Solar Mosaic Inc., a residential solar energy lender that originated loans for photovoltaic system installations across the United States, agreed to a settlement requiring $7.5 million in consumer redress after federal regulators found that the company embedded a dealer markup — a fee paid to the solar contractor rather than to the borrower — inside the loan principal amount without adequately disclosing to borrowers that they were taking on debt for an amount exceeding the actual cost of the solar system being installed on their home.DOCUMENTED
The practice, known in the residential solar lending market as a dealer fee or dealer discount, works as follows: when a homeowner finances a solar installation, the lender structures the loan with a face amount that exceeds the price the solar contractor charged for the installation. The difference — typically several thousand dollars — is retained by the lender as the dealer's fee or is split between the lender and the contractor. The homeowner pays interest on the full loan face amount, including the portion they never received and that was paid to the contractor as a markup or to the lender as an origination incentive.REVIEWED
- $7.5 million in required consumer redress as part of the settlement
- Dealer fees embedded in loan principal averaged several thousand dollars per loan
- Borrowers paid interest on loan principal that exceeded the amount they received by the dealer fee
- The fee was not disclosed clearly at the time of loan origination in the materials provided to borrowers
- Solar contractors who sold Solar Mosaic loan products were aware of the fee structure; borrowers typically were not
How Solar Loan Dealer Fees Work
Residential solar loans are typically originated at the point of sale — when the homeowner contracts with a solar installation company, the installer presents financing options from one or more lenders who have a relationship with the installer. The installer earns a dealer fee or commission from the lender for each loan originated through their referral. In the Solar Mosaic model, this fee was incorporated into the loan amount itself rather than paid separately from the lender to the installer: a homeowner whose installation cost $25,000 might be offered a loan for $27,500, with the $2,500 difference flowing from the lender to the installer as the dealer fee.REVIEWED
The FTC's complaint alleges that Solar Mosaic's loan documents and marketing materials did not clearly explain this structure to borrowers. Loan disclosures typically showed the full loan amount and monthly payment without a plain-language explanation of how the loan amount was determined relative to the installation price, why the loan amount exceeded the contract price, or that the borrower was financing a fee that would be paid to a third party rather than applied to the cost of the system. Many borrowers did not learn about the fee structure until after installation, and some only discovered it when they attempted to sell or refinance their homes and found that the outstanding loan balance exceeded the documented installation cost.DOCUMENTED
The Consumer Harm
The harm from an undisclosed dealer fee embedded in a loan operates over the life of the loan through two channels. First, the borrower pays interest on the dealer fee amount for the full loan term — a 20-year loan at 5 percent on a $2,500 embedded fee generates roughly $1,700 in additional interest costs. Second, the higher loan principal means the borrower's outstanding balance exceeds the depreciating value of the solar equipment for a longer period of the loan term, which can affect the borrower's ability to sell or refinance the home without the loan becoming a complicating factor in the transaction.REVIEWED
Consumer complaints filed with regulators and state attorneys general included accounts from homeowners who discovered on attempting to sell their home that the solar loan payoff amount was higher than their real estate agent's assessment of the value the solar system added to the property — a situation that had to be resolved at closing, sometimes requiring the seller to contribute cash to satisfy the loan. Borrowers attributed this outcome to the embedded fee adding loan principal beyond the actual installation cost.DOCUMENTED
Installers presenting loan options to homeowners had access to the dealer fee amounts built into each loan product; the homeowners across the table from them typically did not.
Settlement and Redress
The settlement requires Solar Mosaic to provide $7.5 million in redress to borrowers harmed by the inadequate disclosure practices. It also requires the company to clearly disclose in all future loan originations the dealer fee amount, the fact that the fee is being paid to the installer rather than applied to the homeowner's benefit, and the total amount by which the loan principal exceeds the actual installation contract price. The company is additionally required to maintain adequate records of its dealer fee disclosures and to submit compliance reports to regulators during a monitoring period.DOCUMENTED
Homeowners who financed a solar installation through Solar Mosaic and were not clearly informed of a dealer fee built into their loan principal may be eligible for redress distributions from the settlement fund. Current Solar Mosaic borrowers who want to understand their loan structure should request a complete loan origination file from the company and compare the loan face amount to the actual installation contract they signed with their solar installer.
Protecting Yourself in Solar Financing
Consumers considering solar installation financing should take several steps to understand the full cost of any loan product before signing. First, compare the loan amount offered against the installation contract price the solar company quoted — if the loan amount is higher, ask why, and get a written explanation of what the difference represents and where it goes. Second, request a complete loan amortization schedule showing total interest paid over the life of the loan, which will reveal the long-term cost of any inflated principal. Third, compare offers from multiple financing sources including the solar contractor's preferred lender, a personal bank, and specialized solar loan comparison platforms. Finally, be aware that solar loans tied to specific installers sometimes carry higher rates and fees than direct-from-lender financing because the installer receives value from the lender that affects the loan's economics. Understanding these dynamics before signing can prevent a financing arrangement that undermines the financial benefit of the solar installation itself.
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