The Illinois Appellate Court has reaffirmed the consumer protection principle that a buyer of defective merchandise may be permitted to stop paying the loan on the goods and may also get a full or partial refund of money already paid, even if the retailer transferred or sold the loan contract to another entity.
Previously, consumers in Illinois and many other states were subject to the ”holder in due course” doctrine, which said that ”a creditor (could)
demand payment by the consumer despite misrepresentation, breach of warranty, or even fraud on the seller`s part,” wrote Appellate Court Justice Marvin D. Dunn, of the 2nd District, in an opinion made available last week.
That doctrine protected the interests of finance companies, who innocently bought loan contracts from retailers without knowing the condition of the goods. But it sometimes also shielded merchants from the consequences of selling shoddy products
However, a Federal Trade Commission regulation effective in 1977 rendered that doctrine inapplicable to retail transactions in which the merchant extends credit or arranges for a loan.
In those cases, the creditor ”is subject to all claims and defenses which the debtor could assert against the seller,” said the appeals court in ruling on a case that a Du Page County couple filed in 1988 against Chrysler Credit Corp. and two suburban Chrysler dealers.
”This decision reaffirms the (FTC`s) intent to protect the consumer from being required to make payments on a product that has failed to meet expectations either through a lapse in quality or through misrepresentation by the seller,” said Wheaton attorney Norman Lehrer, who filed the suit for the couple.
”It puts the responsibility for a failed product on the seller and also on the businesses that work together with the seller, instead of on the innocent consumer,” he said.
According to the Appellate Court opinion, Gina and Douglas Felde bought a 1986 Dodge Daytona with a 70,000-mile warranty Sept. 4, 1986, and signed a loan contract with the dealer to pay for the car in 48 monthly installments of $250. The dealer disclosed the contract would be transferred to the Chrysler Credit Corp., the opinion says.
The Feldes complained that the car developed a tendency to accelerate abruptly and without warning, and they said neither of two suburban Dodge dealers were able to correct the problem, the opinion said. They blamed one such burst of acceleration for a Sept. 11, 1987, collision, which injured Mrs. Felde.
Lehrer filed suit in 1988 against both dealers and Chrysler Credit Corp. The dealers settled out of court for $33,000, which included payment of claims for Mrs. Felde`s injuries. But Chrysler Credit Corp. refused the suit`s demand to rescind the loan contract and repay the 12 payments the Feldes had made. A trial on that issue was conducted before Associate Du Page County Judge Ronald Mehling, who ruled in favor of the Feldes and ordered Chrysler Credit to refund $3,000.
Chrysler Credit appealed, arguing that the FTC had declared that the rule did not create ”new rights or defenses” for consumers, and that therefore the ”holder-in-due-course” doctrine should apply to the Feldes` case.
The appeals court agreed that the federal regulation doesn`t create new rights. ”It does, however, enable the consumer to assert defenses and, in some cases, claims against an assignee-creditor which could previously have only been asserted against a seller.”
Chrysler`s only victory in the case was in the amount of money it will have to repay on the contract. Gina Felde testified that she got her money`s worth out of the first monthly payment, so the appeals court knocked $250 off Mehling`s award of $3,000.
