California Senate Bill 784 Builds Out Solar and Home Improvement Financing Regulations
A bill that would substantially expand solar and home improvement financing requirements is making its way through the California legislature. Senate Bill 784 (“SB 784”) passed the California Senate on June 2, and is now under consideration by the California Assembly. The bill, which would impose new consumer protection requirements for solar and home improvement lending in addition to the state’s existing statutes regulating consumer lending, home solicitation sales, and home improvement contractors, represents an escalation of state interest in the industry. If enacted in the current legislative session without amendment, the bill would become effective January 1, 2026. California’s consideration of the bill follows increased regulatory and private action pressure on solar and home improvement dealer oversight and financing company economics that have been building at the state and federal level over several years, and seeks to codify substantive and procedural constraints on certain aspects of the market that consumer advocates have targeted for reform.
This Legal Update examines SB 784 in market context and provides a summary of how its requirements could affect the solar and home improvement financing industry going forward. We will continue to monitor updates to the bill—as well as other state actions in the solar and home improvement financing space—and provide additional updates as warranted.
Market Context
Financing sources in the solar and home improvement financing industry often rely on third-party contractors and dealers for consumer-facing solicitation, customer acquisition, and document execution. As a result, the consumer-facing practices of these contractors and dealers have attracted recent regulatory scrutiny of whether contractors and dealers have engaged in improper sales practices or other misconduct. Regulators and private plaintiffs have alleged fairly frequently, for example, that dealers may sell defective equipment or fail to complete proper installations, resulting in consumers having loan repayment obligations for home improvements that are non-functioning or underperforming. Similarly, allegations that dealers have misrepresented financing terms as they engage in high-pressure tactics to complete sales have become more common over time. Through enforcement, litigation, or legislation, parties have sought to constrain these alleged abuses, including through attempt to impose liability or control obligations on parties other than the dealers themselves (such as lenders, sales finance companies, program managers, or investors).
Another issue that has received significant attention from the Consumer Financial Protection Bureau (“CFPB”), state attorneys general, and consumer advocacy groups is the role that “dealer fees” play in the market for solar and home improvement financing. Dealer fees typically refer to costs that are imposed by financing sources on dealers in exchange for permitting dealers to participate in a financing program. Regulators and consumer advocacy groups have alleged that the presence of dealer fees, which may range between an equivalent of 10% and 30% of the cash price of the financed equipment in solar financing transactions, increases the cost of a financed project above a potential “cash sale price” (i.e., the price at which the same products and services would otherwise be available if the transaction were not financed). Regulators and private plaintiffs have alleged that dealers charge more for financed transactions than cash transactions (even if agreements between financing sources and dealers prohibit such pricing differences) or that dealer fees result in pricing increases across all transactions as dealers account for such costs in their overhead. Regulators have also alleged that the fact that dealer fees have been included in the price of the financed equipment is not adequately disclosed to consumers and represents a “hidden finance charge” or undisclosed interest under federal1 or state laws. Other allegations made by regulators in prior actions and public statements include allegations of dealers making misleading claims about energy savings from solar systems based on overstatements about the amount of electricity that panels will produce and/or assumptions that homeowners will qualify for federal tax credits, without considering whether the consumer actually has tax liability or qualifies for the tax credit.
We discussed regulatory and private actions in the solar industry in greater detail in our prior Legal Update, “Regulatory Clouds on the Horizon for Solar Financing? Programs Face Headwinds, but the Future Still Looks Bright.”
Current Text of SB 784
Scope
SB 784 mostly applies to “home improvement loans,” which it defines as a consumer loan that will be disbursed to a contractor in connection with a home solicitation contract to finance a home improvement, but excluding Property Assessed Clean Energy financing and certain mortgage loans. However, the right to cancel period applies more generally to home improvement contracts, which could include both retail installment contracts (“RICs”) as well as contracts for the sale of home improvement goods or services that are not financed. Under the home improvement loan model, a consumer borrows directly from a lender who disburses loan proceeds for the project to the contractor or dealer. Under the RIC model, the consumer purchases the goods or services on credit with the seller, who may later sell or assign the RIC to a lender.
Requirements
The California legislation intends to address many of the consumer regulatory risks alleged in prior regulatory actions, private litigation, and consumer advocacy research.
Provisions addressing home improvement loans impose new obligations and liabilities on the lender or restrictions on the loan itself. Provisions addressing home improvement contracts impose new obligations on contractors. Other parties that may be involved in financing activities, such as brokers, salespeople, investors, servicers, and collectors, are not directly regulated by the new provisions (though activities by brokers or salespeople may be relevant to determinations of lender liability in certain cases, as summarized below regarding “Borrower Claims and Defenses”)).
Key provisions of the bill include:
- Requirement of lender confirmation call: The version of SB 784 that has passed through the California State Senate would require a home improvement lender to obtain a copy of the home improvement contract between the dealer and buyer, and complete a video or telephone confirmation call with the buyer that confirms that all property owners have received a copy of the home improvement contract, reviews key terms of the loan agreement, and ensures that the buyer understands terms of the loan and the underlying contract for home improvement services before the buyer executes a home improvement loan. An amended version under consideration by the California State Assembly varies these requirements slightly by limiting the confirmation regarding parties that have received a copy of the home improvement contract to the consumer, rather than all property owners. Such calls have not previously been formal regulatory requirements, though some financing providers have implemented welcome call processes for at least a portion of their originations as one of several possible controls against consumer misunderstanding and certain forms of fraud or improper dealer behavior.
- Extension of a buyer’s right to cancel a home improvement transaction: Existing California law provides a buyer the right to cancel certain home solicitation contracts—meaning those entered into outside of the seller’s usual place of business—until midnight of the third business day after the day on which the buyer signs an agreement to purchase goods or services, and five business days for buyers who are senior citizens. SB 784 extends the cancellation period to five days and seven days, respectively. Federal law provides a three-day cancellation period for home solicitation sales (subject to various exemptions), and many states mirror that timeframe even if they extend cancellation rights to a broader set of sales—such as all home improvement contracts rather than just home solicitation sales. If SB 784 were enacted in its current form, California would join a relatively short list of states with longer cancellation periods. This requirement applies to the home improvement contract between the seller and the consumer, rather than to the home improvement loan between the consumer and the lender. The extended rescission period would apply to contracts entered into on or after January 1, 2026. Current rescission periods would apply to contracts entered into before January 1, 2026, even is such rescission period ran into the first few days of 2026.
- Disclosure of dealer fees: SB 784 requires home improvement lenders to provide both oral and written disclosures about “dealer fees” before a consumer executes a home improvement loan. It defines “dealer fee” as a charge associated with a home improvement loan that is treated by the lender as seller’s points pursuant to the Truth in Lending Act (“TILA”) and its implementing Regulation Z (i.e., fees imposed by a creditor on a non-creditor seller of financed goods or services, even if the fee is passed through to the borrower, in whole or in part, at the non-creditor seller’s discretion). The bill prescribes specific language and formatting requirements for the disclosure as provided below, requires consumers to initial the disclosure acknowledging receipt, and requires the lender to obtain a copy of the signed disclosure statement from the buyer before executing a home improvement loan. The disclosure required by the version of the bill that has passed through the California State Senate is as follows:
The amount of your loan may include a dealer fee that is not included as a finance charge for the purpose of calculating the annual percentage rate (APR) of the loan. This means that the true cost of this loan may be higher than indicated by the APR. If you seek financing from another lender that does not have a relationship with your contractor, the loan is unlikely to include a dealer fee but may have a higher interest rate or other finance charges. For this reason, you are encouraged to shop around and compare the costs of different loans before deciding which to use for this project.
The dealer fee for this loan is $____. You will be required to pay this back. The dealer fee in addition to the payment or payments made by the lender to the contractor for their work on this project, which for this loan is $____.
A slightly amended version of this language is under consideration by the California State Assembly. The amended language would clarify that the consumer will be required to pay back dealer fees only if the contractor added any portion of the dealer fees to the underlying home improvement contract, rather than stating a requirement to pay back dealer fees as universal.
While TILA and Regulation Z require disclosure of the finance charge on a consumer credit transaction, “seller’s points,” which could include dealer fees, are excluded from the finance charge even if the seller passes on the fees to the buyer in the form of a higher sale price for the financed property.2 Certain aspects of the language required by SB 784 may be open to challenge under an argument grounded in TILA’s preemption standards, which displaces state laws and regulations that are inconsistent with Regulation Z, including through use of terms to refer to other concepts. In particular, the statement that inclusion of a dealer fee means “that the true cost of this loan may be higher than indicated by the APR” could be read to conflict with Regulation Z’s treatment of APR as the primary disclosed “cost of credit” and/or to overshadow required disclosures. This could be true even if the remainder of the disclosure is not preempted—though whether the disclosure will be finalized as-is or challenged on this ground upon becoming effective remains to be seen.
- Loan Payment Schedules Tied to Project Completion: The version of SB 784 that has passed through the California State Senate would prohibit lenders from requiring a borrower to make a payment on a home improvement loan until the lender has confirmed that have all permitting agencies have issued final approval of all home improvements financed under the loan and that the improvements are operational. An amended version under consideration by the California State Assembly varies these requirements slightly, requiring confirmations regarding permitting and operational status only for home improvements not involving a solar energy system and treating a confirmation that Permission to Operate has been granted as the sole requirement for a home improvement project involving a solar energy system. Under either version of the bill, the lender would be prohibited from reporting the consumer’s payment obligation on the loan to consumer reporting agencies until the consumer’s repayment obligations have started, in accordance with SB 784.
- Borrower Claims and Defenses: The version of SB 784 that has passed through the California State Senate expands a lender’s vicarious liability for certain violations of law by a contractor, salesperson or broker. In particular, a consumer could assert any claim or defense regarding misrepresentation of loan terms that a consumer could have brought against such persons against the lender as well. This provision is similar to the Federal Trade Commission’s (“FTC”) Holder Rule, which eliminates “holder in due course” protection from defenses and claims that a consumer could have asserted against the original seller of goods or services for any assignee of a purchase-money consumer loan or RIC. Unlike the FTC Holder Rule, however: (i) liability is not limited to amounts paid by the consumer; (ii) expanded vicarious liability appears to apply only to the initial lender and not to subsequent holders of the loan; and (iii) a lender may not be held vicariously liable if it has cured the third party’s misrepresentation through a telephone or video call. An amended version under consideration by the California State Assembly strips this provision from the bill, such that its ultimate inclusion remains uncertain.
Broader Regulatory Movement on Solar and Home Improvement Financing Issues
California’s proposal follows steps taken by other states to further regulate solar financing.
For example, effective June 6, 2024, Washington adopted the Solar Consumer Protection Act (“SCPA”), which—like portions of California’s SB 784—also focused on dealer fee disclosure issues. The SCPA requires a solar energy contractor or salesperson to provide consumers a written contract that includes material terms and disclosures regarding the installation of a solar energy system. Among other requirements, the contract must disclose the exact amount a contractor or salesperson paid to any lender or third-party financing company in the form of a “dealer fee” or other similar inducement to obtain financing.3 The SCPA defines “dealer fee” as the “amount paid by a solar energy contractor or solar energy salesperson to a lender in order to offer a customer credit to finance the purchase and installation of a solar energy system.”4 The contract must also include a separate line item disclosing any financing that is incorporated directly into the contract, including terms, conditions, interest rates, annual percentage rate, the amortization schedule, and information about how the loan is secured.5 Additionally, solar energy installation contracts must include notices, some of which consumers must acknowledge and initial, including those regarding the consumer’s right to cancel a contract within three business days, the use of residential clean energy tax credits, and a payment schedule based on project completion milestones.6 While the coverage of the Washington SCPA is limited to solar contractors and salespersons, the statute addresses regulatory scrutiny of dealer fees in a manner similar to California’s SB 784.
Similarly, effective March 1, 2025, Rhode Island’s Residential Solar Energy Disclosure and Homeowners Bill of Rights Act7 requires solar retailers to register with the Rhode Island Department of Business and submit their roster of employees and third-party sales representatives engaged in selling solar systems, provide specific disclosures to consumers that include projected estimates of savings and the bases of such calculations, and provide consumers with a right to cancel the transaction within seven business days. Unlike SB 784 and the Washington SCPA, the Rhode Island law applies to persons who originate solar leases and power purchase agreements, rather than persons who provide financing for the solar systems, and suggests that regulatory concerns around dealer practices extend to the leasing and power purchase arrangements.
Additionally, Nevada Senate Bill 379, which becomes effective October 1, 2025, will impose new consumer protections for solar installations and applies to solar loans, leases, and power purchase arrangements. The Nevada legislation will require a solar financing company to ensure that its dealers hold the requisite contractors’ licenses, and that failure to confirm licensing results in the solar contract being voidable by the consumer. The Nevada legislation will also prohibit solar lenders from making certain payments to dealers prior to PTO, extends the cancellation period for consumers who are 60 years of age or older, among other requirements.
These states’ movement on this issue may signal the early stages of a trend as regulatory scrutiny in the solar and home improvement financing space intensifies over time.
1 Treatment of dealer fees under federal law depends on the structure of the financing offered, as well as how such dealer fees are imposed. In particular, the “finance charge” determined under the federal Truth in Lending Act and its implementing regulation, Regulation Z, excludes “seller’s points,” which are fees imposed by a creditor on a non-creditor seller of goods or services rather than on the consumer. This exclusion covers dealer fees in loan transactions (under typical models in which the lender does not require the fee to be passed through to the consumer) even if the seller chooses to recoup some or all of the cost of the fee by passing it through to the consumer as an element of pricing or as a separate fee. The same treatment does not apply where the seller is the creditor, as would be the case in a program implemented through retail installment transactions. 12 C.F.R.§ 1026.4(c)(5) (and associated Official Interpretations).
3 See Wash. Rev. Code Ann. § 19.95.020(4)(c).
