The Federal Trade Commission’s (FTC’s) primary role was to prevent consumers from being injured by unfair practices such as violations of the holder in due course (HDC) doctrine. The FTC identified such practices and sought to remedy the situation by deeming the practice “unfair” under the FTC Act. As such, the FTC was able to use its power to eliminate the insulation of banks from consumers’ defenses, essentially revoking those banks’ HDC status. The FTC since then instituted a rule, Preservation of Consumers’ Claims and Defenses, in order to better protect consumers from such practices.
Unfortunately, despite the existence of such rules, misuses and violations of HDC doctrine continue. Most recently, they took the form of problems arising out of sub-prime loans. Such loans were often similarly targeted at low-income consumers and were implemented with the specific purpose of tricking those consumers into paying great sums of money.
The companies that effectively tricked consumers into making such loans would be able to quickly sell off those loans to another party, like a bank, which would again be protected by becoming a holder in due course. In such cases, the debtor would have no recourse for relief from the unreasonable loans, as the party with whom the loan was originally made is no longer a party to the loan and the bank is protected from any potential lawsuit by HDC doctrine.
These practices have not been eliminated yet, as predatory loaning practices have not been defined and banned sufficiently to prevent them in the future. But worries abound that any act of doing so would constitute a significant violation to holder in due course doctrine in its most basic form, even though such loans currently violate the intent of HDC doctrine.
