In Hernandez v. Apple Auto Wholesalers of Waterbury LLC, 2022 U.S. Dist. LEXIS 179567, No. 3:17-cv-1857 (VAB) (Sept. 30, 2022), the district court addressed whether a finance company who re-tendered the contract back to the dealer remained liable under the FTC Holder Rule.  After referring the case to the Connecticut Supreme Court, the District Court followed the Supreme Court’s ruling that re-assignment back to the dealer after the consumer had made a claim did not divest the finance company of “holder” status under the FTC Holder Rule.

The [Holder Rule] notice provides “any holder” is subject to all claims and defenses the consumer has against the original seller. “Therefore, any effort by an intermediary assignee to play ‘hot potato’ with a consumer credit contract will not be effective. If a holder acquired the contract from the seller, the holder is potentially liable to the consumer for return [*32] of all monies it received under the contract. The FTC Holder Rule seeks to place the burden on the seller and its assignee.” Id. (quoting David A. Szwak, The FTC “Holder” Rule, 60 Consumer Fin. L.Q. Rep. 361, 363 (2006)); cf. In re Barker, 306 B.R. 339, 351 (Bankr. E.D. Cal. 2004) (rejecting a financing company’s argument that it was not subject to a debtor’s claims or defenses, noting that it did not “appear that an assignee or purchaser of an account in a consumer transaction can contract its way out of [the Holder Rule]”).  Similarly, in Associates Home Equity Services, Inc. v. Troup, 343 N.J. Super. 254, 778 A.2d 529, 542-43 (N. J. App. Div. 2001), a New Jersey appellate court rejected a contract holder’s argument that it was not liable under the Holder Rule because it had reassigned the contract. The court reasoned that “[t]he clear and unambiguous language of the [Holder] Rule notifies all potential holders that, if they accept an assignment of the contract, they will be ‘stepping into the seller’s shoes.’ Thus, the creditor-assignee becomes subject to any claims or defenses the debtor can assert against the seller.” Id. at 542. “We cannot accept the proposition that the FTC contemplated that such result would not attach simply because of a subsequent assignment of the loan, especially when, as here, it is claimed that [the financing company] actively participated with [ ] the seller[] in placing [*33] the loan with the [buyer].” Id. at 543.
The Court agrees with Mr. Hernandez that a loan holder remains liable as an assignee even after reassigning the loan.  The FTC’s Holder Rule operates to provide a consumer recourse against more sophisticated parties, such as, quintessentially, a financing company that is in a better position to assess and absorb the risks associated with a particular loan than the consumer. The courts that have opined on the issue have found that it is consistent with the policy goals of the Holder Rule, as well as analog state assignee liability laws, to hold assignees liable regardless of whether they are assigned the loan at the time a consumer becomes aware of seller misconduct or files a lawsuit. This Court agrees. Accordingly, Westlake is liable as the assignee under the Holder Rule.

Having cited Pulliam elsewhere in the opinion, the district court did not exactly address the question of the holder rule’s cap on fees, instead finding that the state law holder rule allowed a larger sum to be awarded against the Holder, and lumped that in with Holder Rule liability.

Westlake contends that, even if it is liable as assignee, Mr. Hernandez cannot recover any damages under the Holder Rule because Mr. Hernandez never made any payments to Westlake. Westlake Mem. at 9. Mr. Hernandez responds that the phrase “amounts paid by the debtor hereunder” in the Holder Rule notice refer to any amount paid under the contract, regardless of whether it is paid to the seller or the assignee. The Court agrees with Mr. Hernandez.  The text of the Holder Rule notice refers generally to “amounts paid” under the contract. The notice provides no indication that this amount is limited to payments made to the assignee. As with the reassignment issue, Westlake’s position would permit holders to easily defeat liability by reassigning the contract to another entity that has received no payments from the buyer.
Accordingly, the Court concludes that Westlake’s potential liability under the Holder Rule is limited to the amount Mr. Hernandez paid to any party under the contract. See, e.g., Barrett v. Brian Bemis Auto World, 408 F. Supp. 2d 539, 547 (N.D. Ill. 2005) (“Assignees of [retail installment contracts] may be held liable up to the amount paid under the credit contract for any valid claims against the seller.”).  Westlake’s liability, however, is limited by § 52-572g and the Holder Rule. Section 52-572g permits Mr. Hernandez to recover up to the amount of indebtedness as of the date he submitted his demand letter. See Hernandez, 338 Conn. at 821. The Holder Rule, meanwhile, permits a recovery up to the amount Mr. Hernandez paid on the contract. In answering the certified questions, the Connecticut Supreme Court held that these amounts are cumulative. Id. at 830. Accordingly, Mr. Hernandez may recover no more than the sum of the amount he paid and the amount of indebtedness. “This means that, in cases such as the present one, in which the consumer has made no payments under the contract, the consumer’s recovery may be greater than his or her actual losses.” Id. Mr. Hernandez contends that he paid $2,000 on the contract. Hernandez Suppl. Br. at 3. His Rule 56(a)(1) statement, however, states clearly that Mr. Hernandez’s payments were limited to a $500 down payment and a trade-in allowance of $1,000. Pl.’s SOMF ¶¶ 2-3, 5-7. Accordingly, the Court will award $1,500 in actual damages paid under the contract, just as it did against Apple Auto. See Default J. [*38] Order at 38. Mr. Hernandez also contends that the amount outstanding on August 29, 2017, was $12,442.13. Hernandez Suppl. Br. at 3. Mr. Hernandez calculated this amount by (1) calculating the annual interest cost of $2,147.18 ($12,206.82 amount financed multiplied by the 17.59% annual interest rate); (2) dividing that amount by 365 to calculate a daily interest cost of $5.8827; and (3) multiplying the daily interest cost by the 40 days from the execution of the contract on July 20, 2017, to the demand letter on August 29, 2017. The Court agrees. This calculation method is consistent with the terms of the contract, which provides for 41 monthly payments of $400.93 beginning on September 3, 2017.9 See Contract at 15. Accordingly, Westlake’s total liability limit under both § 52-572g and the Holder Rule is $13,942.13. Because Westlake’s liability under Counts Two, Three, and Four, including attorney’s fees and costs, exceeds that amount, the Court will award Mr. Hernandez $13,942.13 in damages against Westlake. . . .As the Court ordered with respect to Apple Auto, the Contract is canceled because Mr. Hernandez validly revoked acceptance of the Vehicle.
The Court determines that actual damages amount to $1,500, incidental damages amount to $650, attorney’s fees and costs amount to $18,000, and punitive damages amount to $2,150. These damages, fees, and costs total $22,300. But because Westlake’s liability is capped at $13,942.13 under § 52-572g and the Holder Rule, the Court awards $13,942.13 against Westlake.