documents/cfpb_pace-rulemaking-report_2023-04.pdf (PACE Report). The PACE Report is discussed in more detail in part IV. 13 Id. 4. Consumer Protection Concerns Consumer advocates have expressed concerns that the PACE market lacks adequate consumer protections. They have indicated that the highly secure super-priority lien associated with PACE transactions creates incentives for PACE companies and home improvement contractors to originate loans quickly, often on the spot, without regard to affordability or consumer understanding. They have reported allegations of deceptive sales tactics, aggressive sales practices, and fraud. Consumer advocates have criticized other aspects of PACE financing as well, such as the high cost of funding compared to other mortgage debt, excessive capitalized fees, and inadequate disclosures. They have argued that these aspects of PACE financing can result in unexpected and unaffordable tax payment spikes that can lead to delinquency, late fees, tax defaults, and foreclosure actions. 14 Some local officials have echoed many of these concerns in discussions with CFPB staff. 14 See, e.g., Nat'l Consumer Law Ctr., Residential (PACE) Loans: The Perils of Easy Money for Clean Energy Improvements (Sept. 2017), https://www.nclc.org/images/pdf/energy_utility_telecom/pace/ib-pace-stories.pdf; see also Off. of the Dist. Att'y, Cnty. of Riverside, News Release, District Attorneys Announce $4 Million Consumer Protection Settlement (Aug. 9, 2019), https://rivcoda.org/community-info/news-media-archives/district-attorneys-announce-4-million-consumer-protection-settlement; Kirsten Grind, America's Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis, Wall Street Journal (Jan. 10, 2017), https://www.wsj.com/articles/americas-fastest-growing-loan-category-has-eerie-echoes-of-subprime-crisis-1484060984. Additionally, consumer advocates have expressed concern that some home improvement contractors involved in the origination of PACE transactions provide consumers with misleading information about potential energy savings or promote the most expensive energy improvements, regardless of their actual energy conservation benefits. 15 They have noted that such practices could result in homeowners receiving a smaller reduction in their utility bills than anticipated, making PACE financing payments more difficult to afford. 15 See Claudia Polsky, Claire Christensen, Kristen Ho, Melanie Ho & Christina Ismailos, The Darkside of the Sun: How PACE Financing Has Under-Delivered Green Benefits and Harmed Low Income Homeowners, Berkeley L., Env't L. Clinic, at 8-13, https://www.law.berkeley.edu/wp-content/uploads/2021/02/ELC_PACE_DARK_SIDE_RPT_2_2021.pdf. Additionally, consumer advocates have alleged that PACE financing is disproportionately targeted at older Americans, consumers with limited English proficiency or lower incomes, and consumers in predominantly Black or Hispanic neighborhoods. They have also highlighted that, although a PACE assessment technically remains with the property at sale, most home buyers are unwilling to take on the remaining payment obligation for a PACE lien, or their mortgage lender prohibits them from doing so. 16 Consumer advocates have reported that PACE consumers are often unaware of these issues when agreeing to the financing, which causes an unanticipated financial burden when consumers are required to pay off the PACE assessment to complete a home sale. 16 See Freddie Mac, Purchase and “no cash-out” refinance Mortgage requirements (Mar. 31, 2022), https://guide.freddiemac.com/app/guide/section/4606.4. As of February 2023, guidelines from both Fannie Mae and Freddie Mac generally prohibit purchase of mortgages on properties with outstanding first-lien PACE obligations. Similarly, the Federal Housing Administration (FHA) updated its handbook requirements in 2017 to prohibit insurance of mortgage on properties with outstanding first-lien PACE obligations, see U.S. Dept. of Hous. & Urban Dev., Property Assessed Clean Energy (PACE) (Dec. 7, 2017), https://www.hud.gov/sites/dfiles/OCHCO/documents/17-18ml.pdf. Mortgage industry stakeholders have also asserted that PACE financing introduces risk to the mortgage market, as PACE liens take priority over pre-existing mortgage liens. 17 17 See, e.g., Fed. Hous. Fin. Agency (FHFA), FHFA Statement on Certain Energy Retrofit Loan Programs (July 6, 2010), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Statement-on-Certain-Energy-Retrofit-Loan-Programs.aspx; FHFA Notice and Request for Input on PACE Financing, 85 FR 2736 (Jan. 16, 2020); Joint Letter from Mortgage Trade Assocs. to FHFA Director Mark Calabria (Mar. 16, 2020), https://www.housingpolicycouncil.org/_files/ugd/d315af_6cb569a5427f4e26ab4ef4d55038b3f6.pdf. Since 2015, the CFPB has received over 50 complaints related to PACE financing, primarily from consumers in California and Florida. Many of the complaints allege fraud, deceptive practices, overly high costs, or trouble with refinancing the consumer's home. Six of the complaints involve older Americans, and five of the complaints involve consumers with limited English proficiency. Consumer advocates have suggested that consumers may not be aware of their ability to submit PACE complaints to the CFPB database or may have had difficulty categorizing them, which may have resulted in a lower number of complaints reported. Consumers in California are also able to submit complaints to their State PACE regulator and submitted 385 complaints between 2019 and 2021. 18 18 Cal. Dep't of Fin. Prot. & Innovation, Annual Report of Operation of Finance Lenders, Brokers, and PACE Administrators Licensed Under the California Financing Law, at 41 (Aug. 2022) https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/08/2021-CFL-Aggregated-Annual-Report.pdf. In August 2019, Renovate America, Inc. (Renovate), a major PACE company at the time, reached a $4 million settlement with six counties and one city in California. 19 The complaint, filed in State court, alleged that Renovate America misrepresented the PACE program or failed to make adequate disclosures about key aspects of the program, including its government affiliation, tax deductibility, transferability of assessments to subsequent property owners, financing costs, and Renovate's contractor verification policy. 20 Subsequently, in June 2021, the California State PACE regulator moved to revoke Renovate's Administrator license, required to operate a PACE company in the State, after finding that one of its solicitors repeatedly defrauded homeowners in San Diego County. 21 Renovate ultimately consented to the revocation. 22 19 See Riverside Cnty. Dist. Att'y, District Attorneys Announce $4 Million Consumer Protection Settlement With “PACE” Program Administrator Renovate America, Inc. (Aug. 9, 2019), https://rivcoda.org/community-info/news-media-archives/district-attorneys-announce-4-million-consumer-protection-settlement; see also State of California v. Renovate America, Case No. RIC1904068 (Super. Ct. Riverside Cnty. 2019). 20 Id. 21 See Cal. Dep't of Fin. Prot. & Innovation, DFPI Moves to Revoke PACE Administrator's License After Finding Its Solicitor Defrauded Homeowners (June 4, 2021), https://dfpi.ca.gov/2021/06/04/dfpi-moves-to-revoke-pace-administrators-license-after-finding-its-solicitor-defrauded-homeowners/. 22 Cal. Dep't of Fin. Prot. & Innovation, Settlement Agreement (Sept. 8, 2021), https://dfpi.ca.gov/wp-content/uploads/sites/337/2021/09/Admin.-Action-Renovate-America-Inc.-Settlement-Agreement.pdf?emrc=090ca0. In October 2022, Ygrene Energy Fund Inc. (Ygrene), a major PACE company, reached a $22 million settlement with the Federal Trade Commission (FTC) and the State of California over allegations regarding its conduct in the PACE marketplace. 23 In a joint complaint, the FTC and California alleged that Ygrene deceived consumers about the potential financial impact of its financing and unfairly recorded liens on consumers' homes without their consent. 24 The complaint further alleged that Ygrene and its contractors falsely told consumers that PACE financing would not interfere with the sale or refinancing of their homes and used high-pressure sales tactics and even forgery to enroll consumers into PACE programs. 25 23 See Fed. Trade Comm'n, FTC, California Act to Stop Ygrene Energy Fund from Deceiving Consumers about PACE Financing, Placing Liens on Homes Without Consumers' Consent (Oct. 28, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/10/ftc-california-act-stop-ygrene-energy-fund-deceiving-consumers-about-pace-financing-placing-liens; see also Complaint for Permanent Injunction, Monetary Relief, Civil Penalties, and Other Relief, Fed. Trade Comm'n et al v. Ygrene Energy Fund Inc., No. 2:22-cv-07864 (C.D. Cal. 2022) , https://www.ftc.gov/system/files/ftc_gov/pdf/Complaint%20-%20Dkt.%201%20-%2022-cv-07864.pdf. 24 Id. 25 Id. 5. State Laws and Regulations in States With Active PACE Programs California California authorized PACE programs in 2008 to finance projects related to renewable energy and energy efficiency, and later expanded the scope to include water efficiency, certain disaster hardening, and electric vehicle charging infrastructure measures. 26 Since 2008, California has passed several laws to add and adjust consumer protections for PACE programs, with major additions in a series of amendments that took effect around 2018 (collectively, 2018 California PACE Reforms). Current California law requires that, before executing a PACE contract, PACE administrators must make a determination that the consumer has a reasonable ability to pay the annual payment obligations based on the consumer's income, assets, and current debt obligations. 27 Additionally, California law requires, among other protections, financial disclosures prior to consummation; 28 a three-day right to cancel, which is extended to five days for older adults; 29 mandatory confirmation-of-terms calls; 30 and restrictions on contractor compensation. 31 California law also imposes certain financial requirements for consumers to be eligible for PACE financing, including that consumers must be current on their property taxes and mortgage and generally not have been party to a bankruptcy proceeding within the previous four years. 32 There is also a maximum permissible loan-to-value ratio for PACE financing under California law. 33 California law exempts government agencies from some of these requirements. 34 26 See, e.g., Cal. Sts. & Hwys. Code secs. 5898.12, 5899, 5899.3. 27 Cal. Fin. Code sec. 22686-87. 28 Cal. Sts. & High. Code sec. 5898.17. 29 Cal. Sts. & High. Code sec. 5898.16-17. 30 Cal. Sts. & High. Code sec. 5913. 31 Cal. Sts. & High. Code sec. 5923. 32 Cal. Fin. Code sec. 22684(a), (d)-(e). 33 Cal. Fin. Code sec. 22684(h). 34 Cal. Fin. Code sec. 22018(a) (exempting public agencies from the definition of “program administrator” that is subject to the ability-to-pay requirements set forth under Cal. Fin. Code sec. 22687). As part of the 2018 California PACE Reforms, California significantly increased the role of what is now called California's Department of Financial Protection and Innovation (DFPI). 35 In 2019, the DFPI began licensing PACE administrators and subsequently promulgated rules implementing some of California's statutory PACE provisions, which became effective in 2021. 36 DFPI also has certain examination, investigation, and enforcement authorities over PACE administrators, solicitors, and solicitor agents. 37 35 Cal. AB 1284 (2017-2018), Cal. SB 1087 (2017-2018). 36 10 Cal. Code Regs. sec. 1620.01 et seq. California law uses the term “program administrator” to refer to companies that are referred to here as PACE companies. See Cal. Fin. Code sec. 22018. 37 Cal. Fin. Code sec. 22690. California law uses the term “PACE solicitor” and “PACE solicitor agent” to refer to persons authorized by program administrators to solicit property owners to enter into PACE assessment contracts, often home improvement contractors. See Cal. Fin. sec. 22017(a)-(b). PACE administrators must be licensed by the DFPI under the California Financing Law. They must also establish and maintain processes for the enrollment of PACE solicitors and solicitor agents, including training and background checks. 38 PACE administrators are required to annually share certain operational data with DFPI. 39 DFPI compiles the data in annual reports on PACE lending in California, which provide aggregated information on PACE loans, PACE administrators and solicitors, and consumer complaints. 40 38 Cal. Fin. Code secs. 22680-82. 39 Cal. Fin. Code sec. 22692. 40 See, e.g., Cal. Dep't of Fin. Prot. & Innovation, Annual Report of Operation of Finance Lenders, Brokers, and PACE Administrators Licensed Under the California Financing Law (Aug. 2022), https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/08/2021-CFL-Aggregated-Annual-Report.pdf. Florida Florida authorized PACE programs in 2010 to finance projects related to energy conservation and efficiency improvements, renewable energy improvements, and wind resistance improvements. 41 The authorizing legislation imposes certain financial requirements to be eligible for PACE financing, including that consumers must be current on their property taxes and all mortgage debts on the property. 42 It also includes a maximum loan-to-value ratio and requires a short general disclosure about PACE assessments. 43 Additionally, Florida law requires that the property owner provide holders or servicers of any existing mortgages secured by the property with notice of their intent to enter into a PACE financing agreement together with the maximum principal amount to be financed and the maximum annual assessment necessary to repay that amount. 44 41 See Fla. HB 7179 (2010), codified at Fla. Stat. 163.08 et seq. 42 Fla. Stat. sec. 163.08(9). 43 Fla. Stat. sec. 163.08(12), (14). 44 Fla. Stat. sec. 163.08(13). Missouri Missouri authorized PACE programs in 2010 to finance projects involving energy efficiency improvements and renewable energy improvements. 45 In 2021, Missouri enacted new legislation imposing certain consumer protection requirements for PACE transactions. The law currently requires clean energy development boards (the government entities offering PACE programs) to provide a disclosure form to homeowners that shows the financing terms of the assessment contract, including the total amount funded and borrowed, the fixed rate of interest charged, the APR, and a statement that, if the property owner sells or refinances the property, the owner may be required by a mortgage lender or a purchaser to pay off the assessment. 46 It also requires verbal confirmation of certain provisions of the assessment contract, imposes specific financial requirements to execute an assessment requirement, and provides for a three-day right to cancel. 47 The 2021 legislation also limited the term, amount of financing, and total indebtedness secured by the property and required the clean energy development board to review and approve assessment contracts. 48 The new requirements became effective January 1, 2022. 49 45 Mo. HB 1692 (2010), codified at Mo. Rev. Stat. 67.2800(8) (defining projects eligible for financing). 46 Mo. HB 697, codified at Mo. Rev. Stat. 67.2818(4). 47 Mo. HB 697, codified at Mo. Rev. Stat. 67.2817(2) (financial requirements to execute an assessment contract); 67.2817(4) (right to cancel); 67.2817(6) (verbal confirmation). 48 Mo. HB 697, codified at Mo. Rev. Stat. 67.2817(2), 67.2818(2)-(3). 49 Mo. HB 697, codified at Mo. Rev. Stat. 67.2840. 6. Self-Regulatory Efforts In addition to consumer protections mandated by State governments, in November 2021, the national trade association that advocates for the PACE financing industry announced voluntary consumer protection policy principles for PACE programs nationwide. 50 According to the trade association, the 22 principles are designed to establish a national framework for enhanced accountability and transparency within PACE programs and to offer greater protections for all consumers, as well as additional protections for low-income homeowners, based on stated income, and those over the age of 75. 51 They include provisions relating to ability-to-pay, financing disclosures, a right to cancel, and foreclosure-avoidance protections, among others. 50 See PACENation, PACENation Unveils 22 New Consumer Protection Policies for Residential PACE Programs Nationwide (Nov. 5, 2021), https://www.pacenation.org/pacenation-unveils-22-consumer-protection-policies-for-residential-pace-programs-nationwide/. 51 Id. B. EGRRCPA The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) was signed into law on May 24, 2018. 52 EGRRCPA section 307 amended TILA to mandate that the CFPB take regulatory action on PACE financing, which it defines as “financing to cover the costs of home improvements that results in a tax assessment on the real property of the consumer.” Specifically, it provides in relevant part that the CFPB must 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, and requires that the regulations account for the unique nature of PACE financing. 53 TILA section 129C(a) contains TILA's ATR provisions for residential mortgage loans and TILA section 130 contains TILA's civil liability provisions. Thus, section 307 requires the Bureau to apply TILA's ATR provisions to PACE financing, and to apply TILA's civil liability provisions for violations of those ATR provisions, all in a way that accounts for the unique nature of PACE financing. This proposal discusses the proposed implementation of the ATR and civil liability requirements further in the section-by-section analysis of proposed § 1026.43. 52 Public Law 115-174, 132 Stat. 1296 (2018). 53 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.” III. Advance Notice of Proposed Rulemaking On March 4, 2019, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) to solicit information relating to residential PACE financing. 54 The purpose of the ANPR was to gather information to better understand the PACE financing market and other information to inform a proposed rulemaking under EGRRCPA section 307. 54 Advance Notice of Proposed Rulemaking on Residential Property Assessed Clean Energy Financing, 84 FR 8479 (Mar. 8, 2019). The ANPR sought five categories of information related to PACE financing: (1) written materials associated with PACE 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 CFPB should address those unique features in this rulemaking; and (5) views concerning the potential implications of regulating PACE financing under TILA. In response to the ANPR, the CFPB received over 115 comments, which were submitted by a diverse group of entities, including individual consumers, consumer groups, private PACE industry participants, mortgage stakeholders, energy and environmental groups, and government entities, among others. A summary of some of the legal and policy positions reflected in the ANPR comments is included below, and additional information from the ANPR comments is referenced throughout this proposal. Regarding the need for PACE regulation, consumer groups and mortgage industry stakeholders generally agreed that PACE transactions require Federal regulation, advocating for strong ATR rules, in particular. Some also supported further application of TILA to PACE financing, including disclosure requirements, rescission rights, loan originator compensation requirements, and protections for high-cost PACE transactions. These commenters indicated that PACE financing is consumer credit, and should be regulated similar to a traditional mortgage because it is voluntary financing that is secured by the consumer's home and because delinquency can lead to penalties, additional interest, and foreclosure. Some argued for more stringent regulations than currently apply to traditional mortgages due to what they asserted was the dangerous nature of PACE financing, citing problematic lending incentives, alleged abuses by home improvement contractors, and alleged targeting of PACE to vulnerable populations. On the other hand, PACE industry participants generally opposed the imposition of additional or stringent regulations. Many argued that PACE financing is safe for consumers, citing the involvement of State and local governments, the relatively small size of the debt obligation, existing State and local requirements, low delinquency rates, and other features of PACE financing. Some expressed concern that overly broad rules could infringe on the fundamental taxing authority of State and local governments, undermine PACE's public purpose of reducing barriers to green energy financing, decrease access to private capital, and potentially lead to the termination of PACE programs. Some were also worried that regulations would erode PACE's point-of-sale nature, causing consumers and contractors to turn to more dangerous unsecured credit products and decrease new applications. Many argued that PACE financing is not consumer credit subject to TILA, and that the CFPB lacks authority to impose TILA's requirements beyond its ATR rules. In regard to application of TILA's ATR requirements to PACE financing, there were again differing opinions among commenters. Consumer groups and mortgage industry stakeholders generally agreed that TILA's existing ATR requirements should be applied, but some suggested adjusting them to account for factors such as the cadence of property tax payments, which tend to be due on an annual or semi-annual basis, and the potential for payment shocks related to PACE financing's impact on the consumer's existing mortgage escrow account. Some called for verification of consumers' financial information, and for the ATR rules to account for pre-existing and simultaneous PACE financing to prevent loan stacking or loan splitting. In contrast, some PACE industry participants opposed application of TILA's existing ATR requirements, stating that it would be unnecessary and too burdensome, and would lead to decreased consumer participation in PACE programs. Some also argued that mandatory income verification for all consumers would interfere with the point-of-sale nature of PACE financing, and that a modeled income requirement would be sufficient. Some recommended an emergency exception to any ATR requirement. Still others recommended that the CFPB structure any ATR rules to avoid conflict with existing California regulations. A few commenters provided their opinions on whether certain PACE transactions should be entitled to a presumption of compliance with the CFPB's ATR requirements similar to QM status. One PACE company suggested that a reasonable safe harbor is necessary to ensure that private capital continues to invest in PACE financing. However, some consumer groups opposed offering a presumption of compliance, stating that PACE is structurally unsafe and a source of abuse for some populations. A mortgage trade association recommended that, if the CFPB decides to permit such a presumption, subordination of the PACE lien should be required. Regarding the application of TILA section 130 to PACE financing, some consumer groups suggested that PACE companies should be held liable under TILA section 130 because they are responsible for operating the PACE programs. Some PACE industry participants expressed concern that, if government entities become subject to civil liability, they might stop operating PACE programs. Finally, one PACE company recommended capping civil liability at the amount of the assessment, to prevent TILA's statutory damages from exceeding the principal amount of the average PACE transaction. IV. Data Collection EGRRCPA section 307 authorizes the CFPB to “collect such information and data that the Bureau determines is necessary” to support the PACE rulemaking required by the section. 55 In October 2020, the CFPB requested PACE financing data from all companies providing PACE financing at that time. The request was voluntary and was intended to gather information on PACE transaction applications and originations between July 2014 and June 2020, including basic underwriting information used for applications, application outcomes, and loan terms. The CFPB also contracted with one of the three nationwide consumer reporting agencies to obtain credit record data for the PACE consumers in the PACE transaction data. 55 15 U.S.C. 1639c(b)(3)(C)(iii)(I). In August 2022, the CFPB received from its contractor de-identified PACE data from the four PACE companies that were active in the PACE market at the time of submission and matching de-identified credit record data for the consumers involved in the PACE transactions. 56 The PACE company data encompassed about 370,000 PACE transaction applications submitted in California and Florida from 2014 to 2020 and about 128,000 resulting PACE transaction originations. The CFPB's contractor was able to provide matching credit data for about 208,000 individual PACE consumers, which included periodic credit snapshots for each consumer between June 2014 and June 2022. In total, the matched consumers submitted about 286,000 PACE applications and entered into approximately 100,000 PACE transactions. 57 56 The Bureau received data from FortiFi Financial, Home Run Financing, Renew Financial, and Ygrene Energy Fund. 57 Matched consumers resided in census tracts with smaller Hispanic populations, higher median income, and lower average education compared to consumers who were not matched. The PACE Report verifies that weighting the sample to be more like the full population of PACE consumers has no meaningful effect on the main results of the Report. PACE Report, supra note 12, at 11. The CFPB utilized the acquired data to develop a report that analyzes the impact of PACE transactions on consumer outcomes, with a particular focus on mortgage delinquency. In addition to other analyses, the report examines consumers who obtained originated PACE transactions and compares them to those who applied for PACE transactions and were approved but did not proceed. The report, entitled “PACE Financing and Consumer Financial Outcomes” (PACE Report) is being published concurrently with this NPRM. 58 58 See PACE Report, supra note 12. Among other findings, the PACE transactions analyzed in the PACE Report led to an increase in negative credit outcomes, particularly 60-day mortgage delinquency, with an increase of 2.5 percentage points over a two-year span following PACE transaction origination. Additionally, the PACE borrowers discussed in the PACE Report resided in census tracts with higher percentages of Black and Hispanic residents than the average for their States. 59 However, the effect of PACE transactions on non-PACE mortgage delinquency was statistically similar for PACE borrowers in majority-white census tracts compared to those in majority-non-white census tracts. 60 The PACE Report also assesses the impact of the 2018 California PACE Reforms, discussed in part II.A.5. The analysis finds that these laws improved consumer outcomes while substantially reducing the volume of PACE lending. 61 59 Id. at 4. 60 Id. at 38-39, Figure 11. 61 Id. at 4-5. V. Outreach To learn about the industry and the unique nature of PACE financing, the Bureau has engaged with a wide variety of stakeholders since 2015, including consumer advocates, a range of public and private participants in the PACE financing industry, mortgage industry stakeholders, and representatives from energy and environmental groups. The engagement has included listening sessions, roundtable discussions, question-and-answer sessions, consultation calls soliciting stakeholder input, briefings on the ANPR, panel appearances by CFPB staff, and written correspondence. The CFPB's outreach relating to PACE financing is summarized at a high level below. 62 The outreach has supplemented information on PACE financing that the CFPB has gleaned from independent research; the detailed comments responding to the ANPR, discussed in part III; the data collection described in part IV; and information from publicly available sources such as news reports, research and analysis, and litigation documents. 62 The CFPB also engaged in extensive outreach with numerous stakeholders to design and complete the Bureau data collection on PACE financing that is discussed in part IV. A. Consumer Advocates The CFPB began corresponding with consumer advocates regarding PACE financing in 2016. These stakeholders have shared their concerns about consumer risks in the PACE financing market and stories of PACE financing resulting in financial harm to consumers. The CFPB has continued the engagement since EGRRCPA section 307 was passed, meeting on numerous occasions with individual consumer advocates and consumer advocacy groups to discuss a range of topics related to PACE financing. For example, these stakeholders have shared their understanding of how the PACE financing industry functions, including the structure of the financial obligation, the different roles of government units and private parties, industry trends, and the effects of State legislation on PACE financing. Similar to the perspectives they shared in ANPR comments, discussed in part III, they have also voiced consumer protection concerns and shared legal and policy analysis regarding the implementation of EGRRCPA section 307 and the application of TILA to PACE transactions. B. Private PACE Industry Stakeholders Since 2015, the CFPB has engaged on dozens of occasions with various private PACE industry stakeholders, including private PACE companies, a national trade organization, private companies that help administer the assessments (assessment administrators), and at least one bond counsel. These stakeholders have provided the CFPB a great deal of information about PACE transactions, industry business practices, market trends, and the roles of different industry participants. Additionally, the PACE financing providers, assessment administrators, and a national trade organization have shared industry trends and their views on how the industry has been developing in different jurisdictions. They have also shared their views on some of the challenges and progress the industry has experienced as the programs have developed, including, for example, the causes of fluctuations in loan volumes, industry efforts to improve the consumer experience, benefits of PACE financing, and the effects of consumer protection requirements in particular States. Some of these stakeholders have also shared their perspectives on EGRRCPA section 307 and considerations the CFPB should bear in mind in this rulemaking. C. State and Local Governments and Bond-Issuing Authorities As part of the CFPB's PACE rulemaking, EGRRCPA section 307 requires that the CFPB “consult with State and local governments and bond-issuing authorities.” 63 Consistent with this requirement, the CFPB has conferred on numerous occasions with State and local governments and bond-issuing authorities involved in PACE financing to gather information about PACE for the rulemaking. Entities with which the CFPB has consulted over the years include government sponsors of PACE financing programs, agencies involved in different aspects of the programs, local property tax collectors, public PACE financing providers, and county and city officials. The CFPB engagements with bond-issuing authorities occurred on a number of occasions, including discussions over the phone and in-person, and through written correspondence. The CFPB also conferred on a number of occasions with membership organizations representing municipalities. 63 15 U.S.C. 1639c(b)(3)(C)(iii)(II). In the course of developing the NPRM, CFPB staff also conducted a series of consultation calls to promote awareness about the CFPB rulemaking and gather input on topics that the CFPB was considering addressing in this proposal, including, for example, whether the CFPB should use the same ATR framework for PACE financing that currently applies to mortgage credit or a different framework, what changes should be made to account for the unique nature of PACE financing, whether to apply any existing QM definitions to PACE financing, how to apply TILA's general civil liability provisions to violations of the ATR requirements for PACE financing, and the implications of this rulemaking for PACE financing bonds. Each call was targeted to specific stakeholder groups, including: (1) State agencies in the three States that currently offer PACE, (2) California local government officials, (3) Missouri local government officials, (4) Florida local government officials, and (5) State and local officials from states that do not currently offer PACE. In addition to feedback provided during the calls, some participants provided input after the calls. Public entities involved in the operation of PACE financing and third parties operating on their behalf have expressed divergent views on PACE financing. For example, some individuals from local tax collectors' offices and other government units have expressed concern about the risks or challenges that PACE financing can create for consumers or local taxing authorities. In part because of these concerns, some government representatives have shared consumer protection recommendations and background information about how the PACE financing industry operates in particular jurisdictions. Several localities with active PACE financing programs have expressed consumer protection concerns and informed the CFPB that they would welcome application of TILA's ATR provisions to PACE, or that they have implemented certain consumer protection standards themselves. A nonprofit organization that administered a PACE financing program on behalf of a local government informed the CFPB that the locality ended its PACE financing program, largely due to consumer protection concerns. Other local governments (and third parties they work with) have shared views that reflect more positive assessments of the industry. For example, representatives from one government sponsor of PACE financing (that later ceased sponsoring new PACE financing originations 64 ) told the CFPB that the program carries important consumer benefits, including that it provides a financing option for home improvement projects that have energy and environmental benefits, and creating jobs. Local government representatives in certain jurisdictions have expressed enthusiasm about aspects of PACE financing such as increased solar panel installations, and have indicated that they think PACE financing programs generally function well. Some government sponsors indicated that their PACE financing programs had instituted a number of practices that were consumer-protective, such as repayment analysis, low fees, contractor screening, or monitoring and oversight of private entities involved in the originations. Some government sponsors expressed concern that Federal regulation could negatively impact PACE programs, and that the CFPB should not apply TILA's ATR provisions or other consumer protections to PACE financing. Several State and local entities also informed the CFPB that consumer complaints had declined significantly in recent years. 64 The Bureau understands that a number of government sponsors, some of which participated in the Bureau's outreach, have stopped participating in new originations. See, e.g., Jeff Horseman, Riverside-based agency to end controversial PACE loans for energy improvements, The Press-Enterprise (Dec. 12, 2022); Andrew Khouri, L.A. County ends controversial PACE home improvement loan program, L.A. Times (May 21, 2020), https://www.latimes.com/homeless-housing/story/2020-05-21/la-fi-pace-home-improvement-loans-la-county#:~:text=Los%20Angeles%20County%20has%20ended,risk%20of%20losing%20their%20homes. D. Other Stakeholders The CFPB outreach has also included other stakeholders with an interest in PACE financing. For example, several times since 2016, the CFPB has discussed PACE financing with national and State-level mortgage industry trade organizations. These stakeholders have provided updates on, for example, State-level developments in the PACE financing industry and analysis of Federal policy involving PACE financing. Some have also shared concerns about the potential impact of PACE financing on mortgage industry participants, noting, for example, the priority position of liens securing PACE transactions relative to non-PACE mortgage liens, the challenges non-PACE mortgage industry stakeholders have in obtaining information about PACE transactions and attendant risks, and that non-PACE mortgage servicers may need to collect PACE transactions through an escrow account, which may include advancing their own funds if the consumer is unable to afford the PACE financing payment. Some mortgage industry stakeholders have also raised consumer protection concerns, sharing anecdotal reports of consumer harm and asserting that, in practice, consumers have often had to repay the full PACE financing balance before they have been able to sell properties encumbered with a PACE financing lien. Some suggested that the CFPB should treat PACE like a standard mortgage or apply TILA more generally to PACE. The CFPB has also met with representatives from environmental and energy groups. These representatives shared general views on, for example, the role of PACE financing in the marketplace, industry trends, and potential risks to consumers. As discussed in part IX, the CFPB has also consulted with Federal government entities. VI. Legal Authority The Bureau is proposing to amend Regulation Z pursuant to its authority under the Consumer Financial Protection Act of 2010 (CFPA) and other provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 65 EGRRCPA section 307, TILA, and Real Estate Settlement Procedures Act of 1974 (RESPA). 66 65 Public Law 111-203, 124 Stat. 1376 (2010). 66 12 U.S.C. 2601 et seq. A. Dodd-Frank Act CFPA section 1022(b)(1). Section 1022(b)(1) of the CFPA authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” 67 Among other statutes, TILA, RESPA, and the CFPA are Federal consumer financial laws. 68 Accordingly, the Bureau proposes exercising its authority under CFPA section 1022(b) to prescribe rules that carry out the purposes and objectives of TILA, RESPA, and the CFPA and prevent evasion of those laws. 67 12 U.S.C. 5512(b)(1). 68 CFPA section 1002(14), 12 U.S.C. 5481(14) (defining “Federal consumer financial law” to include the “enumerated consumer laws” and the provisions of CFPA); CFPA section 1002(12), 12 U.S.C. 5481(12) (defining “enumerated consumer laws” to include TILA and RESPA). Dodd-Frank Act section 1405(b). Section 1405(b) of the Dodd-Frank Act provides that, notwithstanding any other provision of title XIV of the Dodd-Frank Act, in order to improve consumer awareness and understanding of transactions involving residential mortgage loans through the use of disclosures, the Bureau may exempt from or modify disclosure requirements, in whole or in part, for any class of residential mortgage loans if the Bureau determines that such exemption or modification is in the interest of consumers and in the public interest. 69 Section 1401 of the Dodd-Frank Act, which amends TILA section 103(cc)(5), generally defines a residential mortgage loan as any consumer credit transaction that is secured by a mortgage on a dwelling or on residential real property that includes a dwelling, other than an open-end credit plan or an extension of credit secured by a consumer's interest in a timeshare plan. 70 Notably, the authority granted by section 1405(b) applies to disclosure requirements generally and is not limited to a specific statute or statutes. Accordingly, Dodd-Frank Act section 1405(b) is a broad source of authority to exempt from or modify the disclosure requirements of TILA and RESPA. In developing this proposed rule, the Bureau has considered the purposes of improving consumer awareness and understanding of transactions involving residential mortgage loans through the use of disclosures and the interests of consumers and the public. The Bureau proposes these amendments pursuant to its authority under Dodd-Frank Act section 1405(b). For the reasons discussed below and in the 2013 TILA-RESPA Rule, the Bureau believes the proposal is in the interest of consumers and in the public interest, consistent with Dodd-Frank Act section 1405(b). 69 Public Law 111-203, 124 Stat. 1376, 2142 (2010) (codified at 15 U.S.C. 1601 note). 70 Public Law 111-203, 124 Stat. 1376, 2138 (2010) (codified at 15 U.S.C. 1602(cc)(5)). B. TILA TILA section 105(a). TILA section 105(a) directs the Bureau to prescribe regulations to carry out the purposes of TILA and provides that such regulations may contain additional requirements, classifications, differentiations, or other provisions and may further provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. 71 A purpose of TILA is to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various available credit terms and avoid the uninformed use of credit. 72 Additionally, a purpose of TILA sections 129B and 129C 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. 73 71 15 U.S.C. 1604(a). 72 15 U.S.C. 1601(a). 73 15 U.S.C. 1639b(a)(2). TILA section 105(b). TILA section 105(b), amended by the CFPA, requires publication of an integrated disclosure for mortgage loan transactions covering the disclosures required by TILA and the disclosures required by sections 4 and 5 of RESPA. 74 The purpose of the integrated disclosure is to facilitate compliance with the disclosure requirements of TILA and RESPA and to improve borrower understanding of the transaction. The Bureau provided additional discussion of this integrated disclosure mandate in the 2013 TILA-RESPA Rule. 75 74 Public Law 111-203, 124 Stat. 1376, 2108 (2010) (codified at 15 U.S.C. 1604(b)). 75 78 FR 79730, 79753-54 (Dec. 31, 2013). TILA section 105(f). Section 105(f) of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to exempt from all or part of TILA any class of transactions if the Bureau determines after the consideration of certain factors that TILA coverage does not provide a meaningful benefit to consumers in the form of useful information or protection. TILA section 129C(b)(3)(A), (B)(i). TILA section 129C(b)(3)(A) directs the Bureau to prescribe regulations to carry out the purposes of the subsection. 76 In addition, TILA section 129C(b)(3)(B)(i) authorizes the Bureau to prescribe regulations that revise, add to, or subtract from the criteria that define a QM upon a finding that such regulations are necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of TILA section 129C; or are necessary and appropriate to effectuate the purposes of TILA sections 129B and 129C, to prevent circumvention or evasion thereof, or to facilitate compliance with such sections. 77 76 15 U.S.C. 1639c(b)(3)(A). 77 15 U.S.C. 1639c(b)(3)(B)(i). TILA section 129C(b)(3)(C)(ii). In section 307 of the EGRRCPA, codified in TILA section 129C(b)(3)(C), Congress directed the Bureau to conduct a rulemaking to “prescribe regulations that carry out the purposes of [TILA's ATR requirements] and apply section 130 [of TILA] with respect to violations [of the ATR requirements] with respect to [PACE] financing, which shall account for the unique nature of [PACE] financing.” 78 78 15 U.S.C. 1639c(b)(3)(C)(ii). C. RESPA RESPA section 4(a). RESPA section 4(a), amended by the CFPA, requires publication of an integrated disclosure for mortgage loan transactions covering the disclosures required by TILA and the disclosures required by sections 4 and 5 of RESPA. 79 The purpose of the integrated disclosure is to facilitate compliance with the disclosure requirements of TILA and RESPA and to improve borrower understanding of the transaction. The Bureau provided additional discussion of this integrated disclosure mandate in the 2013 TILA-RESPA Rule. 80 79 Public Law 111-203, 124 Stat. 1376, 2103 (2010) (codified at 12 U.S.C. 2603(a)). 80 78 FR 79730, 79753-54 (Dec. 31, 2013). RESPA section 19(a). Section 19(a) of RESPA authorizes the Bureau to prescribe such rules and regulations and to make such interpretations and grant such reasonable exemptions for classes of transactions as may be necessary to achieve the purposes of RESPA. 81 One purpose of RESPA is to effect certain changes in the settlement process for residential real estate that will result in more effective advance disclosure to home buyers and sellers of settlement costs. 82 In addition, in enacting RESPA, Congress found that consumers are entitled to greater and more timely information on the nature and costs of the settlement process and to be protected from unnecessarily high settlement charges caused by certain abusive practices in some areas of the country. 83 In developing proposed rules under RESPA section 19(a), the Bureau has considered the purposes of RESPA, including to effect certain changes in the settlement process that will result in more effective advance disclosure of settlement costs. 81 12 U.S.C. 2617(a). 82 12 U.S.C. 2601(b). 83 12 U.S.C. 2601(a). In the past, RESPA section 19(a) has served as a broad source of authority to prescribe disclosures and substantive requirements to carry out the purposes of RESPA. VII. Section-by-Section Analysis 1026.2 Definitions and Rules of Construction. 1026.2(a) Definitions 1026.2(a)(14) Credit Section 1026.2(a)(14) defines “credit” to mean “the right to defer payment of debt or to incur debt and defer its payment.” Currently, comment 2(a)(14)-1.ii states, in part, that “tax liens” and “tax assessments” are not considered credit for purposes of the regulation. The Bureau proposes to amend comment 2(a)(14)-1.ii to add the word “involuntary” to clarify which tax liens and tax assessments are not considered credit. Amended as proposed, comment 2(a)(14)-1.ii would provide that “involuntary tax liens, involuntary tax assessments, court judgments, and court approvals of reaffirmation of debts in bankruptcy” are not considered credit for purposes of the regulation. 84 The proposed amendment would resolve ambiguity in the existing comment and bring the exclusion in line with the definition of credit in TILA and congressional intent with respect to TILA coverage. 84 The proposed rule would also make a conforming change later in the comment, inserting the word “involuntary” before “tax lien” in an illustrative example of third-party financing that is credit for purposes of the regulation notwithstanding the exclusion. For a number of years, stakeholders have expressed disagreement in litigation, ANPR comments, and other communications about whether comment 2(a)(14)-1.ii excludes PACE transactions from TILA coverage. The ambiguity derives largely from the text of the comment in light of the structure of PACE transactions. The comment excludes tax assessments and tax liens, and PACE transactions have attributes of both involuntary special property tax assessments that are not subject to TILA and voluntary mortgage transactions that are. As described in part II.A, PACE transactions have been treated as assessments under State law, are collected through local property tax systems, and are secured by liens treated similarly to property tax liens; but PACE transactions arise through voluntary contractual agreement, similar to other credit transactions that are subject to TILA. In general, PACE industry stakeholders have argued that PACE transactions are not TILA credit, in part because the text of the comment states that tax liens and tax assessments are not credit without explicitly distinguishing between voluntary and involuntary obligations; and consumer advocates and mortgage industry stakeholders have argued that PACE transactions are TILA credit because, unlike other tax liens and assessments, PACE transactions are voluntary for consumers. One Federal district court has directly addressed the question, ruling that PACE financing is not credit for purposes of TILA in part due to the text of comment 2(a)(14)-1.ii. 85 85 See In re HERO Loan Litig. , 017 WL 3038250 (C.D. Cal. 2017); see also Burke v. Renew Fin. Grp., Inc., 2021 WL 5177776 (C.D. Cal. 2021) (ruling that PACE transactions are not consumer credit under TILA). The In re HERO and Burke courts suggested that PACE assessments are not “consumer credit transactions” for purposes of TILA. 2017 WL 3038250, at *2-*3; 2021 WL 5177776, at *3. TILA defines “consumer credit transactions” to mean that a credit transaction is “one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.” 15 U.S.C. 1602(i). Consistent with this, Regulation Z defines “consumer credit” to mean “credit offered or extended to a consumer primarily for personal, family, or household purposes.” 12 CFR 1026.2(a)(12). Residential PACE transactions satisfy these definitions. Notwithstanding the rulings in Burke and In re HERO, such Residential PACE transactions satisfy these definitions. Notwithstanding the rulings in Burke and In re HERO, such transactions are “offered or extended” to consumers, who as natural persons are the targets of marketing and sales efforts, are offered the loans and decide whether to sign up, and are signatories to the financing agreements, which are for money to fund home improvement services that are primarily for personal, family, or household purposes. The Bureau proposes to amend the commentary to clarify that PACE transactions are credit under TILA and Regulation Z. Amended as proposed, comment 2(a)(14)-1.ii would state that “involuntary tax liens, involuntary tax assessments, court judgments, and court approvals of reaffirmation of debts in bankruptcy” are not considered credit for purposes of the regulation. By adding the word “involuntary” to comment 2(a)(14)-1.ii, the Bureau would clarify that the comment does not exclude tax liens and tax assessments that arise from voluntary contractual agreements, such as PACE transactions. Thus, under the proposed amendments, tax liens and tax assessments that are voluntary would be credit if they meet the definition of credit under TILA and Regulation Z and are not otherwise excluded. 86 86 Under the proposed amendments, tax liens and tax assessments that are not voluntary for the consumer would continue to be excluded. The proposed amendment would bring the exclusion in comment 2(a)(14)-1.ii in line with the definition of credit in TILA and Regulation Z. TILA defines “credit” to mean the “right granted by creditor to a debtor to defer payment of debt or to incur debt and defer its payment,” and Regulation Z defines “credit” as “the right to defer payment of debt or to incur debt and defer its payment.” 87 In general, PACE transactions appear to easily fit these definitions—the agreements provide for consumers to receive funding for home improvement projects and repay those funds over time in installments. 88 87 15 U.S.C. 1602(f); 12 CFR 1026.2(a)(14). Regulation Z further defines creditor generally as “a person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.” 12 CFR 1026.2(a)(17). 88 Treating PACE transactions as TILA credit is consistent with the FTC's assertion of claims against a PACE company under the Bureau's Regulation N, 12 CFR part 1014, which the parties settled pursuant to a proposed court order. See Stipulation as to Entry of Order for Permanent Injunction, Monetary Judgement, and Other Relief (Oct. 28, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Stipulation%20-%20Dkt.%202%20-%2022-cv-07864.pdf; see also part II.A.4 (describing the settlement). Regulation N, also known as the Mortgage Acts and Practices—Advertising Rule, implements section 626 of the Omnibus Appropriations Act, 2009, as amended. 12 U.S.C. 5538. Regulation N applies to the advertising, marketing, and sale of a “mortgage credit product,” defined as “any form of credit that is secured by real property or a dwelling and that is offered or extended to a consumer primarily for personal, family, or household purposes.” 12 CFR 1014.2. Regulation N defines “credit” identically to Regulation Z but does not include any commentary analogous to comment 2(a)(14)-1.ii to Regulation Z. The proposed amendments to comment 2(a)(14)-1.ii would also be in line with congressional intent. Congress enacted TILA in part to enable consumers “to compare more readily the various credit terms available” to them, and to “avoid the uninformed use of credit.” 89 To that end, relevant legislative history indicates that TILA was intended to require “all creditors to disclose credit information in a uniform manner” so that “the American consumer will be given the information he needs to compare the cost of credit and to make the best informed decision on the use of credit.” 90 Clarifying that voluntary tax liens and tax assessments can be credit, such that PACE transactions are subject to TILA's uniform disclosure requirements, would squarely align with these goals. Consumers have a number of financing options for home improvement projects, such as home equity lines of credit, personal loans, and credit cards. Just like these other financing options, PACE transactions carry certain costs, terms, and conditions that consumers must be aware of in order to make informed credit decisions. Requiring TILA disclosures for PACE transactions allows consumers to shop among different options and across creditors. 89 TILA section 102(a), 15 U.S.C. 1601(a). 90 H.R. Rep. No. 1040, 90th Cong. (1967). Notably, it appears that the current text of comment 2(a)(14)-1.ii was not intended to exclude voluntary transactions such as PACE. The Board of Governors of the Federal Reserve System (Board) first issued the comment in 1981 as part of a broader rulemaking issuing commentary to Regulation Z. 91 In preamble preceding that issuance and in several public information letters that were forerunners to the 1981 rule, it is clear that the Board was addressing whether certain types of involuntary tax and assessment obligations were credit under TILA and Regulation Z. In one letter, the Board stated that the definition of “credit” “necessarily assumes the right to avoid incurring debt. That is, the debt must arise from a contractual relationship, voluntarily entered into, between the debtor and creditor.” 92 Because “such a relationship [did] not exist in the delinquent tax arrangement case,” the Board found that TILA and Regulation Z “would not govern the transaction.” 93 Other letters contained similar analysis, 94 and the Board reiterated this reasoning in preamble predating the commentary in which it explained its rationale for the comment, again focusing on the involuntary nature of the obligations as the reason they were not credit. 95 The Board explained: 91 See 46 FR 50288, 50292 (Oct. 9, 1981). 92 Fed. Rsrv. Bd., Public Information Letter No. 166 (1969). 93 Id. 94 See Fed. Rsrv. Bd., Public Information Letter No. 153 (1969) (similar with regard to sewer assessment installment payments); Fed. Rsrv. Bd., Public Information Letter No. 40 (1969) (“[T]he term `credit', for the purposes of Truth-in-Lending, assumes a contractual relationship, voluntarily entered, between creditor and debtor. Since such a relationship [did] not exist in the case of tax assessments by the Sewer District (and, similarly in the case of ad valorem taxes imposed by a city), . . . such assessments (and city taxes) would not fall within the coverage of [TILA] or Regulation Z.”). 95 46 FR 20848, 20851 (Apr. 7, 1981). Certain transactions do not involve the voluntary incurring of debt; others do not involve the right to defer a debt. Tax liens, tax assessments and court judgments (including reaffirmations of a debt discharged in bankruptcy, if approved by a court) fall into this category and are therefore not covered by the regulation. 96 96 Id. Moreover, in this preamble and in the commentary to Regulation Z that it adopted later that year, the Board specifically juxtaposed the excluded obligations with voluntary ones, stating that, while the obligations it was excluding are not credit, “third-party financing of such obligations (for example, obtaining a bank loan to pay off a tax lien) would constitute credit for Truth in Lending purposes.” 97 There is no indication that, in issuing the comment excluding tax liens and tax assessments, the Board had considered any tax lien or tax assessment that had originally arisen from a voluntary contractual agreement. 97 Id.; see also 46 FR 50288, 50292 (Oct. 9, 1981) (adopting the relevant comment with the same language). In 2011, the authority to interpret TILA and implement Regulation Z transferred to the Bureau, which republished the 1981 Board interpretation as an official Bureau interpretation in comment 2(a)(14)-1.ii with no substantive changes. PACE industry stakeholders have asserted a number of additional reasons PACE transactions should not be treated as TILA credit, including that PACE financing serves important public policy purposes as mandated by State law, and that PACE transactions are special assessments that are repaid through the property tax system and are secured by liens enforced similar to property tax liens under State law. The Bureau is not aware of any indication that Congress intended for TILA to exclude voluntary transactions like PACE financing on account of their being processed through property tax systems or because they are intended to further certain public policy purposes. The Bureau recognizes that clarifying the exclusion in comment 2(a)(14)-1.ii as limited to involuntary tax assessments and involuntary tax liens would ensure that TILA applies generally to PACE transactions. As a result, it would ensure that certain participants in PACE transactions would be subject to TILA requirements. For example, various disclosure and other requirements would apply to the entity that is the “creditor” as defined in § 1026.2(a)(17), which the Bureau understands is typically the government sponsor in a PACE transaction. 98 Other requirements would apply to any entity that operates as a “loan originator” for a PACE transaction, which could include a PACE company or home improvement contractor depending on the roles those entities play in a particular transaction. 99 In the Bureau's view, PACE transactions share relevant characteristics with other credit transactions, as described above. If they were not subject to TILA and Regulation Z, consumers would be at risk, and it would run counter to the purposes for enacting TILA expressed by Congress. The Bureau understands, however, that certain existing requirements in Regulation Z might warrant adjustment to better accommodate the unique structure of PACE transactions. The Bureau is proposing amendments to that end, as described in the relevant section-by-section analyses in this proposal. 98 Implementing TILA section 103(g), § 1026.2(a)(17) defines “creditor” generally as a person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments, and to whom the obligation is initially payable. The Bureau's understanding, consistent with ANPR comments and other research, is that these characteristics apply to government sponsors of PACE transactions in the PACE programs that have been active. 99 Section 1026.36(a)(1) generally defines a “loan originator” as a person who, in expectation of direct or indirect compensation or other monetary gain or for direct or indirect compensation or other monetary gain, performs any of the following activities: takes an application, offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities. See the section-by-section analysis of proposed § 1026.41 for discussion of servicing provisions in Regulation Z. The Bureau seeks comment on the proposed amendments to comment 2(a)(14)-1.ii. The Bureau also seeks comment on whether any TILA provisions not addressed in this proposal warrant amendment for PACE transactions. 1026.32 Requirements for High-Cost Mortgages and 1026.34 Prohibited Acts or Practices in Connection With High-Cost Mortgages The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to TILA to address abusive practices in refinancing and home-equity mortgage loans with high interest rates or high fees. 100 Loans that meet HOEPA's high-cost coverage tests are subject to special disclosure requirements and restrictions on loan terms, and borrowers in high-cost mortgages have enhanced remedies for violations of the law. 101 The provisions of HOEPA are implemented in Regulation Z in §§ 1026.32 and 1026.34. 102 100 Public Law 103-325, 108 Stat. 2160. 101 See 15 U.S.C. 1602(bb), 1639. 102 12 CFR part 1026. The Bureau is not proposing any changes to § 1026.32 or § 1026.34 in this proposed rule. Thus, if the proposed rule is finalized as proposed, the high-cost loan requirements implemented in §§ 1026.32 and 1026.34 would apply to PACE transactions that meet the definition of high-cost mortgage in § 1026.32(a)(1) in the same way that they apply to other high-cost mortgages. 103 The Bureau requests comment on whether any clarification is required through rulemaking or otherwise with respect to how HOEPA's provisions as implemented in Regulation Z apply to PACE transactions that may qualify as high-cost mortgages. In particular, the Bureau requests comment on the interest rates and late fees that consumers may have to pay in connection with their PACE transactions both before and after default, and whether, for example, late fees that apply to all property taxes should be treated differently from contractually-imposed late fees for purposes of HOEPA's limitations on late fees 104 as implemented in § 1026.34(a)(8). 103 A mortgage is generally a high-cost mortgage if (1) the spread between the APR and the average prime offer rate (APOR) is greater than 6.5 percentage points for a first-lien transaction or 8.5 percentage points for a subordinate-lien transaction, (2) points and fees exceed 5 percent of the total loan amount (for loans under $20,000) or the lesser of 8 percent or $1,000 (for loans over $20,000), or (3) the creditor can charge prepayment penalties more than 36 months after consummation or in an amount exceeding 2 percent of the amount prepaid. 12 CFR 1026.32(a)(1). As discussed in the PACE Report, the Bureau estimates that a small percentage of PACE transactions would exceed the APR-APOR spread trigger, while over one-third of existing PACE transactions have points and fees that would exceed the HOEPA points and fees coverage trigger. PACE Report, supra note 12, at 15. 104 15 U.S.C. 1639(k). 1026.35 Requirements for Higher-Priced Mortgage Loans 35(b) Escrow Accounts 35(b)(2) Exemptions 35(b)(2)(i) 35(b)(2)(i)(E) TILA section 129D generally requires creditors to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). 105 Regulation Z implements this requirement in § 1026.35(a) and (b), defining an HPML as a closed-end consumer credit transaction secured by the consumer's principal dwelling with an APR exceeding the average prime offer rate (APOR) 106 for a comparable transaction by a certain number of percentage points. 107 With certain exemptions, Regulation Z § 1026.35(b) prohibits creditors from extending HPMLs secured by first liens on consumers' principal dwellings unless an escrow account is established before consummation for payment of property taxes, among other charges (HPML escrow requirement). The Bureau is unaware of any PACE transactions that require consumers to escrow property tax payments or other charges, whether or not the PACE transaction could be characterized as an HPML. The Bureau believes that requiring escrow accounts for PACE transactions that would be subject to the HPML escrow requirement would provide little or no benefit to consumers while imposing substantial burden on industry. The Bureau proposes to add § 1026.35(b)(2)(i)(E) to exempt PACE transactions from the HPML escrow requirement. 105 15 U.S.C. 1639d. 106 Section 1026.35(a)(2) defines APOR as an APR that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. The Bureau publishes APORs for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Bureau uses to derive these rates. 107 Section 1026.35(a)(1) defines HPML to mean “a closed-end consumer credit transaction secured by the consumer's principal dwelling with an APR that exceeds the APOR for a comparable transaction as of the date the interest rate is set” by at least 1.5, 2.5, or 3.5 percentage points depending on the lien priority and the size of the loan relative to the maximum principal obligation eligible for purchase by Freddie Mac. The Bureau believes that a mandatory escrow requirement would provide little or no benefit to PACE borrowers. According to the Bureau's PACE data, nearly three-fourths of PACE borrowers had a mortgage at the time their PACE transactions were funded. 108 As a result, a large proportion of PACE borrowers already may have escrow accounts through their pre-existing mortgage loan. 109 For PACE borrowers for whom this is true, PACE payments are already incorporated into the mortgage escrow accounts as part of the property tax payment. Those borrowers who do not have a pre-existing escrow account are already paying their property taxes and any other traditionally escrowed charges on their own and likely do not need or perhaps even want an escrow account. Because the PACE charges are billed with the property taxes, the Bureau believes that it is unlikely that such borrowers will mistakenly neglect to pay them. 108 See PACE Report, supra note 12, at 12. 109 See Adam H. Langley, Lincoln Inst. Of Land Pol'y, Improving the Property Tax by Expanding Options for Monthly Payments, at 2 (Jan. 2018), https://www.lincolninst.edu/sites/default/files/pubfiles/langley-wp18al1_0.pdf (stating that, in 2015, 44 percent of U.S. homeowners paid their property taxes as a part of their monthly mortgage payment). Additionally, escrow accounts for PACE transactions would be governed by rules in Regulation X. 110 The rules include a variety of detailed requirements governing, for example, escrow account analyses, escrow account statements, and the treatment of surpluses, shortages, and deficiencies in escrow accounts. 111 The Bureau believes the additional cost and burden to comply with these requirements in this context would not be warranted given the lack of consumer benefit. 112 110 See generally Regulation X, 12 CFR 1024.17. 111 Id. 112 Commenters to the 2008 HPML escrow rule estimated that the cost could range between one million and $16 million for a large creditor. See 73 FR 44521, 44558 (July 30, 2008). Further, Federal law requires certain escrow account disclosures, including escrow account statements required under Regulation X 113 and escrow-related elements of the TILA-RESPA integrated disclosure forms required under Regulation Z, 114 that could be confusing in the context of PACE transactions. A defining feature of PACE is that the loans are paid back through the property tax system. The escrow account disclosures were developed to address more traditional escrow accounts; they would not effectively communicate that an escrow account for a PACE transaction would collect the principal and interest payments as part of the property tax payment. These disclosures would not be required if the Bureau finalizes this proposal—Regulation X does not require escrow account statements if there will be no escrow account, 115 and the TILA-RESPA integrated disclosure forms would not be required to disclose escrow-related information for PACE transactions. 116 Additionally, the escrow account disclosures may create uncertainty about whether the PACE transaction affects the consumer's pre-existing mortgage escrow account when applicable. 113 See 12 CFR 1024.17(g)-(j). 114 See 12 CFR 1026.37, .38. 115 See generally 12 CFR 1024.17. 116 As discussed in the section-by-section analyses of §§ 1026.37(p) and 1026.38(u) below, the Bureau is proposing to eliminate certain escrow-related fields from the TILA-RESPA integrated disclosure forms, and the remaining escrow-related fields can generally be left blank on the TILA-RESPA integrated disclosure forms if there is no escrow account associated with the transaction. The Bureau notes that some of the consumer protection concerns that prompted the Board to adopt the initial HPML escrows rule do not apply in the same way to the PACE market. The Board first implemented the HPML escrow requirement in Regulation Z in 2008, before the requirement was codified in TILA, relying on its authority to prohibit deceptive or unfair acts or practices. 117 The Board's HPML rule was originally intended to protect consumers who receive relatively high interest rates. The Board was concerned that market pressures discouraged creditors from offering escrow accounts to borrowers getting subprime loans, increasing the risk that these consumers would base borrowing decisions on an unrealistically low assessment of their mortgage-related obligations. In contrast, PACE borrowers for whom the HPML escrow requirement would apply will already be paying property taxes as a function of homeownership, and the Bureau understands that PACE transactions do not generally require any mortgage-related insurance. To the extent consumers do lack information about their overall payment obligations, and to the extent this could lead to them receiving unaffordable PACE loans, the Bureau believes such concerns are better addressed through other TILA provisions, including the TILA-RESPA integrated disclosures and ATR requirements that are tailored to PACE as discussed in the section-by-section analyses below. 118 117 73 FR 44521 (July 30, 2008). The requirement was later codified in TILA section 129D, 15 U.S.C. 1639d. 118 See section-by-section analyses of proposed §§ 1026.37, 1026.38, 1026.43, infra. One ANPR comment letter from consumer groups advocated for applying the HPML escrow requirement for PACE consumers without an existing mortgage escrow, to help spread out payments. The Bureau recognizes that having the option to break up property tax payments into smaller amounts could be helpful to taxpayers generally and particularly to taxpayers with PACE accounts who do not already have a pre-existing mortgage with an escrow account. 119 The Bureau believes it would be beneficial if local taxing authorities facilitated the spreading-out of payments for PACE borrowers 120 but does not believe that requiring an escrow account for PACE HPMLs would be the best way to accomplish this. 119 Langley, Improving the Property Tax by Expanding Options for Monthly Payments, supra note 109, at 7. 120 See generally id. (encouraging local governments to expand options for consumers to pay property taxes on a monthly basis). The Bureau is proposing this exemption pursuant to TILA sections 105(a) and 105(f). For the reasons discussed in this section-by-section analysis, the Bureau believes that exempting PACE transactions from the requirements of TILA section 125D is proper to carry out the purposes of TILA. As described above, the Bureau believes that the requirements of TILA section 125D would significantly complicate, hinder, and make more expensive the credit process for PACE transactions. The Bureau thus has preliminarily determined that the goal of consumer protection would not be undermined by this exemption. TILA-RESPA Integrated Disclosure Requirements Implemented Under Sections 1026.37 and 1026.38 The CFPA directed the Bureau to integrate the mortgage loan disclosures required under TILA and RESPA sections 4 and 5, and to publish model disclosure forms to facilitate compliance. 121 The Bureau issued regulatory requirements and model forms to satisfy these statutory obligations in 2013 (2013 TILA-RESPA Rule). 122 The requirements and forms generally apply to closed-end consumer credit transactions secured by real property or a cooperative unit, other than a reverse mortgage subject to § 1026.33. 123 121 CFPA sections 1098 & 1100A, codified at 12 U.S.C. 2603(a) & 15 U.S.C. 1604(b), respectively. 122 See 78 FR 80225 (Dec. 31, 2013); 80 FR 43911 (July 24, 2015). The TILA-RESPA integrated disclosure requirements have been amended several times. See https://www.consumerfinance.gov/rules-policy/final-rules/2013-integrated-mortgage-disclosure-rule-under-real-estate-settlement-procedures-act-regulation-x-and-truth-lending-act-regulation-z/. 123 See § 1026.19(e)(1) and (f)(1). The integrated disclosures consist of two forms: a Loan Estimate and a Closing Disclosure. The Loan Estimate provides the consumer with good faith estimates of credit costs and transaction terms. It is designed to provide disclosures that are helpful to consumers in understanding the key features, costs, and risks of the mortgage for which they are applying. 124 In general, the Loan Estimate must be provided to consumers within three business days after they submit a loan application 125 and not later than the seventh business day before consummation. 126 The Closing Disclosure is a final disclosure reflecting the actual terms of the transaction. In general, the Closing Disclosure must be provided to the consumer three business days before consummation of the transaction. 127 124 See 78 FR 79730, 80225 (Dec. 31, 2013). 125 See § 1026.2(a)(3)(ii) (defining “application” for these purposes as one that “consists of the submission of the consumer's name, the consumer's income, the consumer's social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought”). 126 Section 1026.19(e)(1)(iii)(A)-(B). 127 Section 1026.19(f)(1)(ii)(A). As the Bureau explained in the 2013 TILA-RESPA Rule, the TILA-RESPA integrated disclosure forms use clear language and design to make it easier for consumers to locate key information, such as interest rate, periodic payments, and loan costs. 128 The forms also provide information to help consumers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time. 129 These benefits are important for PACE borrowers just as they are for other mortgage borrowers. 128 78 FR 79730, 80225 (Dec. 31, 2013). 129 Id. The Bureau believes that certain elements of the current TILA-RESPA integrated disclosures may benefit from adaptation so that the forms more effectively disclose information about PACE transactions in view of their unique nature. The Bureau proposes the modifications to the Loan Estimate and Closing Disclosure described below. Where this proposal would not provide a PACE-specific version of a particular provision, the existing requirements in §§ 1026.37 and 1026.38 would apply. As with other mortgage transactions, elements of the forms that are not applicable for PACE transactions may generally be left blank. 130 The Bureau requests comment on the proposed amendments and on any further amendments that may improve consumer understanding for PACE transactions. The Bureau is proposing model forms in appendix H-24(H) (Loan Estimate) and appendix H-25(K) (Closing Disclosure) reflecting the proposed PACE-specific implementation of the TILA-RESPA integrated disclosure requirements. 130 See comments 37-1 and 38-1. The Bureau is not proposing amendments to the timing requirements for the Loan Estimate and Closing Disclosure for PACE transactions. The Bureau explained in the 2013 TILA-RESPA Rule that the seven-business-day waiting period between provision of the Loan Estimate and consummation is intended to effectuate the purposes of both TILA and RESPA by enabling the informed use of credit and ensuring effective advance disclosure of settlement charges. 131 The Bureau explained that the three-business-day-period following provision of the Closing Disclosure greatly enhances consumer awareness and understanding of the costs associated with the mortgage transaction. 132 As with the substantive disclosures, the timing requirements are important to PACE borrowers, particularly given concerns that the origination process for some PACE borrowers may not provide enough time to understand the obligation and shop for other financing options. 133 131 78 FR 79730, 79802-03 (Dec. 31, 2013); see also id. at 79806-07 (reasoning in context of considering amendments to bona fide personal financial emergencies that, at least with respect to relatively large mortgage loans, the seven-business-day-waiting-period would provide consumers a meaningful opportunity to shop for a loan, compare available financing options, and negotiate favorable terms, and that the seven-business-day-waiting period “is the minimum amount of time” in which consumers could meaningfully do so). 132 78 FR 79730, 79847 (Dec. 31, 2013). 133 See part II.A.4, supra. The Bureau is proposing the implementation of the disclosure requirements described in the section-by-section analyses of proposed §§ 1026.37(p) and 1026.38(u) pursuant to its authority under TILA section 105(a) and 105(f), and RESPA section 19(a). For the reasons discussed in the respective section-by-section analyses, the Bureau believes, in its initial analysis, that the proposed implementation would be necessary and proper to carry out the purposes of TILA and RESPA. The proposed provisions that would implement the disclosure requirements under TILA section 105(a), including adjustments or exceptions discussed in the applicable section-by-section analyses, are intended to assure a meaningful disclosure of credit terms, avoid the uninformed use of credit, or facilitate compliance with TILA. In general, the proposed changes are intended to make the Loan Estimate and Closing Disclosure more effective and understandable for PACE borrowers, and to facilitate compliance given the unique nature of PACE transactions. The Bureau believes that the proposed provisions that would implement the disclosure requirements under RESPA section 19(a), including interpretations discussed in the applicable section-by-section analysis, would further the purposes of RESPA and be consistent with the Bureau's authority under RESPA section 19(a). For the reasons discussed in the respective section-by-section analyses, the Bureau is proposing various exemptions in §§ 1026.37(p) and 1026.38(u) pursuant to its authority under TILA section 105(a) and 105(f). With respect to TILA section 105(a), the Bureau believes, in its initial analysis, that the proposed exemptions would be necessary and proper to carry out TILA's purposes, including by assuring the meaningful disclosure of credit terms and avoiding the uninformed use of credit. Additionally, with respect to TILA section 105(f), the Bureau's preliminary determination, after considering the factors in TILA section 105(f)(2), is that the disclosures proposed to be exempted would not provide meaningful benefit to consumers in the form of useful information or protection. In the Bureau's preliminary analysis, the exempted disclosure requirements would significantly complicate, hinder, or make more expensive credit for PACE transactions, and the exemptions would not undermine the goal of consumer protection. Where the Bureau believes that doing so would help assure the meaningful disclosure of credit terms and avoid the uninformed use of credit, the proposal would replace the exempted disclosures with disclosures that serve similar purposes to the existing disclosures, but that would better fit the context of PACE transactions. Section 1026.37 Content of Disclosures for Certain Mortgage Transactions (Loan Estimate) 37(p) PACE Transactions Section 1026.37 implements the TILA-RESPA integrated disclosure requirements by setting forth the requirements for the Loan Estimate. Proposed § 1026.37(p)(1)-(7) would set forth modifications to the Loan Estimate requirements for “PACE transactions,” as defined under proposed § 1026.43(b)(15), to account for the unique nature of PACE. 37(p)(1) Itemization TILA section 128(a)(6), (a)(16), (b)(2)(C), and (b)(4) are currently implemented in part by § 1026.37(c)(1) through (5), which generally requires creditors to disclose a table itemizing each separate periodic payment or range of payments, among other information, under the heading “Projected Payments.” As part of the projected payments table, the creditor is required to state the total periodic payment under § 1026.37(c)(2)(iv), as well as the constituent parts of the total periodic payment under § 1026.37(c)(2)(i) through (iii). Relevant here, § 1026.37(c)(2)(iii) generally requires a field for the disclosure of the amount payable into an escrow account to pay for some or all mortgage-related obligations, as applicable, labeled “Escrow,” together with a statement that the amount disclosed can increase over time. Proposed § 1026.37(p)(1) would exempt PACE transactions from the escrow account payment disclosure requirements implemented under § 1026.37(c)(2)(iii). As discussed in the section-by-section analysis of proposed § 1026.35(b)(2)(i)(E), the Bureau is unaware of any PACE transactions that carry their own escrow accounts. Thus, the escrow account payment field under § 1026.37(c)(2)(iii) would generally be left blank if it were included on the Loan Estimate associated with any PACE transaction. 134 This blank entry could cause confusion for PACE borrowers who pay their property taxes into pre-existing escrow accounts associated with non-PACE mortgage loans, since PACE transactions are typically part of the property tax payment. It also could create doubt for the consumer about whether the PACE transaction will be repaid through the existing escrow account. The Bureau believes the proposed exemption would mitigate this risk. 134 See existing comment 37-1, which provides that a portion of the Loan Estimate that is inapplicable may generally be left blank. (Existing comment 38-1 provides similarly for the Closing Disclosure.) 37(p)(2) Taxes, Insurance, and Assessments TILA sections 128(a)(16) and 128(b)(4)(A) are currently implemented in part by § 1026.37(c)(4)(ii). Section 1026.37(c)(4) requires creditors to include in the projected payments table 135 information about taxes, insurance, and assessments, with the label “Taxes, Insurance & Assessments.” Section 1026.37(c)(4)(ii) generally requires disclosure of the sum of mortgage-related obligations, including property taxes, insurance premiums, and other charges. 136 Section 1026.37(c)(4)(iii) through (vi) requires various statements about this disclosure. Under proposed § 1026.37(p)(2)(i) and (ii), the Bureau would retain most of these requirements for PACE transactions, with changes to the disclosures currently required under § 1026.37(c)(4)(iv), (v), and (vi) for PACE transactions. 135 As noted in the section-by-section analysis of proposed § 1026.37(p)(1), § 1026.37(c) generally requires creditors to disclose a table itemizing each separate periodic payment or range of payments, among other information, under the heading “Projected Payments.” 136 Section 1026.37(c)(4)(ii) requires disclosure of “[t]he sum of the charges identified in § 1026.43(b)(8), other than amounts identified in § 1026.4(b)(5), expressed as a monthly amount, even if no escrow account for the payment of some or any of such charges will be established.” Section 1026.43(b)(8) defines mortgage-related obligations as “property taxes; premiums and similar charges identified in § 1026.4(b)(5), (7), (8), and (10) that are required by the creditor; fees and special assessments imposed by a condominium, cooperative, or homeowners association; ground rent; and leasehold payments.” See also the section-by-section analysis of proposed § 1026.37(p)(8)(i) for discussion of the applicable unit-period for PACE transactions. Currently, § 1026.37(c)(4)(iv) requires a statement of whether the sum of mortgage-related obligations disclosed pursuant to § 1026.37(c)(4)(ii) includes payments for property taxes, certain insurance premiums, or other charges. 137 Section 1026.37(c)(4)(iv) currently does not require a more specific statement regarding the PACE payment, separate from other property tax obligations. The Bureau is proposing § 1026.37(p)(2)(i) to provide such specificity. Proposed § 1026.37(p)(2)(i) would require a statement of whether the amount disclosed pursuant to § 1026.37(c)(4)(ii) includes payments for the PACE transaction and, separately, whether it includes payments for the non-PACE portions of the property tax payment. The statement about the PACE loan payment would be labeled “PACE Payment,” and the statement about the other property taxes would be labeled “Property Taxes (not including PACE loan).” Besides having a more specific statement regarding the PACE payment separate from the other property taxes, the other components regarding certain insurance premiums or other charges would continue to be disclosed under proposed § 1026.37(p)(2)(i) similar to how they are disclosed under current § 1026.37(c)(4)(iv). The Bureau believes these proposed changes would help consumers understand the unique nature of PACE and reinforce that the PACE transaction will increase the consumer's property tax payment. 137 Section 1026.37(c)(4)(iv) refers to “payments for property taxes, amounts identified in § 1026.4(b)(8), and other amounts described in” § 1026.37(c)(4)(ii). Section 1026.4(b)(8), in turn, refers to “[p]remiums or other charges for insurance against loss of or damage to property, or against liability arising out of ownership or use of property, written in connection with a credit transaction.” Additionally, the Bureau notes that a creditor issuing a simultaneous loan that is a PACE transaction would generally be required to include the simultaneous PACE loan in calculating the sum of taxes, assessments, and insurance described in § 1026.37(c)(4)(ii), since the simultaneous PACE loan would increase the consumer's property tax payment. This is consistent with existing comment 19(e)(1)(i)-1, which cross-references existing § 1026.17(c)(2)(i) and generally provides that creditors must make TILA-RESPA integrated disclosures based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. As discussed in the section-by-section analysis of § 1026.43(c)(2)(iv), the Bureau is also proposing to clarify that a creditor originating a PACE transaction knows or has reason to know of simultaneous loans that are PACE transactions if the transactions are included in any existing database or registry of PACE transactions that includes the geographic area in which the property is located and to which the creditor has access. Section 1026.37(c)(4)(iv) also currently requires creditors to state whether the constituent parts of the taxes, insurance, or assessments will be paid by the creditor using escrow account funds. Proposed § 1026.37(p)(2)(i) would eliminate this requirement for PACE transactions. Omitting this information would avoid potential consumer confusion for similar reasons as explained in the section-by-section analysis of proposed § 1026.37(p)(1). The Bureau is also proposing amendments to the requirements in § 1026.37(c)(4)(v) and (vi). Currently, § 1026.37(c)(4)(v) requires a statement that the consumer must pay separately any amounts described in § 1026.37(c)(4)(ii) that are not paid by the creditor using escrow account funds; and § 1026.37(c)(4)(vi) requires a reference to escrow account information, required under § 1026.37(g)(3), located elsewhere on the Loan Estimate. Proposed § 1026.37(p)(2)(ii) would replace these disclosures with the following for PACE transactions: (1) a statement that the PACE transaction, described in plain language as a “PACE loan,” will be part of the property tax payment; and (2) a statement directing the consumer, if the consumer has a pre-existing mortgage with an escrow account, to contact the consumer's mortgage servicer for what the consumer will owe and when. The Bureau believes the proposed disclosures would promote consumer understanding of PACE transactions and their effect on any pre-existing mortgage loans, and that omitting the two existing disclosures would not impair consumer understanding of the transaction. 37(p)(3) Contact Information TILA section 128(a)(1) is currently implemented in part by § 1026.37(k), which requires disclosure of certain contact information, under the heading “Additional Information About this Loan.” 138 In general, a creditor must disclose: (1) the name and NMLSR ID, 139 license number, or other unique identifier issued by the applicable jurisdiction or regulating body for the creditor, labeled “Lender,” and mortgage broker, labeled “Mortgage Broker,” if any; (2) similar information for the individual loan officer, labeled “Loan Officer,” of the creditor and the mortgage broker, if any, who is the primary contact for the consumer; and (3) the email address and telephone number of the loan officer. Section 1026.37(k)(1) through (3) further provides that, in the event the creditor, mortgage broker, or loan officer has not been assigned an NMLSR ID, the license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the creditor or mortgage broker is licensed and/or registered shall be disclosed, with the abbreviation for the State of the applicable jurisdiction or regulating body. 138 Section 1026.37(k) also integrates the disclosure of certain information required under appendix C to Regulation X. 139 Under § 1026.37(k)(1), the NMLS ID refers to the Nationwide Mortgage Licensing System and Registry identification number. Proposed § 1026.37(p)(3) would additionally require similar disclosures for PACE companies if such information is not disclosed under the requirements described above. Specifically, proposed § 1026.37(p)(3) would require disclosure of the PACE company's name, NMLSR ID (labeled “NMLS ID/License ID”), email address, and telephone number of the PACE company (labeled “PACE Company”). Similar to § 1026.37(k)(1) through (3)'s existing requirements with respect to creditors, mortgage brokers, and loan officers, proposed § 1026.37(p)(3) would provide that, in the event that the PACE company has not been assigned an NMLSR ID, the creditor must disclose on the Loan Estimate the license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the PACE company is licensed and/or registered, along with the abbreviation for the State of the applicable jurisdiction or regulatory body stated before the word “License” in the label, if any. These disclosures would not be required if the PACE company's contact information is otherwise disclosed pursuant to § 1026.37(k)(1) through (3). Proposed comment 37(p)(3)-1 would clarify that, for example, if the PACE company is a mortgage broker as defined in § 1026.36(a)(2), then the PACE company is disclosed as a mortgage broker and the field for PACE company may be left blank. As explained in the 2013 TILA-RESPA Rule, disclosing the name and NMLSR ID number, if any, for the creditor, mortgage broker, and loan officers employed by such entities provides consumers with the information they need to conduct the due diligence necessary to ensure that these parties are appropriately licensed. 140 Having this information may also help consumers assess the risks associated with services and service providers associated with the transaction, which in turn serves the purposes of TILA, RESPA, and the CFPA and Dodd-Frank Act. 141 The Bureau believes that similar considerations apply to the disclosure of the PACE company. 140 78 FR 79730, 79975-76 (Dec. 31, 2013). 141 See id. Proposed § 1026.37(p)(3) would reference proposed § 1026.43(b)(14) for the definition of “PACE company.” As explained in the section-by-section analysis of proposed § 1026.43(b)(14), “PACE company” means a person, other than a natural person or a government unit, that administers the program through which a consumer applies for or obtains PACE financing. The Bureau seeks comment on proposed § 1026.37(p)(3) generally, and on whether to require the contact information for the PACE company under the “PACE Company” heading in all cases, instead of under the “Mortgage Broker” heading when applicable. 37(p)(4) Assumption TILA section 128(a)(13) is currently implemented in part by § 1026.37(m)(2), which requires the creditor to disclose a statement of whether a subsequent purchaser of the property may be permitted to assume the remaining loan obligation on its original terms, labeled “Assumption.” This existing disclosure requirement could be misleading for PACE transactions. In general, PACE payment obligations can transfer with the sale of the property, such that the subsequent property owner would be required to pay the remaining obligation as a function of property ownership. However, the new homeowners generally do not technically assume the loans. Proposed § 1026.37(p)(4) would instead require a statement reflecting a PACE-specific risk that stakeholders have indicated sometimes occurs when consumers try to transfer the PACE obligation by selling the property. The proposed statement would state that, if the consumer sells the property, the buyer or the buyer's mortgage lender may require the consumer to pay off the PACE transaction as a condition of the sale. For clarity, proposed § 1026.37(p)(4) requires the creditor to label this disclosure “Selling the Property” and use of the term “PACE loan” in the disclosure. The Bureau believes the proposed disclosure would further the purposes of TILA by providing useful information about key risks of PACE loans, thus avoiding the uninformed use of credit. 37(p)(5) Late Payment TILA section 128(a)(10) is currently implemented in part by § 1026.37(m)(4), which requires the creditor to disclose a statement detailing any charge that may be imposed for a late payment, stated as a dollar amount or percentage charge of the late payment amount, and the number of days that a payment must be late to trigger the late payment fee, labeled “Late Payment.” Unlike non-PACE mortgage loans, however, late payment charges for PACE transactions are typically determined by taxing authorities as part of the overall property tax payment. It may be challenging to disclose all late charges that may be associated with a property tax delinquency succinctly and effectively on the Loan Estimate, either under existing § 1026.37(m)(4) or otherwise. The Bureau understands that some States impose several types of late charges, some of which can change as the delinquency persists or depend on factors that are unknown at the time of the disclosure. To avoid potential confusion for consumers and ensure the Loan Estimate includes useful information about the charges a PACE borrower might accrue in delinquency, the Bureau proposes to implement TILA section 128(a)(10) for PACE transactions by requiring the disclosure in proposed § 1026.37(p)(5) rather than the existing disclosure in § 1026.37(m)(4). Proposed § 1026.37(p)(5) would require creditors, to include one or more statements relating to late charges, as applicable. First, proposed § 1026.37(p)(5)(i) would require a statement detailing any charge specific to the PACE transaction that may be imposed for a late payment, stated as a dollar amount or percentage charge of the late payment amount, and the number of days that a payment must be late to trigger the late payment fee, labeled “Late Payment.” Proposed comment 37(p)(5)-1 would clarify that a charge is specific to the PACE transaction if the property tax collector does not impose the same charges for general property tax delinquencies. Although the Bureau is not aware of PACE transactions that impose such PACE-specific late charges, if any PACE transactions do provide for it, disclosure of late payment information would be incomplete without it. If a PACE transaction does not provide for it, the disclosure would not be required. Second, proposed § 1026.37(p)(5)(ii) would require, for any charge that is not specific to the transaction, either (1) a statement notifying the consumer that, if the consumer's property tax payment is late, they may be subject to penalties and late fees established by their property tax collector, as well as a statement directing the consumer to contact the tax collector for more information; or (2) a statement describing any charges that may result from property tax delinquency that are not specific to the PACE transaction, which may include dollar amounts or percentage charges and the number of days a payment must be late to trigger the fee. Proposed § 1026.37(p)(5)(ii) would provide flexibility for the creditor while ensuring that the Loan Estimate contains useful information about charges that may result from a property tax delinquency. The Bureau solicits comment on whether it should require creditors to disclose specific late-payment information and, if so, what information to require. 37(p)(6) Servicing RESPA section 6(a) is currently implemented by § 1026.37(m)(6), which requires the creditor to disclose a statement of whether the creditor intends to service the loan or transfer the loan to another servicer, using the label “Servicing.” PACE transactions are not subject to transfer of servicing rights as far as the Bureau is aware. Thus, the Bureau is proposing to implement RESPA section 6(a) for PACE transactions by requiring a servicing-related disclosure that would be more valuable for PACE borrowers. Proposed § 1026.37(p)(6) would require the PACE creditor to provide a statement that the consumer will pay the PACE transaction, using the term “PACE loan,” as part of the consumer's property tax payment. Proposed § 1026.37(p)(6) would also require a statement directing the consumer, if the consumer has a mortgage escrow account that includes the consumer's property tax payment, to contact the consumer's mortgage servicer for what the consumer will owe and when. Proposed § 1026.37(p)(6) would preserve the label “Servicing” for the disclosure. The Bureau believes that proposed § 1026.37(p)(6) would promote the informed use of credit. 37(p)(7) Exceptions 37(p)(7)(i) Unit-Period Because PACE transaction payments are repaid with the property taxes once or twice a year, the applicable unit-period would typically be annual or semi-annual. The proposed model form for PACE under proposed appendix H-24(H) would use “annual” in the tables disclosing loan terms and projected payments. Proposed § 1026.37(p)(7)(i) would provide that, wherever the proposed form uses “annual” to describe the frequency of any payments or the applicable unit-period, the creditor shall use the appropriate term to reflect the transaction's terms, such as semi-annual payments. Proposed § 1026.37(p)(7)(i) would be similar to existing § 1026.37(o)(5), which permits unit-period changes wherever the Loan Estimate or § 1026.37 uses “monthly” to describe the frequency of any payments or uses “month” to describe the applicable unit-period. 142 142 Comment 37(o)(5)-4 explains that, for purposes of § 1026.37, the term “unit-period” has the same meaning as in appendix J to Regulation Z. 37(p)(7)(ii) PACE Nomenclature The Bureau understands that PACE companies may market PACE loans to consumers using brand names that do not include the term “Property Assessed Clean Energy” or the acronym “PACE.” To improve the Loan Estimate's utility and understandability, proposed § 1026.37(p)(7)(ii) would clarify that, wherever § 1026.37 requires disclosure of the term “PACE” or the proposed model form in appendix H-24(H) uses the term “PACE,” the creditor may substitute the name of a specific PACE financing program that will be recognizable to the consumer. Proposed comment 37(p)(7)(ii)-1 would provide an example of how a creditor may substitute the name of a specific PACE financing program that is recognizable to the consumer as PACE on the form. Section 1026.38 Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) 38(u) PACE Transactions Section 1026.38 implements the TILA-RESPA integrated disclosure requirements by setting forth the requirements for the Closing Disclosure. Proposed § 1026.38(u)(1)-(9) would set forth modifications to the Closing Disclosure requirements under § 1026.38 for “PACE transactions,” as defined under proposed § 1026.43(b)(15), to account for the unique nature of PACE. 38(u)(1) Transaction Information TILA section 128(a)(1) is currently implemented in part by § 1026.38(a)(4), which requires disclosure of identifying information for the borrower, the seller, where applicable, and the lender, 143 under the heading “Transaction Information.” 144 Proposed § 1026.38(u)(1) would additionally require the Closing Disclosure for a PACE transaction to include the name of any PACE company involved in the transaction, labeled “PACE Company.” It would refer to proposed § 1026.43(b)(14) for the definition of “PACE company” for these purposes: a person, other than a natural person or a government unit, that administers the program through which a consumer applies for or obtains PACE financing. 143 For purposes of § 1026.38(a)(4)(iii), the lender is defined as “the name of the creditor making the disclosure.” In relevant part, the “creditor” is a “person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable.” See § 1026.2(a)(17). As noted in the section-by-section analysis of proposed § 1026.2(a)(14), government sponsors are typically the creditors for PACE transactions. 144 Section 1026.38(a)(4) also integrates the disclosure of certain information required under appendix A to Regulation X. As the Bureau explained in the 2013 TILA-RESPA Rule, disclosing the identifying information for the borrower, seller, and lender is intended to effectuate statutory purposes by promoting the informed use of credit. 145 The Bureau believes disclosing the PACE company's identifying information would do the same. 146 145 78 FR 79730, 80002-03 (Dec. 31, 2013). 146 See part II.A.1 for discussion of the central role PACE companies often play in PACE transactions. 38(u)(2) Projected Payments TILA section 128(a)(6), (a)(16), (b)(2)(C), and (b)(4) is currently implemented in part by § 1026.38(c). Under § 1026.38(c)(1), the Closing Disclosure must disclose the information in the projected payments table required on the Loan Estimate under § 1026.37(c)(1)-(4), 147 with certain exceptions. These disclosures generally include the total perio [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2023-09468. Public record. Not legal advice.