Policies Behind the FTC Holder Rule

[David A. Szwak]

Based on a simple public policy determination, as between an innocent consumer and a third party financier, the latter is generally in a vastly superior position: [1] to return the cost to the seller, where it properly belongs, [2] to exert an influence over the behavior of the seller in the first place, and [3] to the extent the financier cannot return the cost [as in the case of fly-by-night dealers], to 'internalize' the cost by spreading it among all consumers as an increase in the price of credit. Hardeman v. Wheels, Inc., 56 Ohio App.3d 142, 565 N.E.2d 849, 852 [Ohio App. 1988] [quoting 2 Fonseca, Handling Consumer Credit Cases [3 Ed.1987] 703, Section 24:1]; Alduridi v. Community Trust Bank, N.A., 1999 WestLaw 969644 [Tenn. Ct. App. 1999]. Knowing that it bears the cost of seller misconduct, the creditor "will simply not accept the risks generated by the truly unscrupulous merchant. The market will be policed in this fashion and all parties will benefit accordingly." M.Greenfield and N. Ross, Limits on a Consumer's Ability to Assert Claims and Defenses Under the FTC's Holder in Due Course Rule, 46 Bus.Law. 1135, 1137 n.11 [1991].