Solar loans, hidden dealer fees, and Truth in Lending rescission

What TILA rescission is

The Truth in Lending Act (15 U.S.C. section 1635) and its implementing rule, Regulation Z section 1026.23, give a consumer the right to rescind a credit transaction in which the lender takes a security interest in the consumer's principal dwelling. Rescission is not a refund request or a complaint; it is a legal unwinding. The loan is void, the security interest is void, and the lender must return what you paid and release its lien within 20 calendar days of your notice. You then return, or tender, what you received.

The ordinary rescission period is three business days, running from the latest of three events: the loan closing, delivery of the required notice of the right to rescind, or delivery of all "material disclosures." If the lender never delivered the notice or the material disclosures, or delivered them inaccurately, the three days never start, and the right extends to three years after closing (it ends earlier if you sell or transfer the home).

When it applies to a solar loan

The trigger is a security interest in your principal residence. Solar lenders secure loans in different ways, and the difference decides whether TILA rescission is available:

• Loan secured by a mortgage or deed of trust on the home, or a PACE-style assessment on the property: rescission applies, subject to the exemptions below.
• Loan secured only by a UCC-1 fixture filing on the solar equipment: courts and regulators generally treat a fixture filing as a security interest in the equipment, not the dwelling, so TILA rescission usually does not apply. Other TILA remedies (statutory damages for disclosure violations) and the state and FTC claims described elsewhere on this site still can.
• Leases and PPAs are not credit transactions under TILA at all; they may fall under the Consumer Leasing Act and state law instead.

Two exemptions matter: a loan used to buy or build the home (a residential mortgage transaction) is not rescindable, and a refinancing with the same lender is rescindable only as to new money advanced. A solar loan is neither, so if it is secured by the home, the right is normally available.

The five material disclosures

Regulation Z defines the material disclosures for rescission purposes as the annual percentage rate, the finance charge, the amount financed, the total of payments, and the payment schedule. TILA allows small tolerances; outside them, the disclosure is inaccurate and the extended rescission period is on the table. The disclosures must be delivered to each person whose ownership interest is subject to the lien, which means a spouse on the deed who never received a disclosure packet has a rescission right of her own.

How dealer fees create the defect

Here is the mechanism the CFPB described in its August 2024 Issue Spotlight on solar financing. A lender charges the installer a "dealer fee" for offering a low headline interest rate. The installer passes that fee to the homeowner by raising the system price, so a system that would cost $30,000 in cash is financed at $40,000 or more. The homeowner sees an attractive APR on a larger loan and never sees the fee. The CFPB found dealer fees adding 30% or more above cash prices, presented in ways that keep them out of the finance charge and the APR.

Under TILA, a charge imposed as a condition of the credit that the consumer would not pay in a comparable cash transaction is a finance charge, whoever collects it. When it is buried in the amount financed instead, the finance charge and APR are understated, which is an inaccurate material disclosure. That is the defect. It is not the only one; the CFPB also flagged loan amounts stated as a "net cost" that assumes a 30% federal tax credit the borrower may not receive, and payment schedules that jump sharply when the expected prepayment does not arrive. A payment schedule that does not disclose that jump plainly is another inaccurate material disclosure.

The FTC Holder Rule: reaching the lender

Solar lenders will say the installer's promises are not their problem. The FTC Holder Rule (16 CFR Part 433) says otherwise. Any consumer credit contract arranged by a seller must contain a notice that the holder of the contract is subject to all claims and defenses the consumer could assert against the seller, up to the amount paid under the contract. If your solar loan contains that notice, or should have, the lender stands in the installer's shoes: misrepresented savings, an installation that never worked, or an installer that went bankrupt are all defenses you can raise against the company collecting your payments. This is the rule that keeps homeowners from being left paying for a system whose installer no longer exists.

How to exercise the right

Rescission is exercised by written notice to the lender, at the address shown on its notice of the right to rescind (or its address for notices in the contract). The notice needs to say that you are rescinding the transaction under the Truth in Lending Act; the courts have held that a timely written notice is what exercises the right, and the lender's disagreement does not cancel it. Send it certified mail, keep proof, and send a copy to the loan servicer if different. Once the lender receives the notice, it has 20 calendar days to return your money and release the lien; if it refuses, the dispute goes to court, where a judge can modify the unwinding procedure. Because you must be prepared to tender what you received (which, in a solar case, is usually the system, not cash), the lender's willingness to negotiate rises sharply once a valid notice is on the table.

How to check your own paperwork

1. Find the security instrument. Look for a mortgage, deed of trust, or assessment recorded against your property (your county recorder's site) versus a UCC-1 filing with the secretary of state.
2. Find the TILA disclosure statement. It is a page headed with the APR, finance charge, amount financed and total of payments in boxes. If you never received it, note that.
3. Compare the cash price on the installer's proposal to the amount financed. If the financed price is materially higher with no explanation, the difference is likely a dealer fee.
4. Find the notice of the right to rescind: it must be a separate document, two copies to each borrower. Missing or unsigned copies are a defect.
5. Look at the payment schedule for a jump after month 12 to 18. If the loan assumed a tax-credit prepayment, confirm that the jump and the assumption were disclosed.
6. Check whether your loan contract contains the Holder Rule notice ("any holder of this consumer credit contract is subject to all claims and defenses...").

Limits and cautions

The three-year window is measured from consummation and is cut off by a sale or transfer of the property. Rescission is not available for a loan secured only by the equipment or for leases and PPAs. It unwinds the loan, not the laws of physics: the panels, the roof penetrations and the interconnection are still there, and the practical settlement usually involves the company removing the system at its cost or leaving it in place for an agreed number. Do not stop paying to force the issue; a rescission notice plus continued payment is a far stronger position than a default plus a rescission notice.

Related guides

After the window closes

Cancelling a solar contract after installation

The legal grounds that still work once the panels are on the roof: misrepresentation, disclosure failures, TILA defects, breach, forged paperwork, and what buyer's remorse cannot do.

Leases, PPAs and loans

Solar lease, PPA or loan: what it costs to get out

Buyouts, transfers when you sell the house, UCC-1 liens, what happens if you stop paying, credit consequences, and what to do when the installer goes bankrupt.

Questions and answers

20 questions homeowners ask about cancelling solar

Straight answers to the questions people actually ask: deadlines, costs, credit, selling the house, bankrupt installers, and what to do first.