Consumer Statutes, Preemption: FTC’s Holder Rule For Consumer Installment Sale Contracts Does Limit Consumer’s Fee Recovery Per FTC Construction

California Civil Code Section 1459.5’s Effort To Repeal Was Preempted By FTC Interpretation.

            Lafferty v. Wells Fargo Bank, N.A., 25 Cal.App.5^th 398, 410-414 (2018) [reviewed in our July 20, 2018 post] held that a debtor cannot recover damages and attorney’s fees for a Holder Rule claim under a consumer installment sales contract where a seller assigned the credit facility to a lender where the damages/fees exceeded the amount paid by debtor under the installment sales contract (the “Holder Rule”).  Well, the California Legislature enacted Civil Code section 1459.5 to repeal the Holder Rule.  A car buyer got a rescission of a car transaction and moved for fees beyond what the buyer paid.  The trial denied them based on Lafferty.  The car buyer appealed.  So, to borrow from a Clint Eastwood line in the Dirty Harry movies for car buyer, “Do I feel lucky? Well, do ya, punk?”  Car buyer thought so, but the appellate court did not agree with his gamble on appeal and affirmed the fee denial request.

            In Spikener v. Ally Financial, Inc., Case No A157301 (1^st Dist., Div. 5 June 9, 2020) (published), the appellate court agreed with the FTC’s subsequent interpretation by which the agency hitched itself to the Lafferty limitation of recovery.  With respect to section 1459.5, that was preempted at the federal level so that the fee denial was a correct decision.