The Consumer Financial Protection Bureau (CFPB) has issued a stark warning, revealing that some residential solar lenders are misleading homeowners with confusing loan terms, inflated costs, and exaggerated energy savings claims. The agency’s new report highlights a range of deceptive practices that are leaving consumers vulnerable as the market for solar energy continues to expand.
The CFPB’s findings indicate that lenders are often working in tandem with solar installers and door-to-door sales companies to push loans onto homeowners under misleading pretenses. According to the report, fees embedded in these loans can increase costs by 30% or more above the cash price of solar installations. Additionally, lenders frequently misrepresent the impact of federal tax credits, further clouding the true cost of solar projects.
“With sweltering heat across America this summer, many families are installing solar panels to save on energy costs to cool their home,” said CFPB Director Rohit Chopra. “The CFPB is closely scrutinizing solar lenders to make sure that Americans don’t get burned.”
Growing solar market raises concerns
The residential solar market has seen explosive growth in recent years, particularly in less affluent communities. In 2023, solar energy accounted for 55% of new electricity-generating capacity in the United States, a significant jump from 23% in 2018. This surge is largely driven by declining solar panel costs and government incentives like tax credits, which currently cover approximately 30% of installation costs. The average residential solar project costs around $25,000.
As the market grows, so does the use of loans to finance solar projects. In 2023, 58% of solar projects were financed through loans, with a rising number of nonbank lenders entering the market. These lenders often partner with solar installers and use aggressive marketing tactics to convince homeowners to take out loans for their solar installations.
Four major risks identified
The CFPB’s report identifies four key areas where consumers are at risk:
- Hidden Markup Fees: Lenders are inflating loan costs by embedding hidden fees—referred to as “dealer fees”—into the principal amounts of loans. These fees can increase the cost of a loan by 30% or more above the cash price of a solar project, and are often not reflected in the stated annual percentage rate (APR).
- Misleading Tax Credit Claims: Many solar loan sales pitches emphasize the 30% federal Investment Tax Credit, presenting loan principals as a “net cost” assuming that the tax credit will be received. However, eligibility for the tax credit is not guaranteed, and consumers may be misled into believing that their final costs will be lower than they actually are.
- Ballooning Monthly Payments: Some loan agreements require substantial prepayments by a specific date, often tied to the expected tax credit. If homeowners do not qualify for the tax credit, they could face significantly higher monthly payments or be forced to make large prepayments.
- Exaggerated Savings Promises: 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 installations vary widely based on location and other factors.
CFPB’s consumer advisory
In response to these findings, the CFPB has issued a consumer advisory warning homeowners about the potential risks in the solar lending market. The agency advises consumers to carefully review loan terms and be wary of misleading claims, particularly those related to tax credits and long-term savings.
The CFPB’s efforts are part of a broader initiative to protect consumers in the clean energy financing sector. Last year, the agency proposed new rules to address abuses in Property Assessed Clean Energy (PACE) loans, and is currently working on finalizing these regulations.
In addition to the CFPB’s actions, the U.S. Department of the Treasury has released information to help consumers navigate the solar market, and the agency is collaborating with the Federal Trade Commission and other government bodies to crack down on predatory practices in this growing industry.
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