The FTC revisited the rule to issue an updated opinion after some courts misinterpreted its statements to suggest that the rule preempts state laws that authorize attorney fee awards against loan holders.
01/31/2022 1:00 P.M.
2.5 minute read
The Federal Trade Commission has issued an advisory opinion stating that its rule concerning preservation of consumers’ claims and defenses, known as the Holder Rule, does not prevent state laws from providing costs or attorney’s fees against loan holders, as some courts have incorrectly concluded, according to a news release.
“The Holder Rule protects consumers who enter credit contracts by preserving their right to assert claims and defenses against any holder of certain loans and credit sales contracts, even if the loans or contracts are assigned to a third party,” according to the FTC. “The [r]ule requires the seller to include the Holder Rule Notice in such contracts so that claims and defenses about seller misconduct—such as a seller’s misrepresentation or breach of contract—are available to the consumer against the loan holder. When loan holders unsuccessfully dispute claims or defenses covered by the Holder Rule, some consumers may seek court costs and attorney’s fees from the losing parties.”
The FTC previously addressed the impact of the rule on costs and attorney’s fees in a May 2019 Federal Register Notice, but some courts and finance companies have misinterpreted the commission’s statements to suggest that the rule preempts state laws that authorize attorney fee awards against loan holders.
According to an article from Ballard Spahr LLP Partner John L. Culhane Jr., part of the Holder Rule is currently at issue in a California Supreme Court case.
“The question whether the Holder Rule’s limit on a consumer’s recovery to the ‘amounts paid by the debtor’ under the contract includes the consumer’s attorney’s fees is currently before the California Supreme Court in Pulliam v. HNL Automotive Inc. to resolve a split in the state’s appellate courts,” according to Culhane. “In Pulliam, the appellate court was unwilling to give deference to the FTC’s conclusion in the May 2019 notice and ruled that the Holder Rule’s cap does not apply to attorney’s fees. For that reason, the court did not reach whether the consumer had an independent right to attorney’s fees under CA Civil Code Section 1459.5. In one of the appellate decisions that produced the split, the court ruled that Section 1459.5 was preempted by the Holder Rule. However, since the question before the California Supreme Court in Pulliam is only whether the Holder Rule’s cap applies to attorney’s fees, the Supreme Court may not reach the preemption question. In its advisory opinion, the FTC asserts that the decision that found Section 1459.5 was preempted ‘misinterpret[s] the Holder Rule.’”
The advisory opinion, approved by the FTC 4-0, emphasizes that the rule does not eliminate any rights a consumer may have as a matter of separate state, local or federal law.
If you have executive leadership updates or other member news to share with ACA, contact our communications department at [email protected]. View our publications page for more information and our news submission guidelines here.
To receive notifications about ACA content—including member alerts, upcoming events and new products—text ALERTS to 96997. Message and data rates may apply. Message frequency will vary. To opt-out at any time, reply STOP to any message we send.
ACA International members are welcome to submit news items for possible publication to [email protected].