Preservation of Consumers’ Claims and Defenses Notice of Proceeding, Proposed Amendment to Trade Regulation Rule, Statement of Reason for Proposed Amendment, Invitation To Propose Issues of

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FEDERAL REGISTER, VOL. 40, NO. 223— TUESDAY, NOVEMBER 18, 1975

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53530 PROPOSED RULES FEDERAL TRADE COMMISSION [1 6 CFR Part 4 3 3 ] PRESERVATION OF CONSUMERS’ CLAIMS AND DEFENSES Notice of Proceeding, Proposed Amend­ ment to Trade Regulation Rule, State­ ment of Reason for Proposed Amend­ ment, Invitation To Propose Issues of Fact for Consideration in Public Hear­ ings, Invitation To Comment on Pro- . posed Amendment Notice is hereby given that the Federal Trade Commission, pursuant to the Fed­ eral Trade Commission Act, as amended, 15 U.S.C. Section 41, et seq., the provi­ sions of Part I, Subpart B of the Com­ mission’s Procedures and Rules of Prac­ tice, 16 CFR § 1.11 et seq., and Section 553 of Subchapter II, Chapter 5, Title 5 of the U.S. Code, (Administrative Pro­ cedure) has initiated a proceeding for the promulgation of an amendment to the above referenced Trade Regulation Rule.

In accordance with the above notice, the Commission proposes to revise § 433.2:

§ 433.2 Preservation of Consumers’ Claims and Defenses, Unfair or De­ ceptive Acts or Practices. In connection with any Purchase Money Loan (as that term is defined in § 433.1) or any sale or lease of goods or services, in or affecting commerce as “commerce” is defined in the Federal Trade Commission Act, it constitutes an unfair or deceptive act or practice within the meaning of Section 5 of that Act, for a seller or a creditor, directly or in-' directly, to take or receive a consumer credit contract which fails to contain the following provision in at least ten. point, boldface type:

NOTICE ANY HOLDER OP THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OP GOODS OR SERVICES OBTAINED PURSU­ ANT He r e t o o r w it h t h e p r o c e e d s HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL BE LIMITED TO AMOUNTS PAID BY THE DEBTOR HEREUNDER. (38 Stat. 717, as amended, 15 U.S.C. sec. 41 et seq.) S tatem ent of R eason for the P roposed A m endm ent It is the Commission’s purpose, ill is­ suing this statement, to set forth its rea­ son for the proposed amendment with sufficient particularity to allow and en­ courage informed comment. While this statement adverts to issues of fact, law, and policy, it should not be interpreted as designating disputed issues of fact. Such designations shall be made by the Commission or its duly authorized Pre­ siding Official in accordance with the Commission’s Procedures and Rules of Practice.

The Commission has conducted lengthy public proceedings on the “hold­ er in due course” doctrine and related problems in consumer sales transactions. Extensive testimony, data, and informa­ tion were elicited in the course of the proceedings. Ori the basis of information contained in those proceedings, the Com­ mission promulgated a TRR relating to the Preservation of Consumer’s Claims and Defenses, 16 CFR 433. In that pro­ ceeding the Commission determined that it constitutes an unfair or deceptive act or practice for a seller to separate, by means of a form consumer credit con­ tract, a buyer’s duty to pay from the seller’s duty to perform as promised, and that this practice is injurious to consum­ ers and to the market as a whole. While the proceedings on 16 CFR 433 were primarily concerned with the com­ mercial conduct of sellers, the record contains detailed information about re­ lated commercial practices of creditors which causes the Commission to have reason to believe that many creditors are participants in the aforesaid practice, that it is unfair and deceptive for them to engage in the practice and that the proscriptions of the rule can more effec­ tively be enforced if creditor^ are sub­ ject to its provisions. Therefore, in the interest of (1) encompassing within the rule all participants in the aforesaid practice whose participation is unfair or deceptive and (2) facilitating enforce­ ment of the rule, the Commission hereby proposes the aforesaid amendment. At issue in the instant proceeding are simply the questions of whether credi­ tors participate in the aforesaid practice, whether it is unfair or deceptive for them to do so, and whether the rule could be more readily enforced if credi­ tors were made subject to it. The Com­ mission is not, in this proceeding, re­ opening the question of the applicability of the rule to sellers.

I n v ita tio n T o P ropose I ssues of F act for C onsideration in P ublic H earings All interested parties are hereby given notice of opportunity to propose dis­ puted issues of fact, in contrast to legis­ lative fact, which are material and nec­ essary to resolve. The Commission, or its duly authorized presiding official, shall, after reviewing submissions hereunder, identify any such issues in a Notice which will be published in the F ederal R egister. Such issues shall be considered in accordance with Section 18(c) of the Federal Trade Commission Act, as amended by Public Law 93-637, and in accordance with rules promulgated thereunder. Proposals shall be accepted until no later than January 15, 1976 by the Special Assistant Director for Rulemaking, Federal Trade, Commission, Washington, D.C. 20580. A proposal should be identified as a “Proposal Iden­ tifying Issues of Fact-Holder in Due Course,” and, when feasible and not bur­ densome, submitted in five copies. The time and place for public hearings will be set forth in a later Notice which will be published in the F ederal R egister. I nvitation To Comment of the P roposed Amendment to 16 CFR 433.2 All interested parties are hereby noti­ fied that they may also submit, to the Assistant Director for Rulemaking, Fed­ eral Trade Commission, Washington, D.C. 20580, such data, views, or argu­ ments on any issues of fact, law, or pol­ icy, which may have some bearing on the proposed amendment.

Written com­ ments, other than proposals identifying issues of fact, will be accepted until forty-five days before commencement of public hearings, but at least until Janu­ ary 15,1976. To assure prompt consider­ ation of a comment, it should be iden­ tified as a “Holder in Due Course Comment” and, when feasible and not burdensome, submitted in five copies. Issued: November 14, 1975. By the Commission.

C harles A. T o bin, Secretary.

[PR Doc.75-30760 Filed ll-17-75;8:45 am]