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PACE loans are not consumer credit, says federal judge

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Just because you agreed to it, doesn’t mean it’s credit.

A federal judge has dismissed all federal claims against Renovate America and its government bond-issuing partners in three lawsuits that had sought class-action status.

In addition to dismissing the federal claims against Renovate America, Western Riverside County of Governments, San Bernardino Associated Governments and the County of Los Angeles, U.S. District Judge André Birotte remanded all remaining state claims to state court, where they may or may not be reasserted.

Each of the three complaints had asserted that Renovate America engaged in allegedly deceptive practices which Renovate America characterized in a press release as “related to disclosures.” These included collecting additional interest and administrative fees and recording fees, and failure to credit payments. The complaints also alleged that these were statutory violations under the federal Truth in Lending Act and Home Ownership and Equity Protection Act.

However, the judge dismissed all the federal claims with prejudice, meaning they cannot be refiled. The court concluded that PACE assessments are not “consumer credit transactions,” and therefore not subject to either TILA or HOEPA.

The July 17 opinion notes that PACE assessments do not meet TILA’s definition of “credit” as “a right granted by a creditor to a debtor;” nor do homeowners meet the statute’s definition of a “consumer” as “a natural person to whom credit is extended,” since a PACE assessment is imposed on a property.

Judge Birotte also cited official staff interpretations of the Consumer Financial Protection Bureau that expressly exclude “tax liens” and “tax assessments” from the definition of “consumer credit transactions.”

The plaintiffs had challenged the CFPB interpretation; they argued that PACE assessments are not covered by the staff interpretations because they are entered into voluntarily, whereas tax assessments are involuntary.

Judge Birotte didn’t buy it.

“That homeowners agree to PACE assessments voluntarily does not establish that these assessments are not tax assessments and are instead credit,” he wrote.

Renovate America welcomed the ruling.

"Renovate America takes its commitment to compliance with laws, rules and regulations, and to consumer protection, very seriously, and we strive to exceed all applicable requirements and best business practices,” Scott McKinlay, the company’s chief legal officer, said in the press release, published Tuesday.

While PACE loans are not regulated as consumer credit, the industry is starting to adopt practices similar to those of the mortgage market.

“We worked to make the Consumer Financial Protection Bureau's Know Before You Owe disclosures for home mortgages the model for PACE financing, and get that enacted into law. We required those disclosures to be verbally confirmed in a live telephone call for every homeowner,” said McKinlay.

“We look forward to continuing to work with consumer advocates, state legislators and local governments to codify these and other consumer protections into law this year in California."

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