CFPB Finalizes Rule to Protect Homeowners on Solar Panel Loans and Other Home Improvement Loans Paid Back Through Property Taxes
Lenders offering ‘PACE products’ banned from setting borrowers up to fail on clean energy and disaster readiness loans
Today, the Consumer Financial Protection Bureau (CFPB) finalized a rule mandated by Congress that applies existing residential mortgage protections to Property Assessed Clean Energy (PACE) loans. PACE loans are used by homeowners for clean energy upgrades and disaster readiness that are paid back through their property tax bills. Because of concerns about subprime-style lending that puts homeowners at risk of losing their home, Congress required the CFPB to enhance protections. The rule will ensure that PACE borrowers have the right to receive standard mortgage disclosures that allow them to compare the cost of the PACE loan with other forms of financing, and the lender will be responsible for ensuring that the borrower is not set up to fail with an unaffordable loan.
“Today’s rule stops unscrupulous companies and salespeople from luring homeowners into unaffordable loans based on false promises of energy savings,” said CFPB Director Rohit Chopra. “Homeowners deserve to know just how much they are paying when they put their home and financial future on the line.”
Most PACE loans are marketed to homeowners, typically through door-to-door sales, by a company who brokers financing and contracts for clean energy installation or other home improvements. These companies may promise that the improvements will pay for themselves with energy savings or through enhanced disaster preparedness.
While PACE financing can provide quick cash for home improvements, CFPB researchshows that:
Most PACE borrowers are eligible for other forms of financing, often at much cheaper rates than PACE loans.
PACE loans caused borrowers’ property taxes to increase by about $2,700 per year or an 88 percent increase.
PACE borrowers were more likely to fall behind on their first mortgage than people who chose not to finance home improvements with PACE.
PACE loans tend to be more expensive – around five percentage points higher -- than first mortgages, even though PACE loans get paid at a foreclosure sale before first mortgages.
The CFPB has been carefully monitoring the fast-growing market for loans used for clean energy financing, including those not paid back through property taxes. In August 2024 CFPB issued a report and advisory warning consumers about predatory solar loans that found some residential solar lenders are misleading homeowners about the terms and costs of their loans, their payment plan, misrepresenting the energy and tax savings, and cramming markup fees into borrowers’ loan balances.
Today’s final rule is part of the CFPB’s commitment to implementing regulations mandated by Congress and reviewing outdated regulations. Recently, the CFPB finalized a rule to implement a 2010 authority that provides new rights for consumers to control their personal financial data. Last year, the CFPB finalized a required rule to increase transparency into small business lending. In 2022, the CFPB finalized a required rule to help human trafficking survivors rebuild their financial lives. The CFPB has also looked and reviewed regulations related to junk fees, including in the mortgage market. Today’s final rule, which will be effective on March 1, 2026, implements the Congressional mandate in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.