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New Developments under the Holder Rule Increase Risk to Creditors | Stroock & Stroock & Lavan LLP


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In our February 16, 2021, Client Alert (“Holders Beware”), we noted recent California caselaw expanding consumer plaintiffs’ rights to seek attorneys’ fees and court costs from creditors pursuant to the Federal Trade Commission’s “Holder Rule,” 16 C.F.R. § 433.2.  Since then, the California Supreme Court has agreed to consider the fee and cost issue.  Additionally, the FTC recently issued new guidance rejecting transaction-size exemptions from the Holder Rule.  Both developments may increase creditors’ liability risk associated with financing consumer purchases.
The “Holder Rule” requires creditors that finance the purchase of consumer goods, by taking an assignment of the purchase contract, to include within the contract a clause preserving the right of the debtor-purchaser, in the event the goods are defective, to sue the creditor-assignee (or a subsequent assignee).  The contract also ....

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