WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) has issued a spotlight report revealing troubling practices among residential solar lenders. The Bureau highlights instances where lenders mislead homeowners about loan terms and costs, misrepresent potential energy savings, and embed hidden fees into loan balances.
CFPB Director Rohit Chopra emphasized the urgency of this issue amid rising temperatures and energy costs. “With sweltering heat across America this summer, many families are installing solar panels to save on energy costs to cool their home,” Chopra said. “The CFPB is closely scrutinizing solar lenders to make sure that Americans don’t get burned.”
The market for residential solar energy systems is expanding rapidly, particularly in less affluent communities. In 2023, solar energy accounted for 55% of new electricity-generating capacity added to the U.S. grid, a significant increase from 23% in 2018. This growth is driven by declining solar panel costs and enhanced government incentives, including tax credits.
The average cost of a residential solar project is around $25,000, with federal tax credits covering approximately 30% of the installation cost. In 2023, 58% of solar projects were financed through loans, and the number of lenders has risen accordingly. These lenders often partner with solar installers and utilize aggressive marketing and door-to-door sales tactics to attract homeowners.
The CFPB’s report identifies four significant risks associated with solar energy loans:
Hidden Markup Fees: Some lenders inflate loan costs by embedding “dealer fees” into the loan principal. These fees can increase the loan amount by 30% or more above the cash price of the solar project. These markups are often not included in the stated annual percentage rate (APR) and are rarely disclosed to consumers.
Misleading Loan Amounts: Sales pitches frequently tout the 30% federal “Investment Tax Credit” for residential solar installations. Lenders present loan principals as a “net cost” that assumes receipt of the tax credit. This can mislead consumers into believing they will pay less than they actually will, depending on their tax situation.
Ballooning Monthly Payments: Some loan agreements require a significant prepayment by a certain date, equal to the expected tax credit. If homeowners do not qualify for the tax credit, they must cover 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. While this may be true for some, the actual financial benefits of solar projects can vary significantly by location and season.
Unlike auto loans or mortgages, where consumers seek financing for a desired purchase, solar salespeople often approach homeowners directly. This creates a scenario where consumers are convinced both to purchase a solar energy system and to finance it through the salesperson’s company. As a result, many homeowners find themselves trapped in contracts with inflated costs, unexpected payment increases, and lower-than-promised energy savings.
The CFPB advises homeowners to consider federal, state, and local programs offering free or subsidized energy efficiency improvements before committing to solar energy systems. An independent energy audit can also identify cost-effective energy-saving opportunities.
For those proceeding with solar installations, the CFPB recommends asking for the cash price of the system, seeking financing from a bank or credit union, and comparing multiple proposals. Consumers should also request a detailed, written breakdown of costs and consult an independent energy auditor.
Homeowners who believe they have been misled can file complaints with multiple agencies and consult an attorney. Federal regulations may offer the right to cancel certain door-to-door sales contracts.
The CFPB’s advisory serves as a critical reminder for homeowners to exercise caution and thoroughly understand the financial implications before committing to solar energy loans.
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