On August 7, 2024, the CFPB published an Issue Spotlight on the solar lending industry. In conjunction with the CFPB’s Issue Spotlight, the CFPB, U.S. Department of Treasury, and the Federal Trade Commission also issued a Consumer Advisory in connection with solar energy sales. All of this comes on the heels of states increasing scrutiny of solar sales practices.
CFPB Issues Spotlight on Solar Lending Industry
The CFPB’s Issue Spotlight examines solar loans facilitated by large financial technology companies via a point-of-sale partnership with solar installers. As quoted by an accompanying press release, Director Chopra said “[t]he CFPB is closely scrutinizing solar lenders to make sure that Americans don’t get burned.” The Issue Spotlight highlights the rapid growth of the residential solar energy market. In 2023, 58 percent of consumers financed solar installations.
The CFPB identified four areas of significant consumer risk: (1) hidden markups and fees; (2) misleading claims about what consumers will pay; (3) ballooning monthly payments; and (4) exaggerated savings claims.
Hidden Markups and Fees
The CFPB found that lenders include fees such as “dealer fees,” “platform fees,” “program fees,” “lending fees,” “financing fees,” or “original issue discounts,” in the loan principal but do not indicate that these fees are a markup from the total cash price. Lenders do not typically include the fees in the total cost of credit presented to the consumer and salespeople do not explain the difference between the cash price and the loan principal. The CFPB also found that salespeople do not explain the difference between the cash price and the loan principal.
Misleading Claims
The Issue Spotlight found that sales pitches promote and assume the benefit of a federal tax credit. Marketing materials also assume that the consumer is automatically eligible for the tax credit, deduct the amount from the total loan amount, and present the figure to the consumer as the “net cost” of the solar system. The CFPB indicated that incorporating the federal tax credit into the marketing materials and loan documents gives a misleading impression of the overall price. The CFPB found that lenders present the actual principal amount in small, light-colored font, while presenting the “net system cost” taking into account the federal tax credit in large, bold font. Disclaimers regarding tax credits are often found in the fine print of consumer agreements or footnotes in advertisements. The disclaimers may not be obvious enough for consumers to notice. The CFPB also indicated that promising tax savings is problematic because lenders and installers do not know the consumer’s tax liability; the credit is not issued until the consumer actually files a tax return, and the tax credit may not be fully realized if the consumer owes other tax liabilities.
Misrepresenting Prepayment Amounts
The CFPB found that solar lenders structure loans so that the monthly payments increase unless the borrower prepays a share of the loan principal, typically 30 percent—the presumptive amount of the federal tax credit. The CFPB found that the prepayment requirement was a surprise to many consumers. Consumers that do not receive the federal tax credit or do not have the ability to pay for the prepayment face large increases to monthly payments and are unable to prevent higher payments from re-amortizing. In addition, the CFPB found that the prepayment requirement was not clearly discussed at the time of signing the loan documents, and that the digital nature of the sales process increased the likelihood that salespeople may guide consumers past these sections.
Exaggerated Savings Claims
The CFPB found that solar installers misrepresent the future cost of energy and overestimate the amount of electricity that the solar panels will produce. Lastly, the CFPB found misleading statements and marketing materials regarding financial benefits, such as representations that the solar panels will cover the cost of financing and eliminate future energy bills.
Other Population-Specific Risks
The CFPB found that the sales practices impact older adults or those who have limited English proficiency. Some sales pitches target consumers in their preferred language but then provide the solar purchase contract only in English.
Additional Regulatory Agency Focus
The CFPB, U.S. Department of Treasury, and the Federal Trade Commission (the “Agencies”) Consumer Advisory warns consumers to be wary of solar energy sales companies resorting to predatory contracts, including unfair financing, and failing to install or activate residential solar systems as promised.
“Expanded access to affordable, reliable residential solar is crucial for lowering energy costs and providing meaningful benefits for Americans,” the Agencies said. “Residential solar power can save households tens of thousands of dollars in electricity expenses over the life of the solar installation.”
The Agencies added that Americans should be able to benefit from state and federal incentives to gain access to solar power in their homes without fearing unfair or deceptive practices. The Agencies encourage consumers to file complaints with the CFPB, FTC, or state attorney general.
States have increased scrutiny of solar energy financing and sales practices as well. Earlier this year the Minnesota Attorney General sued several solar lenders for violations of the Minnesota Prevention of Consumer Fraud Act and the Uniform Deceptive Trade Practices Act. The Minnesota AG’s complaint parallels many of the risks highlighted in the Issue Spotlight. Specifically, the Minnesota AG alleges that solar lenders were charging hidden dealer/platform fees, which increased the costs to borrowers between 15 – 30 percent. The complaint criticizes these fees not being included in sales proposals or lending disclosures. The complaint alleges consumers were not made aware that they could pay less if they paid in cash or financed through a different lender.
Solar lenders and contractors should take a close look at their consumer agreements, disclosures, and sales practices to ensure compliance with federal and state lending laws.
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