Morales, Jones & Kearns
1200 Leaf Avenue
Boston, MA 02100
At our meeting, you provided a photocopy of the original executed promissory note signed by yourself. This note qualifies as a consumer credit contract, since it provided financing for your consumer purchase, the re-setting of the ring. Specifically, under a regulation of the Federal Trade Commission, all consumer credit agreements must include the following notice:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
In general, this statement puts the financer on notice that, if the seller engages in misconduct, the financer may be subject to the claims and defenses that you have against the seller.
The substantive part of the notice provides that the debtor may bring a legal action against the creditor based on the creditor’s misconduct. The creditor’s misconduct may also form the basis of a defense if the creditor sues to collect payment on a note. Finally, the notice caps total recovery, limiting the upper amount of damages that you may obtain in a judgment to the amount of the note.
As a result of this notice, Salem Savings Bank may well be subject to all the claims and defenses that you have against McNabb. Specifically, in the collection action, as we discussed, we will raise defenses such as fraud and unconscionability. In addition, our counterclaim against the Bank will make a separate demand for repayment of the money paid on the note to date.
I will forward my proposed answer to you within the next seven days. Please contact me once you have read it so that we might discuss how to proceed.