A recent California appellate court decision and January Federal Trade Commission guidance indicate consumers could pursue attorneys fees against indirect auto lenders despite the limitations on recovery described in the federal Holder Rule.
Lenders might seek to recoup those attorneys fees from the dealerships that sold the creditors the loans, according to Ignite Consulting Partners compliance attorney Randy Henrick.
"It's a hidden risk," Henrick told the Ethical F&I Managers Conference on April 20.
The Holder Rule is the prominent legalese found at the start of a retail installment sales contract, Hendrick said. The mandatory federal language states that any "holder" who created or received rights to a credit contract for a financed sale — such as a loan for a vehicle sold at a dealership — is subject to the same claims and defenses as the seller in the case of a dispute. However, the rule also says recovery by the borrower after a dispute can't exceed "amounts paid by the debtor hereunder."
One interpretation states that this federal language means a borrower who succeeds in a dispute couldn't collect their attorneys' fees from the lender. Under this analysis, the lender only owes up to the amount paid out in the disputed contract — even if state law specifically allows additional attorneys fees.