Federal Acts Governing Home Solicitation Sales

In the United States, several federal laws govern home sales, solicitations, and the disclosures required by sales organizations, especially when a lien on the homeowner's home may be involved. The key regulations and laws related to these matters, that we pursue to achieve a successful outcome for you, include:

1. Truth in Lending Act (TILA)

• TILA governs many aspects of consumer credit transactions, including home sales and home improvement contracts where a lien may be placed on the home.
• Disclosure Requirements: Under TILA, creditors must provide clear and accurate disclosures about the terms and costs of loans or credit agreements. This includes:
  • The Annual Percentage Rate (APR).
  • The total cost of the credit.
  • The payment schedule.
• If the product or service sold results in a lien on the home (such as through financing for solar panels or home improvements), TILA ensures that homeowners are informed of their rights, including the right of rescission (the right to cancel certain types of loans within three days).

2. Home Solicitation Sales Act (HSSA)

• This federal law applies to door-to-door sales, including home improvement products or services sold by solicitors.
• Cooling-Off Rule: The FTC’s Cooling-Off Rule (which is part of the HSSA) gives consumers the right to cancel purchases over $25 made at their home (or outside of a seller’s permanent place of business) within three business days.
• Disclosure Requirements: Sales representatives are required to inform homeowners of their right to cancel the contract and provide them with a cancellation form and instructions on how to do so.

3. Real Estate Settlement Procedures Act (RESPA)

• RESPA governs the practices in home sales and the settlement (closing) process.
• Purpose: It aims to protect consumers by requiring clear disclosures of the costs involved in real estate transactions, including the mortgage or lien process.
• Key Disclosures: RESPA requires certain forms, including the Good Faith Estimate (GFE) and HUD-1 Settlement Statement, to be provided so consumers can understand the costs of the transaction.

4. Federal Trade Commission (FTC) Act

• The FTC Act prohibits unfair or deceptive business practices.
• Application to Sales Organizations: If a sales organization places a lien on a home or engages in misleading marketing or fails to disclose important terms of a contract, they could be in violation of the FTC Act. The FTC ensures that sellers are transparent and provide accurate information to consumers, including any potential impacts on homeownership or liens.

5. Magnuson-Moss Warranty Act

• This law governs warranties on consumer products. If a product like a home improvement system (e.g., solar panels) is installed and a lien is placed on the home as part of a financing agreement, the seller must provide clear disclosures regarding the warranty, and any financing terms should be disclosed in line with TILA.

6. Dodd-Frank Wall Street Reform and Consumer Protection Act

• This law created the Consumer Financial Protection Bureau (CFPB), which regulates many aspects of consumer financial products, including home improvement loans and transactions that place a lien on a homeowner's property.
• CFPB Enforcement: The CFPB has authority to enforce violations related to mortgages, home equity lines of credit (HELOCs), and other liens on real property. The Bureau ensures that organizations follow federal disclosure laws and protect consumers from unfair practices.

7. Home Mortgage Disclosure Act (HMDA)

• If a sales organization arranges financing that places a lien on a home, they may be subject to HMDA rules, which require transparency about mortgage lending practices.
• Disclosure Requirements: Lenders must provide certain disclosures regarding mortgage loans, including information on the interest rates, terms, and whether a lien will be placed on the property.

8. Equal Credit Opportunity Act (ECOA)

• ECOA ensures that consumers are treated fairly when applying for credit, including when a lien is placed on a home as part of a credit transaction.
• Disclosure Requirements: Lenders must notify applicants about credit decisions within 30 days and must provide clear reasons for denying credit if that occurs. They are also prohibited from discriminating on the basis of race, gender, age, or other protected factors.

Important Takeaways:

• Disclosure Requirements: When a lien is involved (e.g., through home improvement financing or sales contracts), the seller or creditor must comply with federal disclosure laws, ensuring homeowners fully understand the costs and consequences of their agreements.
• Consumer Protection: Homeowners have protections against misleading sales practices, including the right to cancel within a specified period (under the FTC Cooling-Off Rule) and protections from unfair or deceptive practices under the FTC Act.
• Credit Transactions: If a sales transaction involves securing a product sold by placing a lien on the home, the creditor must follow the rules under TILA, RESPA, and other consumer finance laws.

Truth in Lending Act (TILA)

As a consumer, it is very IMPORTANT to understand the rules, regulations, and MANDATORY requirements put in place for your protection under the above-cited Federal Acts in addition to individual State Protections. The Truth in Lending Act (TILA) is one of the most important ACTS governing consumer contracts and financing disclosures. TILA REQUIRES all fees, costs, and charges associated with the financing of a purchase affecting your home—such as solar panels—must be clearly disclosed, including dealer fees and any extra add-ons because these items contribute to the total amount financed and affect the Annual Percentage Rate (APR).

Here’s how these MANDATORY disclosures work under TILA:

• 1. Annual Percentage Rate (APR): The APR represents the total cost of credit expressed as a yearly rate. It reflects not just the interest rate but also all other fees and charges that the homeowner will pay as part of the financing, including any dealer fees or add-ons. TILA requires that the APR be disclosed prominently, so the homeowner understands the true cost of the financing arrangement, taking into account all the fees and charges involved, beyond just the interest rate.
• 2. Total Amount Financed: The total amount financed is the actual amount of money that the borrower is receiving to finance the solar panels. This amount should exclude any prepaid finance charges (such as interest or fees paid upfront), but it must include all dealer fees and additional charges related to the transaction. This disclosure allows the homeowner to know exactly how much they are borrowing and how much is going toward the cost of the solar panels versus other fees.
• 3. Finance Charge: The finance charge is the total amount the homeowner will pay over the life of the loan, beyond the cost of the solar panels themselves. This includes:
  • Interest charges.
  • Dealer fees.
  • Add-on costs (such as warranties, maintenance contracts, or other extra services added to the financing agreement).
  • Any service fees or administrative fees charged by the lender or dealer.
• 4. Itemization of Amount Financed: Creditors must provide an itemized breakdown of the total amount financed. This will typically include:
  • The amount credited to the homeowner’s account (the actual cost of the solar panels).
  • Dealer fees or commissions (fees paid to the dealer for arranging the financing or handling the sale).
  • Add-on charges (such as extended warranties or other optional products/services added to the contract).
• 5. Prepaid Finance Charges: Prepaid finance charges are any costs that the borrower must pay upfront at the time of the loan’s initiation. These must also be disclosed, including:
  • Origination fees.
  • Dealer processing fees.
  • Any other charges paid before receiving the loan funds.

Dealer Fees and Add-ons under TILA:

• Dealer Fees: If the dealer charges any fees for arranging the financing or for services provided in connection with the solar panel installation, those fees must be fully disclosed in the loan documentation, as they impact the APR and total amount financed.
• Add-ons: Any additional services or products, such as extended warranties, service contracts, or other optional items that are financed as part of the loan, must be clearly disclosed. These charges are considered part of the finance charge and must be included in the total cost of the loan.

TILA Enforcement of Clear Disclosures:

• Lenders and dealers are required to provide these disclosures in a clear and conspicuous manner. If they fail to disclose all relevant fees, or if the disclosures are misleading or incomplete, it could be considered a violation of TILA.
• Consumers have the right to challenge the accuracy of these disclosures if they believe the terms are not fully transparent.

Summary of Required Disclosure of Dealer Fees and Add-ons:

• APR: Must reflect all dealer fees, add-ons, and finance charges, not just the interest rate.
• Total Amount Financed: Must include the cost of the solar panels, as well as any dealer fees and add-ons.
• Finance Charge: A clear disclosure of all costs over the life of the loan, including fees paid to the dealer or for optional add-ons.
• Itemization of Amount Financed: An itemized list of all charges that contribute to the total amount financed, including the actual product cost, dealer fees, and extra services or products.

Example: Dealer Violations

In situations similar to your situation, if a dealer inflates the price of the solar panels from $4.00 per watt to $5.50 per watt, in order to offer a lower APR on financing, but intentionally fails to disclose that the $1.50 per watt increase is a dealer add-on or fee, that becomes a violation of the Truth in Lending Act (TILA) requirements.

Here’s why:

• 1. TILA’s Purpose: Transparency and Accurate Disclosures

  TILA is designed to ensure that consumers are given clear and accurate information about the true cost of credit. This includes all finance charges and any fees that contribute to the total cost of the financing. Under TILA, creditors are required to disclose all the relevant details that affect the Annual Percentage Rate (APR) and the total amount financed.

  If the dealer is inflating the price per watt from $4.00 to $5.50 solely to lower the APR and make the financing appear more attractive, that extra $1.50 per watt would be considered a finance charge or dealer fee under TILA. The dealer cannot simply bundle it into the overall cost of the system without disclosing it, because doing so would misrepresent the true nature of the costs.

• 2. Disclosure of Finance Charges and Add-Ons

  TILA requires the following disclosures to be made clearly:

  • Amount Financed: This must include the actual cost of the solar panels without hidden markups or dealer add-ons disguised as part of the product cost.
  • Finance Charges: Any charges related to the financing arrangement, such as dealer fees, discounts, or add-ons to manipulate the APR, must be clearly itemized and disclosed.
  • APR: TILA requires that the APR reflect all fees and charges involved in the financing, not just the interest rate.
• 3. Misrepresentation of Costs

  If the dealer presents the $5.50 per watt as the "normal" cost of the solar system, when in reality the true market value is $4.00 per watt and the extra $1.50 is a dealer add-on or markup to compensate for the lower financing rate, this could be considered misrepresentation or deception, which could violate both TILA and Federal Trade Commission (FTC) Act regulations against unfair and deceptive practices.

  The dealer would be required to:

  • Disclose the true base price of the solar system (i.e., $4.00 per watt).
  • Itemize the $1.50 per watt add-on as either a dealer fee or a financing charge.
  • Show how that add-on affects the financing terms and the APR.
• 4. Potential Violations under TILA

  By hiding the $1.50 per watt dealer markup and failing to disclose it as a fee or add-on related to the financing, the dealer is in VIOLATION of TILA because:

  • The APR calculation would not reflect the true cost of the financing.
  • The finance charge would not be fully disclosed.
  • The total amount financed would be misleading, as the customer would believe they are financing a product at $5.50 per watt, without understanding that part of this is a hidden dealer fee.

Conclusion

If the dealer increases the price of the solar panels to $5.50 per watt without disclosing that the increase is to reduce the financing rate, and instead presents it as the normal cost of the system, they are in violation of TILA’s requirement for full disclosure of finance charges and fees. The additional $1.50 per watt should be disclosed as a dealer fee or add-on cost that is related to the financing arrangement, and it MUST BE ITEMIZED in the loan documentation. Failing to disclose this information accurately would result in a misleading APR and constitute a failure to provide the transparency required under TILA.

Disclosure Requirements under TILA (Truth in Lending Act)

• Disclosure of Finance Charges: If the price is being marked up specifically to reduce the interest rate or affect the financing terms, this should be treated as a finance charge and must be reflected in the APR. Failure to disclose such a markup as part of the overall financing cost could violate TILA, as it would misrepresent the true cost of borrowing.
• Transparency: The homeowner must be informed that part of the price is being increased to account for the lower interest rate. If this is not disclosed, it could be considered deceptive and potentially illegal under TILA.

Deceptive or Unfair Trade Practices (FTC Act)

• 1. Misrepresentation: The dealer or salesperson misrepresents the reason for the markup or fails to disclose that the price includes an additional cost.
• 2. Deceptive Practices: The dealer presents the total cost of a product without revealing that it includes hidden fees or other additional charges.

State Consumer Protection Laws

Many states also have their own consumer protection laws that align with federal regulations but may impose stricter requirements, especially around fair pricing and transparency. States may prohibit hiding fees or adding unsubstantiated markups without proper disclosure.

Consequences of Hidden Dealer Fees

• Legal Penalties: Dealers who fail to disclose fees may face legal penalties under TILA and FTC regulations, including fines and potential lawsuits.
• Civil Lawsuits: Consumers may file fraud or misrepresentation lawsuits if they discover hidden fees.
• Rescission Rights: If proper disclosures were not made, consumers may have the right to cancel their agreements within a specified period.

Conclusion

Dealer fees cannot be hidden under federal law. Full disclosure of dealer fees is required by several consumer protection laws, including the Truth in Lending Act (TILA) and Federal Trade Commission (FTC) rules. Hiding dealer fees, or failing to disclose them clearly, can be considered a violation of these laws and result in legal consequences for the dealer.