On August 7, 2024, the CFPB issued an issue spotlight finding that some residential solar lenders are misleading homeowners about the terms and costs of their loans, misrepresenting the energy savings they will deliver, and cramming markup fees into borrowers’ loan balances. The report describes how fees often increase loan costs by 30% or more above the cash price, and that lenders often misrepresent the impact of the federal tax credit for solar installations.
According to the CFPB’s research, the market for residential solar energy systems continues to grow rapidly. Subsequently, the rapid rise of nonbank lenders partnered with solar salespeople into the solar market is also raising the potential for illegal behavior and consumer harm. In its latest Issue Spotlight, the CFPB has identified four areas of significant risks in solar lending which include the following:
Hidden markup fees. Lenders add hidden fees to loans by marking up principals, increasing costs by 30% or more over the cash price of solar projects. These "dealer fees" are often included in the loan’s principal without reflecting in the stated APR, and are seldom separated from the total cash price consumers would pay for installation.
Misleading claims about what consumers will pay. Receiving a tax credit is uncertain and depends on various factors, yet many solar loan sales pitches emphasize the 30% federal “Investment Tax Credit” for residential solar. Lenders often present loan amounts as a “net cost,” assuming the tax credit will be received. As a result, consumers may think the tax credit will lower the “net cost” or that this cost is fixed, regardless of their qualification for the tax credit.
Ballooning monthly payments. Loan terms may require a substantial prepayment by a certain date that is equal to the expected tax credit. If a homeowner does not qualify for the tax credit, they will end up on the hook for the prepayment or face substantially higher monthly payments.
Exaggerated savings claims. Homeowners are often told that solar panels will cover financing costs and eliminate future energy bills. However, the financial benefits of solar projects can vary greatly by geography and season.
Read the CFPB’s press release here.
The Issue Spotlight can be found here.