Residential Solar Finance Under Intensifying Scrutiny: Key Regulatory and Litigation Trends

In today's episode of the Consumer Finance Monitor Podcast Show, our host, Ballard Spahr's Alan Kaplinsky, was joined by colleagues Steven Burt and Melanie Vartabedian to explore a rapidly evolving and increasingly complex area of consumer financial services: residential solar finance. Building on prior discussions of the broader solar finance landscape, this episode zeroes in on the regulatory and litigation developments that are reshaping the residential solar market in real time. The discussion highlights how an industry that experienced explosive growth over the past decade is now facing heightened scrutiny from regulators, enforcement agencies, and private litigants alike. From Rapid Growth to Market Headwinds As Steven explained, the residential solar industry expanded dramatically between 2015 and 2022, driven by: Federal and state tax incentives Declining equipment costs Innovative financing models Aggressive direct-to-consumer sales strategies Growth peaked around 2023, but the market began to slow in 2024 and beyond due to several converging factors: Changes to net energy metering policies (particularly in California) Rising interest rates impacting financing affordability Supply chain constraints Increased emphasis on battery storage solutions Federal policy shifts, including reduced support for renewable energy and changes to tax credits These developments have forced industry participants to adapt quickly—often while still operating under legacy business models that are now attracting scrutiny. A Surge in Government Investigations and Enforcement One of the most significant themes discussed in the podcast is the sharp rise in government scrutiny. State attorneys general and consumer protection agencies across the country have launched investigations and enforcement actions targeting: Direct-to-consumer sales practices Marketing representations about energy savings and tax benefits Long-term financing structures, particularly loan-related fees A notable inflection point came in 2024, when the Consumer Financial Protection Bureau (CFPB) issued a spotlight on solar financing, identifying risks such as: Alleged "hidden" dealer or platform fees Misleading claims regarding tax credits Misrepresentations about system performance and savings Since then, enforcement activity has expanded across numerous states, with additional investigations ongoing. Notably, even local regulators—such as New York City's Department of Consumer and Worker Protection—have begun to assert jurisdiction, signaling a broader and more aggressive enforcement landscape. Private Litigation: Class Actions and the "Dealer Fee" Controversy Parallel to government activity, private litigation has surged. Melanie Vartabedian highlighted two major waves of litigation: 1. Earlier Cases: Sales Practices Initial lawsuits focused on: Unauthorized credit checks (FCRA claims) High-pressure or deceptive sales tactics Misrepresentations about tax savings and energy production 2. Current Wave: Financing Structures More recent cases center on dealer fees (also called platform or financing fees), with plaintiffs alleging that: ·        These fees are effectively hidden finance charges ·        They should be disclosed under the Truth in Lending Act (TILA) Courts in Minnesota have allowed these claims to proceed past motions to dismiss, rejecting arguments—at least at the early stage—that such fees are merely "seller's points" exempt from disclosure. While these rulings are preliminary, they have: ·        Opened the door to costly discovery ·        Encouraged additional class actions and enforcement cases ·        Created significant uncertainty regarding how courts will ultimately resolve the issue The Expanding Role of the FTC Holder Rule Another important litigation risk involves the FTC Holder Rule, which allows consumers to assert claims against loan holders that they could assert against installers. This creates potential exposure for: ·        Lenders ·        Secondary market participants ·        Securitization investors Although liability is generally capped at the amount of the loan, the rule can still create substantial risk, especially where plaintiffs seek rescission of contracts. Practical Guidance for Industry Participants The speakers emphasized that companies operating in the residential solar space must take proactive steps to manage risk. Key recommendations include: 1. Strengthen Compliance and Oversight Conduct comprehensive reviews of sales and marketing practices Ensure clear, accurate, and compliant disclosures Align legal and compliance teams with customer service functions to identify emerging issues early 2. Enhance Dealer and Partner Management Perform rigorous upfront diligence on third-party installers and sales organizations Implement ongoing monitoring and auditing Act quickly to address complaints or misconduct 3. Improve Transactional Transparency Reassess how pricing and fees—particularly dealer fees—are structured and disclosed Evaluate potential exposure under TILA and state consumer protection laws 4. Conduct Portfolio-Level Risk Assessments Carefully diligence solar loan portfolios prior to acquisition Consider litigation and regulatory risks embedded in originated assets 5. Stay Ahead of Policy and Enforcement Trends Monitor federal, state, and local regulatory developments Engage with industry groups and legal advisors Anticipate—not react to—regulatory changes What Lies Ahead: The Next 18–24 Months Looking forward, the panelists expect: Continued and expanding enforcement activity, particularly at the state level More class actions and private litigation, fueled by early court rulings Greater clarity regarding dealer fee treatment, as courts begin to rule on the merits Increased scrutiny of sales practices, especially those involving third-party dealers Importantly, the regulatory and litigation environment is unlikely to ease in the near term. Instead, companies should expect more investigations converting into enforcement actions and greater coordination among regulators. Key Takeaways As Alan Kaplinsky summarized, the message for industry participants is clear: ·        The residential solar market is entering a more challenging and regulated phase ·        Government scrutiny and private litigation are rising in tandem ·        Compliance, transparency, and oversight are no longer optional, they are essential Companies that proactively adapt to this new environment will be far better positioned than those that wait to respond under the pressure of an investigation or lawsuit. Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.