5.14.21 - More Consumer Protection Failures with R-PACE
Predatory Lending Using Residential PACE Continues in Florida and Missouri
As you may have read in other PAYS Pals newsletters, Residential Property Assessed Clean Energy (RPACE) Financing (which have, so far, only been approved CA, MO, and FL) have become so synonymous with predatory lending and high interest rates that the entire Los Angeles, CA market barred RPACE entirely in 2020. Also at the end of 2020, one of the two largest firms that issued RPACE loans, Renovate America, filed for bankruptcy. RPACE financing is still being investigated by the CFPB. The FL Attorney General is investigating Ygrene, one of the two primary lenders, which also faces a pending class action lawsuit.
With this backdrop, new exposés have been published by Bloomberg News’s “The Subprime Solar Trap for Low-Income Homeowners” and “State-Supported “Clean Energy” Loans Are Putting Borrowers At Risk of Losing Their Homes” from ProPublica in partnership with Kansas City to tell the victim’s stories and provide chilling statistics about the reach and potential continued damage from these programs.
Both articles note that despite the mounting evidence of consumer harm, RPACE is still being considered in Ohio and is being expanded in Florida.
It is worth reading both articles in full, but here are a few excerpts:
One customer in Missouri needed a new furnace and four small basement windows for her two-story home on the east side of Kansas City. The contractor charged an exorbitant $10,792, including fees, to start. She got a 15 year PACE loan at 10% interest, for a total cost of $18,200--more than the value of her home. Having missed four years of tax payments, if she cannot come up with three years of taxes, the county will sell the house and use the proceeds to settle the debt, leaving her with nothing.
Two dozen Missouri counties and the city of St. Louis allow PACE loans. Of the 2,700 loans that were recorded in five counties with the state’s most active PACE programs, 28% of borrowers that live in predominantly Black neighborhoods are at least one year behind in repaying their PACE loans. Out of more than 3,000 homes in MO with PACE liens, more than 100 homes in metro Kansas City and St. Louis are more than two years behind on payments, according to a ProPublica analysis. At least 29 are slated for sale at auction this year.
While L.A. County will no longer allow new PACE assessments, about 20,000 homeowners remain on the hook for outstanding liens. “Almost all of our clients are on a fixed or limited income,” says Jennifer Sperling, an attorney with the L.A.-based nonprofit legal clinic Bet Tzedek representing homeowner plaintiffs. “They never had any ability to pay back loans the size they’d been given.”
A senior attorney at the Legal Aid Society of San Diego, says PACE is “basically a price-gouging, equity-stripping program that preys particularly on elderly folks who have the most equity in their houses,”
“At least in terms of how it operates, from a homeowner’s perspective, PACE is essentially a mortgage product,” says John Rao, an attorney with the National Consumer Law Center. Yet it isn’t subject to 2010 Dodd-Frank Act consumer protections including assessing a borrower’s ability to repay and a ban on mandatory arbitration clauses.
At least 280,000 homeowners have taken on PACE loans and at least eight U.S. counties have ended their residential PACE programs because of consumer concerns.
How do so many homeowners get trapped in a maze of documents and debt? A handful of PACE administrator companies--Renovate America, Renew Financial, and Ygrene--created platforms and apps that handed contractors a rapid app-base digitized financing platform that allowed them to falsify applications and forge signatures. PACE administrators “want to pin the blame on these door-to-door salespeople. But that’s the business model that they adopted.”
Companies offering PACE loans:
Are not required to do energy audits and typically don’t.
Are not required to verify a homeowner’s income or creditworthiness, only that they’ve stayed up to date on their property tax and mortgage payments for the past three years.
Generally attempt to prohibit homeowners from challenging their assessments—for any reason—by burying broad waiver provisions in the contracts they sign. (A type of blanket liability waiver prohibited by the Federal Trade Commission in standard home-improvement contracts financed by banks).
Indemnify the local government and PACE administrators, insulating them from the liability risk that would deter their continued enablement of abuse
While we understand that many well-intentioned professionals initially created RPACE Financing to expand access to clean energy upgrades, it has been apparent since predatory practices were first uncovered in California more than half a decade ago, the basic design of the system includes features that facilitate fraud and abuse, further underscoring the need for a system with built in consumer protections.
Having examined the root causes for the failure of RPACE, we have compiled a side-by-side comparison of PACE and PAYS consumer protection program features in the table below. The most critical fraud prevention features in PAYS are: 1) the requirement that estimated savings exceed cost recovery, 2) that data gathering, work scoping, pricing, and quality assurance are the responsibility of the utility and its program operator, rather than by an installation contractor, which would have an inherent conflict of interest in writing and pricing its own scope of work, and 3) the use of utility investment rather than personal debt to finance the project.
While PAYS offers solutions to PACE’s problems, it is worth noting that humanity will need a number of direct aid, financing, and inclusive investment mechanisms, with strong consumer protections embedded in their design, working in tandem to crack the nut of upgrading all 130M U.S. homes.