Lenders under fire for shady lending
Some residential solar lenders are using deceptive tactics to trap homeowners into costly loans, according to a report released Wednesday by the Consumer Financial Protection Bureau (CFPB).
The report revealed how some lenders are misleading customers about the true costs and benefits of solar loans, leading to unexpected financial burdens for those looking to save on energy costs.
“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.”
The CFPB’s findings come as solar energy becomes increasingly popular, particularly in lower-income neighborhoods where the appeal of reducing energy bills is strong. In 2023, solar energy accounted for 55% of new electricity-generating capacity in the US, with government incentives like federal tax credits playing a significant role in driving this growth.
However, the CFPB report highlights that the rapid expansion of the solar market has opened the door to potentially harmful practices by some lenders. Unlike typical home loans, where borrowers seek out financing after deciding on a purchase, solar loans are often pushed on homeowners by door-to-door salespeople, making it easier for misleading information to slip through.
Some lenders add hidden “dealer fees” to the principal of the loan, inflating the cost by 30%, or more, above the advertised cash price. These fees are often not clearly disclosed and can significantly raise the total repayment amount.
Sales pitches frequently assume that homeowners will qualify for a 30% federal tax credit on solar installations, presenting the loan’s cost as lower than it might actually be. If homeowners do not qualify for the credit, they could be left with a much larger financial burden than anticipated.
The average residential solar project costs $25,000, with federal tax credits currently covering approximately 30% of the installation cost. In 2023, 58% of solar projects were financed through loans.
Read more: Time for the mortgage industry to face up to climate change?
Some loan agreements require a prepayment based on the expected tax credit. If the credit isn’t received, homeowners could face steep increases in their monthly payments or be forced to make a large one-time payment to avoid default.
Many homeowners are promised that solar panels will eliminate their energy bills and cover the cost of financing. However, the actual savings can vary widely depending on location, energy usage, and other factors, leaving some homeowners with less financial benefit than they were led to believe.
In response to these findings, the CFPB has released a consumer advisory warning homeowners of these risky practices and providing advice for borrowers who encounter illegal activity. The US Department of the Treasury has also published information to assist consumers in shopping for solar power.
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