Scams are rampant in unregulated loan programs aimed at helping homeowners make energy-efficient upgrades to their properties. Consumer groups claim that these programs often lead consumers into high-risk, high-interest-rate loans without fully understanding the repayment terms or the risks of mortgage default and foreclosure. PACE programs, overseen by state or local governments, allow private lenders to finance energy-efficient projects with high upfront costs, such as solar panels and water efficiency upgrades. However, these loans, secured through property liens, lack consumer protections and require repayment through property taxes, putting borrowers at risk of delinquency and foreclosure if they cannot meet the repayment terms.
The rise in PACE loan applications in recent years has been driven by homeowners seeking to protect their properties against natural disasters. While insurance companies prioritize coverage for homeowners who make such upgrades, the costs can be substantial, with interest rates ranging from 8% to 9%. Consumer advocates warn of the risks associated with these loans, citing increases in negative credit outcomes and mortgage delinquency rates.
Many lenders operate without proper oversight, targeting vulnerable communities and engaging in predatory practices. Concerns over the lack of regulation have prompted calls for federal intervention to protect consumers from fraudulent practices and incomplete projects. Steps have been taken in some states, like California and Florida, to reform PACE programs and increase consumer protections. The Consumer Financial Protection Bureau is leading efforts to regulate PACE loans nationwide, introducing rules aimed at addressing repayment terms, disclosure requirements, and lender assessments to safeguard borrowers from financial distress. Scams and fraudulent practices under PACE programs have been exposed in lawsuits, highlighting the need for stronger consumer protections and oversight in the lending industry.
