Brooke Conkle and Chris Capurso examine the current status of the Federal Trade Commission's (FTC) Holder Rule, including its historical context, current interpretations, and future implications, particularly focusing on attorneys' fees.
In this episode of Moving the Metal: The Auto Finance Podcast, Brooke Conkle and Chris Capurso from Troutman Pepper Locke's Consumer Financial Services Practice Group examine the current status of the Federal Trade Commission's (FTC) Holder Rule. They discuss its historical context, current interpretations, and future implications, particularly focusing on attorneys' fees. The conversation highlights the California Supreme Court's Pulliam decision, which challenged traditional understandings of the rule by allowing for the recovery of attorneys' fees under certain state laws. Additionally, they examine the FTC's 2022 advisory opinion, which aligns with Pulliam and broadens the scope of potential claims against holders of credit contracts. Finally, they take a look at the impacts of Pulliam and forecast the future of the Holder Rule in the current regulatory climate. The episode provides insights into how these developments impact auto finance companies and the strategies they can employ to mitigate risks associated with the Holder Rule.
Moving the Metal: The Auto Finance Podcast — The Current State of the Holder Rule: Friend or Foe?
Hosts: Brooke Conkle and Chris Capurso
Recorded: July 17, 2025
Aired: July 29, 2025
Brooke Conkle:
Welcome to Moving the Metal, the premier legally-focused podcast for the auto-finance industry. I'm Brooke Conkle, a partner in Troutman Pepper Locke’s Consumer Financial Services Practice Group.
Chris Capurso:
And I'm Chris Capurso, an associate in Troutman Pepper Locke’s Consumer Financial Services Practice Group.
Brooke Conkle:
Today, we'll be talking about the history of The Holder Rule, where we currently stand with regard to attorney's fees under the rule and what's to come. But before we jump in, let me remind you to please visit and subscribe to our blogs. We have two great ones that may be of interest to you: TroutmanFinancialServices.com and ConsumerFinancialServicesLawMonitor.com.
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For today as I mentioned, we'll be discussing the FTC's Holder Rule, where we've been, where we are, and what's to come. Chris, let's just level set to start off with. The FTC Holder Rule is a creation of agency law, which frankly in this climate doesn't exist anymore. In 1975, the FTC promulgated The Holder Rule, formally named, The Holder in Due Course Rule. It permits consumers to bring any legal claim against the holder of a credit contract that the consumer could assert against the original seller of the good or service, even if the claim springs from the seller's misconduct alone.
In auto finance land, that means that it allows a consumer to bring a claim against an auto finance company that holds a credit contract based on purported misconduct at the seller level or at the dealer level. So, Chris, tell us a little bit about how the rule operates.
Chris Capurso:
Yes. So, it's an interesting rule, because I think most people on the call will think of The Holder Rule notice that appears in credit contracts. To be frank, the rule isn't too much more than that notice that describes the rights. Kind of before getting into the notice, I should note that there are two versions of the notice, one that applies to your typical retail installment sales transactions, finance sales transactions. But then, there is another version of the notice that can apply to certain types of purchase money loans. So, for any lenders out there, The Holder Rule could apply depending on the security.
But the notice basically says, and I'll go with the finance sale version. It says, 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 here to, or with the proceeds hereof, recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder. So, lots of legalese in there, a lot of hereunders, heretos, but the substance of The Holder Rule is contained in that notice. If you're holding a credit contract, you can be subject to claims that the consumer could bring against the original seller of the goods. Recovery under that is limited to amounts actually paid by the debtor under the contract, and that's going to be the crux issue that we're going to discuss today.
That is the substance of The Holder Rule. I know we have clients who ask, like, "Well, surely it can't possibly be all claims and defenses." Surely, it can. It is a very wide-open rule that can cover all sorts of different things. Just for example, advertising related to the sale if undertaken by the seller, sales practices, warranties, insurance, service contracts, anything that the seller does could theoretically be brought against the holder with the Holder Rule with that caveat of having the limitation on recovery, which is one of the things we're going to discuss. Brooke, what changed? Why is there suddenly, maybe not suddenly because it's in the last couple of years, but why is there now skepticism about that cap applying wholeheartedly to everything?
Brooke Conkle:
Yes. Chris, you're exactly right. Historically, The Holder Rule has been considered by auto finance companies as something to watch out for, but potentially not a huge area of risk for them, specifically because of the language that you cited, recovery hereunder, and limiting that recovery to amounts paid by the debtor. So, in many cases, we'll see, you know, if there's a lemon law case or just as you mentioned, Chris, allegations based on the advertising of a vehicle. Absolutely, the holder can be named as part of those claims.
Historically, however, the risk was seen as potentially less than a straight servicing claim or something like that, specifically because recovery was historically understood to be the amounts paid by the debtor so far on their credit contract. That phrase in particular really came up before the California Supreme Court in 2022. It was a challenge by a plaintiff, essentially, and specifically seeking a ruling that would allow unlimited attorney's fees, particularly under the Song-Beverly Act in California. I will say, the Pulliam decision is not limited to the Song-Beverly Act, but that is the statute that the plaintiff was proceeding under.
The California Supreme Court began by looking at the phrase that we've been talking about, recovery hereunder by the debtor, and finding that that language was ambiguous. Specifically, the court found kind of two ways that you could go with that language. One, it could refer only to money that the debtor keeps, such as damages, but it also could be interpreted to include money that the debtor receives and passes along to its counsel, specifically attorney's fees. The California Supreme Court looked at extrinsic sources and noted that the FTC did not mention attorney's fees until 2019. But what's interesting about that 2019 mention is that, the FTC specifically said, we have considered whether attorney's fees should be recoverable and we're concluding that it should not.
It's interesting, a real curious turn to sort of reference the 2019 rule confirmation. The California Supreme Court says, "We see you, FTC, and we are headed the other way." Specifically, the court noted that California law, including the Song-Beverly Act, does not consider attorney's fees to be an element of damages. They are costs instead. The California Supreme Court concluded that the FTC, which was certainly aware of state laws like the Song-Beverly Act at the time that The Holder Rule was created. The court concluded the FTC did not intend to essentially abrogate state laws that would permit attorney's fees awards. So, Chris, tell us what happened at the agency level in 2022. Was there anything that was sort of similar to Pulliam?
Chris Capurso:
Yes. I mean, well, I should start by saying that 2019 opinion, obviously during the first Trump administration, that had a 5-0 vote from the FTC. They were all in agreement. Back to the days when there were five FTC commissioners, we longed for the day. But in 2022, just three short years later, in between obviously a pandemic, a presidential administration change, but still three of those same commissioners are at the FTC. Yet, the FTC votes unanimously again, the said 4-0, to completely 180 from that prior 2019 advisory opinion, and say that The Holder Rule doesn't eliminate any rights the consumer may have as a matter of – and this is a quote, "separate state, local, or federal law".
So, whether costs and attorney's fees may be awarded is determined by the relevant law governing the cost and fees. So, going right along with Pulliam saying, "Hey, our prior opinion saying The Holder Rule is a cap on this? Whoops, never mind. We're going back. We're going with the California court and we are saying, this is a separate matter." Attorney's fees, just to Brooke's point, it's different. Attorney's fees aren't capped under The Holder Rule if they're provided for by separate law. So, we have this just complete 180 from the FTC, and like I said, with three of the same commissioners.
So, you have Pulliam in 2021, and then the FTC coming in 2022 is sort of back up to the Pulliam Court. Except now, we're going beyond California. We're going to everywhere the FTC touches, which is the United States. So, much broader scope, but the same type of reasoning.
Brooke Conkle:
That's exactly right, Chris. What's interesting is, I think a lot of us were sort of waiting with bated breath on the Pulliam decision. For those of us who tend to be on the defense side of a lot of cases, there was a lot of concern about extension of Pulliam into other jurisdictions, whether other courts would see courts would see the advisory opinion from the FTC, and find that, that attorney's fees are recoverable under different state laws. What we've seen so far in the wake of Pulliam is, frankly, not a lot.
This issue has not come up, I think, as frequently as some in the industry might have predicted or expected. The Pulliam decision, honestly, if you shepardize it and see where this case is being cited elsewhere, it largely is limited to California. We say that with a caveat of day in and day out. There are claims in small claims courts, courts of limited jurisdiction that are not being reported on Westlaw and Lexis, where, you know, judges may be extending the recoverability of attorney's fees under The Holder Rule.
In the ways that we can see and track through Westlaw and Lexis, we're not seeing a ton of courts that are either following Pulliam, or are really sort of digging into the issue of whether or not The Holder Rule prevents recovery of attorney's fees. But Chris, we still have an open question here, don't we? I mean, we had the 2019 era where attorney's fees were rejected. We've got 2022 where maybe they're back in play. Here we are in 2025 with an administration that really has a wholesale rejection of everything from the Biden administration. So, Chris, where do we stand right now?
Chris Capurso:
Hard to tell. The advisory opinion is still in place. Unlike the CFPB, which just wholesale revoked everything, just erase everything that happened in that four years, the FTC has not done something similar. So, the opinion is still on the books, so to speak. I'd be curious to know, this isn't like with the CFPB, where people were like, is a rule going to go away? Are our obligations going to go away? The Holder Rule is not going anywhere. As Brooke noted, it's been around for – this is the 50th anniversary, right? It's the big five O. It's not going anywhere.
The question about this opinion is a valid one. We've discussed previously on the podcast, Chairperson Ferguson takes a very strict view to the FTC's Section 5 authority under the FTC Act, and really strictly interpreting the law, and what it provides for. The advisory opinion discusses Section 5 of the FTC Act, a smidge, and says that nothing in the Holder Rule states that the application of such laws to holders is inconsistent with Section 5 of the FTC Act, or that holder should be wholly or partially exempt from these laws. So, I mean, there is a slight mention of the prior FTC saying, "Hey, nothing in Section 5 should prohibit this reading that attorney's fees are a separate category and should not be capped under The Holder Rule."
To Brooke's point, it's really, is the FTC going to kind of go the way the CFPB and just wholesale tried to get rid of some of these things? I mean, as I noted, this was a unanimous opinion. I mean, it was 4-0, but got at least one of the other side to agree to it. So, I think it's an open question. Also noticed that the FTC isn't nearly the political football that the CFPB is. It seems like every day, there's some kind of new pronouncement with the CFPB, less so with the FTC, and the FTC is still doing stuff unlike the CFPB. We get our e-mail pings every day about the FTC doing something. When the CFPB does something now, it's like, "Whoa, there it is." So, it's just different than what we've seen at the CFPB, and I'll be curious personally to see if this comes up under Chairperson Ferguson's watch. But any event, The Holder Rule isn't going anywhere. So, obviously – and it's one of those things also that is like, I mean, you can comply with the rule by putting the notice in there, and 100% you have to do that.
The way you comply is making sure that dealers in the auto finance context are not doing things that are violating the law, having some kind of oversight to make sure that common pitfalls, maybe with paperwork, or sales tactics, or as I said, warranties, insurance, things like that, make sure that they are following guidelines and make sure that they are following the law. Another consideration too is, there's the FTC Holder Rule. There are also state versions of The Holder Rule, in different forms, some have different language related to the cost that can be recouped. So, there's the open question of whether attorney's fees are included there in the cap. As Brooke said, we haven't seen anything really at the court level or at least major at the court level, but that's also something to keep an eye on.
It's an interesting time in Holder Rule land, but the one thing for sure is, still got to put that notice in there, still got to be aware of the risks that like a finance company has downstream after it's purchased a contract from a dealer, there's still risk because The Holder Rule still exists.
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