The Rule, formally called the “Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses,” protects consumers when they purchase personal goods or services with money loaned by a merchant or by a lender who works with a merchant.
Full Answer
The Holder Rule is a regulation issued by the FTC that allows consumers to bring any legal claims against the “holder” of a retail installment sales contract or other credit contract that it could assert against the original seller of the good or service, even if the claim springs from the seller's misconduct alone.
Under the Rule, banks which purchase consumer paper containing the notice required of sellers cannot avail themselves of the holder-in-due-course doctrine. Also, banks which make purchase money loans containing the notice will be subject to all claims and defenses which the consumer could assert against the seller.
Acting to curb abuses, the Federal Trade Commission (FTC) in 1976 promulgated a trade regulation rule that in effect abolished the holder-in-due-course rule for consumer credit transactions.
The FTC's Credit Practices Rule protects consumers from abusive contract provisions that are designed to give the creditor an upper hand in collections and to evade legal protections for the debtor.
In commercial law, a holder in due course is someone who takes a negotiable instrument in a value-for-value exchange without reason to doubt its legitimacy. A holder in due course acquires the right to make a claim for the instrument's value against its originator and intermediate holders.
The rules protecting the inheritors or purchasers who are assigned the right to receive debt payments from an original creditor are called the Holder in Due Course (HDC) doctrine.
The UCC provides that to be an HDC, a person must be a holder of paper that is not suspiciously irregular, and she must take it in good faith, for value, and without notice of anything that a reasonable person would recognize as tainting the instrument.
Meaning. A holder is a person who legally obtains the negotiable instrument, with his name entitled on it, to receive the payment from the parties liable. A holder in due course (HDC) is a person who acquires the negotiable instrument bonafide for some consideration, whose payment is still due.
A holder in due course holds the negotiable instrument free from any defect of title of prior parties, and free from defences available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.]
Pursuant to this rulemaking authority, the FTC issued its Credit Practices Rule. The FTC's Credit Practices Rule is applicable to creditors that are within the FTC's jurisdiction; it is not applicable, for example, to banks, savings associations, and Federal credit unions.
The Consumer Financial Protection Bureau has issued regulations under ECOA. These regulations, known as Regulation B, provide the substantive and procedural framework for fair lending.
Charges Excluded from Finance Charge: 1) application fees charged to all applicants, regardless of credit approval; 2) charges for late payments, exceeding credit limits, or for delinquency or default; 3) fees charged for participation in a credit plan; 4) seller's points; 5) real estate-related fees: a) title ...
Regulation AA (Unfair or Deceptive Acts or Practices) was a regulation created by the Federal Reserve to address practices by banks that consumers believed to be unfair. Regulation AA was created in 1985 and repealed in 2016.
The FCRA was the first federal law to regulate the use of personal information by businesses and was enacted in response to the expansion of the credit reporting industry. Its purpose is to promote the accuracy, fairness and privacy of information assembled by credit reporting agencies.
Truth In Lending Act Defined A federal law that helps promote consumer awareness, it essentially requires lenders to provide standardized disclosures about loan terms and costs, including information such as the annual percentage rate, terms of the loan, and total loan cost.
APR is the cost of credit on a yearly basis expressed as a percentage rate (e.g., 18 percent or 8.5 percent).
The Rule is designed to insure that consumer credit contracts used in financing the retail purchase of consumer goods or services specifically preserve the consumer’s rights against the seller . It requires sellers to include the following provision, or Notice, in the text of any consumer credit contract which they execute with a buyer:
In adopting this Rule the Commission determined that it constitutes an unfair and deceptive practice within the meaning of Section 5 of the Federal Trade Commission Act (15 U .S .C . 45) for a seller, in the course of financing a consumer purchase of goods or services, to employ procedures which make the consumer’s duty to pay independent of the seller’s duty to fulfill his obligations. In the course of public proceedings of the Rule the Commission documented numerous cases where consumer purchase transactions were financed in such a way that the consumer was legally obligated to make full payment to a creditor despite breach of warranty, misrepresentation, and even fraud on the part of the seller .
The Rule does not apply to all credit instruments .The Notice must appear in written obligations defined as “Consumer Credit Contracts” in the Rule. The definition includes any written instrument which under the Truth in Lending Act* and Regulation Z of the Federal Reserve Board,** constitutes a consumer credit contract and which is
T or F: A holder can recover from any of the parties who are liable on the instrument, regardless of the order of the signatures on the instrument. True. T or F: The law gives certain holders of a negotiable instrument a preferred standing by protecting them from all defenses when they sue to collect payment. false.
True. T or F: The fact that a person signs a negotiable instrument because he or she is fraudulently deceived regarding its nature or essential terms is a defense available against all holders. True.
Mabel issues a negotiable promissory note to the order of Rachel. Rachel endorses the note to Batton, who takes it as a holder in due course. Batton gives the note to his brother, Albert, as a gift. In this situation: a. Albert will acquire Batton's rights. b. Albert is a holder through a holder in due course.