Editor’s Note: This story was first published by ProPublica.
This fall, Ohio lawmakers will consider adding consumer protections to “clean energy” loan programs, addressing concerns they may impose on vulnerable homeowners.
In testimony at state House committee hearings this year, some proponents of the bill pointed to the ProPublica reports as proof that Ohio should tightly regulate lending. This report showed that Property Assessed Clean Energy, or PACE, loans often left low-income borrowers in Missouri at risk of losing their homes.
Two Republican members of the State House from eastern Ohio are pursuing rules for PACE, though such a loan program has only been offered as part of a pilot program in Toledo. But lawmakers Bill Roemer, of Richfield, and Al Cutrona, of Canfield, said they wanted to make sure that, if companies try to introduce a statewide program in Ohio, they comply with stricter rules.
PACE provides financing for energy-efficient home improvements that borrowers repay in their property taxes. Unlike some other types of financing, default on a PACE loan can result in the sale of a home during a tax sale.
Missouri, California, and Florida are the only states with active statewide PACE residential programs. Last year, Ohio nearly became fourth, after the California-based Ygrene Energy Fund announced it would offer homeowner loans in partnership with the Toledo-Lucas County Port Authority.
But the program never started. Ygrene has since suspended all loans nationwide and last week agreed to settle a federal and state of California complaint that the company harmed consumers through deceptive practices.
Roemer said in an interview that he co-sponsored the measure after speaking to a coalition that included mortgage lenders, realtors, and advocates for affordable housing and homelessness.
“You never really see all these people coming together on a bill,” he said. “I did my research and said, ‘This is a really bad program that takes advantage of the most vulnerable people. “”
The legislative session ends on December 31, leaving little time to pass the bill.
“It’s going to take a lot of work,” Roemer said, “but I think it’s very important that we do it.”
Ben Holbrook, a Cutrona aide, said that after Ygrene’s withdrawal Bill was “less reactive and more proactive”.
ProPublica found that state and local authorities in Missouri exercised little control over the two entities that operated clean energy loan programs in that state. Ygrene and the Missouri Clean Energy District charged high interest rates and fees over terms of up to 20 years, collecting loan repayments through tax bills and executing debts by placing liens on property – which left some borrowers vulnerable to losing their homes if they defaulted.
The reporters analyzed about 2,700 loans registered in the five counties with the most active PACE programs in Missouri. They found that borrowers, especially in predominantly black neighborhoods, sometimes paid more interest and fees than their home was worth.
PACE lenders said their programs provide much-needed financing for home renovations, especially in predominantly black neighborhoods where traditional lenders typically don’t do much business. They said their interest rates were lower than payday lenders and some credit cards.
Weeks after ProPublica’s investigation, the Missouri Legislature passed and Governor Mike Parson signed legislation mandating more consumer protections and PACE oversight. In Ohio, following our reporting, leaders of the state’s two most populous cities, Columbus and Cleveland, said they would not participate in any PACE residential plans.
The Ohio bill would cap the annual interest rate on PACE loans at 8% and prohibit lenders from charging interest on fees. Lenders must verify that a borrower can repay a loan by confirming that the borrower’s monthly debt does not exceed 43% of their monthly income and that they have sufficient income to meet basic expenses.
The measure would also change the way PACE lenders secure their loans. In states where PACE has thrived in residential markets, PACE liens are paid first if a home is foreclosed. And a homeowner can borrow without the consent of the bank that holds the mortgage. The Ohio bill would refund PACE liens after the mortgage and any other liens on the property. Additionally, the mortgage lender should agree to add a PACE loan.
Ygrene officials did not respond to requests for comment. But a company official told the legislative committee that the bill would “unequivocally kill residential PACE.” Crystal Crawford, then vice-chairman of Ygrene, told the committee in May that the bill was “not a consumer protection bill – it’s a bank protection bill” .
Ohio’s limited experience with PACE illustrated how the program, with sufficient oversight, could be a low-cost option for borrowers. The Port Authority of Toledo-Lucas County has implemented a pilot program allowing residents to borrow money for energy-saving projects without paying high interest or fees. A local nonprofit, the Lucas County Land Bank, made sure borrowers had the means to repay loans, connected homeowners with contractors, and made sure home improvements were made. properly completed before releasing the loans.
Ygrene announced in August that it had suspended making PACE residential loans in Missouri and California, but continued to make PACE residential loans in Florida and PACE commercial loans in more than two dozen states. Commercial loans have not attracted as much attention from regulators because they tend to involve borrowers with more experience and access to capital who are not as likely as residential borrowers to default.
More recently, the Ygrene website suggests that instead of providing loans directly, Ygrene now operates as an online lending marketplace where consumers looking for personal home improvement loans can enter personal information and receive offers from third-party lenders.
The lawsuit filed by the Federal Trade Commission and the California Department of Justice alleges that the company misled consumers about the potential financial impact of its financing and registered liens on borrowers’ homes without their consent. To solve the case, Ygrene has agreed to provide financial assistance to certain borrowers, end allegedly deceptive practices, and meaningfully supervise contractors who act as its sales force. The settlement must be approved by a judge.
Ygrene said in an email that the complaints date back to the “early days” of the company marketing PACE loans in 2015 and that it has since taken “extensive steps” to protect consumers.
“We deeply regret any negative consequences any customer may have suffered, as even one unhappy customer is too much,” the company said.