FTC Opinion Letter Affirms Consumers' Rights under the Holder Rule

The Federal Trade Commission has issued an advisory opinion affirming consumers' rights under the FTC's Holder in Due Course Rule, which protects the rights of consumers who make a purchase using credit obtained through the merchant.

The Rule, formally known as the "Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses," protects consumers when merchants sell a consumer's credit contracts to other lenders. Specifically, it preserves consumers' right to assert the same legal claims and defenses against anyone who purchases the credit contract, as they would have against the seller who originally provided the credit.

Under the Rule, consumers can cite misconduct by a seller in order to defend themselves against a creditor's lawsuit for money owed under a contract, or to seek a refund of money they have paid under the contract. The opinion letter affirms that the language of the Rule is unambiguous and the Rule places no limits on a consumer's right to an affirmative recovery of payments already made.

The advisory opinion was requested by the National Consumer Law Center (NCLC), joined by Public Citizen, the Center for Responsible Lending, the National Association of Consumer Advocates, and the federation of state Public Interest Research Groups, U.S. PIRG. The NCLC asked the FTC to affirm that the Rule does not limit a consumer's rights to recover money he or she has already paid under a contract to circumstances where the consumer can legally rescind the transaction, or where the goods or services sold to the consumer are worthless. The NCLC requested the advisory opinion because some courts have imposed limitations on a consumer's ability to obtain an affirmative recovery.

The Commission vote approving the advisory opinion was 5-0. The staff contact is Heather Allen, Bureau of Consumer Protection, 202-326-2038.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.  To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357).  The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad.  The FTC’s website provides free information on a variety of consumer topics.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

MEDIA CONTACT:

Office of Public Affairs
202-326-2180

(Holder Rule advisory opinion)
(FTC File No. P124802)

16 C.F.R. Part 433: Federal Trade Commission Trade Regulation Rule Concerning the Preservation of Consumers' Claims and Defenses (The Holder Rule): Commission Advisory Opinion Confirming That the Rule (1) Places No Limits On A Consumer's Right To An Affirmative Recovery (Other Than Limiting Recovery to A Refund of Monies Paid Under the Contract At Issue), and (2) Does Not Limit Affirmative Recovery Only To Those Circumstances Where Rescission Is Warranted or Where the Goods or Services Sold To the Consumer Are Worthless.

• Text of the Commission Advisory Opinion
• Commission Staff Opinion Letter (September 1999)
• The Holder Rule

For Consumers:

• FTC Site on Credit

For Businesses:

• BCP Business Center – Credit