On August 7, the CFPB issued a report and a consumer advisory highlighting predatory practices in solar lending. On the same day, the FTC released a blog post emphasizing similar concerns.
According to the CFPB, in 2023, 58% of solar projects were financed through loans, with the number of lenders on the rise. The CFPB expressed particular concern about door-to-door sales tactics, where salespeople persuade consumers to purchase solar energy systems and simultaneously finance the purchases through their lender partners.
The CFPB publications identified four specific risky solar lending practices:
- Hidden markup fees. Lenders build hidden fees into loan principals, inflating costs by 30% or more above the cash price of a solar project and making the interest rate appear artificially low.
- Misleading tax credit claims. Whereas the 30% federal tax credit is not guaranteed, sales pitches misleadingly present a so-called "net cost" by deducting the presumed tax credit from the loan amount, causing consumers to mistakenly believe that the "net cost" is the actual loan principal.
- Ballooning monthly payments. The monthly payment jumps higher unless the borrower makes a substantial prepayment by a specified date, typically equal to the federal tax credit, regardless of whether the borrower actually receives the tax credit.
- Exaggerated savings claims. Installers overestimate energy production and misrepresent future costs, ignoring that the financial benefits of solar projects vary by location and season, and can be further reduced by high loan payments and maintenance costs.
While the Bureau's report and consumer advisory was aimed at consumers, the FTC's post was directed at clean energy companies. The FTC stated that the companies should:
- Be Transparent. Companies should be transparent about their offerings and disclose the total cost of the product or service. Moreover, they need to be clear about financing options and not overpromise cost savings that might come through tax credits, rebates, or other incentives. According to the FTC, companies that offer "free" or "no cost" solar panels are engaging in deceptive conduct.
- Companies Should Obey the Law and Regulatory Guidance. The FTC added that companies should not only obey current law, but that they should stay abreast of regulatory developments and proposed guidance, like the CFPB's Residential Property Assessed Clean Energy Financing Proposed Rule.
- Report Bad Actors. The FTC's Impersonation Rule (which we discussed here) makes it an unfair or deceptive act or practice for a company to make false claims that that it is affiliated with a government agency. The same is true for companies who misrepresent that they are affiliated with, endorsed, or sponsored by legitimate businesses.
Putting It Into Practice: These efforts by the CFPB and the FTC offer guidance to companies operating in the solar energy space. This also signals the regulator's interest in this area. Companies that offer all types of clean energy products, especially if those products are offered through door-to-door sales, should take note of the guidance and adjust their practices accordingly.
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