FTC “Holder” Rule: Claims Against a Finance Company for Actions of a Car Dealer

The economy is sure to result in more car dealerships closing. What can you do if you have claims against a car dealer, and the dealer has gone out of business? There might be several ways to proceed, but one way is provided by the FTC holder rule.

If you financed the purchase of a car with the dealership, using a retail installment contract (usually a long form), you might have recourse against a lender for claims against a car dealer. Usually, when a dealer uses a retail installment contract, the dealer is actually the initial lender. The dealer then assigns the contract, very quickly, to a third-party lender. Most retail installment contracts will have something like the following language printed in them for consumer sales:

NOTICE

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR.

Even if the language is not in the contract, your state might have a statute holding that the contract will be read as if the language were present. This language gives the consumer the ability to, among other things, pursue the assignee lender for claims the consumer has against the car dealer. This may or not be wise in a particular case, depending upon a number of factors. You should seek competent legal assistance before asserting claims against a lender pursuant to the holder rule.

This entry was posted on Wednesday, February 4th, 2009 at 6:02 pm and is filed under Bankrupt Car Dealer, FTC Holder Rule. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “FTC “Holder” Rule: Claims Against a Finance Company for Actions of a Car Dealer”

Terrence Holman Says:
October 23rd, 2009 at 4:44 pm
I purchased a car from a used car dealership and was never informed that it had a salvaged title, nor was it mentioned in the contract. The dealership is no longer in business, can I go after the finance company since the contract I signed is an installment contract?
dmadmin Says:
October 23rd, 2009 at 4:51 pm
Check your state’s law to be sure. However, review your retail installment contract for language that allows you to assert claims and defenses against any holder of the contract. If such langauge is there, you might be able to assert claims against the lender for violations by the car dealer.