## Facts

- Patrick and Mary Lafferty bought a new motor home from a dealer, financing the purchase through a retail installment sales contract.
- The dealer promptly assigned the contract to Wells Fargo Bank, N.A.
- The contract included the FTC “Holder Rule” notice stating that any holder is subject to claims and defenses the buyer could assert against the seller.
- The motor home allegedly had substantial, recurring defects that were not cured after repair attempts.
- The Laffertys stopped making payments and disclaimed ownership of the motor home.
- The Laffertys sued the dealer and Wells Fargo, asserting claims (including breach of contract, CLRA violations, and negligence) against Wells Fargo based on the Holder Rule clause.
- The trial court sustained Wells Fargo’s demurrers to multiple causes of action, entered judgment for Wells Fargo, and awarded Wells Fargo attorney’s fees.
- The Laffertys appealed.

## Issues

1. Whether the FTC Holder Rule notice in a consumer credit contract permits a buyer to assert against an assignee-lender the same claims and defenses the buyer could assert against the seller.
2. Whether the Holder Rule creates independent causes of action against the assignee or instead subjects the assignee to existing seller-based claims and defenses.
3. Whether recovery against an assignee-lender under the Holder Rule is capped at the amounts paid under the contract.
4. Whether the trial court erred by sustaining Wells Fargo’s demurrers and awarding attorney’s fees to Wells Fargo.

## Decision

- The Court of Appeal reversed the judgment in favor of Wells Fargo in substantial part.
- The court held that, because the contract contained the Holder Rule notice, the Laffertys could assert against Wells Fargo claims and defenses they could assert against the seller, to the extent those claims were otherwise viable.
- The court held that the Holder Rule does not create new substantive causes of action; it removes holder-in-due-course insulation and makes the holder answerable for seller-based claims and defenses.
- The court held that recovery from the holder is limited by the Holder Rule’s express cap: it may not exceed the amounts paid by the buyer under the contract.
- The court reversed the attorney’s fees award to Wells Fargo because Wells Fargo was no longer the prevailing party after reversal.
- The case was remanded for further proceedings consistent with these holdings.

## Legal Principles

- When a consumer credit contract includes the FTC Holder Rule notice, an assignee-holder is subject to all claims and defenses the consumer could assert against the seller arising from the transaction.
- The Holder Rule does not itself supply new causes of action; it extends existing seller-based claims and defenses to the holder and eliminates holder-in-due-course protections in the consumer context.
- The consumer’s affirmative recovery against the holder is capped at the total amount the consumer paid under the contract, as stated in the Holder Rule notice.
- A demurrer cannot be sustained on the theory that the assignee is categorically immune from seller-based liability where the Holder Rule applies.

## Conclusion

The Court of Appeal held that the FTC Holder Rule clause in the retail installment contract allowed the buyers to pursue seller-based claims and defenses against the assignee-lender, subject to a cap of amounts paid under the contract, and it reversed the judgment and related attorney’s fee award entered for the lender.


Lafferty v. Wells Fargo Bank, N.A., 213 Cal. App. 4th 545, 153 Cal. Rptr. 3d 240 (Cal. Ct. App. 2013)