WASHINGTON (1/15/16)--As part of the Federal Trade Commission’s (FTC) systematic review of its current rules and guidelines, it is seeking comment on the Holder Rule. The Credit Union National Association (CUNA) is seeking feedback from credit unions about whether they are affected by outdated provisions in the rule.
Credit unions that engage in indirect auto lending are most likely to be impacted by this rule, but it is also relevant in other consumer contracts.
Specifically, CUNA is asking credit unions for comments about how the Holder Rule impacts operations and what changes could be made to relieve those regulatory burdens. The FTC is seeking feedback on potential modifications to the rule.
Known officially as the Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses, the Holder Rule preserves consumers’ rights to assert the same legal claims and defenses against anyone who purchases a credit contract, as they would have against the seller who originally provided the credit.
Its effect is to keep the consumer from losing his or her rights under the sales contract and under state law if the seller assigns or sells the contract to any other creditor such as a credit union or other financial institution.
The rule applies to sellers of goods who provide or arrange financing for their customers. Sellers are required to include a notice in their loan agreement or ensure that lenders they refer customers to include the notice in their loan agreement that preserves the consumer’s claims and defenses against the seller of the goods.
The Holder Rule does not directly create a duty by a financial institution to place the notice in a loan agreement unless a financial institution has a relationship with the seller or automobile dealer or unless the lender is selling the goods, such as an automobile, directly to the consumer.
Comments are due to CUNA by Feb. 1, and due to the FTC by Feb. 12.