How Missouri can protect its residential PACE Program from bad actors

In 2010 Missouri became the third state to pass a residential version of the Property Assessed Clean Energy Program known as PACE. Since its passage, the program, and the potential to take advantage of vulnerable populations, has grown each year.

Simply put, PACE is a program in which homeowners, who often do not have the ability to take out a traditional loan to pay for energy efficient improvements to their property, are able to finance through an assessment on their property which they pay back over time through their property taxes. Like property taxes, the loan is paid directly to the county collector. In effect, the county collector has become a collection agent for private companies.

Traditional loans share risk of the ability to repay between the loan provider and the person taking out the loan. PACE uses the power of the government, in the form of a super lien, to collect these private debts the same way property taxes are collected. Without the need for a real form of collateral, PACE providers have the ability to be made whole without a verifiable ability to repay from borrowers.

California and Florida, the other two states who have passed residential PACE, have seen numerous instances of fraud related to their programs. For example, the Los Angeles Times wrote “unscrupulous contractors frequently signed up borrowers with loans they neither understood nor could afford.” Furthermore, the National Consumer Law Center has railed against PACE lenders exploitation of vulnerable consumers “selling unnecessary and unwanted home improvements, at times with little connection to deep energy savings, through misrepresentation and in some cases outright fraud.”

In Missouri for example, county collectors from across the state are already fielding many complaints from consumers that feel they were tricked into what they believed to be a government program. Greene County Collector Leah Betts shared one story of a consumer who was sold solar panels from a PACE lender. On a property with an appraised value of $27,100, the homeowner’s tax bill more than quadrupled from $282 to $1,210.44. This amount will remain constant until 2037 accruing interest at a rate of 9.92 percent. For comparison, traditional home equity loans are typically issued at a rate around 4 percent.

Lydia McEvoy, the Clay County Collector, provided examples of abuses in a sunshine request at the end of 2018. Among them was the story of non-English speaker who was sold $25,256 of solar panels on a $102,000 home. This taxpayer’s bill also quadrupled from approximately $1,000 to more than $4,500. According to McEvoy’s notes, “after the solar panels did not work, the taxpayer tried to remove them, thinking she could get out of her loan.”

In written testimony provided to the House Financial Institutions Committee in February McEvoy wrote, “In my opinion, the only reason the Attorney General has not yet had complaints is that this group preys on populations that will not report (poverty, non-English speakers, elderly, etc.), and because the actual use of the program is too new in Missouri. They absolutely will hurt the wrong person, probably sooner rather than later, and will not be able to avoid bad publicity because their business practices are so terrible.”

While the use of residential PACE in Missouri is around $30 million, California’s program, which has huge instances of fraud, had over $1 billion in PACE loans in 2017 alone. Two private companies that have the largest number of allegations of fraudulent acts, Renovate America and Ygrene Energy both testified against PACE consumer protections in Missouri in February, and have expanded their presence in Missouri.

The National Consumer Law Center has a multitude of examples from California. In one example it cites, Renovate America provided a PACE contract for solar panels worth $22,000 and $49,000 to an elderly woman “with cognitive impairment and dementia” who could not pay for the increased tax assessment “on her social security income.”

In another example, Ygrene entered into a PACE contract for a new roof and windows valued at more than $34,000. The consumer, who is now in a lawsuit against Ygrene, alleged that they did not have the information disclosed to them and, because of an interest rate of 8.25 percent over a 20-year term they will “actually pay a total of $71,154.” To make matters worse, “when homeowners attempted to refinance their home they were told that they could not do so until they fulfilled the loan and paid a prepayment penalty, which they could not afford to do.” This example highlights how many homeowners have been deceived by companies suggesting exaggerated savings on their monthly electric bills which simply never materialize.

Residential PACE is becoming a serious issue in Missouri. It originally became law with no House hearings and limited debate after a Democrat lawmaker added it to an omnibus bill on the second to last day of session. The PACE program highlights the hypocrisy of the left pushing the promotion of clean energy at the expense of the vulnerable populations they claim to champion. As Republicans who favor smaller government, we recognize the need for consumer protection disclosures that allow for greater consumer information to create a true marketplace.

While this legislator typically avoids supporting government regulation of business, this case is an egregious example of companies taking advantage of the poor, the aged, and illiterate under the guise of a government program. Because of this, regulation of this industry is necessary.

As the legislative session reaches its final months HB 215 and SB 173 are deserving reforms that need the full consideration and support from both sides of the aisle. If these consumer protection reforms are not passed into law the question will not be whether if Missouri’s most vulnerable citizens are being exploited, but instead why is the legislature allowing it to continue.