We are being asked by a mobile home dealer to make loans for the purchase of mobile homes to customers referred by the dealer to us . It appears to me that this arrangement falls under the FTC rule, requiring so-called holder-in-due-course notices on any notes. This is typically seen with cars or other consumer goods rather than mobile homes, but I see no reason this scenario wouldn't also be covered. Anyone care to comment? Thanks

I think you are right, that the Holder in Due Course clause needs to be on the contract.

I thought the Holder of Due Course clause was only required for "assigned" contracts.

Dan, I'm not familiar with the term "assigned" in this context. For the Holder in due course rule, my understanding is that the FTC required wording must be on a contract when the the bank finances the purchase made from the dealer. Is this be an "assigned" contract? If so, we agree.

Lois, when I referred to "assigned" contracts my reference was to contracts prepared by the dealer and then assigned to the bank. The typical "indirect/dealer paper" transaction.

However, if the borrower comes directly to the bank and you finance the tranaction direct, I do not think the Holder in Due Course clause is required.

Right--I agree if the customer comes directly to the bank to finance his purchase, the FTC notice is not required. I also agree that it is needed for contracts the dealer assigns to the bank. Additionally, wouldn't it be needed if the bank prepares a contract and sends to the dealer for their customer's signature? -- It was a lot of years ago that the bank I was with did dealer loans and I'm pretty sure the customer signed our contract (in the dealer's office).

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Additionally, wouldn't it be needed if the bank prepares a contract and sends to the dealer for their customer's signature?

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Yes, I would agree with this as the clause would be needed to protect the bank that the dealer did not alter or forge the contract after the bank sent it to them.

The FTC rule applies where formal dealer arrangements or assignments don't. There are exemptions to the FTC rule: a credit sale more than $25,000 would be exempt as would a real estate loan.

The staff guidelines indicate that a purchase money loan under the act is " a cash advance which is received by a consumer in return for a finance charge within the meaning of the truth in lending act, which is applied in whole or substantial part, to a purchase of goods or services from a seller who (1) refers consumers to the creditor or (2) is affiliated with the creditor by common control, contract, or business arrangement." It goes on to specify that a business arrangement may be formal or informal and that maintaining loan applications in the seller's office is sufficient to establish a pattern of referrals to one particular creditor making this rule come into play.

waldensouth - I am interested in the exemptions you mention. Can you give me cite? Thanks