The legislation would centralize oversight of residential PACE programs with the state’s Division of Finance.

Supporters of a Missouri bill say it’s designed to protect consumers who borrow money for home energy projects, but critics say it could have the opposite effect while also discouraging borrowing under the programs.

The legislation (SB 173/HB 215) would centralize oversight of Missouri’s residential Property Assessed Clean Energy program with the state Division of Finance, which also regulates banks. Currently the loans are overseen by local boards of directors in cities and counties that have created PACE programs.

The state would require licenses for PACE administrators, and only contractors that are licensed, bonded and insured could advertise the availability of PACE loans. The Division of Finance would also have authority to investigate any complaints related to the programs.

The Missouri Bankers Association, which played a large role in writing the legislation, says putting the programs under state supervision will reduce confusion about the loans, which are repaid via homeowners’ property tax bills and, unlike conventional loans, don’t require income verification.

California passed a PACE consumer protection law in 2017 after complaints about aggressive or misleading marketing of the loans. The result has been a significant drop in lending in that state, something that Missouri PACE advocates worry would happen under the proposed legislation.

The Missouri bills would also do away with an important consumer protection that already exists in the state’s PACE law, critics say. That provision requires the value of energy savings for the project to exceed the loan amount.

James Owen, executive director of Renew Missouri, a clean energy group that opposes the legislation, said he suspects the banking industry has another motive for backing the bills: “The bankers don’t want to compete.”

Property Assessed Clean Energy is a mechanism for funding energy efficiency improvements and renewable energy projects. Missouri is one of three states along with California and Florida that allow PACE loans to owners of residential property. Since the first residential PACE loans were made in Missouri in 2016, approximately $33 million has been loaned out for about 2,000 residential projects.

PACE loans differ from most other sources of home-improvement financing because payments are bundled with annual property tax bills. Also, the underwriting standards generally are less demanding: people who wouldn’t qualify for a mortgage from a conventional lender often can get a PACE loan. And the loan repayment obligation stays with the property rather than the borrower.

Craig Overfelt, senior vice president of government relations for the Missouri Bankers Association, said putting PACE under state supervision “would give consumers someplace they could go when they run into various issues. … People with PACE loans are not aware of how much their property taxes are going to go up.”

It’s unclear how much confusion actually exists around Missouri’s PACE programs. A spokesperson for the Missouri Attorney General’s office said the office has not registered any complaints related to PACE, though one local tax collector reports some homeowners being caught off guard by the increases.

Leah Betts, collector of revenue in Missouri’s Greene County, said that among 45 taxpayers with PACE assessments in 2018, a couple were surprised or dismayed. One man claimed to have no idea what the PACE bill was, and a woman said the PACE assessment hiked her property tax bill for a solar array that had not reduced her utility bills.

“There are no real consumer protections in place for PACE,” Betts said. She tried without success to persuade the Green County Commission to rescind its approval of the residential PACE loan program.

Should the legislation pass, the prospects for Missouri’s residential PACE programs are grim, in the view of Julie Padilla, vice president for market development for Renovate America, the largest provider of PACE funding in the U.S. Since California’s PACE reforms she said there’s been a more than 50 percent contraction of the industry.

“I assume it would be similar in Missouri,” Padilla said.

Owen, of Renew Missouri, said he also believes the state’s residential PACE programs eventually would collapse if the bills pass.

“That’s what they are designed to do,” he said.

More broadly, he said, the bills would force PACE lenders to behave more like bankers.

“It’s about diluting the value of PACE rather than offering any sort of protection to borrowers,” Owen said. “It’s taking the PACE lending program and saying, ‘This should be treated more like a regular bank loan.’ That’s not the reason PACE was established by the Legislature.”

Banks dislike PACE loans in part because the PACE loan, being bundled with the property tax bill, has a higher lien priority than a mortgage holder, according to Ben Taube, managing director for national policy and legislative affairs for YGrene Energy Fund, a PACE lender.  

While not denying that there may be room for improvements in the way residential PACE loans are issued, Renovate America’s Padilla said, “Our goal in Missouri is to get the regulatory structure right, and the consumer protection policy right without contracting the program in a negative way.”

Others suggested that Missouri legislators could save themselves the trouble if they just wait. In accordance with a law passed last year, the federal Consumer Financial Protection Bureau is drafting new rules to regulate various financial entities including PACE lenders.