California Ruling: No FTC Holder Rule Cap on Attorney Fee Award

The California Supreme Court recently held that the FTC’s Holder Rule does not prevent consumers from recovering attorney’s fees otherwise recoverable under California law, in actions brought against the holder of a credit contract who was not the original lender.

The Holder Rule, promulgated by the FTC in 1975, gives a consumer the right to bring a claim against the purchaser of the consumer’s credit contract, who may otherwise be immune from such claims as a holder in due course of the instrument.  The rule limits the damages that the consumer can seek against the purchaser, otherwise known as the “holder” of the contract, to the amount that the consumer paid in payments under the credit contract.  However, courts have disagreed as to whether the cap on damages prevents consumers from receiving attorney’s fees in addition to what they paid under the credit contract.  The FTC has previously provided guidance indicating that while attorney’s fees may not be recovered under the Holder Rule itself, other state law may authorize such recovery.

The California Supreme Court has now reasoned that although the Holder Rule itself does not permit the recovery from a holder of attorney’s fees in excess of what the consumer has paid under the instrument, California’s Song-Beverly Act would permit recovery of those attorney’s fees as “costs” and the Holder Rule does not preclude such recovery.