FTC Staff Issues Note on Holder Rule and Large Transactions

The staff of the Federal Trade Commission has issued a note correcting previous staff guidelines on the FTC’s Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses—commonly known as the Holder Rule.

The Holder Rule protects consumers who enter into 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 new staff note corrects an erroneous statement in a 1976 pamphlet by FTC staff that the Holder Rule did not apply to transactions larger than $25,000. Those staff guidelines stated that the Rule incorporates the transaction cap that was present in the Truth in Lending Act (TILA). In the new note, staff points out that no such incorporation exists in the Rule, which was first issued in 1975, and that the erroneous guidance contradicts a statement by the Commission that the application of the Rule does not depend on the amount of the transaction.

The note states that the text of the Holder Rule does not contain any exemption based on the size of a transaction.