On August 7, 2024, the Consumer Financial Protection Bureau (CFPB) issued a report spotlighting four marketing and financing practices relating to solar financing that it claims pose significant consumer risks (the Report). The CFPB noted that solar-powered electricity is a growing industry—suggesting that these risks may become an enforcement priority. At the very least, the CFPB stated that it will be working with state and federal regulators to address these risks.
The Report identified several solar financing models, including private loans, government-backed loans, leases, and power purchase agreements. However, it focused primarily on the consumer risks associated with private, solar-specific loans. Under the private, solar-specific loan model, solar salespeople, solar installers, and lenders often have agreements with each other to facilitate the sale, installation, and financing of solar panels in just one interaction with consumers. These loans typically have an annual percentage rate that ranges from one to seven percent and a repayment period that ranges from eight to 25 years. These loans are either secured or unsecured.
The first risk the Report covered was what the CFPB referred to as “hidden markups and fees.” These amounts reflect program fees, lending fees, finance fees, platform fees, original issue discounts, and/or dealer fees that typically range between 10 to 30 percent of the cash price of the solar project. According to the CFPB, these amounts are not disclosed to consumers and are included in the loan principal amount.
The second risk dealt with statements concerning federal tax credits. The CFPB reported that lenders and installers often offset the loan principal amount with the 30 percent federal tax credit in their marketing materials and loan documents. The CFPB took issue with this for several reasons: 1) consumers could receive any such tax credit only after filing their federal taxes for the applicable year; 2) the 30 percent tax credit is the full tax credit but not the expected tax credit for all consumers; 3) the expected tax credit will depend, in part, on the consumer’s income and federal tax liability; and 4) the expected tax credit may not be issued in the form of a refund check if the consumer has other tax liability that would offset the tax credit.
The next, and related, risk involved prepayment terms. According to the CFPB, many of these private, solar-specific loans re-amortize at the 19th month resulting in a higher monthly repayment amount. The way to avoid this re-amortization is by prepaying 30 percent of the loan principal amount, which is equal to the full federal tax credit. The CFPB reported that these prepayment terms were not properly disclosed to some consumers. The CFPB also took issue with the prepayment amount equaling the 30 percent federal tax credit for the reasons stated above. It speculated that consumers who are unaware of the prepayment terms and who receive a full tax credit are more likely to use the tax credit toward other financial obligations than the loan.
The last risk dealt with representations concerning the financial benefits of solar panels. The CFPB took issue with the statements of some installers concerning the future cost of energy and the amount of electricity that solar panels could produce because these amounts depend on many factors, including, but not limited to, system design, installation failures, and weather. The CFPB also reported high-pressure and misleading sales practices targeting the elderly and those with limited English proficiency. For example, the CFPB identified instances where solar salespeople were marketing to consumers with limited English proficiency in their preferred language but providing the solar purchase contract in English.
Recent enforcement actions and private litigation have alleged violations of state and federal consumer protection laws based on similar practices. Goodwin’s coverage of a lawsuit filed by the Minnesota Attorney General earlier this year against four solar companies for alleged hidden fees is here.
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