FTC: Rule doesn’t limit consumer refund rights

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A federal rule governing the assignment of consumer credit contracts does not limit the rights of consumers to obtain refunds to which they are otherwise entitled, the Federal Trade Commission makes clear in a new opinion letter.

“[T]he Rule 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,” FTC Secretary Donald Clark stated in an opinion letter issued earlier this month. “Further, the Rule 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.”

The FTC’s Holder in Due Course Rule is officially titled the “”Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses.”” The Holder Rule, originally adopted in the 1970s, generally protects consumers who enter into credit contracts by preserving their right to assert claims and defenses against any holder of the contract, even if the original seller of goods or services subsequently assigns the contract to a third party.

Consumer advocates have become concerned that some courts have interpreted the Holder Rule as allowing affirmative recovery only if the consumer is entitled to rescission or similar relief under state law. The FTC’s opinion letter responds to a request for clarification on this issue by several consumer groups, including the National Consumer Law Center.

“The Commission affirms that the Rule is unambiguous, and its plain language should be applied,” Secretary Clark said in the letter. “No additional limitations on a consumer’s right to an affirmative recovery should be read into the Rule, especially since a consumer would not have notice of those limitations because they are not included in the credit contract.”

According to an FTC press release, the Commission approved the opinion letter in a 5-0 vote.

The National Consumer Law Center applauded the agency’s action.

In a statement, the group said: “Now that the full Commission has issued a formal advisory opinion interpreting its own rule, it is hoped that this issue will be laid to rest, so that consumers who have already made substantial payments on a loan are not treated worse than those who have.

“By insuring that the Rule is properly applied, the FTC has strengthened one of the most important pieces of consumer protection in the United States.”