State to regulate home improvement energy loans

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Improving your house’s energy efficiency is prudent and praiseworthy. Not only will it reduce the costs of heating and cooling, but it also will benefit the environment. To encourage homeowners to undertake these types of improvements — solar panels, double pane windows, water efficient toilets and others — special loan programs have been created.

Property Assessed Clean Energy — or PACE loans — are available to help homeowners purchase these energy efficiencies.

Unfortunately, unscrupulous contracts and lenders are converting some PACE programs into the same problems that low- and no-interest home loans created in the mid-2000s.

“… [T]he laudable goal of improving home energy efficiency is being overshadowed by the lack of adequate consumer protection for these loans,” wrote the National Consumer Law Center. According to the center, the elderly living on fixed incomes are the targets.

Contractors can solicit homeowners to purchase this equipment. They promise large electric savings, and often conceal the interest rates and consequences of loan delinquencies. Often homeowners are not evaluated for qualifications for state and federal grants that would be free or have very low-interest repayments.

These are high-interest loans, which are guaranteed by the property. More importantly, they are placed on the tax rolls and are given higher priority than other loans. Many people who thought the electrical bill savings would pay the loan, fell behind on payments and have lost their homes.

Since so many people have fallen prey to this problem, state governments are taking action. Last week, Gov. Jerry Brown signed legislation, Assembly Bill 1284, to eliminate one of the hidden tools used to obtain the loan.

Previously, lenders did not have to obtain a financial statement assessing the applicant’s ability to repay the loan. Once the loan request papers were signed, the lender could ask local governments to place a lien on the property and to collect the payments without any verifiable data on the borrower’s capability to repay the loan.

Being paid to make the collections was an incentive for local governments. But many of the borrowers would not have qualified for the loans if an assessment had been made prior to its approval. This will now be required in California.

While many organizations, such as the National Consumer Law Center, support the legislation and are glad the governor signed it, some are concerned with a section of the bill that permits the lenders to hide their behavior.

The new law permits the state’s Business Development Administration to investigation lender behavior and to take actions. However, if the subject of the investigations agrees with the BDA recommendations, the whole investigation results will be confidential.

The California News Publishers Association wrote the bill’s sponsor, Assemblyman Matt Dababneh, objecting to this provision that appeared at the last minute.

“The mandatory confidentiality proposed by this bill undermines any specter of real reform … and prevents the press and the public from engaging in any oversight of the PACE program to detect and deter potential malfeasance,” wrote Nikki Moore, CNPA legal counsel.

CNPA argued that it inhibited media’s ability to investigate or even identify possible collusion between the faulty lenders and the commissioners reviewing the charges.

In his press release following the governor’s signature of the bill, Dababneh said, “This bill introduces the first state regulatory structure and ability-to-pay requirements in the country and provides an enforcement mechanism to guarantee increased consumer protections.”

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