FTC Holder Rule / Preservation of Claims and Defenses

The seller-financing relationship

Primary authority: 16 CFR § 433.2

The Holder Rule follows the seller-financing relationship, not simply the educational purpose of the loan. It applies to covered seller-financed sales and covered purchase-money loans connected to the seller under the rule’s terms.

Use of loan proceeds for education does not by itself bring a transaction within the Holder Rule. A private education loan made independently of the school can be outside the rule even when it pays tuition.

Required notice and preserved rights

Primary authority: 16 CFR § 433.2

A covered consumer credit contract must contain the prescribed notice preserving claims and defenses that the debtor could assert against the seller. The rule preserves qualifying rights against a holder; it does not create the underlying cause of action.

Whether a consumer has a claim or defense ordinarily depends on the substantive law governing the seller’s conduct. The rule addresses the effect of assignment and the holder’s exposure to those preserved rights.

Education financing

Primary authority: 16 CFR § 433.2

School-originated or school-arranged financing can require close attention to the seller-creditor connection. The federal Holder Rule is also distinct from federal student loan borrower defense, TILA private education loan rules, and the FTC Credit Practices Rule.

California example

Primary authority: 16 CFR § 433.2

California Education Code §94916 and AB 2771 (2026) provide a state-law example of preserving specified student rights in covered private postsecondary education financing. Because the California Private Postsecondary Education Act has its own coverage and exemptions, these provisions do not apply to every California institution or every education loan.

The California provisions should not be described as a universal extension of the federal Holder Rule to all education lending.

Seller-connected credit and preserved claims

Primary authority: 16 CFR § 433.2

The Rule can cover a seller-financed credit sale or purchase-money loan connected to the seller through referral, affiliation, contract, or another qualifying arrangement. For education, a school’s direct financing or arranged third-party financing can meet that test. An independently obtained loan does not meet it merely because the funds pay tuition.

The required contract notice preserves claims and defenses the consumer could assert against the seller after the credit contract is assigned. The Rule does not create the underlying claim; fraud, misrepresentation, breach, or another cause of action must come from applicable law.

Assignment, relief, and neighboring frameworks

Primary authority: 16 CFR § 433.2

Preserved claims can be raised defensively against a holder seeking payment and, when the underlying law permits, affirmatively within the notice’s recovery limit. Assignment does not erase qualifying seller-related defenses. Loan ownership and servicing remain distinct roles.

TILA’s private education loan classification and the Holder Rule’s seller-creditor nexus are separate tests. HEA borrower defense concerns federal Direct Loan relief under its own regulations. The existing California example on this page concerns a narrower state statute with its own institutional coverage and exemptions.