The Federal Trade Commission (FTC) affirmed a consumer right on Thursday that has big implications for the loan industry.
The FTC was asked to review the “Holder in Due Course” rule, commonly referred to as the Holder Rule, by the National Consumer Law Center (NCLC) and several other consumer rights organizations. The rule, which protects consumers who make purchases through a merchant using a line of credit, had come under fire recently after several court decisions put into question whether a consumer could try to regain payments made on a purchase through the lender if the merchant has sold a defective product.
An example of a situation in which a consumer would encounter this problem is an auto loan, the NCLC says. Perhaps a car dealer sells a vehicle that is defective to a consumer, who uses a car loan to pay for the vehicle. The FTC’s ruling on the Holder Rule means that consumers can make a claim to the lender to stop paying the loan instead of having to make a claim to the merchant while continuing to have to repay the loan to the lender. The result, the NCLC says, is a more efficient and consumer-friendly process for disputing purchases.
“The FTC Rule on the Preservation of Consumers’ Claims and Defenses is a cornerstone of consumer protection,” the NCLC said in a press release. “It makes it far more practical for consumers to raise claims against sellers, even when the seller is insolvent or skipped town, and it encourages lenders to scrutinize the sellers with whom they form business relations.”
The NCLC says this affirmation of the rules will make lenders more accountable when it comes to dealing with reputable merchants.
The FTC’s vote interpretation of the rule was unanimous at 5-0.
Image: achimh, via Flickr