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New bills will ensure consumer protections in residential PACE financing

Published February 28, 2017

Today, CUB published a letter supporting HF 1377 and SF 1088, bills to suspend a type of energy improvement financing so that consumer protections can be put in place.

Property-assessed clean energy financing, or PACE, allows a property owner to make energy improvements, using a loan that they repay through their property tax bill. Property owners can make cost-effective energy efficiency or renewable energy improvements, and a voluntary special assessment is then added to their property taxes. Often, proponents say, the energy improvements reduce energy bills by more as the loan payment, saving money from Day 1.

PACE financing is up and running successfully in Minnesota’s commercial market. In fact, St. Paul’s First National Bank Building, where CUB’s office is located, was part of the largest PACE project in the country.

However, residential lending is different. There are significant consumer concerns that should be addressed before making PACE loans available to residential consumers. All costs, fees, and risks should be disclosed before any consumer is asked to sign up for a PACE loan. Low-income consumers should know that lower-cost or free energy upgrades and financing options are often available to them. Criteria to ensure the cost-effectiveness of PACE-enabled clean energy improvements should be clear, and underwriting needs to be sufficient.

To address these concerns, the bill proposes a timeout for residential PACE, while a stakeholder group works through solutions. The Department of Commerce must report on the group’s findings and recommendations by next January.

No lenders are making PACE loans to homeowners yet, so it’s the perfect time to take this timeout. Consumer protections need to be in place before residential PACE financing becomes available in Minnesota. The few states that have implemented residential PACE, particularly California, are only now recognizing the lack of these basic consumer protections as the result of complaints, investigations and class action lawsuits.

Let’s avoid these problems in Minnesota, and make sure residential PACE, very good in concept, is set up to succeed.

CUB strongly supports additional options to help homeowners become more energy efficient and take advantage of renewable power. We look forward to working with all stakeholders and supporting a strong residential PACE program in the future.

Author: Annie Levenson-Falk

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