State of Louisiana

DEPARTMENT OF JUSTICE
OFFICE OF THE ATTORNEY GENERAL
P.O. BOX 94005
BATON ROUGE
70804-9005

July 26, 2023

Rohit Chopra, Director

Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

Re: Property Assessed Clean Energy (PACE) Financing Proposed Rule, 88 Fed. Reg.
30,388, RIN 3170-AA84

Dear Director Chopra:

We, the undersigned Attorneys General of 8 States, write to provide the following
comments to the CFPB’s proposed rule applying the Truth in Lending Act’s (TILA’s) ability-to-
pay provisions, 15 U.S.C. § 1639c, to Property Assessed Clean Energy (PACE) financing
programs administered by the States. See Consumer Financial Protection Bureau, Residential
Property Assessed Clean Energy Financing (Regulation Z), Docket No. CFPB-2023-0029, 88 Fed.
Reg. 30,388-30,440, at https://www.federalregister.gov/documents/2023/05/11/2023-
09468/residential-property-assessed-clean-energy-financing-regulation-z (the “Proposed Rule”).
The Proposed Rule should be rejected in toto because it is unconstitutional, it unlawfully intrudes
on State sovereign prerogatives, it is inconsistent with the plain language of the statute, it is
arbitrary and capricious, and it exceeds the Bureau’s statutory authority, among other reasons.
Moreover, the Bureau’s own record demonstrates that States are responding to local PACE-realted
consumer-protection issues in a flexible, real-time manner, consistent with the role of the States
and the “laboratories of democracy.” This chorus renders it particularly inappropriate to impose
the stifling hand of federal regulation in this emerging arena.

I. PACE Financing Programs Involve the Exercise of State Sovereign Authority.

As the Bureau admits, PACE financing programs involve the direct exercise of State
sovereign authority in at least two ways: (1) they are directly administered by State agencies; and
(2) they involve an exercise of the State’s taxing authority, which is a core aspect of State sovereign
authority.

A. PACE programs are administered by State agencies exercising State taxing

authority, a core aspect of State sovereignty.
 PACE financing programs are commonly administered by States through State-created
agencies and involve the exercise of the State’s sovereign taxing power. The U.S. Department of
Energy summarizes such programs: “The property assessed clean energy (PACE) model is an
innovative mechanism for financing energy efficiency and renewable energy improvements on
private property.” U.S. Dep’t of Energy, State and Local Solution Center, Property Assessed
Clean Energy Programs, at https://www.energy.gov/scep/slsc/property-assessed-clean-energy-
programs (visited March 9, 2023). “PACE programs exist for: Commercial properties (commonly
referred to as Commercial PACE or C-PACE), [and] Residential properties (commonly referred
to as Residential PACE or R-PACE).” Id.; see also Proposed Rule, 88 Fed. Reg. 30,388-30,389.
Indeed, the Bureau admits as much: “A defining feature of PACE is that the loans are paid back
through the property tax system.” Id. at 30398

As DOE notes, “PACE programs allow a property owner to finance the up-front cost of
energy or other eligible improvements on a property and then pay the costs back over time through
a voluntary assessment. The unique characteristic of PACE assessments is that the assessment is
attached to the property rather than an individual.” Id. This “voluntary assessment” is
administered by local political subdivisions of State agencies exercising the sovereign authority of
the State: “PACE financing for clean energy projects is generally based on an existing structure
known as a ‘land-secured financing district,’ often referred to as an assessment district, a local
improvement district, or other similar phrase. In a conventional assessment district, the local
government issues bonds to fund projects with a public purpose such as streetlights, sewer systems,
or underground utility lines.” Id.

Central to the PACE model is that the financing for the improvement project is repaid, not
through direct payments to a private lender, but through an annual assessment that is collected as
part of the annual property tax assessment: “The recent extension of this financing model to energy
efficiency and renewable energy allows a property owner to implement improvements without a
large up-front cash payment. Property owners that voluntarily choose to participate in a PACE
program repay their improvement costs over a set time period—typically 10 to 20 years—through
property assessments, which are secured by the property itself and paid as an addition to the
owners’ property tax bills. Nonpayment generally results in the same set of repercussions as the
failure to pay any other portion of a property tax bill.” Id. (emphasis added). Thus, “[a] PACE
assessment” is not a traditional loan but “is a debt of property, meaning the debt is tied to the
property as opposed to the property owner(s).” Id. It is a “debt of property” that is administered
by a State agency (typically, a local political subdivision such as an assessment district or a local
improvement district), and collected through a core exercise of State sovereign authority, i.e., the
State’s taxing power.

B. The exercise of State sovereign authority is universal and central to PACE

programs, as reflected in Florida’s PACE funding program.

Commercial PACE programs (C-PACE) are very common nationwide, and residential
PACE programs (R-PACE) are growing in multiple States. “C-PACE programs exist in several
states, regions, and local governments. … More than 37 states plus the District of Columbia have
C-PACE enabling legislation and more than $2 billion in projects have been financed.” Id.
Likewise, there are 17 residential PACE programs in three States (Florida, California, and

2
Missouri), and “[a]s of 2019, over 200,000 homeowners have made $5 billion in energy efficiency
and other improvements to their homes through PACE financing.” Id.

Florida’s program provides a typical example of such programs. Florida’s PACE Funding
Agency administers the State’s PACE financing program. The Florida PACE Funding Agency is
a statewide agency created pursuant to statute: “FPFA is an interlocal agreement created and
established as a separate legal entity, public body and unit of government, pursuant to Section
163.01(7)(g), Florida Statutes, with all of the privileges, benefits, powers and terms provided for
therein and by law. The Florida PACE Funding Agency is the ‘authority’ that oversees the various
‘Program Administrators’ that work with Homeowners to fund their home improvement projects.”
Florida PACE Funding Agency, About, What is Property Assessed Clean Energy (PACE)…?, at
https://floridapace.gov/about-pace/ (visited March 9, 2023). Notably, the FPFA provides state
oversight to the PACE funding program that already advances the consumer-protection interests
reflected in TILA’s ability-to-pay provisions: “Program Administrators are the companies that
work with Property owners to fund their improvement projects. The Florida PACE Funding
Agency (FPFA) oversees these companies and authorizes the funding for the projects.” Id.

Like other PACE programs throughout the country, Florida administers its PACE program
by collecting loan repayments through a special assessment added to the property owner’s property
tax: “Property owners pay back the financing for PACE improvements through a special (non-ad
valorem) assessment that is added to their property tax bill each year. Property owners repay the
special assessment for an agreed upon term (usually the useful life of the improvements) and the
interest rates are fixed. There are no adjustments to interest rates and no balloon payments.”
Florida PACE Funding Agency, About, supra. “Because the assessment is attached to the
property, rather than the owner of the property, if the property owner sells the property before the
assessment is paid off, the balance of the assessment remains with the property. The assessment
can transfer to the new owner without any need to approve the purchaser of the property.” Id.

Florida statutes authorized the creation of the Florida PACE Funding Agency as a separate
legal entity created by agreement among local government agencies. See Fla. Stat. Ann.
§ 163.01(7)(g)(1) (“[A]ny separate legal entity created under this section, the membership of
which is limited to municipalities and counties of the state … may acquire, own, construct,
improve, operate, and manage public facilities, or finance facilities on behalf of any person,
relating to a governmental function or purpose ….”). Under Florida law, a “separate legal entity”
means “any entity created by interlocal agreement the membership of which is limited to two or
more special districts, municipalities, or counties of the state, but which entity is legally separate
and apart from any of its member governments.” Fla. Stat. Ann. § 163.01(7)(g)(2)(b).

Such a “separate legal entity” authorized by statute pursuant to an “interlocal agreement”

among “special districts, municipalities, or counties of the state,” id., is itself a State agency
cloaked with State authority and exercising the power of the State. The Supreme Court has
observed: “That Government-created and -controlled corporations are … part of the Government
itself has a strong basis, not merely in past practice and understanding, but in reason itself.” Lebron
v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 397 (1995). Where an entity “was created by a
special statute, explicitly for the furtherance of … governmental goals,” that entity is typically part
of the government. Id. Florida’s PACE Funding Agency “is established and organized under

3
[Florida] law for the very purpose of pursuing [Florida] governmental objectives, under the
direction and control of [Florida] governmental appointees.” Id. at 398. “[W]here, as here, the
Government creates a corporation by special law, for the furtherance of governmental objectives,
and retains for itself permanent authority to appoint a majority of the directors of that corporation,
the corporation is part of the Government.” Id. at 399.

The collection of property taxes by property assessment, likewise, is a core aspect of State
sovereignty, as discussed further below.

II. Federal Regulation of State-Administered PACE Financing, Operating Through the

Collection of State Property Taxes, Violates Basic Principles of Federalism.

Because PACE funding programs are State-administered programs that operate through
the exercise of the States’ sovereign taxing authority, direct federal regulation of PACE financing
programs is unconstitutional under two separate grounds. First, direct regulation of the States’
exercise of their taxing authority is unconstitutional under basic principles of federalism and the
Tenth Amendment. Second, providing directives to State agencies in how to administer a State
regulatory program in order to achieve federal goals violates the anti-commandeering principle of
Printz and similar cases.

A. Federal Regulation of the Exercise of State Taxing Power is Unconstitutional.

First, the Proposed Rule purports to regulate directly how the States may exercise their
State taxing authority. By limiting, restricting, and controlling which citizens may participate in
State-administered programs, the Proposed Rule imposes federal standards and federal control
over which citizens the States may subject to their taxing authority. For example, a federal
directive that certain Florida citizens may not participate in Florida’s PACE funding programs
because they fail to meet federal ability-to-pay standards, entails that Florida is barred from
exercising its Florida taxing authority as to those citizens and their properties.

This is unconstitutional. A federal agency may not dictate which citizens and properties
within a State that may be subjected to that State’s taxing authority. The taxing authority is a core
aspect of State sovereignty that, under our system of federalism, lies outside the lawful authority
of the federal government to regulate. “The powers not delegated to the United States by the
Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the
people.” U.S. CONST. amend. X.

The Supreme Court has recognized this doctrine for over a century. In Lane County v.
State of Oregon, 74 U.S. 71 (1868), the federal government enacted a law requiring that federal-
issued paper notes were obligatory legal tender for public and private debts. Id. at 71-72. Oregon
then passed a statute dictating that certain state taxes should be paid only in gold or silver coin.
Id. at 72. The Supreme Court held that the federal statute could not be applied to force Oregon to
accept the federal paper notes as payment for Oregon’s taxes, because the federal government
lacked authority to dictate how Oregon exercised its sovereign taxing authority. Id. at 77-78. The
Supreme Court emphasized that, under our system of federalism, “[i]n respect … to property,
business, and persons, within their respective limits, [the States’] power of taxation remained and

4
remains entire.” Id. at 77. This power is “absolute,” to the exclusion of federal regulation, with
the caveat that the federal government takes priority in cases of concurrent taxation: “It is indeed
a concurrent power, and in the case of a tax on the same subject by both governments, the claim
of the United States, as the supreme authority, must be preferred; but with this qualification it is
absolute.” Id.

The Supreme Court then held that Congress has no power to dictate “the subjects upon
which” the State taxing power “shall be exercised,” nor “the mode in which it shall be exercised”:
“The extent to which it shall be exercised, the subjects upon which it shall be exercised, and the
mode in which it shall be exercised, are all equally within the discretion of the legislatures to which
the States commit the exercise of the power. That discretion is restrained only by the will of the
people expressed in the State constitutions or through elections….” Id. And the Court emphasized
that Congress lacks authority to interfere with any of these aspects of the State taxing power:
“There is nothing in the Constitution which contemplates or authorizes any direct abridgment
of this power by national legislation.” Id. (emphasis added). “If, therefore, the condition of any
State, in the judgment of its legislature, requires the collection of taxes in kind … it is not easy to
see upon what principle the national legislature can interfere with the exercise, to that end, of
this power, original in the States, and never as yet surrendered.” Id. The Court then applied the
canon of avoidance to reject an interpretation of the federal statute that would interfere with
Oregon’s taxing authority: “If this be so, it is, certainly, a reasonable conclusion that Congress did
not intend, by the general terms of the currency acts, to restrain the exercise of this power in the
manner shown by the statutes of Oregon.” Id. at 77-78.

The same principles apply here. It is beyond dispute that PACE lending programs directly
involve the State taxing power, because Congress defined PACE financing to include only
financing of building improvements that involves State taxation: “In this subparagraph, the term
‘Property Assessed Clean Energy financing’ means financing to cover the costs of home
improvements that results in a tax assessment on the real property of the consumer.” 15 U.S.C.
§ 1639c(b)(3)(C)(i) (emphasis added). Thus, State PACE funding programs involve sovereign
decisions by States about “the extent to which [their taxing power] shall be exercised,” “the
subjects upon which it shall be exercised,” and “the mode in which it shall be exercised. Lane
County, 74 U.S. at 77. The Proposed Rule would interfere with the State’s sovereign authority in
each of these areas. That it cannot do: “There is nothing in the Constitution which contemplates
or authorizes any direct abridgment of this power by national legislation.” Id.

B. The Proposed Rule Violates of the Anti-Commandeering Principle.

In addition, the Proposed Rule runs afoul of the anti-commandeering principle recognized
in Printz v. United States, Murphy v. NCAA, and similar cases. As noted above, the Proposed Rule
purports to impose a mandatory series of obligations on those administering and participating in
PACE financing programs—including the State agencies who provide them. In fact, the ability-
to-pay provisions of TILA that the Proposed Rule implements are rife with specific directives and
mandatory obligations to take affirmative actions required by federal law. See, e.g., 15 U.S.C.
§ 1639c(a)(1) (“[N]o creditor may make a residential mortgage loan unless the creditor makes a
reasonable and good faith determination based on verified and documented information that, at the
time the loan is consummated, the consumer has a reasonable ability to repay the loan….”); 15

5
U.S.C. § 1639c(a)(2) (“[T]he creditor shall make a reasonable and good faith determination, based
on verified and documented information, that the consumer has a reasonable ability to repay the
combined payments of all loans on the same dwelling….”); 15 U.S.C. § 1639c(a)(3) (“A
determination under this subsection of a consumer’s ability to repay a residential mortgage loan
shall include consideration of the consumer’s credit history, current income, expected income the
consumer is reasonably assured of receiving, current obligations, debt-to-income ratio or the
residual income the consumer will have after paying non-mortgage debt and mortgage-related
obligations, employment status, and other financial resources….); 15 U.S.C. § 1639c(a)(4) (“A
creditor making a residential mortgage loan shall verify amounts of income or assets that such
creditor relies on to determine repayment ability…”) (emphases added). The Proposed Rule
includes many similar command-and-control directives.

These directives impose de facto requirements on States’ PACE-funding officials and

agencies to either carry out these federally mandated actions themselves, or to direct private
lenders to carry them out. See id. The practical effect of such mandates is that State PACE
agencies will either have to engage in such determinations and assessments, or compel private
lenders to do so on their behalf; without such federally mandated determinations, there can be no
loans and thus no PACE programs. Either way, the Proposed Rule effectively dictates how State
agencies must run their State programs—they must do so in a way that accords with federally
imposed standards that advance federal goals, and they must enforce those federal standards
against the participants in the State program.

The Proposed Rule, therefore, commandeers State officials and agencies to police and
enforce federal TILA standards in a State-administered financial program. This violates the anti-
commandeering principle recognized in Printz and other cases. As the Supreme Court held in
Printz, “Congress cannot compel the States to enact or enforce a federal regulatory program.”
Printz v. United States, 521 U.S. 898, 935 (1997). Likewise, “Congress cannot circumvent that
prohibition by conscripting the State’s officers directly. The Federal Government may neither issue
directives requiring the States to address particular problems, nor command the States’ officers, or
those of their political subdivisions, to administer or enforce a federal regulatory program.” Id. In
such cases, “[i]t matters not whether policymaking is involved, and no case-by-case weighing of
the burdens or benefits is necessary; such commands are fundamentally incompatible with our
constitutional system of dual sovereignty.” Id.

The Supreme Court reaffirmed this principle in 2018. “We have always understood that
even where Congress has the authority under the Constitution to pass laws requiring or prohibiting
certain acts, it lacks the power directly to compel the States to require or prohibit those acts.”
Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461, 1476–77 (2018). “Congress may not
simply commandeer the legislative processes of the States by directly compelling them to enact
and enforce a federal regulatory program.” Id. at 1477 (citation omitted). “Where a federal interest
is sufficiently strong to cause Congress to legislate, it must do so directly; it may not conscript
state governments as its agents.” Id. (citation omitted).

These are not mere abstract technicalities. The anti-commandeering rule “serves as one of
the Constitution’s structural protections of liberty.” Id. (citation omitted). It preserves “[a] healthy
balance of power between the States and the Federal Government” and “reduces the risk of tyranny

6
and abuse from either front.” Id. (citation and alterations omitted). “Second, the
anticommandeering rule promotes political accountability. When Congress itself regulates, the
responsibility for the benefits and burdens of the regulation is apparent. Voters who like or dislike
the effects of the regulation know who to credit or blame. By contrast, if a State imposes
regulations only because it has been commanded to do so by Congress, responsibility is blurred.”
Id. “Third, the anticommandeering principle prevents Congress from shifting the costs of
regulation to the States.” Id. For all these reasons, the rule is central to the structure of federalism,
and the Bureau should not violate it here.

III. The Canon of Avoidance and the Supreme Court’s Clear-Statement Rules Require
an Interpretation of TILA That Forecloses the Proposed Rule.

For the reasons discussed above, see supra Part II, the Proposed Rule will be
unconstitutional if implemented for at least two reasons: it unconstitutionally interferes with the
exercise of State taxing authority, and it violates the anti-commandeering principle of Printz. A
fortiori, the Proposed Rule raises grave constitutional questions under both doctrines. For this
reason, TILA must be interpreted to foreclose the Proposed Rule.

TILA does not mandate that the Bureau adopt the Proposed Rule, or anything like it. To
be sure, Congress amended the ability-to-pay provision of TILA in 2018 to direct the Bureau to
consider applying ability-to-pay standards to PACE financing, but Congress also expressly
acknowledged the “unique nature” of such programs: “The Bureau shall prescribe regulations that
carry out the purposes of subsection (a) … with respect to Property Assessed Clean Energy
financing, which shall account for the unique nature of Property Assessed Clean Energy
financing.” 15 U.S.C. § 1639c(b)(3)(C)(ii) (emphasis added). The “unique nature” of PACE
financing includes the fact that it is State-administered and involves the exercise of State taxing
authority, which is categorically exempt from regulation by Congress. By the plain terms of the
statute, the Bureau may adopt regulations that avoid intruding on State prerogatives by
acknowledging the “unique nature” of such programs; and under the Constitution, the Bureau must
do so.

Indeed, under longstanding principles of constitutional avoidance, the Supreme Court “will
not be quick to assume that Congress has meant to effect a significant change in the sensitive
relation between federal and state … jurisdiction. In traditionally sensitive areas, such as
legislation affecting the federal balance, the requirement of clear statement assures that the
legislature has in fact faced, and intended to bring into issue, the critical matters involved in the
judicial decision.” United States v. Bass, 404 U.S. 336, 349 (1971). Thus, “unless Congress
conveys its purpose clearly, it will not be deemed to have significantly changed the federal-state
balance.” Id. “Where an administrative interpretation of a statute invokes the outer limits of
Congress’ power, we expect a clear indication that Congress intended that result.” Solid Waste
Agency of N. Cook Cnty. v. U.S. Army Corps of Engineers, 531 U.S. 159, 173 (2001) (“SWANCC”)
(citing Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Constr. Trades Council, 485
U.S. 568, 575(1988)). “This requirement stems from our prudential desire not to needlessly reach
constitutional issues and our assumption that Congress does not casually authorize administrative
agencies to interpret a statute to push the limit of congressional authority.” Id. at 172-73. “This
concern is heightened where the administrative interpretation alters the federal-state framework

7
by permitting federal encroachment upon a traditional state power.” Id. at 173 (emphasis added)
(citing Bass, 404 U.S. at 349). “[W]here an otherwise acceptable construction of a statute would
raise serious constitutional problems, the Court will construe the statute to avoid such problems
unless such construction is plainly contrary to the intent of Congress.” Id. (quoting DeBartolo,
485 U.S. at 575).

In fact, the Supreme Court applied this very principle in Lane County v. Oregon, which
raised the same constitutional problems as those at issue here. In Lane County, the federal statute
at issue mandated that federally issued paper notes “shall … be lawful money and legal tender in
payment of all debts, public and private, within the United States, except duties on imports.” 74
U.S. at 72 (emphasis added). Despite this categorical directive, the Court interpreted that the
federal statute did not apply to a tax debt owed to Oregon based on a tax that had to be paid in gold
or silver coin under Oregon law: “[I]t is not easy to see upon what principle the national legislature
can interfere with the exercise, to that end, of this [State taxing] power, original in the States, and
never as yet surrendered. If this be so, it is, certainly, a reasonable conclusion that Congress did
not intend, by the general terms of the currency acts, to restrain the exercise of this power in the
manner shown by the statutes of Oregon.” Id. at 77-78 (emphasis added).

Here, the case for applying the canon of avoidance to 15 U.S.C. § 1639c(b)(3)(C)(ii) is
even stronger than in Lane County, where the Supreme Court applied it. Here, the statute implicitly
acknowledges the constitutional problems associated with federal regulation of State PACE
financing by requiring the Bureau to “account for the unique nature of Property Assessed Clean
Energy Financing,” and requiring the Bureau only to regulate to achieve the “purposes” of the Act.
15 U.S.C. § 1639c(b)(3)(C)(ii). Therefore, there is an even stronger basis to interpret the text of
the statute in a manner that avoids presenting the grave constitutional problems associated with
the Proposed Rule. Issuing purely advisory guidelines for State PACE programs, for example,
would obviate many such issues. The Bureau should jettison the Proposed Rule as inconsistent
with the statute’s text, properly interpreted under principles of constitutional avoidance.

IV. The Bureau Can Readily Interpret the Statute and Fashion a Regulation That Avoids
These Constitutional Problems.

There are many ways the Bureau could interpret the statute and its rulemaking authority in
a manner that would avoid these constitutional and practical problems. We highlight some of them
here.

A. The Bureau is not authorized to regulate Commercial PACE.

First, the Bureau lacks statutory authority to regulate commercial PACE programs, or C-
PACE, which are in place in over 37 States and the District of Columbia. By its plain terms, the
statute limits the Bureau’s authority to Residential PACE or R-PACE programs, which exist in
only three States—Florida, California, and Missouri. See Dep’t of Energy, Property Assessed
Clean Energy Programs, supra. The Bureau should acknowledge this clear statutory limitation
on its jurisdiction.

8
 The statute provides that the Bureau “shall prescribe regulations that carry out the purposes
of subsection (a) … with respect to Property Assessed Clean Energy financing, which shall account
for the unique nature of Property Assessed Clean Energy financing.” 15 U.S.C.
§ 1639c(b)(3)(C)(ii). The statute defines “Property Assessed Clean Energy financing” to include
only residential PACE programs: “In this subparagraph, the term “Property Assessed Clean Energy
financing” means financing to cover the costs of home improvements that results in a tax
assessment on the real property of the consumer.” 15 U.S.C. § 1639c(b)(3)(C)(i) (emphases
added).

The plain meaning of this statutory definition demonstrates that the statute purports to
confer rulemaking authority on the Bureau only with respect to R-PACE programs, not C-PACE.
The definition applies only to financing of “home” improvements. Id. The word “home”
unambiguously refers to a residence, not a commercial property. See WEBSTER’S THIRD NEW
INTERNATIONAL DICTIONARY 1082 (2004) (defining “home” as “the house and grounds with their
appurtenances habitually occupied by a family : one’s principal place of residence : domicile,” and
“a private dwelling : house”) (emphasis added). The word “consumer” in the statute likewise
refers to individual borrowers, not commercial enterprises. Id. at 490 (defining “consumer” as
“one that consumes … specif : one that utilizes economic goods”).

This limitation makes perfect sense in light of the text and purposes of the underlying
statute. TILA’s ability-to-pay provisions are plainly designed to protect individual consumers of
residential mortgage loans, not commercial enterprises, from predatory lending practices. See 15
U.S.C. § 1639c(a)(1)-(4). For example, the ability-to-pay provisions apply only to “residential
mortgage loan[s],” id. § 1639c(a)(1) (emphasis added); and they require lenders to consider such
individual-borrower materials as “the consumer’s credit history, current income, expected income
… employment status, and other financial resources,” id. § 1639c(a)(3) (emphasis added). Plainly,
TILA’s ability-to-pay provisions encompass only residential mortgage loans made to individuals,
not commercial loans made to commercial enterprises. The scope of the Bureau’s regulatory
authority in subparagraph (C) does not encompass Residential PACE financing.

B. State oversight of PACE lending programs already serves the “purposes” of

TILA’s ability-to-pay provisions.

Subparagraph (b)(3)(C)(ii) directs the Bureau to adopt regulations that “carry out the
purposes” of TILA’s ability-to-pay provisions: “The Bureau shall prescribe regulations that carry
out the purposes of subsection (a) and apply section 1640 of this title with respect to violations
under subsection (a) of this section with respect to Property Assessed Clean Energy financing,
which shall account for the unique nature of Property Assessed Clean Energy financing.” 15
U.S.C. § 1639c(b)(3)(C)(ii) (emphasis added). Here, the Bureau should conclude that no further
federal regulation is needed, because State oversight of State PACE programs already serves the
borrower-protection “purposes” of TILA’s ability-to-pay provisions. Id.

State and local agencies that administer PACE programs are more local, closer to their
communities, and better situated than the CFPB’s federal bureaucracy to implement PACE
financing programs in the best interests of their constituents and borrowers. And the State and

9
local agencies already do so, without the need for a layer of federal oversight, government-upon-
government, to their efforts.

Florida’s program is typical. As the Florida PACE Funding Agency notes, that interlocal
agency already oversees all lenders in the PACE program and authorizes individual funding
projects: “The Florida PACE Funding Agency is the ‘authority’ that oversees the various ‘Program
Administrators’ that work with Homeowners to fund their home improvement projects.” Florida
PACE Funding Agency, About, supra. “Program Administrators are the companies that work
with Property owners to fund their improvement projects. The Florida PACE Funding Agency
(FPFA) oversees these companies and authorizes the funding for the projects.” Id. (emphasis
added). This oversight and approval process is far more effective than one-size-fits-all federal
regulation, because FPFA is an interlocal agency with close contacts with Florida communities
and close relationships with its approved PACE lenders. See id. (identifying only four approved
PACE lenders in Florida, two for C-PACE and two for R-PACE).

C. Residential PACE lending does not raise the same predatory-lending concerns
as residential mortgage loans because the debt runs with the property.

Further, the borrower-protecting “purposes” of TILA’s ability-to-pay provisions do not

apply in the same way to residential PACE financing, because PACE debt is not assigned to the
borrower, but runs with the property. This is a central feature of PACE programs, as the
Department of Energy recognizes: “PACE programs allow a property owner to finance the up-
front cost of energy or other eligible improvements on a property and then pay the costs back over
time through a voluntary assessment. The unique characteristic of PACE assessments is that the
assessment is attached to the property rather than an individual.” U.S. Dep’t of Energy, Property
Assessed Clean Energy Programs, supra (emphasis added). As noted above, Florida’s PACE
program typifies this feature of PACE lending: “Because the assessment is attached to the property,
rather than the owner of the property, if the property owner sells the property before the assessment
is paid off, the balance of the assessment remains with the property. The assessment can transfer
to the new owner without any need to approve the purchaser of the property.” Florida PACE
Funding Agency, About, supra. The necessary consequence of this financing structure—an
assessment collected by the State taxing authority that is “attached to the property, not to the
individual,” id.—is that individual borrowers are shielded from the most dire consequences of
imprudent residential home mortgages, such as balloon payments, changing interest rates, and
aggressive foreclosure. See id.

R-PACE financing is thus already consumer-friendly and provides robust protections for
borrowers. In Florida, “[t]here are no adjustments to interest rates and no balloon payments.” Id.
“PACE assessments can be prepaid at any time and R-PACE does not have any prepayment fees.”
Id. “PACE … makes it easy for property owners to make improvements to their home by
eliminating upfront cash payments, providing competitive interest rates spread out over time, and
allowing property owners to transfer repayment obligations to a new owner upon sale.” Id. And,
perhaps most importantly, the lender’s recourse in cases of non-payment or late payment is limited
to the consequences of late or non-payment of property tax: “Nonpayment generally results in the
same set of repercussions as the failure to pay any other portion of a property tax bill.” U.S. Dep’t
of Energy, Property Assessed Clean Energy Programs, supra. The Bureau should conclude that

10
these features of PACE already adequately advance “the purposes of subsection (a),” 15 U.S.C.
§ 1639c(b)(3)(C)(ii), and no further federal regulation is warranted—especially in light of the
grave constitutional problems that it would raise.

V. The Proposed Rule Is Arbitrary and Capricious, Unconstitutional and Unlawful

Under the Administrative Procedure Act.

The APA provides that a reviewing court may “hold unlawful and set aside agency action,
findings, and conclusions found to be—(A) arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or
immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory
right; [or] (D) without observance of procedure required by law….” 5 U.S.C. § 706(2)(A)-(D).
As discussed further herein, the Proposed Rule violates all these provisions.

First, the Proposed Rule is “arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A). “The APA ‘sets forth the procedures by which
federal agencies are accountable to the public and their actions subject to review by the courts.’”
Dep’t of Homeland Sec. v. Regents of the Univ. of California, 140 S. Ct. 1891, 1905 (2020)
(quoting Franklin v. Massachusetts, 505 U.S. 788, 796(1992)). “It requires agencies to engage in
‘reasoned decisionmaking,’” id. (quoting Michigan v. EPA, 576 U.S. 743, 750 (2015)), and it
“directs that agency actions be ‘set aside’ if they are ‘arbitrary’ or ‘capricious,’” id. (quoting 5
U.S.C. § 706(2)(A)). An agency’s decision must be “based on a consideration of the relevant
factors” and not entail “a clear error of judgment.” Id. (quoting Citizens to Preserve Overton Park,
Inc. v. Volpe, 401 U.S. 402, 416 (1971)). “Fail[ing] to consider … important aspects of the
problem” renders agency action arbitrary and capricious. Id. at 1910 (quoting Motor Vehicle Mfrs.
Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983)).

One “important aspect of the problem” is the State-administered character of PACE

financing. See supra. The Bureau may not fail to consider this unique character of PACE
financing; to do so would be arbitrary and capricious. See id. at 1914 (holding that DHS’s failure
to consider the impact of cancelling DACA on “State and local governments” was arbitrary and
capricious).

Second, the Proposed Rule is “contrary to constitutional right, power, privilege, or

immunity.” 5 U.S.C. § 706(2)(B). For the reasons stated above, the Rule both purports to regulate
the exercise of State taxing authority in violation of the Tenth Amendment, and impresses State
agencies to enforce federal regulatory standards in violation of the anti-commandeering principle.

Third, the Proposed Rule is “in excess of statutory jurisdiction, authority, or limitations, or
short of statutory right.” 5 U.S.C. § 706(2)(C). As discussed above, properly interpreted consistent
with principles of constitutional avoidance, the statute does not authorize the Bureau to exercise it
regulatory in this fashion.

Fourth, the Proposed Rule is being adopted “without observance of procedure required by
law.” 5 U.S.C. § 706(2)(D). As discussed further below, the Bureau has not complied with the
mandatory-consultation provisions of 15 U.S.C. § 1639c(b)(3)(C)(iii)(II). This mandatory

11
consultation with State and local government agencies is a “procedure required by law,” 5 U.S.C.
§ 706(2)(D), and the Bureau’s failure to observe the procedure entails that the Rule should be “set
aside” under the APA. Id. § 706(2).

VI. The Proposed Rule frustrates Congressional Intent by Creating Barriers to

Participation

Further, the Bureau’s interpretation of TILA’s ability-to-pay provisions would frustrate the
Congressional intent for participation in PACE programs. See Japan Whaling Ass'n v. Am.
Cetacean Soc'y, 478 U.S. 221, 240 (1986) (“We conclude that the Secretary's construction of the
statutes neither contradicted the language of either Amendment, nor frustrated congressional
intent.”); Lansing Dairy v. Espy, 39 F.3d 1339, 1351 (6th Cir. 1994) (“Because we cannot find the
plain language of the statute to be unambiguous, we must defer to the Secretary's interpretation,
unless we find that this interpretation ‘frustrates the policy that Congress sought to implement.’”)
(quoting Fed. Election Comm'n v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 32, 102
S. Ct. 38, 42 (1981)). Because the proposes rule infringes on states’ sovereign powers, they are
less likely to participate in the program and provide benefits to their citizens.

States, such as Louisiana [other coastal; states], would benefit immensely from greater
participation in PACE programs. Hurricane Katrina in 2005 caused over $100 billion of damage
in Louisiana. Hurricane Laura in 2020 caused an estimated $17.5 billion of damage in Louisiana.
And Hurricane Ida in 2021 caused an estimated $55 billion in damage in Louisiana. Families is
Louisiana and other states are still struggling to recover from these disasters and the proposed rule
would only slow that recovery.

Indeed, the proposed rule’s disincentives for states to participates will have a
disproportionate impact on low-income families. 1 Many communities lack the capacity to invest
in basic infrastructure and their aging housing stocks, leaving homeowners vulnerable to high
energy costs and the threat of severe weather conditions. Construction costs are up in recent years,
resulting in higher project costs, making it difficult for homeowners to afford the home upgrades
necessary to strengthen their homes and make them more energy efficient. With many Americans,
facing credit barriers, R-PACE programs help homeowners from all walks of life access affordable
financing for improvements that make their homes safer, stronger and more efficient. A recent
paper from the Kleinman Center for Energy Policy at the University of Pennsylvania notes, in the
C-PACE, context that: “The low-cost financing of C-PACE loans for energy efficiency upgrades
offers a sustainable method to reduce utility payments among low- and moderate-income families
and mitigate energy burden in Philadelphia.” 2

1
https://counterpointesre.com/2023/02/1224/; https://www.politico.com/sponsor-content/2022/11/01/residential-
pace-is-expanding-access-to-credit-and-capital-for-homeowners
2
https://kleinmanenergy.upenn.edu/wp-content/uploads/2023/03/KCEP-Digest-Addressing-Energy-Security-
Philadelphia.pdf

12
VII. The Bureau Should Stay its Hand and Permit the States To Fashion State-Specific
Solutions to Consumer-Protection Issues Arising from PACE Lending Programs.

Finally, the record before the Bureau strongly counsels that the Bureau should stay its hand
and permit the States to devise consumer-protection solutions in this novel, emerging area that fit
local needs. The Bureau’s own record indicates that the States are already doing just that. As
Justice Brandeis wrote almost a century ago:

To stay experimentation in things social and economic is a grave responsibility. Denial of

the right to experiment may be fraught with serious consequences to the nation. It is one of
the happy incidents of the federal system that a single courageous state may, if its citizens
choose, serve as a laboratory; and try novel social and economic experiments without risk
to the rest of the country.

New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting). The Bureau
should heed the ageless wisdom of this observation here.

For several reasons, the circumstances here strongly favor having the Bureau stay its hand
and permit States to respond to the issues at stake in the first instance. First, R-PACE is a novel,
emerging area of consumer finance. As the Bureau observes, only a few States have active
programs, but many States have implementing legislation that puts them in a position to adopt
them: “In 2008, California passed Assembly Bill no. 811 to enable the first PACE programs. The
Bureau is aware of 19 States plus the District of Columbia that currently have enabling legislation
for residential PACE financing programs, but only a small number of states have had active
programs, primarily California, Florida, and Missouri.” 88 Fed. Reg. 30,389. Heavy-handed
federal regulation will give a disincentive to States who have legal authorization to implement
PACE lending programs, but have not yet implemented them, to enter this arena in the first place.

Second, any consumer-protection issues in this area are smaller scale than in other, more
pressing areas, because the novel, emerging nature of residential PACE lending means that it
affects fewer consumers nationwide than more traditional predatory-lending concerns. See id. As
the Bureau reports:

During the early years of PACE financing, lending activity appears to have been relatively
limited, with cumulative obligations of around $200 million through 2013. In 2014, PACE
financing activity accelerated, reaching peak production in 2016 with over $1.7 billion in
investment. This level of activity was maintained in 2017, but it declined between 2018
and 2021, with an average investment of $769 million per year during those years.[10]
Overall, as of December 31, 2021, the PACE financing industry had financed 323,000
home upgrades, totaling over $7.7 billion.

Id. Moreover, because only three States currently have active R-PACE programs—California,
Florida, and Missouri—any consumer-protection issues are concentrated in those three States. Id.;
see also id. at 30,429 (“[C]urrently, only small governments in California, Florida, and Missouri
would be directly impacted by the proposed rule in any meaningful way because they are the only
States with active PACE programs.”). No problems of nationwide scale present themselves when

13
the programs under regulation exist in only three out of fifty, or six percent, of States. Highlighting
the narrower scale of the problem is the CFPB’s admission that, in eight years, it has received only
50 consumer-protection complaints relating to PACE financing, almost exclusively from two
States: “Since 2015, the CFPB has received over 50 complaints related to PACE financing,
primarily from consumers in California and Florida.” Id. at 30,890.

Third, the Bureau’s own record indicates that States are responding to consumer-protection
issues related to PACE lending in their own States in a manner that reflects local concerns. These
responses are happening through state-level regulation, administration, and litigation. For
example, the Bureau reports that “[i]n August 2019, Renovate America, Inc. (Renovate), a major
PACE company at the time, reached a $4 million settlement with six counties and one city in
California.” Id. “Subsequently, in June 2021, the California State PACE regulator moved to
revoke Renovate’s Administrator license, required to operate a PACE company in the State, after
finding that one of its solicitors repeatedly defrauded homeowners in San Diego County.” Id.
“Renovate ultimately consented to the revocation.” Id. This record reflects that State courts, State
consumer-protection laws, and State regulators are engaging in a timely, effective response to
consumer-protection concerns occurring at the State level.

State legislatures are also fully capable of responding to State-level problems and
protecting their own consumers in this area, as California demonstrates. As the Bureau observes,
California has repeatedly amended its State PACE legislation to address consumer-protection
concerns. “Since 2008, California has passed several laws to add and adjust consumer protections
for PACE programs, with major additions in a series of amendments that took effect around 2018
(collectively, 2018 California PACE Reforms).” Id. at 30,391. “Current California law requires
that, before executing a PACE contract, PACE administrators must make a determination that the
consumer has a reasonable ability to pay the annual payment obligations based on the consumer's
income, assets, and current debt obligations.” Id. “Additionally, California law requires, among
other protections, financial disclosures prior to consummation; a three-day right to cancel, which
is extended to five days for older adults; mandatory confirmation-of-terms calls; and restrictions
on contractor compensation.” Id. “California law also imposes certain financial requirements for
consumers to be eligible for PACE financing, including that consumers must be current on their
property taxes and mortgage and generally not have been party to a bankruptcy proceeding within
the previous four years.” Id. “There is also a maximum permissible loan-to-value ratio for PACE
financing under California law.” Id. California law exempts government agencies from some of
these requirements.” Id.

In addition to substantive protections in legislation, States are also capable of providing

extensive regulatory oversight to PACE programs to respond to consumer-protection concerns.
As the Bureau recognizes, “As part of the 2018 California PACE Reforms, California significantly
increased the role of what is now called California’s Department of Financial Protection and
Innovation (DFPI).” Id. “In 2019, the DFPI began licensing PACE administrators and
subsequently promulgated rules implementing some of California's statutory PACE provisions,
which became effective in 2021.” Id. “DFPI also has certain examination, investigation, and
enforcement authorities over PACE administrators, solicitors, and solicitor agents.” Id. “PACE
administrators must be licensed by the DFPI under the California Financing Law. They must also
establish and maintain processes for the enrollment of PACE solicitors and solicitor agents,

14
including training and background checks.” Id. “PACE administrators are required to annually
share certain operational data with DFPI.” Id. “DFPI compiles the data in annual reports on PACE
lending in California, which provide aggregated information on PACE loans, PACE administrators
and solicitors, and consumer complaints.” Id.

Responding to its own local, State-specific concerns, Florida has provided a different but
no less thoughtful approach—again, as the Bureau’s own comments acknowledge. “Florida
authorized PACE programs in 2010 to finance projects related to energy conservation and
efficiency improvements, renewable energy improvements, and wind resistance improvements.”
Id. “The authorizing legislation imposes certain financial requirements to be eligible for PACE
financing, including that consumers must be current on their property taxes and all mortgage debts
on the property.” Id. “It also includes a maximum loan-to-value ratio and requires a short general
disclosure about PACE assessments.” Id. “Additionally, Florida law requires that the property
owner provide holders or servicers of any existing mortgages secured by the property with notice
of their intent to enter into a PACE financing agreement together with the maximum principal
amount to be financed and the maximum annual assessment necessary to repay that amount.” Id.

Missouri, too, has amended its own PACE legislation in a State-specific manner to address
consumer-protection concerns. As the Bureau itself recounts, “Missouri authorized PACE
programs in 2010 to finance projects involving energy efficiency improvements and renewable
energy improvements.” Id. “In 2021, Missouri enacted new legislation imposing certain consumer
protection requirements for PACE transactions.” Id. “The law currently requires clean energy
development boards (the government entities offering PACE programs) to provide a disclosure
form to homeowners that shows the financing terms of the assessment contract, including the total
amount funded and borrowed, the fixed rate of interest charged, the APR, and a statement that, if
the property owner sells or refinances the property, the owner may be required by a mortgage
lender or a purchaser to pay off the assessment.” Id. “It also requires verbal confirmation of
certain provisions of the assessment contract, imposes specific financial requirements to execute
an assessment requirement, and provides for a three-day right to cancel.” Id. Missouri’s “2021
legislation also limited the term, amount of financing, and total indebtedness secured by the
property and required the clean energy development board to review and approve assessment
contracts.” Id. These changes are already in effect: “The new requirements became effective
January 1, 2022.” Id.

State legislatures and agencies are not the only important actors fashioning responses to
consumer-protection concerns in this area. Industry lenders are engaged in self-regulation as well.
“In addition to consumer protections mandated by State governments, in November 2021, the
national trade association that advocates for the PACE financing industry announced voluntary
consumer protection policy principles for PACE programs nationwide.” Id. “According to the
trade association, the 22 principles are designed to establish a national framework for enhanced
accountability and transparency within PACE programs and to offer greater protections for all
consumers, as well as additional protections for low-income homeowners, based on stated income,
and those over the age of 75.” Id. “They include provisions relating to ability-to-pay, financing
disclosures, a right to cancel, and foreclosure-avoidance protections, among others.” Id.

15
 Given this robust, State-specific response, it is wholly unclear why the Bureau believes a
federal one-size-fits-all regulation is needed—unless the Bureau views its role as imposing
California’s standards on the whole nation, which contradicts Justice Brandeis’s oft-cited guidance
in New State Ice Co. v. Liebmann, cited above. This is especially true where, as here, “[s]ome
government sponsors expressed concern that Federal regulation could negatively impact PACE
programs, and that the CFPB should not apply TILA’s ATR provisions or other consumer
protections to PACE financing,” and “[s]everal State and local entities also informed the CFPB
that consumer complaints had declined significantly in recent years.” Id. at 30,394.

The Bureau admits that PACE is a fledgling, emerging industry that could easily be stifled
by federal regulation. As the Bureau states, “the PACE market is still relatively new and evolving.
… PACE has only existed for 15 years, and State PACE authorizing statues have been amended
in a number of ways since the product originally emerged.” Id. at 30,414. Yet the Bureau draws
precisely the wrong conclusion from these observations—i.e., that the “new and evolving” nature
of the industries, and the robust responses of State regulators, counsel for greater federal
regulation, not less. Id. The opposite is true—the Bureau should stay its hand and allow the States
to function as laboratories of democracy in this novel, rapidly evolving area.

For all these reasons, the Bureau should jettison the Proposed Rule in toto.

Sincerely,

Jeff Landry Austin Knudsen

Attorney General of Louisiana Attorney General of Montana

Mike Hilgers Dave Yost

Attorney General of Nebraska Attorney General of Ohio

Lynn Fitch Drew Wrigley

Attorney General of Mississippi Attorney General of North Dakota

16
 Sean D. Reyes
Alan Wilson
Attorney General of Utah
Attorney General of South Carolina

17