It was an interest rate so low that John Ahnemann felt he couldn’t turn it down.

So Ahnemann, a real estate agent living in St. Paul’s Midway neighborhood, signed the paperwork last year for a $46,500 loan at 3.49% interest to put 17 solar panels on his house and garage.

“I have no idea how they’re able to do this,” he said, recalling his thinking at the time.

It wasn’t until after the panels were installed that Ahnemann found out. Financing the project inflated its price by roughly $13,000 with the inclusion of a “dealer fee,” he said

Ahnemann said the surcharge wasn’t properly disclosed ahead of time. His financing company disagrees. But Ahnemann and others have found an ally in Attorney General Keith Ellison.

Ellison is suing four prominent solar lending companies, accusing them of concealing and improperly charging $35 million in fees to Minnesotans since 2017. Ellison says artificially low interest rates discourage people from shopping around for better deals with traditional lenders.

“Unfortunately, there are some bad actors that have taken advantage of Minnesotan’s enthusiasm for doing good, as well as the public incentives created to make residential solar more affordable,” Ellison said in a statement.

The lending companies reject those claims and say their disclosures follow the law. The case hasn’t yet gone to trial.

Fast growing industry

Minnesota’s rooftop solar industry has grown quickly over the last decade. There are about 23,000 rooftop solar systems in the state, concentrated mostly in the Twin Cities, said Logan O’Grady, executive director of the Minnesota Solar Energy Industries Association.

Tax credits — extended by Congress under the Inflation Reduction Act and made more generous — and state policies have lowered the price of rooftop solar, prompting thousands to opt for cheaper and cleaner energy.

Along the way, the industry’s sales tactics have come under scrutiny by government regulators. The federal Consumer Financial Protection Bureau in August issued an advisory focused in part on “predatory solar lending.”

The CFPB and other watchdog groups say some in the industry also provide confusing or misleading information about eligibility for federal tax credits or the financial benefits of going solar.

“There’s just a systematic inflation of the cost, and misrepresentation about the benefits,” said Diane Thompson, a senior adviser to the CFPB director.

O’Grady said his organization is writing new licensing legislation aimed at out-of-state companies using door-to-door sellers that falsely suggest they are affiliated with trusted local companies or utilities, among other misrepresentation.

Previous lawsuits by Ellison targeted solar installers for deceptive practices, including allegations that sellers were misrepresenting who they work for.

O’Grady said most solar sales go well, and characterized the issues as growing pains for a nascent industry assembling on the fly.

Ellison lawsuit targets fees

Ellison is suing four out-of-state companies that partner with businesses that sell and install solar panels. Loans are common because the systems are too expensive for most to pay out-of-pocket. An average residential array costs around $30,000.

The four companies — GoodLeap, Sunlight Financial, Dividend Finance and Mosaic — market themselves as “financial technology” firms offering a seamless digital process. Three of them are part of a small group that makes up 80% of the residential solar loan market in the U.S., according to the nonprofit Center for Responsible Lending.

Ellison’s lawsuit says those loans typically come with very low interest rates that result in cheap monthly installments. But the lawsuit says the companies conceal a large upfront fee that typically increases the cost of the system by 10% to 30%. That fee is added to the loan principal, meaning customers pay interest on it.

Most customers believe the price is just for parts and labor, Ellison alleges. They often never learn they could directly pay the solar installer cash to avoid a dealer fee, or obtain a loan themselves without the fee, according to the lawsuit.

The AG’s investigation claims solar installers that partner with lenders are typically not allowed to identify and explain the fee, and they generally don’t show a cash price without the fee unless a consumer asks for it.

The fee is collected simply as profit for the lenders, the lawsuit alleges, which is the primary source of revenue on the loans for the companies. The four lending companies have collected these fees on an estimated 5,000 solar systems since 2017, according to Ellison. That would be more than 20% of all rooftop solar projects installed in the state.

Ahnemann said he didn’t think to shop around. His contract with GoodLeap does not appear to explain that the loan principal includes a dealer fee. The 24-page document includes two sentences that say the purchase price set by installer Blue Raven Solar “may include” the fee in question but doesn’t say how much.

He said he uncovered the dealer fee when asking about a charge related to supplemental electric work. The costs didn’t add up. Such a fee would have been disclosed in a real estate transaction, he said. So he took his complaint to Ellison.

Ellison’s suit says the four companies violated a handful of state laws that require companies to “prominently disclose” all charges imposed by a creditor as a condition of the loan.

Jesse Comart, a spokesman for GoodLeap, said the installer is responsible for the fee. It’s a strategy used by the installer to reduce the interest rate of a loan and lower a borrower’s monthly payments, he said. The installer in Ahnemann’s case, Blue Raven, did not respond to a request for comment.

Comart said the practice has been approved by regulators for more than 40 years for use in other industries including auto finance. It’s regulated by the federal Truth in Lending Act, Comart said, and the company says it will demonstrate compliance in court.

“The complaint mischaracterizes dealer fees and whether they have been appropriately handled in loan disclosures,” said Mosaic, in a statement.

Dividend Finance also denied any misconduct. Sunlight did not respond to a request for comment.

The case has been moved from Hennepin County District Court to federal court and is being consolidated with other similar lawsuits in other states.

Not every lender charges dealer fees

Dealer fees are controversial among consumer advocates and even some in the solar industry.

Thompson, from the CFPB, said fees “can be disclosed and can still be outrageous, unfair, abusive.”

TruNorth Solar, an installer based in Arden Hills, does not pair with lenders using dealer fees. Company CEO Marty Morud said the reason many installers do it is the cheap interest rate on the loan, but he disagrees with it. “It should be the same price, whether you’re financing something or you’re paying cash,” Morud said.

Morud said he typically refers people to the nonprofit Center for Energy and Environment (CEE), which he said has the lowest interest rates without a dealer fee “by a long shot.”

All Energy Solar sold the most rooftop systems financed through the four companies being sued by Ellison, according to his lawsuit. All Energy declined to comment, though the lawsuit says 72% of the company’s sales aren’t financed through those four companies.

O’Grady said his legislation would also address contract disclosures, noting Minnesota law gives consumers three business days to cancel a contract signed at your home. O’Grady recommended seeking out multiple bids for solar projects.

Rochester resident Steve Gage did exactly that when he looked into home solar as a way to cut energy bills. Gage and his wife work at home and have two kids that “never shut off a light.”

“We’re absolute power hogs,” he said.

He reached out to Wolf River Electric because he listens to KFAN radio every morning and the company advertises heavily. The company pitched a $72,500 rooftop solar system financed through Dividend, and tried to sweeten the deal with benefits like a free cruise. Gage wanted to pay cash, however, and asked two other companies for a bid. Their prices were roughly $40,000.

When he asked Wolf River what accounted for the difference, that’s when a salesman disclosed the financing fee. Wolf River and Dividend declined to comment on Gage’s case.

“It just felt incredibly predatory,” said Gage, who signed an affidavit for the AG detailing his experience.