Minnesota sues GoodLeap, Sunlight, Mosaic and Dividend over dealer fees

The Attorney General (AG) of Minnesota is taking legal action against GoodLeap, Sunlight Financial, Solar Mosaic and Dividend Solar Finance for allegedly inflating the cost of residential solar projects during financing. These finance companies are accused of selling over $200 million worth of residential solar projects from 2017 through 2023, inflating them by approximately $35 million by concealing fees within the financing agreements.

The state is seeking an injunction to halt these practices, along with the proper finance charge disclosures, refunds to affected consumers, and the payment of civil penalties.

Sunlight Financial filed for bankruptcy last year after continuing to offer low-interest rate loans despite rising interest rates.

The complaint summarizes the allegations: “Defendants deceive consumers by charging a hidden and costly upfront fee that they add into the stated price of each financed system while falsely telling consumers that the inflated price only reflects the system’s cost rather than financing.”

Key allegations include:

• Concealment of the upfront fee from consumers.
• Omission of the fee in sales proposals and finance cost disclosures.
• Prohibition of Minnesota solar companies from identifying and explaining the fee in their marketing and when offering alternative payment options. Finance companies are also alleged to have pressured solar companies to raise their cash prices to align with their financed prices.

The key aspect of the sales included very low interest rates combined with incentives based on the project price, making loan payments competitive with electricity rates. The instant loan approval, zero cash down, and minimal paperwork requirements allowed residential contractors to quickly facilitate high sales volumes.

Some have compared the streamlined loan process to the ‘no doc’ mortgages of the 2000s subprime housing crisis.

For some customers who did not scrutinize the fine print, the expected electricity savings were negated. The inflated loan amounts meant homeowners received higher tax credits, which needed to be applied to their bills. For those who did not follow through, or were ineligible for the full tax credit, the loan payments increased significantly. This happened after 18 months when the loan re-amortized at a higher amount that included the tax credit.

The upfront dealer fees varied between 10% and 30%, with some as high as 36% of the project, according to the AG. Over 5,000 individual systems were financed by the four companies during the period under review.

However, the four companies being sued did not make the loans; instead, they provided their financial tools to various local sales and installation companies. Notable among these were “All Energy Solar (2,311 sales financed by Defendants), Everlight Solar (1,742 sales financed by Defendants), Avolta Power (493 sales financed by Defendants), and Sun Badger Solar (307 sales financed by Defendants).”

The filing from the AG detailed the volume of loans made by each defendant:

• From 2018 through 2023, GoodLeap made at least $33,045,208.68 in loans to 853 Minnesota consumers. GoodLeap’s average fee is 19.32% of each loan. The average amount charged to consumers and added to their loan balance is $7,552.19. GoodLeap has charged at least $6,442,014.47 in fees on Minnesota consumers between 2017 and 2023.
• From 2017 through 2023, Sunlight Financial made at least $75,077,388.11 in loans to 2,162 Minnesota consumers.  Sunlight Financial’s average upfront fee is 21.4% of each Minnesota consumer’s loan amount. The average amount charged to Minnesota consumers and added to their balance is $6,285.79. Sunlight Financial has charged a total of at least $13,589,869.31 in upfront fees to Minnesota consumers between 2017 and 2023.
• From 2019 through 2023, Solar Mosaic made at least $85,477,542.01 in loans to 2,147 Minnesota consumers. Solar Mosaic’s average upfront fee is 17.6% of each consumer’s loan amount. The average amount charged to consumers and added to their loan balance is $5,842.59. Solar Mosaic has charged a total of at least $12,666,727.44 in upfront fees to Minnesota consumers between 2017 and 2023.
• Through 2023, Dividend made at least $14,104,831 in loans to 257 Minnesota consumers. The average amount of Dividend’s upfront fee is 18.8% of each borrower’s loan amount (including a small number of loans with 0% fees). The average amount charged to borrowers and added to their loan balance is $9,041.69. Dividend has charged a total of at least $2,323,714.32 in upfront fees to Minnesota consumers.

The market’s finance dynamics have shifted significantly due to these loans. Following prolonged low interest rates after the Great Recession in 2008, these companies expanded their market share against cash and third-party ownership in the United States.

According to Zoë Gaston, Principal Analyst of U.S. Distributed Solar at Wood Mackenzie Renewables & Power, the loan segment, after peaking in 2022 at nearly 70%, market share fell by 6% in 2023 and is expected to decline further in 2024. Gaston noted that, “the segment will start to recover in 2025 but will not gain market share until 2027, when it starts growing faster than the overall residential solar market.”

Wood Mackenzie forecasts that third-party ownership will fill the gap left by long-term loan products, achieving a 41% market share by 2026.