CRL's Shady Side of Solar System Financing Paper Shows Need for Stronger Consumer Protection and Regulatory Enforcement

WASHINGTON, DC – A paper released today by the Center for Responsible Lending (CRL) revealed that the nation’s leading residential solar energy financing lenders operate under a business model that uses many of the predatory methods employed in the subprime mortgage lending market of 2007-2010, including undisclosed profit arrangements with their preferred solar system installers and expensive financing with hidden fees as a standard practice to target consumers for financial exploitation.

This solar debt increases the risk that the borrower will lose their home to bankruptcy or foreclosure. In addition, lenders’ affiliated solar system installers often perform improper or incomplete solar panel installations that prevent homeowners from receiving the full benefit of reduced fossil fuel energy usage. CRL’s paper, The Shady Side of Solar System Financing, found that these harms exist across all states.

Leading solar lenders engage door-to-door sales teams that use high-pressure tactics, misleading information about potential energy savings or eligibility for energy tax credits, and confusing contracts that entice consumers to sign solar financing agreements that often leave them in a worse economic situation than before the door-to-door salesperson visited them. These teams often use proprietary mobile phone applications provided by the lender to qualify borrowers and rush them into signing a financing contract without understanding all the terms and fees involved.

“Policymakers must prioritize regulatory and enforcement mechanisms to protect consumers – particularly the elderly and historically underserved low- and moderate-income residents in Native, rural, and urban communities – from abusive solar financing tactics and ensure that all communities can access the benefits of the nation’s historic transition to sustainable clean energy,” said Anneliese Lederer, paper co-author and senior policy counsel at CRL.

The subprime mortgage crisis – which plunged millions of homeowners into foreclosure and sparked a global economic downturn – was marked by an absence of regulation, perverse incentives between lenders and brokers, lack of meaningful underwriting requirements, adjustable payments, and predatory targeting of elderly consumers and consumers of color. Like subprime mortgages, many residential solar financing loans have these same features and are packaged into securities and traded in financial markets.

Estimates suggest that approximately 70% of all solar panel installations that occurred last year were paid for with a solar loan, and the solar financing market has the potential to impact millions of Americans. As of 2023, 4.4 percent of all residential homes in the United States had solar power systems installed, with Hawaii, California, and Arizona having the greatest percentages of homes powered by residential solar systems. Those figures coincide with a 51 percent increase in the overall solar market from 2022 to 2023.

Current state and local regulations do not adequately protect homeowners from abusive actions in the residential solar market that often cancel the benefits of sustainable clean energy for consumers seeking to reduce both their energy costs and carbon footprint by acquiring solar panels.

CRL analyzed contracts, securities statements, state and federal consumer complaint databases, newspaper articles, and lawsuits involving the nation’s five largest residential solar finance companies. CRL’s analysis found that the business models of the nation’s five largest residential solar finance companies – GoodLeap, Mosaic, Sunlight Financial, Sunnova and Sunrun – all replicate the misleading sales practices and predatory financing arrangements formerly used by shady subprime mortgage lenders. These five companies account for approximately 80 percent of the residential solar financing market. The potential negative financial impact on millions of consumers is clear from court filings and consumer complaints to regulators.

A critical problem is that typically the price of the solar system is substantially inflated if a consumer finances a system. For solar panels that would cost $20,000 if purchased outright with cash, the price of the panels is increased to $25,000 or more if there is financing. This increase is called a dealer's fee.

This practice enables door-to-door sellers to falsely represent to borrowers that they are getting low-cost financing by having contracts include a low nominal payment rate, while, in fact, most of the financing cost is hidden in the inflated price of the solar panel system. The financing company retains much of this markup—the difference between the inflated amount of the loan and the true price of the product—for its profit. This markup is not revealed to the homeowner, and in most cases the dealer prevents the installer from disclosing the arrangement.

CRL’s analysis identified several areas of concern in residential solar financing, including:

  • Misleading sales practices: often involving misrepresentations regarding the cost-effective­ness of solar installations or the availability of tax benefits or government subsidies to pay for the product.
  • Unscrupulous installers: installers frequently provide incomplete or inadequate solar panel installations and fail to disclose utility system “red zones” – where net metering is prohibited – that reduce the benefits of solar power installation.
  • Predatory contract clauses: including forced arbitration clauses; undisclosed financial incentives between lenders and salespersons; failing to inform the consumer of their right to rescind; contract language that does not follow the borrower’s native language; and forged consumer signatures.
  • Other harmful practices: including liens that may impair the title to the home in some jurisdictions; elder abuse; and lack of third-party due diligence.

Report co-author Andrew Kushner, CRL senior policy counsel, noted that solar financing providers have come under increasing scrutiny, with attorneys general in several states, including Minnesota, New Mexico, North Carolina, and Texas, among others, seeking to rein in companies that promote deceptive solar system sales and financing practices.

"Clean energy technologies—from solar panels to heat pumps to electric vehicles and more—can help people save money, breathe cleaner air, and be more comfortable in their homes,” said Kushner. “We need more risk controls and consumer protections built in up front, before rogue installers and predatory lenders can trap consumers in long-term contracts that actually worsen their financial position and provide no reduction in their energy payments."

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Press Contact: Alfred King alfred.king@responsiblelending.org