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On February 12, the U.S. District Court for the Middle District of Florida upheld the CFPB's final rule applying mortgage-style requirements to Residential Property Assessed Clean Energy (PACE) financing, rejecting a trade association's challenge under the Administrative Procedure Act and the Tenth Amendment.
The CFPB finalized its Pace Rule in December 2024 (previously discussed here) to implement Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended the Truth in Lending Act (TILA) to require the Bureau to apply the statute's ability-to-repay and related civil liability provisions to PACE financing. The rule amended Regulation Z to treat voluntary PACE assessments as "credit," thereby subjecting PACE transactions to TILA, certain provisions of the Real Estate Settlement Procedures Act (RESPA), and the SAFE Act.
In its decision, the court concluded that PACE financing constitutes "credit" under TILA because it arises from a voluntary contractual financing arrangement, even though repayment is collected through property tax assessments. The court further determined that Section 307 did not limit the Bureau to applying only the ability-to-repay provisions and that the CFPB acted within its broader TILA rulemaking authority in extending additional mortgage-related requirements to PACE transactions. The court also rejected arguments that the rule was arbitrary and capricious, finding that the Bureau reasonably relied on its 2023 PACE Report and sufficiently addressed criticisms of its methodology and data. The court dismissed the Tenth Amendment challenge, concluding that the rule regulates voluntary consumer credit transactions rather than state taxation and does not impermissibly commandeer state or local governments.
Putting It Into Practice: This decision removes a major litigation overhang for the CFPB's Residential PACE rule as the March 1, 2026 effective date approaches. Market participants should begin to update compliance programs as necessary.
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