Notice required by Trade Regulation Rule Concerning Preserva. tion of Consumers' Claims and Defenses (16 CFR…

90 F.

Notice required by Trade Regulation Rule Concerning Preserva. tion of Consumers' Claims and Defenses (16 CFR 433) must be inserted in the consumer credit contract at the time it is taken or received by the seller. Affxing the Notice immedi. ateIy prior to negotiation to a third party is unacceptable (File No. 783 7001).

Advisory Opinion Letter

October 27 , 1977 Dear Mr. Bemesderfer:

This is in response to your September 15, 1977 request for an advisory opinion regarding compliance with the Trade Regulation Rule concerning Preservation of Consumers' Claims and Defenses , 16 R. Part 433.

Specifically, your request pertains to the location and timing of the required Notice. The Rule declares it an unfair or deceptive act or practice to "take or receive a consumer credit contract which fails to contain" the Notice, 16 C. R. Section 433.2(a). The answers to the four questions posed in your letter are implicit in the language of the Rule.

Whether or not a contract properly contains the Notice turns upon whether it is a legally enforceable term under state law at the time the contract is taken or received. As a general matter of state law any term of a contract must be agreed upon by both parties, as ordinarily evidenced by a document the parties execute. This general principle of contract law suggests that it would be highly unlikely that any consumer could enter into a contract governed by the Rule without receiving or having knowledge of the Notice as one of the terms of the underlying contract.

The Commission specifically addressed your third question in its recent denial of petitions for exemption by the National Retail Merchant Association and the American Retail Federation, 42 F. 46509 et seq. (September 16, 1977). It rejected the concept of affxing the Notice immediately prior to negotiation to a third party rather than at the time of execution. In its denial the Commission reaffirmed the Rule s requirement that the Notice be inserted in the consumer credit contract at the time it is taken or received by the ADVISORY OPINIONS 991

seller. On balance, the Commission concluded that incorporation at the time of making was the only certain means of protecting the consumers' rights, 42 F. R. 46512.

The response to your third question also answers the fourth question.

Finally, you suggest that two-party open end consumer credit contracts have not previously been subject to the Rule s requirements. In fact, the Rule has applied to two-party open end consumer credit contracts since May 14, 1976, although such contracts have been exempted from compliance with the Rule until October 31, 1977.

By direction of the Commission.

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TABLE OF COMMODITIES*

DECISION AND ORDERS

Page Administrative gudelines 337 Automobiles, new and used. . . . . . . . . . . . . . . . . . . . . . . . . .. 406 Automotive products 420

Banking services . . . . . . . . . . .. . . . . . . . . .. . . . . . . . . . . .. . 608 Clothing products. . . . 160 Computerized financial transaction equipment. . . . . . . . . . .. 144 Construction products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671 Consumer credit ... ,............... 177, 183 186, 319, 433 Correspondence courses 285 132. . , . . . products. Cosmetic Debt collection. . . . . . . 350 Denture products 893 Discount merchandise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 328 Drug products. . . . . . . . . 132

Employment opportunities, overseas. . . . . . . . . . . . . . . . . . .. 300 Food products. . . . . . . . . . . . . . . . . . . . . . . .. 459, 473, 491 , 500 Furniture. . . . . . . 277

Commodities involved in dismissing or vacating orders axe indicated by italicized page references.