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Unfair and Deceptive Acts and Practices: 10.5.2.1 General

A common form of credit is an installment contract, in which a seller sells goods or services on credit and then assigns the contract to a financing entity. The seller itself is named as the original payee of the installment contract.

Unfair and Deceptive Acts and Practices: 10.5.2.3 Claims That Can Be Raised Derivatively

A consumer can bring all claims against the holder that are available against the seller under state and other applicable law, including those relating to advertising, oral claims, sales, warranties, insurance, service contracts, financing, collection, servicing of warranties, and anything else connected with the transaction.259 Thus, even though the notice mentions claims against the seller, the allowable claims need not relate purely to the sale of the good or service, but include claims involving the seller’s extension of

Unfair and Deceptive Acts and Practices: 10.5.3.1 General

Another way to finance a purchase is for the seller to arrange for financing that is directly provided by a third-party lender. Then that lender is not the seller’s assignee and under common law does not step into the shoes of the seller. Nevertheless, the FTC Holder Rule generally applies to this transaction and makes the lender or the lender’s assignee subject to all claims and defenses the consumer can raise against the seller.

Unfair and Deceptive Acts and Practices: 10.5.6.1 General

Often the consumer will obtain credit not from a seller, but directly from a lender, and the consumer has claims or defenses not against the seller but directly against the lender that arise from the nature of the loan origination or the terms of the loan. Examples might include payday loans, home equity loans, loans to purchase a home, or auto title loans.

Unfair and Deceptive Acts and Practices: 10.5.6.2 The Elements of Holder-in-Due-Course and the Shelter Rule

An assignee attains holder-in-due-course status, and thereby avoids most defenses the consumer could raise against the assignor, if it is: (1) assigned a negotiable instrument and (2) is a holder for value, who takes the instrument in good faith and without notice of various items listed in U.C.C. § 3–302(a)(2).

U.C.C. § 3–104(a) sets out seven basic requirements for a note to be a negotiable instrument, a precondition to holder-in-due-course status. The note must:

Unfair and Deceptive Acts and Practices: 10.6.2.1 Consumer Claims Within the Merchant’s Insurance Coverages

A source of recovery that is often available regardless of the seller’s solvency is the seller’s insurance policy. Sellers typically purchase insurance on a voluntary basis to protect themselves from lawsuits and other potential losses. If the policy applies to the type of claims the consumer has against the merchant, the consumer may be able to recover even if the seller is otherwise judgment-proof.

Unfair and Deceptive Acts and Practices: 10.6.2.2 Is There Insurance in Place?

Even if an insurance policy will pay on the consumer’s claim, another issue is whether the now insolvent company kept the insurance coverage in force. If the insurance coverage pays on claims arising during the insurance policy, then the question is whether the coverage was in force at the time of the UDAP violation. If the coverage pays only on claims filed during the policy period, then the coverage will have to be in force at the time the consumer files the UDAP claim in court.

Unfair and Deceptive Acts and Practices: 10.7 UDAP Claims Against Sellers or Creditors Filing for Bankruptcy

Frequently, a company engaging in unfair or deceptive practices will teeter on the brink of insolvency. The company may file for bankruptcy protection before the UDAP claim can be brought or will respond to UDAP actions or judgments by filing for bankruptcy. Consumers should not treat this as the end of the matter.

The bankrupt entity may not be the only liable party. As discussed throughout this chapter, UDAP claims are often available against a wide variety of parties that have some involvement in the scam.

Unfair and Deceptive Acts and Practices: 10.8.3 Survival of Action After Defendant’s Death

When a UDAP defendant dies during the pendency of a UDAP case, the state’s general statute about survival of actions should be consulted.458 The legal analysis may be the same when a UDAP defendant is deceased as when the plaintiff is deceased and, in that case, the action is likely to survive.459 Even where a survival statute does not appear to apply to the UDAP claim, the court may hold that the claim survives because of the remedial purposes of the UDAP statut

Unfair and Deceptive Acts and Practices: 10.2.3.4 Principal’s Liability for Actions of Independent Contractor

Companies commonly argue that salespersons guilty of deception are independent contractors, separate and apart from the company, and not agents. Contracts between the company and salespersons indicating that the salespersons are independent contractors do not make them so where the salespersons were in substance agents.48 The substance, not the form, of the relationship is the determining factor.49

Unfair and Deceptive Acts and Practices: 10.3.5 Liability of Co-Venturers, Partners

Where two or more companies or persons are organized or operating as a joint venture, all co-venturers are jointly and severally liable for actions of other co-venturers.108 Joint UDAP violators may have claims for indemnity or contribution against each other under state law,109 but these claims should not affect the liability of each co-venturer to the consumer.