Consumer Group: Solar Contracts Force Customers to Sign Away Rights

The Federal Trade Commission is asked to bar mandatory arbitration clauses, which have come under fire in many industries for taking away customers' right to sue.

SolarCity is among the companies criticized for using mandatory arbitration clauses

SolarCity is one of the companies that uses mandatory arbitration clauses in its solar leasing contracts, a consumer advocacy group says. Credit: Reuters

Public Citizen, a consumer activist group, is urging the Federal Trade Commission to forbid solar leasing companies from requiring customers to sign away their right to raise complaints in court.

SolarCity, the nation's largest solar company, Sunrun and others often include mandatory arbitration clauses in their contracts, language that forces customers to agree to raise grievances in the private forum called arbitration rather than sue to have their complaints decided by a judge and jury.

Standard electricity suppliers, however, aren't generally allowed to use mandatory arbitration clauses. That's because utilities and other power providers are regulated by state officials and their product is considered a public benefit; this isn't true for the solar leasing industry.

The U.S. residential solar market experienced record growth last year, passing the 2-gigawatt mark in installations, and the outlook for this year is even brighter. Since 2011, homeowners have overwhelmingly chosen to lease solar systems instead of buying them to save on the upfront costs. But with the price of the systems dropping and more low interest financing available, energy analysts now predict more homeowners will buy panels than lease them in 2017 for the first time since 2011. Even SolarCity and other major solar leasing companies have begun offering financing for purchases.

That still leaves many thousands of homeowners locked into leases that typically run 20 years, many of whom don't realize the language in those leases makes arbitration their only option in a dispute with the company.

After reviewing language in a SolarCity contract, Nancy Peverini, legislative director at Consumer Attorneys of California, a professional organization of lawyers that also advocates for consumer rights, described it as "anti-consumer provisions" and "unconscionable." She told InsideClimate News that it's one thing for a consumer to choose arbitration after a dispute arises and it's another for them to be required to go this route before any harm has occurred.

One of the issues with arbitration, Peverini said, is that it limits customers' access to what's called discovery—which in lawsuits guarantees both parties access to documents and other evidence during a trial. Arbiters are also selected by the company and have often worked with that company previously. It's also a private process, with no judicial oversight.

SolarCity did not respond to a request to comment. Another solar leasing company, Sungevity, also did not respond, but the companies SunPower and Sunrun did.

"Yes, we include a mandatory arbitration clause in our solar leasing agreement in order to help protect each party that has a stake in the transaction—including the customer," said a SunPower spokesperson. "In many cases, arbitration can be an effective solution that minimizes any need for litigation which can be time-intensive and costly for all involved."

Sunrun spokeswoman Becky Loya declined to comment on the specifics of their contract language, but noted "the clause is standard across the industry."

There are numerous documented cases of abuse of these clauses in industries from banking to healthcare.  In many of these cases, customers and workers had little to no choice in submitting to arbitration to handle their grievances, instead of being able to sue the company, and many were unaware of what the had agreed to in the contract. 

"The most important consumer protection that the FTC can promote is to issue a rule forbidding such mandatory arbitration clauses in solar lease contracts," Public Citizen wrote in public comments submitted to the FTC on Monday. The group later wrote in their comments: "Because utility commissioners do not regulate to protect solar leasing consumers, it is critically important that households have every means of legal recourse available to them in the event of a disagreement."

The FTC held a one-day workshop in June on solar competition and consumer issues. Officials solicited public comments on these issues starting before the workshop and running through Aug. 22.

According to Public Citizen's director Tyson Slocum, the use of mandatory arbitration clauses was not discussed at length at the FTC workshop. He said his group had raised its concerns privately with some companies including SolarCity earlier in the year to little effect and that's why Public Citizen is now flagging the issue for the FTC to consider. The goal, Slocum said, is to halt the practice before it becomes a problem for the nascent and fast-growing solar leasing industry that isn't regulated in the same way as other electricity providers.

"It's great that [solar leasing] has made the solar market available to people that otherwise wouldn't have access to it. That's a positive thing," said Slocum. "But there is a lot of opportunity for abuse in this market and we just want to get out ahead of it." Slocum said Public Citizen is not advocating for solar leasing companies to be regulated in the same way as utilities and other power companies.

According to spokesman Frank Dorman, the Federal Trade Commission is under no obligation to respond to all comments. It is also unclear if the FTC even has the authority to forbid the clauses. Dorman told InsideClimate News the FTC has limited rulemaking authority and it has been rarely used.

Public Citizen's six-page filing includes a sample mandatory arbitration clause from a SolarCity contract. In it, the solar company requires signees to agree to settle disputes with the company in arbitration. The contract also says customers can raise a dispute only as individuals and not as a group, eliminating the possibility of a class-action lawsuit.

"To take claims out of the public view and to prohibit class action suits has been a form of a get-out-of-jail-free card for many companies and many industries," said Cliff Palefsky, a lawyer from the California-based law firm McGuinn, Hillsman & Palefsky. Palefsky has handled many arbitration cases, but never in the solar industry. 

Dan Whitten, vice president of communications at the solar trade group Solar Energy Industries Association, also said such clauses are common in the industry and not all of them prohibit class-action lawsuits.

In the solar industry, "our life blood is really word of mouth," said Whitten. "We really depend on people having a good experience and as part of that, we've done a tremendous amount of work on consumer protection." He then added: "It's really important to us that people understand the terms of their contract, including any arbitration clauses."

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