The Cleveland Federal Reserve Board on Foreclosures and the Uniform Commerical Code

The holder in due course rule has been eliminated in comparable consumer
markets. The market for consumer goods and services operates with multiple parties
performing specialized functions. Reports of abuses in this market caused the FTC to
promulgate its rule preserving consumer claims and defenses in consumer goods and
services finance transactions. The primary policy consideration behind the FTC Holder
Rule was the optimal distribution of costs associated with seller misconduct in credit sale
transactions.191 Reallocating the cost of seller misconduct to creditors gives them
incentive to police sellers.192 Similar dynamics in the market for high-cost mortgages
led the Congress to enact HOEPA.19

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