When the EV Startup Fails: How the FTC Holder Rule Can Make Your Lender Your Way Out of a Lemon: And why it matters whether you bought direct or through a dealer

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When the EV Startup Fails: How the FTC Holder Rule Can Make Your Lender Your Way Out of a Lemon

And why it matters whether you bought direct or through a dealer

California car buyers have embraced a wave of new electric vehicle entrants over the past few years — Rivian, Lucid, Fisker, Polestar, Slate, and others. Some of these companies are well capitalized and improving. Others are burning cash at an alarming rate. And at least one, Fisker Inc., has already collapsed into bankruptcy, leaving thousands of California owners with vehicles that lost software support, service access, and — most importantly for legal purposes — a functioning manufacturer’s warranty.

This post explains, in plain terms, why a manufacturer’s bankruptcy is often the worst possible outcome for a consumer stuck with a defective new car, and why the little-known FTC Holder Rule — printed in small type on the standard Reynolds and Reynolds retail installment sales contract used at most California dealerships — may be the only practical way to force a lender to unwind the deal when the manufacturer itself is no longer around, or able, to make things right.

Case Study: The Fisker Bankruptcy

Fisker Inc. filed for Chapter 11 bankruptcy protection in Delaware in June 2024, after failing to find a partner or buyer to rescue the company. The filing estimated liabilities of up to $500 million.¹ Fisker sold its Ocean SUV directly to consumers rather than through a traditional franchised-dealer network, and financed many of those sales through “Fisker Finance,” a trade name operated by JPMorgan Chase Bank, N.A.²

The consequences for owners were severe. Litigation and consumer complaints describe vehicles with bricked software, doors that would lock occupants inside, sudden loss of navigation and connectivity, and an inability to obtain over-the-air updates or replacement parts once Fisker wound down its service operations. Fisker also had four then-unaddressed NHTSA recalls outstanding at the time of the bankruptcy filing.³ In October 2024, the Delaware bankruptcy court approved Fisker’s liquidation plan, and the company’s remaining vehicle inventory was sold off in bulk — some units for as little as $2,500 to $16,500 apiece.⁴

Critically, once Fisker was in bankruptcy, its owners had almost no meaningful recourse against Fisker itself. A consumer’s warranty or lemon-law claim against a bankrupt manufacturer becomes, at best, an unsecured claim in the bankruptcy estate — paid, if at all, at cents on the dollar, years later, after secured creditors are satisfied. The federal automatic stay (11 U.S.C. § 362) halts most lawsuits against the debtor the moment the petition is filed. For practical purposes, once a manufacturer is in Chapter 11 liquidation, going after the manufacturer directly is usually a dead end.

But most Fisker Ocean buyers did not pay cash — they financed through Fisker Finance/JPMorgan Chase. And Chase is not in bankruptcy. That distinction is the whole ballgame, and it is why some Fisker owners have been offered buyback or loan-cancellation arrangements by Chase notwithstanding Fisker’s collapse.²

Are the Other New EV Makers Any Safer?

Not necessarily. The EV startup sector remains financially volatile, and Fisker is a cautionary tale, not an isolated one.

• Rivian has made real progress: second-quarter 2026 revenue reached $1.66 billion, up 27% year-over-year, with a positive $179 million gross profit as the lower-cost R2 SUV began deliveries. Still, Rivian posted an $837 million net loss for the quarter and burned $849 million in free cash flow, and it is relying on additional capital — including a roughly $1.3 billion stock offering, a targeted $1 billion in non-recourse Volkswagen debt, and a Department of Energy loan — to fund the road ahead.⁵
• Lucid Motors has struggled more visibly. The company’s accumulated losses reached nearly $13 billion by early 2025, with 2024 losses alone up 11% to $3.1 billion, prompting the resignation of CEO Peter Rawlinson in February 2025.⁶ Lucid remains majority-owned and repeatedly recapitalized by Saudi Arabia’s Public Investment Fund, without which the company has acknowledged it may not be able to continue funding operations.^6,7
• Polestar received a Nasdaq delisting warning in late 2025 after its share price fell below the $1.00 minimum bid-price requirement, and reported a net loss of $365 million in the third quarter of 2025 alone (a 13% year-over-year increase), with nine-month 2025 losses up 80% to $1.56 billion. Polestar has needed a $600 million loan from majority owner Geely to continue operating.⁸
• Slate Auto, the Bezos-backed startup building a low-cost electric pickup in Warsaw, Indiana, is comparatively well funded — it closed a $650 million Series C round in April 2026, bringing total funding to roughly $1.4 billion — but as of this writing it has not yet begun customer deliveries, which are targeted for late 2026.⁹ Pre-production companies carry their own distinct risk: the company has no operating or service track record at all.

None of this means these companies will fail. It does mean that a consumer financing a new vehicle from any newer, thinly capitalized automaker is taking on a real counterparty risk that does not exist when buying from an automaker with a 50- or 100-year balance sheet. If a manufacturer fails while your loan or lease is still outstanding, you can be left making payments on a car with no service network, no software support, and warranty paper that is no longer worth the ink it’s printed on.

The FTC Holder Rule, Explained

Federal law — the FTC’s “Holder Rule,” codified at 16 C.F.R. § 433.2 — requires that most consumer credit contracts used to finance the purchase of goods, including motor vehicles, contain a specific notice.¹⁰ If you financed a car through a dealer in California, you have almost certainly seen this notice: it appears on the standard Reynolds and Reynolds retail installment sales contract (RISC) form used by the large majority of California dealers, in bold type near the signature block. The required notice reads, in relevant part:

“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 BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.”¹⁰

In plain English: when a dealer (or a manufacturer selling directly, standing in the seller’s shoes) arranges your financing and then sells or assigns your loan contract to a bank or finance company, that bank or finance company — the “holder” — steps into the seller’s shoes for purposes of your legal claims. Any claim or defense you could have asserted against the seller because of a defective vehicle, misrepresentation, or breach of warranty, you can also assert directly against the holder of your loan.

This is why the Holder Rule matters so much when a manufacturer goes bankrupt. The manufacturer/seller may be untouchable in bankruptcy court, but the bank or finance company that bought or funded your retail installment contract typically is not. The Holder Rule lets you pursue that solvent third party for the wrong the manufacturer committed.

The Rule Applies Only to Seller-Arranged Financing

This is an important limitation. The Holder Rule notice — and the claims and defenses it preserves — applies where the seller (the dealer, or the manufacturer acting as seller in a direct-sales model like Fisker’s) arranged or facilitated your financing, and then that credit contract was taken by, or assigned to, a lender.¹¹ It does not apply to a loan you obtained entirely independently — for example, a personal loan from your own bank or credit union with no involvement from the dealer or manufacturer at the point of sale.

In the Fisker context, this fits precisely: Fisker Finance was Fisker’s own point-of-sale financing arm, operated by JPMorgan Chase.² Because the financing was arranged at the seller’s own point of sale, Chase — as holder of those retail contracts — is subject to the claims and defenses Fisker Ocean owners could otherwise have asserted against Fisker itself, including lemon-law and warranty claims.¹¹ Commentators tracking the Fisker fallout have specifically identified the FTC’s Preservation (Holder) Rule as the mechanism allowing owners to pursue Chase for a refund or loan cancellation even though Fisker itself is in bankruptcy liquidation.^2,11

How Song-Beverly’s Repurchase Remedy Reaches the Lender

California’s “lemon law,” the Song-Beverly Consumer Warranty Act (Cal. Civ. Code § 1790 et seq.), requires that if a manufacturer or its representative is unable to repair a new vehicle to conform to its express warranty after a reasonable number of attempts, the manufacturer must promptly repurchase or replace the vehicle and refund the buyer’s purchase price, finance charges, and related costs, subject to a mileage-use offset.¹² A rebuttable presumption of “reasonable number of attempts” arises after four unsuccessful repair attempts for the same problem, or after the vehicle has been out of service for repair for a cumulative total of more than 30 days, within the first 18 months or 18,000 miles.¹³

Standing alone, this repurchase right runs against the manufacturer. But because a Song-Beverly repurchase claim is a “claim” the buyer could assert “against the seller” within the meaning of the Holder Rule notice, a buyer whose loan was arranged through the manufacturer’s own point-of-sale financing can assert that same repurchase claim directly against the holder of the retail installment contract — for example, JPMorgan Chase as holder of a Fisker Finance contract.^2,11 In practical terms, this can force the lender to cancel the remaining loan balance and refund amounts paid, effectively achieving the same result the manufacturer itself would have had to provide had it remained solvent.

This is precisely the dynamic now playing out with Fisker: because Fisker itself is liquidating, and cannot be forced to repurchase anything, consumer attorneys and reporting on the bankruptcy have focused on Chase, as the solvent holder of the financing contracts, as the more realistic and effective source of recovery.^2,4,11

What If the EV Maker Sells Through Independent Dealers?

Most of today’s new EV entrants actually skip the traditional franchised-dealer network entirely. Fisker sold direct, financed through Fisker Finance/JPMorgan Chase. Rivian sells direct, and Rivian Financial Services partners with Chase as its private-label lender.¹⁴ Lucid sells through its own “Lucid Studios,” with Lucid Financial Services run jointly with Bank of America.¹⁵ Slate plans to sell online, direct-to-consumer, with no dealer network at all.¹⁶ Polestar is the outlier among this group: it launched in the U.S. on a direct, “agency” sales model but has been shifting toward a traditional independent-dealer network since 2025.¹⁷

This matters because the Holder Rule only preserves claims “the debtor could assert against the seller” — and in a direct sale, the manufacturer is the seller. That is why the full Song-Beverly repurchase claim against Fisker flows cleanly to Chase as holder of the Fisker Finance contracts. If a manufacturer instead sells through an independent franchised dealer, the dealer — not the manufacturer — is the seller for Holder Rule purposes, and the analysis becomes more nuanced.

The good news: the dealer carries its own, independent liability that doesn’t evaporate with the manufacturer. Civil Code § 1792 imposes the implied warranty of merchantability on both the manufacturer and the retail seller — it is not solely a manufacturer obligation. A California Court of Appeal decision illustrates this almost exactly. In Mega RV Corp. v. HWH Corp. (2014) 225 Cal.App.4th 1318, consumers bought a motor home from retailer Mega RV, financed through Bank of America, and sued Mega RV, the manufacturer (Country Coach, LLC), and Bank of America under the Song-Beverly Act. An involuntary bankruptcy petition was then filed against Country Coach, largely wiping out Mega RV’s contractual right to indemnity from the manufacturer — but the consumers’ claims against the dealer, and against the financing bank, proceeded regardless of the manufacturer’s bankruptcy.¹⁸ Similarly, in the Lafferty v. Wells Fargo Bank, N.A. litigation, the parties ultimately entered a stipulated judgment under which Wells Fargo paid $68,000 on negligence and Consumers Legal Remedies Act claims the plaintiffs “would otherwise have had only against Geweke Auto & RV Group but for the Holder Rule” — concrete proof that a lender can be made to answer for a dealer’s own wrongdoing, independent of the manufacturer.¹⁹

The narrower point: the manufacturer’s specific repurchase remedy is a harder fit. The statutory repurchase/replace remedy in Civil Code § 1793.2(d) is written as a manufacturer obligation. If the only available theory is “the manufacturer wouldn’t honor a repurchase demand,” with no independent dealer misconduct (no misrepresentation, no botched dealer repair, no breach of the dealer’s own implied warranty), that specific claim is a harder fit for Holder Rule language when the seller is a dealer distinct from the manufacturer. We are not aware of a published California appellate decision squarely deciding that precise question, and it should be treated as an open issue to be evaluated case by case rather than assumed either way. In practice, most defective-vehicle disputes give the buyer more than one available theory against the dealer, which tends to narrow this gap considerably.

The variable that matters most: who actually holds the loan. If a dealer’s financing runs through the manufacturer’s own captive finance arm — an affiliate or subsidiary of the manufacturer itself, as opposed to an unrelated bank — that captive lender can be pulled into the same financial distress or bankruptcy as its parent, undermining the entire premise of the Holder Rule, which depends on the holder being a genuinely solvent, independent third party. If the financing instead runs through an unrelated bank, that bank’s solvency is untouched by the manufacturer’s troubles, and the path to relief stays open.

The upshot: counterintuitively, the direct-to-consumer sales model used by most of today’s new EV makers — often perceived as a sign of a leaner, riskier startup — actually tends to produce a cleaner and more fully tested legal remedy for consumers than a bankruptcy at a traditional, dealer-network automaker would. Buyers who financed through an independent dealer and an unrelated bank still have real leverage if the manufacturer collapses, grounded in the dealer’s own warranty obligations, but it is a somewhat narrower and less-tested path than the one available to a buyer whose loan ran directly from the manufacturer-as-seller to an independent lender.

Why Bankruptcy Is a Dead End for Consumers — and the Holder Rule Isn’t

It is worth spelling out the contrast plainly:

	Claim against the bankrupt manufacturer	Holder Rule claim against the lender
Automatic stay	Applies; lawsuit generally must stop	Does not apply; the lender is a separate, solvent party
Priority	General unsecured claim, paid last (if at all)	Ordinary civil claim or defense; no bankruptcy priority scheme
Timeline	Years, tied to the bankruptcy case	Proceeds on its own timeline
Likely recovery	Cents on the dollar, if anything	Full amount paid under the contract, potentially plus attorney’s fees (see Pulliam, below)

Fisker’s own bankruptcy illustrates this. The liquidation plan approved by the Delaware bankruptcy court in October 2024 was about winding the company down and distributing its remaining assets among creditors — it was never going to make individual Ocean owners whole.⁴ Meanwhile, JPMorgan Chase — untouched by the bankruptcy — separately began reaching out to Fisker Finance customers about settlement and buyback options.² That is the Holder Rule working roughly as intended.

Why a Smaller Down Payment Makes Sense With an Unproven Automaker

The Holder Rule’s notice caps a consumer’s affirmative recovery against the holder at “amounts paid by the debtor” under the contract.¹⁰ A large cash down payment is money that leaves your pocket immediately and irreversibly at the moment of sale — it does not sit inside the financed balance where Holder Rule leverage, and your ability to simply stop making payments and assert a defense, can protect it. If the manufacturer later fails, that up-front cash is already gone, and getting it back requires successfully pursuing a claim (with the time, cost, and uncertainty that entails) against the holder, up to the cap.

Keeping more of the purchase price inside the financed loan balance, rather than as a large non-refundable down payment, keeps more of your money inside the part of the transaction where the Holder Rule gives you real, immediate leverage — including the ability to withhold further payments as a defense while a dispute is resolved. This is a general risk-management observation, not a guarantee of any particular financial outcome, and the right down payment for any given buyer depends on many factors (interest rate, loan-to-value limits, monthly payment affordability, and more) that should be discussed with your own financial and legal advisors.

Attorney’s Fees Follow the Lender Too: Pulliam v. HNL Automotive

A significant 2022 decision confirms that the Holder Rule’s recovery cap is not the ceiling many lenders once assumed. In Pulliam v. HNL Automotive, Inc. (2022) 13 Cal.5th 127, the California Supreme Court resolved a split among the Courts of Appeal and held that the Holder Rule’s limitation of “recovery” to “amounts paid by the debtor” does not limit an award of attorney’s fees where a prevailing buyer seeks those fees from the holder under an independent state fee-shifting statute — such as Song-Beverly’s own attorney’s-fee provision, Civil Code section 1794, subdivision (d).^20,21 The court reasoned that the Holder Rule’s cap governs claims that exist only because the Rule extends them from the seller to the holder; it does not cap a state-law fee award that Song-Beverly independently authorizes against whoever is found liable — including a holder.²¹

Practically, this means that a lender or bank holding a defaulted or disputed retail installment contract can be on the hook not only for refunding the amounts the consumer paid, but for the consumer’s reasonable attorney’s fees and costs of litigation as well — a meaningful deterrent that makes it economically realistic for consumer attorneys to take on these cases, and that gives lenders a real incentive to resolve valid claims rather than litigate them.

Song-Beverly Doesn’t Follow You Across State Lines

It bears emphasis that the Song-Beverly Consumer Warranty Act is a California statute, part of the California Civil Code.¹² It protects vehicles purchased or leased in California. If you bought or financed your vehicle outside California, Song-Beverly’s repurchase remedy generally will not apply to you directly, although many other states have their own lemon laws with different requirements, deadlines, and remedies. Out-of-state buyers should consult an attorney licensed in the state where the vehicle was purchased or leased.

Leasing Is Legally Different

Everything above is written primarily with a financed purchase — a retail installment sales contract — in mind. A lease is a different legal animal, and the analysis does not translate automatically.

First, Song-Beverly’s repurchase/restitution remedy does extend to leased vehicles, but the calculation is different: instead of the purchase price, the manufacturer (or party ultimately liable) must refund all lease payments already made, plus lease inception costs such as any down payment, and the sums the consumer would otherwise owe for the remainder of the lease term — but not the residual value the consumer would have had to pay to buy the car outright at lease-end, since a lessee is never obligated to purchase the vehicle.²²

Second, and more importantly for Holder Rule purposes, a lease is often structured so that the leasing company (frequently a bank or a manufacturer’s captive finance arm) is a direct party to the lease from the outset, rather than a later assignee of a contract the dealer originated. The Holder Rule exists specifically to reach an assignee — a “holder” — who was not the original seller. Where the leasing company is instead the original lessor and a direct party to your transaction from day one, the legal theory is different from, and generally more direct than, a Holder Rule claim against a later assignee; you may not need the Holder Rule’s assignment-based mechanism at all to reach that company, though other defenses and consumer-protection theories may still apply. Because lease structures vary by manufacturer and by transaction, and because federal leasing disclosure law (the Consumer Leasing Act and Regulation M) and UCC Article 2A principles also come into play, a lease dispute should be evaluated individually by an attorney rather than assumed to follow the same path as a financed purchase.

The Bottom Line

New EV manufacturers offer genuine innovation, but the sector’s financial track record — from Fisker’s collapse to the ongoing losses at Lucid and Polestar, to Rivian’s improving but still cash-hungry balance sheet, to pre-production companies like Slate — means buyers should go in with eyes open. If you financed your purchase through the manufacturer’s own point-of-sale lender and the manufacturer later fails or refuses to honor its warranty obligations, California and federal law may still give you a real path to relief — not against the bankrupt manufacturer, but against the solvent lender holding your loan. That path is at its strongest when the manufacturer sold you the car directly, as Fisker, Rivian, Lucid, and Slate each do or have done; it is narrower, but often still available, when you bought through an independent dealer and financed with an unrelated bank, grounded in the dealer’s own — not the manufacturer’s — warranty obligations.

If you purchased or financed a new EV in California — including a Fisker Ocean financed through Fisker Finance/JPMorgan Chase, or a vehicle from another manufacturer now experiencing financial distress — and you are dealing with unresolved defects, lost warranty support, or a lender unwilling to acknowledge your rights, the Hanson Law Firm can evaluate your situation. Learn more at www.thesandiegolemonlawyer.com.

Attorney Advertising. This article is provided by the Hanson Law Firm for general informational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for consultation with a licensed attorney about your specific facts and vehicle. Prior results do not guarantee or predict a similar outcome in any future matter. Laws referenced above are California and federal law as of the date of this post and may change. This post reflects publicly available information as of the date of publication and is not a complete statement of the law. Facts and figures regarding third-party companies, including their financial condition, are drawn from the cited public sources and are subject to change; readers should consult current, primary sources before relying on them. If you have questions about a new-EV purchase or financing problem, or would like to discuss your specific vehicle, financing, or warranty situation, please contact the Hanson Law Firm at www.thesandiegolemonlawyer.com.

Sources

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2. Autoevolution, Deceived Fisker Ocean Owners Get an Offer They Can’t Refuse From JPMorgan Chase (March 2025), https://www.autoevolution.com/news/deceived-fisker-ocean-owners-get-an-offer-they-can-t-refuse-from-jpmorgan-chase-248304.html
3. Hagens Berman, Fisker Ocean Electric Vehicles Automotive Litigation, https://www.hbsslaw.com/cases/fisker-ocean-electric-vehicles-loss-recovery
4. Auto Connected Car News, Fisker Bankruptcy Plan Approved (October 2024), https://www.autoconnectedcar.com/2024/10/fisker-bankruptcy-plan-approved-warranty-repairs-ota-updates-continue-operation-of-vehicle/
5. Electrek, Rivian (RIVN) Q2 2026 Earnings (July 30, 2026), https://electrek.co/rivian-rivn-q2-2026-earnings-r2-deliveries-revenue-up-27/
6. AGBI, PIF-Backed EV Maker Lucid CEO Quits as Losses Hit $13bn (February 2025), https://www.agbi.com/manufacturing/2025/02/pif-backed-ev-maker-lucid-ceo-quits-as-losses-hit-13bn-dollars/
7. AGBI, Lucid Motors company news archive, https://agbi.com/companies/lucid-motors
8. The Driven, Polestar at Risk of Nasdaq Delisting After Share Price Slump (Nov. 6, 2025), https://thedriven.io/2025/11/06/polestar-at-risk-of-nasdaq-delisting-after-share-price-slump/; Electrive, Polestar Secures $600 Million Loan From Geely (Dec. 19, 2025), https://www.electrive.com/2025/12/19/polestar-secures-600-million-loan-from-geely
9. SiliconANGLE, Electric Pickup Truck Startup Slate Auto Raises $650M in Funding (April 13, 2026), https://siliconangle.com/2026/04/13/electric-pickup-truck-startup-slate-auto-raises-650m-funding/
10. 16 C.F.R. § 433.2 (FTC Holder Rule notice), https://www.ecfr.gov/current/title-16/chapter-I/subchapter-D/part-433/section-433.2
11. LegalScoops, Fisker Ocean Owners Hope to Make Lemonade Out of Lemons, https://www.legalscoops.com/fisker-ocean-owners-hope-to-make-lemonade-out-of-lemons/; Kelley Drye, FTC Advisory Opinion Affirms Broad Consumer Rights Under Holder Rule, https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/ftc-advisory-opinion-affirms-broad-consumer-rights-under-holder-rule
12. Civ. Code § 1790 et seq. (Song-Beverly Consumer Warranty Act); Cal. Civ. Code § 1793.2(d)
13. Civ. Code § 1793.22(b)
14. Rivian, What Bank Does Rivian Work With to Offer Financing?, https://rivian.com/support/article/what-bank-does-rivian-work-with-to-offer-financing
15. The Detroit Bureau, reporting on Lucid’s preferred-lender partnership with Bank of America, https://thedetroitbureau.com/?p=214350
16. Fox 13 News, Slate’s Electric Pickup Truck Unveiled: What to Know, https://www.fox13news.com/news/slates-electric-pickup-truck-unveiled-what-know
17. Autocar Business, Dealer Renaissance and New Models Boost Polestar Sales, https://autocar-prod.codeenigma.net/car-news/business-car-sales/dealer-renaissance-and-new-models-boost-polestar-sales-76; The Drive, “We Don’t Know What We’re Doing”: Inside the Post-Ban Chaos at Polestar Dealerships, https://www.thedrive.com/news/we-dont-know-what-were-doing-inside-the-post-ban-chaos-at-polestar-dealerships
18. Mega RV Corp. v. HWH Corp. (2014) 225 Cal.App.4th 1318, https://www.severson.com/wp-content/uploads/2014/05/Mega-RV.pdf
19. Lafferty v. Wells Fargo Bank, N.A. (post-remand stipulated judgment), https://cite.case.law/cal-rptr-3d/235/842/
20. Civ. Code § 1794(d)
21. Pulliam v. HNL Automotive, Inc. (2022) 13 Cal.5th 127, https://supreme.courts.ca.gov/sites/default/files/supremecourt/default/2022-08/S267576.pdf
22. Severson & Werson, discussion of the Song-Beverly restitution remedy in leases, https://severson.com/?p=23317