FTC Rejects Limits on Affirmative Recovery under Holder Rule

by Ballard Spahr LLP
Contact

The Federal Trade Commission has declared that a consumer’s right to an affirmative recovery under the Holder Rule is not limited to circumstances where the consumer can legally rescind the transaction or had purchased worthless goods.

The Holder Rule—officially titled the Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses—provides protection for consumers who obtain credit from a seller or seller-arranged credit to finance the purchase of goods or services. The rule allows the consumer to assert all claims and defenses against the holder of the credit contract that the consumer could assert against the seller.

The FTC’s advisory opinion, issued on May 3, 2012, was requested by the National Consumer Law Center and representatives of other consumer organizations, including the Center for Responsible Lending. In 1999, the FTC had issued a staff opinion letter rejecting limitations on the circumstances under which the Holder Rule permits an affirmative recovery. However, prompting the NCLC’s request were at least six cases decided since the issuance of the FTC’s 1999 letter that had refused to follow the staff opinion, including one such case that noted that the staff opinion was not binding on the FTC.

In its opinion, the FTC “affirms that the Rule is unambiguous,” and states that its plain language permits a consumer to assert a seller’s misconduct (1) to defend against a lawsuit for amounts owed under the credit contract, and/or (2) to bring a claim against the holder for an affirmative recovery of money already paid by the consumer under the contract.

According to the FTC, the only limitation in the Holder Rule is that a consumer may not recover more than the amounts he or she has paid under the contract.

Courts that have limited a consumer’s right to an affirmative recovery, the FTC opines, “have misinterpreted two isolated comments in the [Statement of Basis and Purpose (SBP)] that accompanies the Rule.” The SBP comments indicated that affirmative recovery would be available only “where a seller’s breach is so substantial that a court is persuaded that rescission and restitution are justified” or where the consumer “received little or nothing of value from the seller.”

The FTC’s opinion characterizes the SBP comments as “practical observations and predictions” that do not contradict the Holder Rule. The explanation offered by the FTC is that “affirmative recoveries will be rare in cases where rescission is not justified because such recoveries occur only if the consumer’s claim is larger than what the consumer still owes on the loan.” In most such cases, the opinion letter states, the consumer is likely to have discovered the injury and stopped payment when the consumer still owes more on the contract than the amount claimed.

The Holder Rule was included in the Consumer Financial Protection Bureau’s list of rules that it will enforce. (See our prior legal alert discussing the CFPB’s list.) While, as a technical matter, the FTC’s interpretation may not be binding on banks since they are not subject to FTC jurisdiction, it may nevertheless be prudent for banks to take note of the FTC’s interpretation.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

The group also produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided to the right.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com; Practice Leader Jeremy T. Rosenblum at 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com; Mercedes K. Tunstall at 202.661.2221 or tunstallm@ballardspahr.com; Barbara S. Mishkin at 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti at 215.864.8138 or furlettim@ballardspahr.com.


 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.