Division of Financial Practices 

Bureau of Consumer Protection 

Jeff Appel 

Deputy Under Secretary 

U.S. Department ofEducation 

Office of the Under Secretary 

400 Maryland Ave, SW 

Washington, DC 20202 

Dear Mr. Appel, 

UNITED STATES OF Al\1ERICA 

Federal Trade Commission 

WASHINGTON, D.C. 20580 

April 7, 2016 

This letter is in response to your request for a staff advisory opinion regarding the 

Federal Trade Commission's Trade Regulation Rule Concerning Preservation of 

Consumers' Claims and Defenses, 16 C.P.R. § 433, commonly known as the Holder 

Rule. Specifically, you note that courts commonly allow consumers to assert time-barred 

claims defensively, even if they would not be able to assert such claims in an affirmative 

lawsuit, and ask if such defensive claims would be permitted under the Holder Rule. As 

explained below, the Holder Rule would permit the time-barred claims or defenses 

against the holder, if state law would permit the time-barred claims or defenses against 

the seller. 

The Holder Rule protects consumers who enter into credit contracts with a seller 

of goods or services by preserving their right to assert claims and defenses against any 

holder of the contract, even if the original seller subsequently assigns the contract to a 

third-party creditor. In particular, the Holder Rule requires sellers that arrange for or 

offer credit to finance consumers' purchases to include in their credit contracts the 

following 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 HEREUNDER. 

16 C.P.R. § 433.2. 

A creditor or assignee of the contract is thus subject to all claims or defenses that 

the consumer could assert against the seller. As you note in your request, the Guidelines 

that accompany the Holder Rule explain that "claims and defenses" are "not given any 

special definition by the Commission.. . . Appropriate statutes, decisions, and rules in 
each jurisdiction will control, and the pertinent rules oflaw and equity, including rules of 

evidence, procedure, and statutes of limitations, will continue to apply." 1 

Thus, the Rule protects consumers' existing claims and defenses, and does not 

create any new claims or defenses for the consumer. Accordingly, if a statute of 

limitations bars an affirmative lawsuit against a seller under state law, that law would 

continue to apply. If, however, other applicable state law would still permit the claim 

against the seller, then under the Holder Rule, the claim could be used as to subsequent 

holders of the contract. Further, if state law allows consumers to assert time-barred 

claims as defenses against the seller, then the Holder Rule would allow consumers to 

assert such defenses against subsequent holders as well. 

Please be advised that the views expressed in this letter are those of the FTC staff. 

They have not been reviewed, approved, or adopted by the Commission, and they are not 

binding upon the Commission. However, they do reflect the opinions of those staff 

charged with enforcement of the Holder Rule. 

Sincerely, 

Sv~ Stephanie Rosenthal 

Chief of Staff, Division of Financial Practices 

Federal Trade Commission 

Bureau of Consumer Protection 

1 FTC, Guidelines on Trade Regulation Rule Concerning Preservation of Consumers' Claims and 

Defenses, 41 Fed. Reg. 20022 (May 14, 1976), available at 

https://www.ftc.gov/system/files/documents/rules/holder-rule/760504hidcrule.pdf. 

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