Short answer: if you buy goods or services and the seller arranges the financing, or sends you to a lender it works with, your credit contract must carry a notice from the FTC Holder Rule. That notice lets you raise the claims and defenses you have against the seller with whoever holds the loan, even after the seller sells the contract. What you can get back from the holder under the notice is limited to the amounts you paid under the contract. This is general information, not legal or financial advice.
The notice your contract must contain
The FTC rule says it is an unfair or deceptive practice for a seller to take or receive a consumer credit contract that does not contain this notice “in at least ten point, bold face, type” (16 CFR 433.2(a), eCFR, text up to date as of October 28, 2026, read October 30, 2026):
NOTICE
“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 HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.”
A second version, for a loan from a separate lender, is required when the seller takes the proceeds of a purchase money loan as payment (433.2(b)). Look for the notice in your contract. Under 433.2 it is the seller that breaks the rule if the notice is missing.
Which deals it covers
The rule covers two kinds of credit for goods or services “for personal, family, or household use” (433.1(b)):
- Financing a sale: the seller extends the credit itself, in a credit sale as Regulation Z defines it, and may then sell the contract (433.1(e)).
- A purchase money loan: a cash advance with a finance charge that is used, in whole or in large part, to buy from a seller who refers you to the lender or is affiliated with it by shared control, a contract or a business arrangement (433.1(d)).
It does not apply to a lender acting as a credit card issuer (433.1(c)). In its 2019 review the FTC noted: “The Rule does not apply to financing by credit card issuers” (84 FR 18711, May 2, 2019, read October 30, 2026). For a problem with something you bought by card, see credit card billing error disputes, which covers the card rule in Regulation Z.
A loan you find on your own, from a lender that has no referral or business tie to the seller, does not fit the definition of a purchase money loan in 433.1(d). Ask the lender and the seller whether they have such a tie before you rely on the notice.
What the notice lets you do
The FTC explained the purpose in 2019: the rule protects consumers “by preserving their right to assert claims and defenses against any holder of the contract”, and “A creditor or assignee of the contract is thus subject to any claims or defenses that the consumer could assert against the seller” (84 FR 18711). In that review the FTC restated its 2012 advisory opinion: the rule “places no limits on a consumer’s right to an affirmative recovery other than limiting recovery to a refund of monies paid under the contract”.
In plain terms, if the seller broke its contract or a warranty, or misled you, you may be able to:
- Raise that problem as a defense if the holder of the contract asks you to pay the rest.
- Ask the holder for a refund of money you already paid under the contract, up to that amount.
The rule does not create the claim itself. Whether you have a claim against the seller, and what it is worth, depends on the facts and on the law that applies to your deal, including the law where you live.
The limit: amounts paid
The notice says recovery under it “SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER” (433.2). On attorney’s fees, the FTC said in 2019 that if another law separately provides for fees, independent of claims arising from the seller’s misconduct, “nothing in the Rule limits such recovery”, but that if the holder’s liability for fees is based on claims against the seller preserved by the notice, what you recover from the holder, including fees, “cannot exceed the amount the consumer paid under the contract” (84 FR 18711).
An example, only for the math
This example is only for the math, and every figure in it is an example figure. Say a $6,000.00 purchase was financed through the seller and you made 10 monthly payments of $150.00, so $150.00 x 10 = $1,500.00 paid under the contract. Leaving out interest and fees, $6,000.00 - $1,500.00 = $4,500.00 is still unpaid.
| Item | Example amount |
|---|---|
| Price financed (example) | $6,000.00 |
| Paid under the contract so far | $1,500.00 |
| Unpaid, before interest and fees | $4,500.00 |
Under the notice, the largest amount you could get back from the holder is the $1,500.00 you paid. Separately, the seller’s problem may be a defense if the holder asks you to pay the $4,500.00 still unpaid. Whether either works depends on your claim against the seller.
Steps if something goes wrong
- Find your credit contract and look for the Holder Rule notice.
- Write to the seller first, describe the problem and keep a copy.
- Write to whoever now holds the contract (the name on your statements), quote the notice and explain your claim or defense.
- Keep records of every payment you made under the contract.
- Ask a lawyer or a legal aid office whether you have a claim against the seller and how the notice applies.
If you think a lender or holder treated you unfairly, see how to file a loan complaint.
Questions to ask before you sign
- Is this financing from you, or from a lender you work with or refer customers to?
- Does the contract contain the Holder Rule notice? Where?
- Will you sell or assign this contract, and to whom would I send payments?
- What does the warranty cover, and who do I contact if the goods or services are not delivered?
For car deals where the dealer is also the lender, see buy here, pay here car loans. If a seller offers financing for a large project, compare it with a separate loan: see solar panel financing vs a personal loan.
Checklist
- Check whether the seller arranged or referred the financing.
- Find the Holder Rule notice in the contract.
- Keep proof of every payment.
- Put problems in writing to the seller and to the holder.
- Remember the limit: recovery under the notice is capped at amounts paid.
- For card purchases, use the card dispute rules instead.
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Sources
- eCFR: 16 CFR Part 433, Preservation of Consumers’ Claims and Defenses (FTC Holder Rule), current text up to date as of October 28, 2026
- Federal Register: FTC, Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses, confirmation of rule, 84 FR 18711 (May 2, 2019), on GovInfo
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.