By Summer M. Bosse
On August 5, 2021, the Office of Administrative Law (OAL) approved regulatory action PRO 02/17 from the Department of Financial Protection and Innovation (DFPI), which amends various sections in Subchapter 6 of Title 10, Chapter 3 of the California Code of Regulations (CCR) to establish a regulatory scheme for PACE program administrators in an effort to prevent and curtail unscrupulous business practices related to the financing of clean energy home improvements. On July 7, 2021, DFPI issued its fifth notice of modifications and modified text. The 15-day public comment closed on July 22, 2021. In DFPI’s final statement of reasons, the Department responds to the single public comment received and notes that the amendments make various grammatical changes and changes to cited references and authority listed in the regulation.
This rulemaking action facilitates the Nationwide Multistate Licensing System & Registry (NMLS) transition for California Financing Law applicants and licensees, and adopts requirements for Property Assessed Clean Energy (PACE) Program Administrators. [26:2 CRLR 261]. This rulemaking action implements AB 1284 (Dababneh) (Chapter 475, Statutes of 2017), which requires a program administrator that administers the PACE program on behalf of a public agency to be licensed by the Commissioner under the California Financing Law. Through these regulatory proposals, DFPI intends to strengthen consumer protections, prevent consumer default, and curtail the fraudulent activity of deceitful PACE businesses.
According to the initial statement of reasons, these regulations are intended to “enhance consumer protections and government oversight in the PACE market.” This rulemaking action is extensive, as the text of the final rule amends and adopts over 40 code sections. The amended code sections of Title 10 are as follows: 1404, 1408, 1409, 1409.1, 1411, 1422, 1422.4, 1422.4.5, 1422.5, 1422.5.1, 1422.6.2, 1422.9, 1422.10, 1422.12, 1423, 1424, 1425, 1426, 1437, 1550, 1552. The amended sections primarily deal with the changes to licensing procedures regarding the NMLS. The code sections adopted include: 1620.01, 1620.02, 1620.3, 1620.05, 1620.6, 1620.07, 1620.08, 1620.10, 1620.11, 1620.12, 1620.13, 1620.14, 1620.15, 1620.16, 1620.17, 1620.19, 1620.21, 1620.22, 1620.25, 1620.27, 1620.28, and 1620.29. These adopted sections set requirements for PACE Program administrators.
According to the initial statement of reasons, the NMLS is an online licensing system developed and operated by State Regulatory Registry LLC. Prior to October 1, 2021, DFPI required mortgage lenders, mortgage servicers, mortgage brokers, mortgage loan originators, program administrators, and student loan servicers to apply for California Financing Law (CFL) licenses through the NMLS. Those licenses not administered through NMLS were done through the DFPI and resulted in paper filings. Through this rulemaking action and pursuant to section 1422.4(b)(2), DFPI now requires that all finance lenders and brokers applying for licensure on or after October 1, 2021, and all applications, reports, notices, related filings, renewals, authorizations, and fees required to be filed with the Commissioner, must be filed electronically with and transmitted to NMLS, except as otherwise indicated in the subchapter. This modernizes the licensing process by increasing electronic filings, streamlining the licensing process, and reducing paper waste. The roughly 40-page application for licensure has also been updated. Section 1422 details who is now required to obtain a license under the CFL through the NMLS.
In regard to the rulemaking effect on PACE programs, the initial statement of reasons indicated that “[t]his rulemaking action amends and enacts rules to implement AB 1284 and addresses the practices in the marketplace that were the impetus for the bill.” AB 1284 requires the program administrators to comply with the licensure requirements that a finance lender or broker must adhere to under the CFL. Program administrators are the private equity entity that administers a PACE program on behalf of a public agency to be licensed by the Commissioner of DFPI. These requirements include the obligations of a program administrator (section 1620.03); the prohibition of false or misleading statements and unfair business practices (section 1620.10); and the submission of an annual report (section1620.19). The annual report must be submitted by March 15, 2022 and the reported data must include the “number of tax sales or foreclosures that were reported to the program administrator during the prior calendar year on property subject to a PACE assessment initiated by the public agency, a program administrator, or any other person,” as well as a detailed report on PACE assessments that are over 12 months delinquent on payments.
These regulatory changes went into effect on October 1, 2021.