FTC Issues Advisory Opinion on the Holder Rule and Attorneys’ Fees and Costs

The Federal Trade Commission has issued an advisory opinion stating that the Holder Rule does not prevent state law from providing costs or attorneys’ fees against loan holders, as some courts have incorrectly concluded.

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. The Rule 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 Rule, some consumers may seek court costs and attorney’s fees from the losing parties. The Commission previously addressed the impact of the Rule on costs and attorneys’ 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. The advisory opinion emphasizes that the Rule does not eliminate any rights a consumer may have as a matter of separate state, local or federal law. 

The Commission vote to approve the advisory opinion was 4-0.