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| Unified League System voice calls for Indirect Lending Relief |
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The united voice of the League System called on the Federal Trade Commission (FTC) to withdraw a policy statement leading to confusion and harm to lenders. The American Association of Credit Union Leagues and all 31 Leagues joined America’s Credit Unions in Thursday’s letter.
The FTC’s 1975 Holder Rule requires that consumer credit contracts in seller-arranged financing transactions include a notice preserving the consumer's right to assert claims and defenses against the contract holder. A 2022 Commission Statement stated that attorneys’ fees and costs authorized by separate state laws are not subject to the cap, a ruling difficult to reconcile with the Holder Rule text.
Not only did this lead to negative impacts to lenders, including credit unions, the statement had the practical effect of reducing the availability and increasing the cost of credit for consumers.
“Under the 2022 Commission Statement, the credit union that financed the transaction bears open-ended liability for the seller’s failures, including fees that can dwarf the original loan amount,” the letter reads. “This outcome turns the Holder Rule’s original purpose on its head. The Rule was designed to prevent sellers from using credit structures to insulate themselves from accountability. It was not designed to make lenders the primary target of litigation when sellers go bankrupt or fail to deliver.”
In addition to withdrawing the 2022 statement and reaffirming the previous, plain-text reading of the cap, the organizations call for reconsideration of a 2021 Staff Note that reversed a longstanding position that the Holder Rule did not apply to transactions under $50,000.
The changes would be in line with the administration’s deregulatory mandate.
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