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Missouri Lawmakers Approve Reforms To Controversial Clean-Energy Loan Program

Dawline-Jane Oni-Eseleh for ProPublica

This story was originally published by ProPublica.

A legislative measure that would add consumer protections and oversight to programs that make high-interest “clean energy” loans in Missouri will go to the governor for his signature, after the state House on Wednesday voted overwhelmingly to pass it. A ProPublica investigation found the programs disproportionately burden borrowers in predominantly Black neighborhoods.

The House voted 137-12 on the proposal, with two members voting “present.” The Senate passed the bill May 4.

The measure would require that residential Property Assessed Clean Energy programs be reviewed by the state Division of Finance at least every other year. Currently, PACE programs have to submit annual reports to the state, but ProPublica’s investigation found there was little oversight.

The bill would also require PACE programs to provide residential borrowers with complete information about the potential impact of their loan, including a notice that their home could be sold in a tax sale if they fail to repay the loan.

The bill’s House sponsor, Rep. Bruce DeGroot, a Republican from the St. Louis suburb of Chesterfield, said Gov. Mike Parson’s office has told him he will sign the bill. A Parson spokeswoman did not respond to a request for comment.

PACE programs provide financing for energy-efficient home improvements such as heating and cooling systems and solar panels, and they require borrowers to repay their loans in their property taxes. ProPublica found that lenders in Missouri charge high interest rates and enforce those debts through liens, leaving many borrowers at risk of losing their homes.

The loans, ProPublica found, carry a median annual percentage rate of 10% and can stretch to 20 years, burdening some borrowers with interest and fees that sometimes exceed the cost of the project — or even what local government appraisals say the homes are worth.

ProPublica’s analysis found that more than 100 homes with PACE loans in metropolitan Kansas City and St. Louis were at risk of being sold at public auctions after their owners fell at least two years behind on payments. Of those, at least 29 were slated for auction this year. ProPublica found that 28% of borrowers in predominantly Black neighborhoods were at least one year behind in repaying their PACE loans, compared with 4% in mostly white areas. Borrowers in predominantly Black neighborhoods also paid a larger share of their home value toward interest and fees than borrowers in mostly white neighborhoods.

The bill would prevent some of the lopsided loan-to-value ratios that ProPublica highlighted by requiring PACE programs to base loans on appraisals from local governments. That would curtail the availability of PACE to the owners of homes with especially low property values. Many lenders rely on private appraisers, whose valuations often are higher.

DeGroot said on the House floor that he had been accused of sponsoring the bill on behalf of banks, who are paid after PACE lenders in the event of a mortgage foreclosure. “It’s the consumers in the state of Missouri, our constituents,” he said. “Those are the special interests that I’m proud to be helping today.”

An earlier version of the bill would have given the state finance director authority to investigate PACE programs and file charges against them. But to win broader support, DeGroot agreed to changes that weakened the Finance Division’s ability to investigate, though he insisted the state could still conduct oversight of the program.

Rep. Doug Clemens, a Democrat from the St. Louis suburb of St. Ann, was one of about three dozen state representatives who voted against the earlier version and changed their votes to support it after DeGroot agreed to compromises.

Clemens noted that both supporters of tougher and lighter PACE oversight were unhappy with the bill, “which makes it perfect, in my opinion.”

Officials with the two lenders that control Missouri’s PACE market did not respond to requests for comment. The company with the largest share of PACE loans in St. Louis, Ygrene Energy Fund, declined to comment last week on the legislation. David Pickerill, executive director of the Missouri Clean Energy District, which largely operates in the Kansas City area and in St. Charles County outside St. Louis, said last week that tying PACE loans to the government appraisals would make more potential borrowers ineligible for loans.

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