Pollice v. National Tax Funding, L.P.

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit

8-29-2000

Pollice v. Natl Tax Funding
Precedential or Non-Precedential:

Docket 99-3856

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Filed August 29, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 99-3856, 99-3857, 99-4049,
99-3858, 99-3859 and 99-3998

TITO POLLICE; VIOLET POLLICE, individually and on
behalf of all others similarly situated; LINDA MANSFIELD,

Appellants in No. 99-3856

v.

NATIONAL TAX FUNDING, L.P.;
CAPITAL ASSET RESEARCH CORPORATION, LTD.

TITO POLLICE; VIOLET POLLICE, individually and on
behalf of all others similarly situated; LINDA MANSFIELD,

v.

NATIONAL TAX FUNDING, L.P.;
CAPITAL ASSET RESEARCH CORPORATION, LTD.

Appellants in No. 99-3857

TITO POLLICE; VIOLET POLLICE, individually and on
behalf of all others similarly situated; LINDA MANSFIELD,

Appellants in No. 99-4049

v.

NATIONAL TAX FUNDING, L.P.;
CAPITAL ASSET RESEARCH CORPORATION, LTD.
GLADYS HOUCK; MARIE DEMITRAS; BRAGETTE
PARKER; MARY WALSH, on their own behalf and on
behalf of all others similarly situated; MARY TABB,

Appellants in No. 99-3858

v.

CAPITAL ASSET RESEARCH CORP., LTD.;
NATIONAL TAX FUNDING, L.P.;
CAPITAL ASSET HOLDINGS GP INC.

GLADYS HOUCK; MARIE DEMITRAS; BRAGETTE
PARKER; MARY WALSH, on their own behalf and on
behalf of all others similarly situated; MARY TABB,

v.

CAPITAL ASSET RESEARCH CORP., LTD.;
NATIONAL TAX FUNDING, L.P.;
CAPITAL ASSET HOLDINGS GP INC.

Appellants in No. 99-3859

GLADYS HOUCK; MARIE DEMITRAS; BRAGETTE
PARKER; MARY WALSH, on their own behalf and on
behalf of all others similarly situated; MARY TABB,

Appellants in No. 99-3998

v.

CAPITAL ASSET RESEARCH CORP., LTD.;
NATIONAL TAX FUNDING, L.P.;
CAPITAL ASSET HOLDINGS GP INC.

On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. Nos. 98-00813 and 98-00850)
District Judge: Honorable Donald E. Ziegler

2
* Honorable Louis F. Oberdorfer, Senior Judge of the United States
District Court for the District of Columbia, sitting by designation.
Argued: June 22, 2000

BEFORE: BARRY and GREENBERG, Circuit Judges, and
OBERDORFER,* District Judge

(Filed: August 29, 2000)

Michael P. Malakoff
Rudy A. Fabian (argued)
Malakoff Doyle & Finberg, P.C.
Suite 200--The Frick Building
Pittsburgh, PA 15219

Bernard S. Rubb
434 Oliver Road
Sewickley, PA 15143

Attorneys for Appellants and
Cross-Appellees Tito Pollice,
Violet Pollice and Linda Mansfield,
individually and on behalf of all
others similarly situated

Donald Driscoll (argued)
Laurence Norton
Community Justice Project
1705 Allegheny Building
429 Forbes Avenue
Pittsburgh, PA 15222

Attorneys for Appellants and
Cross-Appellees Gladys Houck,
Marie Demitras, Bragette Parker,
Mary Walsh and Mary Tabb, on
their own behalf and on behalf of
all others similarly situated

3
 Robert L. Byer (argued)
Terry Budd
David M. Aceto
Joseph R. Gette
Kirkpatrick & Lockhart LLP
Henry W. Oliver Building
535 Smithfield Street
Pittsburgh, PA 15222

Attorneys for Appellees and
Cross-Appellants Capital Asset
Research Corp., Ltd., National Tax
Funding, L.P. and Capital Asset
Holdings GP Inc.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

These appeals present certified questions arising from
two actions, Pollice v. National Tax Funding, L.P. et al. and
Houck v. Capital Asset Research Corp., Ltd. et al. , which
have been consolidated before the district court for pretrial
purposes. The subject matter of both actions concerns the
assignment of delinquent municipal tax and utility claims
to defendant National Tax Funding, L.P. ("NTF "). We set
forth the relevant factual and procedural background
below.

I. BACKGROUND

For years, the City of Pittsburgh ("City"), the School
District of Pittsburgh ("School District"), and the Pittsburgh
Water and Sewer Authority ("PWSA") (collectively, the
"government entities") accumulated a backlog of thousands
of claims against homeowners who did not fully pay their
property taxes or water or sewer bills. In order to eliminate
this backlog, the government entities decided to sell the
claims and the liens arising therefrom to NTF, which is in
the business of purchasing such delinquent claims from
municipalities in several states. App. at 135, 514. 1 In
_________________________________________________________________

1. Appendix references are to the appendix filed in Nos. 99-3858 and 99-
3859.

4
September 1996, the City and the School District entered
into a Purchase Agreement whereby existing claims and
liens for unpaid taxes and sewer charges were assigned to
NTF.2 App. at 517. The Purchase Agreement also called for
the City and the School District to sell NTF subsequent
claims for the years 1996, 1997 and 1998. Under the
agreement, the City and the School District retained the
right to service the claims, and accordingly they entered
into a Servicing Agreement with Capital Asset Research
Corp., Ltd. ("CARC")3 pursuant to which CARC was to
collect the claims for the benefit of NTF. App. at 859. The
Servicing Agreement allowed the City and the School
District to retain some measure of control over CARC's
collection activities; for example, the agreement required
CARC to make monthly reports to the City and the School
District and it required CARC to offer homeowners
"payment plans" having particular terms.

In April 1997, NTF entered into a similar Purchase
Agreement with PWSA involving the assignment of unpaid
water claims. App. at 886. Like the agreement with the City
and the School District, the PWSA Purchase Agreement
called for the assignment of not only existing claims but
also future claims. Under the agreement, PWSA retained
the right to service the claims, and it entered into a
Servicing Agreement with CARC similar to the agreement
between CARC and the City and School District. App. at
1099.

CARC then set about contacting homeowners in order to
collect on the delinquent claims. According to defendants,
NTF, through CARC, has endeavored to collect from the
homeowners the same interest and penalties on the claims
which the government entities collect under applicable local
law. See app. at 139, 1141, 1146, 1151, 1196, 1198, 1221-
23. Specifically, a City ordinance provides for a twelve
percent annual rate of interest on unpaid property taxes,
along with a one-half percent per month penalty. App. at
_________________________________________________________________

2. The sewer claims had been assigned to the City by the Allegheny
County Sanitary Authority.

3. Like NTF, CARC is a limited partnership. Both partnerships share a
common general partner, Capital Asset Holdings GP Inc. App. at 1355.

5
1385. Another ordinance provides for a twelve percent
annual rate of interest on claims for unpaid sewer charges
assigned by the Allegheny County Sanitary Authority
("ALCOSAN") to the City, along with a one-timefive percent
penalty. App. at 1128. In addition, a PWSA resolution calls
for interest at the rate of one-half percent per month and
penalty at the rate of one percent per month on unpaid
water and sewer charges. App. at 1119. At approximately
the same time as the 1996 assignment, the City amended
the ordinance regarding unpaid property taxes so as to
permit interest and penalties to be compounded on a
monthly basis. See app. at 444, 471-72, 487, 492-93, 502,
506-07.4

In response to CARC's collection efforts, some
homeowners entered into payment plans permitting them to
pay their debts--together with interest and penalty--over a
period of time ranging from six to twenty-four months.
Others paid the claims in full immediately.

On April 17, 1998, Gladys Houck and others (the"Houck
plaintiffs") filed suit against NTF, CARC and Capital Asset
Holdings GP Inc. ("CAH"), the general partner in NFT and
CARC, in the Court of Common Pleas of Allegheny County.
The action was removed to the district court on May 14,
1998. App. at 49. The complaint, as amended, asserted
claims on behalf of homeowners under the United States
and Pennsylvania Constitutions, the Pennsylvania Second
Class City Treasurer's Sale and Tax Collection Act, the
Pennsylvania Unfair Trade Practices and Consumer
Protection Law ("UTP/CPL"), the Pennsylvania Loan Interest
Protection Law ("LIPL"), the federal Fair Debt Collection
Practices Act ("FDCPA"), and the Pennsylvania Municipal
Claims and Tax Liens Law. App. at 107-20. On May 8,
1998, Tito Pollice and others (the "Pollice plaintiffs") filed an
action on behalf of property owners against NTF and CARC
_________________________________________________________________

4. The Houck plaintiffs contend that "[a]t least to an extent, the rates
and other charges imposed by Creditors [defendants] exceeded those
which the municipal entities . . . claimed authority to charge and had in
fact charged." See br. of appellants/cross-appellees in Nos. 99-3858 and
99-3859 at 9. Nevertheless, for purposes of this opinion, we will assume
that NTF in fact has charged the same interest and penalties as the local
ordinances and resolution authorize the government entities to charge.

6
in the district court asserting claims under the FDCPA and
the federal Truth-in-Lending Act ("TILA"), along with claims
for unjust enrichment and fraud. App. at 79-96. The
central allegation in both cases, as relevant to these
appeals, is that NTF, through CARC, has collected
unlawfully high interest and penalties on the assigned
claims.5 We will at times refer to the Houck plaintiffs and
the Pollice plaintiffs as "homeowners" or"plaintiffs,"
collectively, even though the Pollice class includes property
owners who are not homeowners, and we will at times refer
to NTF, CARC and CAH as "defendants," collectively.

On July 20, 1998, the district court consolidated the
Pollice and Houck matters for pretrial purposes. Defendants
then moved for summary judgment on all claims in both
actions, app. at 134-44, while the Houck plaintiffs moved
for summary judgment on their FDCPA, UTP/CPL and LIPL
claims.6 The district court ruled on the motions in an
opinion and order dated July 29, 1999 and entered August
2, 1999. See Pollice v. National Tax Funding, L.P., 59 F.
Supp.2d 474 (W.D. Pa. 1999). Relying on the recent
decision of the Commonwealth Court in Maierhoffer v. GLS
Capital, Inc., 730 A.2d 547 (Pa. Commw. Ct. 1999), appeal
denied, 749 A.2d 473 (Pa. 2000), the district court
indicated that the claims and liens in fact could be
assigned to NTF under Pennsylvania law. See Pollice, 59 F.
Supp.2d at 477 n.3. The court further indicated that NTF,
as assignee of the government entities, is subject to a
statutory provision permitting the collection of interest on
municipal tax and utility claims at a rate not to exceed ten
percent per year. See Pa. Stat. Ann. tit. 53, S 7143. The
court rejected the argument that the City's status as a
home rule municipality conferred the authority to pass
_________________________________________________________________

5. The Houck action has been brought on behalf of owner-occupants of
homes in Pittsburgh. The Pollice class is broader, involving all owners of
real property in Pittsburgh subject to the assigned claims and liens. See
oral arg. tr. at 5; app. at 81-82, 110. The Houck class thus is subsumed
within the Pollice class.

6. On October 30, 1998, the district court approved a partial settlement
in the Houck action relating to plaintiffs' constitutional claims and
their
claim under the Second Class City Treasurer's Sale and Tax Collection
Act. See Pollice, 59 F. Supp.2d at 477 n.2.

7
ordinances setting higher rates on the claims. See Pollice,
59 F. Supp.2d at 478.

The court then addressed the merits of the homeowners'
claims in light of its conclusion that NTF is subject to the
ten percent interest cap. The court held that the Houck
plaintiffs cannot recover excess interest paid under the LIPL
because they have not paid interest as consideration for the
"loan or use of money." In this regard, the court construed
the term "use of money" in the LIPL to mean an agreement
by a creditor to forbear from immediate action to collect a
debt. The court indicated that the payment plans offered by
defendants constitute such a forbearance, but it
nevertheless concluded that those homeowners who entered
into plans cannot recover because they have not paid any
additional interest or penalties as consideration for this
forbearance. See id. at 482-83.

The court then turned to the FDCPA claims (raised by
both sets of plaintiffs). Defendants argued (1) that the
water, sewer and tax obligations do not constitute"debts"
under the FDCPA, (2) that NTF, CAH and CARC are not
"debt collectors," (3) that defendants have not violated the
substantive provisions of the FDCPA, and (4) that
defendants in any event are protected by the FDCPA's
"bona fide error" exclusion. See id. at 484-85. The court
dismissed the claims of both sets of plaintiffs as against
NTF and CAH and with respect to defendants' conduct in
collecting the tax claims. The court held that NTF and CAH
are not "debt collectors" under the FDCPA because "they
are not in the business of collecting debts and do not in
fact collect debts." Id. at 486. By contrast, the court
concluded that CARC is a "debt collector" subject to liability
under the statute and that CARC does not fall within a
provision exempting government officers or employees.
Relying on our decision in Staub v. Harris, 626 F.2d 275
(3d Cir. 1980), the court further held that the water and
sewer obligations constitute "debts" for purposes of the
FDCPA but that the tax obligations do not. See Pollice, 59
F. Supp.2d at 485. The court then indicated that CARC has
acted in violation of the FDCPA by seeking to collect rates
of interest and penalties for the water and sewer claims in
excess of that authorized by state law. See id. Finally, the

8
court found material questions of fact regarding the"bona
fide error" defense, and it denied the Houck plaintiffs'
motion for summary judgment. See id. at 486-87.

With respect to the Pollice plaintiffs' TILA claim,
defendants argued (1) that NTF and CARC are not
"creditors" under TILA, (2) that TILA's public utility
exemption is applicable with respect to the water and sewer
claims, and (3) that no "consumer credit transactions"
within the meaning of TILA ever took place. The court
granted summary judgment in favor of CARC and
additionally dismissed the claim with respect to defendants'
conduct relating to the tax obligations. The court indicated
that NTF acted as a "creditor" under TILA by entering into
payment plans with homeowners, but it concluded that
CARC is not a "creditor" because "it is merely an agent,
rather than the entity to which the debts are payable." Id.
at 488 n.14. Influenced again by Staub, the court indicated
that the payment plans constitute "consumer credit
transactions" under TILA, but only with respect to the
water and sewer claims and not the tax claims. See id. at
490-91. The court further held that TILA's public utility
exemption is inapplicable. See id. at 489-90.

Finally, the district court granted summary judgment in
favor of defendants with respect to the Pollice plaintiffs'
unjust enrichment claim. In the district court's view, this
claim is "largely dependant on the argument that the
original owners of the liens and claims [the government
entities] could not assign their right to charge higher
interest and penalties to National Tax." Id. at 491. The
court rejected this argument in light of Maierhoffer, and
thus it dismissed the unjust enrichment claim.7 See id.

The Pollice and Houck plaintiffs subsequently moved to
alter or amend the July 29, 1999 judgment, but the district
court denied their motions in orders dated September 20,
1999 and entered September 21, 1999. The district court
then modified the July 29 and September 20 orders to
_________________________________________________________________

7. In addition, the court dismissed the Houck plaintiffs' UTP/CPL claim
and the Pollice plaintiffs' fraud claim. These rulings are not challenged
on appeal.

9
certify various questions for appeal pursuant to 28 U.S.C.
S 1292(b). We granted petitions for permission to appeal.

II. JURISDICTION and STANDARD OF REVIEW

The district court had jurisdiction over both actions
pursuant to 28 U.S.C. SS 1331 and 1367. We have
jurisdiction over these appeals pursuant to 28 U.S.C.
S 1292(b). " `As the text of S 1292(b) indicates, appellate
jurisdiction applies to the order certified to the court of
appeals, and is not tied to the particular question
formulated by the district court.' " Abdullah v. American
Airlines, Inc., 181 F.3d 363, 366 (3d Cir. 1999) (quoting
Yamaha Motor Corp. v. Calhoun, 516 U.S. 199, 205, 116
S.Ct. 619, 623 (1996)). We may address "any issue fairly
included within the certified order because it is the order
that is appealable, and not the controlling question
identified by the district court." Id. (citation omitted). Our
standard of review in this appeal involving only questions of
law is plenary. Id.

III. DISCUSSION

A. State Law Issues

We are called upon to determine whether the district
court erred in its disposition of the LIPL and unjust
enrichment claims. Before doing so, we must address two
preliminary questions of Pennsylvania law: (1) the
assignability of governmental rights relating to tax and
utility claims and liens, and (2) the applicability of the ten
percent interest provision under Pa. Stat. Ann. tit. 53,
S 7143.

1. Assignability

Homeowners argue that governmental rights relating to
tax and utility claims and liens may not be assigned to
private entities under Pennsylvania law. As the district
court correctly noted, however, the Pennsylvania
Commonwealth Court recently held that municipal claims
and the liens arising therefrom are assignable to private
entities under a provision of the Municipal Claims and Tax
Liens Law, Pa. Stat. Ann. tit. 53, S 7147. See Maierhoffer,

10
730 A.2d at 549-51 ("[U]nder [section 7147], a municipality
may assign any claim, tax or municipal, to a party that is
a stranger to the original transaction . . . ."). Section 7147
provides in pertinent part:

Any claim filed or to be filed, under the provisions of
this act, and any judgment recovered thereon, may be
assigned or transferred to a third party, either
absolutely or as collateral security, and such assignee
shall have all the rights of the original holder thereof.8

Homeowners argue that Maierhoffer is contrary to prior
decisions of the Pennsylvania Supreme Court and therefore
we should not follow it. In addition, they request that we
certify this issue to the Pennsylvania Supreme Court. The
Supreme Court, however, denied a petition for allowance of
appeal in Maierhoffer on January 20, 2000. See 749 A.2d
473 (Pa. 2000). Accordingly, we believe that the Supreme
_________________________________________________________________

8. The term "tax claim" is defined as"the claim filed to recover taxes."
Pa.
Stat. Ann. tit. 53, S 7101. The term "municipal claim" is defined as
follows:

(1) the claim arising out of, or resulting from, a tax assessed,
service
supplied, work done, or improvement authorized and undertaken, by
a municipality, although the amount thereof be not at the time
definitely ascertained by the authority authorized to determine the
same, and a lien therefor be not filed, but becomes filable within
the
period and in the manner herein provided, (2) the claim filed to
recover for the grading, guttering, macadamizing, or otherwise
improving, the cartways of any public highway; for grading,
curbing,
recurbing, paving, repaving, constructing, or repairing the
footways
thereof; for laying water pipes, gas pipes, culverts, sewers,
branch
sewers, or sewer connections therein; for assessment for benefits
in
the opening, widening or vacation thereof; or in the changing of
water-courses or the construction of sewers through private lands;
or in the highways of townships of the first class; or in the
acquisition of sewers and drains constructed and owned by
individuals or corporations, and of rights in and to use the same;
for
the removal of nuisances; or for water rates, lighting rates, or
sewer
rates, and (3) the claim filed to recover for work, material, and
services rendered or furnished in the construction, improvement,
 maintenance, and operation of a project or projects of a body
politic
or corporate created as a Municipal Authority pursuant to law.

Id. (emphasis added)

11
Court would not accept certification of this issue and thus
we will not certify the question and delay these proceedings.9
We have reviewed Maierhoffer carefully and have concluded
that it was decided correctly. Thus, we follow Maierhoffer in
concluding that the government entities had the power to
assign their rights relating to the tax, water and sewer
claims and liens to NTF, and that NTF as assignee thereby
stands in the shoes of the government entities with respect
to these claims and liens. Therefore, NTF is entitled to
collect interest and penalties on the assigned claims to the
same extent as the government entities are entitled under
relevant state and local law.

2. Applicability of ten percent interest provision

Homeowners contend that the combined interest and
penalty charges imposed by NTF on the assigned claims are
unlawful under the Municipal Claims and Tax Liens Law.
Section 7143 which is a provision of that law reads in
pertinent part:

Interest as determined by the municipality at a rate not
to exceed ten per cent per annum shall be collectible on
all municipal claims from the date of the completion of
the work after it is filed as a lien, and on claims for
taxes, water rents or rates, lighting rates, or sewer
rates from the date of the filing of the lien therefor.

Pa. Stat. Ann. tit. 53, S 7143 (emphasis added).10

Like the district court, we conclude that NTF, as assignee
of claims belonging to the government entities, is subject to
section 7143. The plain language of section 7143 permits
the collection of interest on a municipality's claim for taxes,
_________________________________________________________________

9. The decision to allow an appeal from the Commonwealth Court -- like
the decision to accept a certification petition from a federal court -- is
a
matter of the Supreme Court's discretion. See Pa. R. App. P. 1114.

10. The term "taxes" is defined as "any county, city, borough,
incorporated town, township, school, bridge, road, or poor taxes." Pa.
Stat. Ann. tit. 53, S 7101. The term "municipality" is defined as "any
county, city, borough, incorporated town, township, school district,
county institution district, and a body politic and corporate created as a
Municipal Authority pursuant to law." Id.

12
water rents or rates, or sewer rates,11 but the rate is limited
to ten percent per annum. The term "municipality" includes
not only cities, but also school districts and municipal
authorities. See Pa. Stat. Ann. tit. 53,S 7101. Thus, NTF,
as assignee of the City, the School District, and the PWSA,
is entitled to collect interest on the assigned claims up to
this ten percent cap. See Horbal v. Moxham Nat'l Bank, 697
A.2d 577, 583 (Pa. 1997) ("Under the law of assignment,
the assignee succeeds to no greater rights than those
possessed by the assignor."). There can be no dispute that
NTF has exceeded the cap.

Defendants argue that the City, as a home rule
municipality, acted within its power in passing the
ordinances setting the interest and penalty rates at issue
here. Yet, it is clear that under the Home Rule Charter and
Optional Plans Law (the "Home Rule Law") a home rule
municipality may not act in contravention of state laws
applicable to municipalities. Under the Home Rule Law, "[a]
municipality which has adopted a home rule charter may
exercise any powers and perform any function not denied
by the Constitution of Pennsylvania, by statute or by its
home rule charter." 53 Pa. Cons. Stat. Ann. S 2961.
Further, the Home Rule Law provides that, "[w]ith respect
to the following subjects, the home rule charter shall not
give any power or authority to the municipality contrary to,
or in limitation or enlargement of, powers granted by
_________________________________________________________________

11. In City of Philadelphia v. Holley, 220 A.2d 396 (Pa. Super. Ct. 1966),
the court construed the term "rents or rates" as used in section 7143:

The words `rents or rates' are not defined by the act and must be
given their plain everyday meaning. Webster's Third New
International Dictionary defines a `rate' as`a charge per unit of a
public-service commodity (as electricity, gas, water)', and defines
`water rate' or `water rent' as `a rate or tax for supply of
water'. To
the average householder, his water rent or rate means either a flat
charge for the water furnished him or a charge for each unit of
water coming into his home. He understands his gas and electric
rate the same way. Our Supreme Court gave judicial approval to
this general usage in Jolly v. Monaca Borough , 216 Pa. 345, 65 A.
809 (1907), where the court defined a water rate as the price paid
for water as a commodity.

Id. at 398 (citations omitted).

13
statutes which are applicable to a class or classes of
municipalities"; among the listed subjects is"[t]he filing and
collection of municipal tax claims or liens and the sale of
real or personal property in satisfaction of them." 53 Pa.
Cons. Stat. Ann. S 2962(a)(1). Clearly, the assessment of
interest and penalties on delinquent tax obligations falls
within the scope of "collection of municipal tax claims."
Another provision of the Home Rule Law states that"[a]
municipality shall not . . . [e]xercise powers contrary to, or
in limitation or enlargement of, powers granted by statutes
which are applicable in every part of this Commonwealth."
53 Pa. Cons. Stat. Ann. S 2962(c)(2). Based on the clear
language of the Home Rule Law, we conclude that a home
rule municipality may not exceed the ten percent interest
limit set forth in section 7143.

Defendants argue that the interest and penalty rates set
by the City with respect to the tax claims are lawful under
the following provision of the Home Rule Law:

Establishment of rates of taxation.--No provision of
this subpart or any other statute shall limit a
municipality which adopts a home rule charter from
establishing its own rates of taxation upon all
authorized subjects of taxation . . . .

53 Pa. Cons. Stat. Ann. S 2962(i).12 Defendants contend
that "rate of taxation" includes the rate of interest and
penalties on delinquent tax obligations. Plaintiffs respond
that "establishing the rate of taxation is not the same as
assessing a rate of interest on an already delinquent tax."
See reply br. of appellants/cross-appellees in Nos. 99-3856
and 99-3857 at 15.
_________________________________________________________________

12. The Home Rule Law defines "rate of taxation" as "[t]he amount of tax
levied by a municipality on a permissible subject of taxation." 53 Pa.
Cons. Stat. Ann. S 2902. "Subject of taxation" is defined as follows:

Any person, business, corporation, partnership, entity, real
property, . . . personal property, property interest, transaction,
occurrence, privilege, transfer, occupation or any other levy which
is
determined to be taxable by the General Assembly. The term shall
not be construed to mean the rate of tax which may be imposed on
a permissible subject of taxation.

Id.

14
Like the district court, we agree with plaintiffs that a
home rule municipality's authority to set "rates of taxation"
does not include the authority to set interest and penalty
rates on delinquent taxes. "Rate of taxation" undoubtedly
means the rate which is applied to the value of property in
order to determine the amount of the tax owed; its plain
meaning does not include the rate of interest or penalty on
overdue tax obligations. The rate of interest on tax
obligations is directly governed by Pa. Stat. Ann. tit. 53,
S 7143, which expressly limits "[i]nterest" on "claims for
taxes."

Finally, defendants argue that the interest and penalty
rates on water and sewer claims set by the PWSA resolution
do not violate section 7143 because the annual rate of
"interest" under the resolution is less than ten percent. As
stated, under the resolution, the "interest" charge is one-
half percent per month while the "penalty" charge is one
percent per month. App. at 1119. Defendants argue that
section 7143 by its terms limits only the rate of"interest"
and not the rate of "penalty."13 The district court rejected
defendants' argument, finding that "this distinction
[between interest and penalty] rings hollow when applied to
the instant set of facts." Pollice, 59 F. Supp.2d at 479. The
court stated that no municipality "may evade the
requirements of the Municipal Claims Act [section 7143] by
converting interest in excess of that which is statutorily
authorized to a `penalty.' " Id. We agree with the district
court's reasoning. There appears to be no actual distinction
between the monthly "interest" charge and the monthly
"penalty" charge under the PWSA resolution; indeed, there
would be no practical difference if the one percent"penalty"
rate were labeled an "interest" rate and the one-half percent
"interest" rate were labeled a "penalty" rate.

In attempting to draw a valid distinction between
"interest" and "penalty," defendants argue that the former
_________________________________________________________________

13. This argument is applicable only to the rates set by the PWSA
resolution. Under the City ordinances applicable to unpaid property
taxes and unpaid sewer claims assigned to the City by ALCOSAN, the
rate of "interest" is twelve percent annually, leaving aside the
"penalty."
See app. at 1128, 1385.

15
"compensates the government for the lost time-value" of
unpaid obligations, while the latter "does not necessarily
compensate the government for the lost value of money,
and generally imposes an added cost on the delinquent
party as punishment for noncompliance with the law." Br.
of appellees in No. 99-3998 at 40-41. We, however,find this
distinction to be artificial and thus we agree with the
district court that a municipality should not be permitted to
avoid the ten percent limit by arbitrarily labeling some
portion of the monthly charge as "penalty" rather than
"interest."

In sum, we conclude that NTF, as assignee of the
government entities, is subject to section 7143 and that it
has violated that provision by imposing interest charges on
the assigned claims in excess of ten percent per annum.

3. The LIPL claim

Homeowners seek relief under the Loan Interest
Protection Law ("LIPL"), Pa. Stat. Ann. tit. 41, S 101 et seq.14
Under that law, "the maximum lawful rate of interest for
the loan or use of money in an amount of fifty thousand
dollars ($50,000) or less in all cases where no express
contract shall have been made for a less rate shall be six
per cent per annum." Pa. Stat. Ann. tit. 41,S 201. The law
further provides that "[i]f any maximum lawful rate of
interest provided for in this act is inconsistent with the
provision of any other act establishing, permitting or
removing a maximum interest rate . . . then the provision
_________________________________________________________________

14. In Appeal No. 99-4049, the Pollice plaintiffs present arguments
regarding the LIPL. Yet, at the time of the district court's July 29, 1999
ruling on the motions for summary judgment, only the Houck plaintiffs
had asserted a claim under the LIPL. The Pollice plaintiffs later amended
their complaint to add such a claim, but the district court never made
any disposition of the Pollice plaintiffs' claim. Defendants contend that
we lack jurisdiction to hear the Pollice plaintiffs' arguments regarding
the LIPL because the certified orders did not address their LIPL claim.
We agree that we lack jurisdiction to make any ruling regarding the
Pollice plaintiffs' LIPL claim. See Zulkowski v. Consolidated Rail Corp.,
852 F.2d 73, 75-76 (3d Cir. 1988) (jurisdiction under 28 U.S.C. S 1292(b)
is "limited to a review of the order of the district court").
Nevertheless, in
the course of our discussion of the LIPL, we will consider some of the
points raised in the Pollice plaintiffs' briefs.

16
of such other act shall prevail." Pa. Stat. Ann. tit. 41, S 604.
The LIPL provides a cause of action to recover usurious
interest:

A person who has paid a rate of interest for the loan or
use of money at a rate in excess of that provided for by
this act or otherwise by law or has paid charges
prohibited or in excess of those allowed by this act or
otherwise by law may recover triple the amount of such
excess interest or charges in a suit at law against the
person who has collected such excess interest or
charges . . . .

Pa. Stat. Ann. tit. 41, S 502 (emphasis added). Homeowners
argue that they have "paid [to NTF] a rate of interest for the
loan or use of money . . . in excess of that provided for . . .
otherwise by law" because the interest and penalty rates
exceeded the ten percent limit of Pa. Stat. Ann. tit. 53,
S 7143. Alternatively, homeowners argue that they have
"paid charges prohibited or in excess of those allowed . . .
otherwise by law."

As set forth in the preceding section, we agree with
plaintiffs' contention that NTF has charged interest and
penalties at a rate in excess of the ten percent permitted by
section 7143. The district court nevertheless held that
homeowners cannot recover under the LIPL because they
have not paid the interest and penalties as consideration
"for the loan or use of money." In this regard, the district
court recognized a distinction between, on the one hand,
charges imposed on account of a debtor's failure to make
timely payment of money when due ("detention"), and on
the other, money received by a creditor as consideration for
agreeing to refrain from immediately collecting a debt
("forbearance"). Relying largely on cases construing usury
statutes from other jurisdictions, the district court
indicated that only in the latter situation has there been a
"use of money" under the LIPL. The court then indicated
that no forbearance occurred here until NTF, through
CARC, entered into payment plans with some of the
homeowners. See Pollice, 59 F. Supp.2d at 482 ("[T]he
terms provided in the payment plans should be read as
constituting a forbearance under the Pennsylvania usury

17
law. A forbearance is widely considered a `use of money' for
the purposes of usury law.").

The district court further concluded, however, that even
those homeowners who have entered into payment plans
cannot recover under the LIPL. The court reasoned as
follows:

[W]e believe that an interest rate beyond that allowed
by law can only be considered usurious if it exists as
consideration for the creditor's forbearance.

While it has been established that the interest rate
charged by defendants is beyond that allowed under
Pennsylvania law, and that defendants, through the
payment plans, are forbearing on collecting the money
owed, it has not been shown that the rate being
charged is in any way consideration for this
forbearance. The facts presented illustrate that
defendants have received no additional consideration in
return for the terms offered under the payment plans.
The interest rate charged for late payment is not
consideration for the payment plans, but a part of the
consideration for the original transaction.

Further, defendants are not charging plaintiffs a rate
for participating in the plans which is higher than
plaintiffs would be charged if they did not participate.
This is therefore not the typical forbearance situation,
in which the debtor could not pay his or her obligation
upon its due date and the creditor agreed to extend the
period of repayment of the debt for additional
consideration.

Thus, the facts of this case preclude us fromfinding
that defendants, by offering the payment plans and
thus forbearing on the immediate collection of the debt
owed, modified the original transaction so as to bring
it within the ambit of the Pennsylvania Loan Interest
Protection Law.

Id. at 483 (citations omitted).

Pennsylvania courts have not specifically addressed
whether there has been a "loan or use of money" under the
LIPL in the detention context. Several cases from other

18
jurisdictions indicate that usury laws apply only when a
creditor agrees to take interest in exchange for making a
loan or promising to forbear from the immediate collection
of a debt; there is no usury when a creditor simply charges
a debtor for failure to make timely payment of a debt when
due. For example, in Smith Machinery Co. v. Jenkins, 654
F.2d 693 (10th Cir. 1981), the court considered a
promissory note which called for interest at the rate of
twelve percent to accrue after maturity. Id. at 694.
Reasoning as follows, the court held that the New Mexico
usury statute was inapplicable to such postmaturity
charges:

In the absence of language in the usury statutes that
compels a different conclusion, the courts have
generally held the limitations on interest rates charged
do not apply to postmaturity charges. The rationale is
that because postmaturity charges are within the
debtor's control they are penalties for nonpayment
rather than charges for the use of money and,
therefore, they are not affected by usury laws. Such
charges may be deemed usurious, however, when state
laws limit interest rates which can be applied on the
`detention' as well as the use of money.

N.M.Stat.Ann. S 56-8-9 A (1978) indicates the scope
of coverage of the usury limits of the New Mexico
provisions cited above. [The statute provides:] `(N)o
person, corporation or association, directly or
indirectly, shall take, reserve, receive or charge any
interest, discount or other advantage for the loan of
money or credit or the forbearance or postponement of
the right to receive money or credit except at the rates
permitted in Sections 56-8-1 through 56-8-21 NMSA
1978.'

All the terms of the statute denote consensual
agreements between the parties, indicating that a
withholding or detention by the borrower not consented
to by the lender is not within the statute's purview. The
mere fact that the parties have agreed to the rate to be
paid after the debt is due does not make an
arrangement a forbearance. In the instant case there
was no agreement that [the debtor] could defer

19
 payment after maturity; the situation was a `detention'
of money rather than a `forbearance' and, as such, we
do not think the New Mexico courts would hold it is
covered by the statute.

Id. at 696 (citations and footnote omitted); see also
Scientific Prods. v. Cyto Med. Lab., Inc., 457 F. Supp. 1373,
1379 (D. Conn. 1978) ("[I]t does not necessarily follow that
charges at a rate in excess of that prohibited at the
inception of a loan are usurious when imposed only on the
unpaid balance after the loan has matured . . . . Here there
was no agreement that the [debtor] could defer payment.
Many cases have held that since charges of this nature are
within the borrower's control, they are penalties for non-
payment, rather than charges for the use of money, and,
therefore, not affected by the usury laws."); Rangen, Inc. v.
Valley Trout Farms, Inc., 658 P.2d 955, 960 (Idaho 1983)
("[The creditor] was imposing a late charge on accounts in
arrears . . . . [W]e agree that the usury laws are
inapplicable to this type of transaction. The charge was a
valid late charge which could have been avoided if[the
debtor] had paid its account when due. There was neither
an express or an implied agreement to forbear or extend the
time for payment."); Widmark v. Northrup King Co., 530
N.W.2d 588, 591 (Minn. Ct. App. 1995) ("[W]e conclude that
the `late charges' assessed by [the creditor] did not
constitute a usurious rate of interest. [The creditor] never
actually agreed to forego an immediate action on[the
debtor's] account if it became overdue in exchange for a late
charge. Unlike typical credit arrangements, [the creditor]
did not encourage late payments in order to recover the
additional charge . . . . Consequently, we hold that there
was no forbearance here within the meaning of the usury
laws."); see also 47 C.J.S. Interest & Usury S 122 (1982)
("[Usury statutes] apply only to those contracts which in
substance involve a loan of money or forbearance to collect
money due, and so, where there is no loan or forbearance,
there can be no usury . . . . A charge imposed because of
the late payment of a debt comes within the definition of
interest under a usury statute only where it is paid as

20
consideration for the creditor's forbearance of asserting his
right of collection.").15

Of course, cases from other jurisdictions are not
controlling with respect to the meaning of a Pennsylvania
statute. Nevertheless, in the absence of Pennsylvania case
law directly on point, we predict that the Pennsylvania
Supreme Court would follow the approach taken by these
other courts. The phrase "paid a rate of interest for the loan
or use of money" under section 502 of the LIPL implies that
there is some consensual arrangement between the parties;
that is, an agreement by the lender or creditor to make a
loan, or to grant the debtor the "use" of money by
promising to forebear from taking immediate action to
collect a debt, in exchange for interest. We believe there has
been no "loan or use of money" under section 502 when a
debtor simply detains money which the creditor wishes to
receive immediately.

In re Kenin's Trust Estate, 23 A.2d 837 (Pa. 1942),
supports our conclusion. In that case, a trustee failed to
make proper delivery of trust proceeds. The Supreme Court
addressed the question whether "damages for the[trustee's]
detention of funds" should be measured by the legal rate of
interest set forth in the Act of May 28, 1858, P.L. 622, a
predecessor to the current LIPL. Id. at 844. As paraphrased
by the court, P.L. 622 "fix[ed] at 6% the lawful rate of
interest for the loan or use of money, in all cases where no
express contract shall have been made for a less rate." Id.
at 844 n.4. The court indicated that the statute was
inapplicable, and instead held that damages should be
measured by "what the money so detained would have
produced if it had been delivered to those entitled to it." See
id. at 844-45. The court commented as follows:

The Act of May 28, 1858, P.L. 622 . . . does not rule
the question of `damages for detention'. The word `use'
_________________________________________________________________

15. Of course, there may be other limits on a creditor's ability to
collect
charges for detention. For example, a provision in an agreement calling
for unduly high late payment charges may be unenforceable as a penalty
under general liquidated damages principles. See Rangen, 658 P.2d at
958, 963. The sole question before us here is whether the usury law is
applicable in the detention situation.

21
 when referring to money is often employed as a
synonym for `loan'. Money is not `used' within the
meaning of this act when it is detained under the
circumstances here present.

Id. at 844 n.4 (emphasis added).16

Homeowners present a somewhat complex argument in
an attempt to demonstrate that Kenin is not controlling
here. They point out that Pennsylvania law draws a
distinction between (1) "interest as such or interest eo
nomine," which is recoverable "when afixed sum is due
from a date certain," and (2) "damages for detention or
delay," which are recoverable "when the amount or onset of
the obligation is not certain." Reply br. of appellants/cross-
appellees in Nos. 99-3858 and 99-3859 at 8; see American
Enka Co. v. Wicaco Mach. Corp., 686 F.2d 1050, 1056-57
(3d Cir. 1982); Peterson v. Crown Fin. Corp., 661 F.2d 287,
292-95 (3d Cir. 1981); Frank B. Bozzo, Inc. v. Electric Weld
Div. of the Fort Pitt Div. of Spang Indus., Inc., 498 A.2d 895,
898-901 (Pa. Super. Ct. 1985); 20 Pennsylvania Law
Encyclopedia Interest and Usury SS 4, 6-8 (1990). In the
former situation--where there has been a failure to pay a
fixed or liquidated sum due on a certain date--the party to
whom the sum is owed may as a matter of right recover
prejudgment interest at the legal rate of six percent running
from the date the sum is due. See American Enka , 686 F.2d
at 1056-57; Peterson, 661 F.2d at 293; Miller v. City of
Reading, 87 A.2d 223, 225 (Pa. 1952) ("[I]t is the law of
Pennsylvania that a debtor who defaults in the payment of
the principal of an obligation when due and payable
becomes liable for interest from the date of such default at
_________________________________________________________________

16. A statement in another Pennsylvania decision supports the
conclusion that the Pennsylvania usury statute applies only where there
has been a loan or a forbearance. See Equipment Fin., Inc. v. Grannas,
218 A.2d 81, 82 (Pa. Super. Ct. 1966) ("[T]he law seems to be settled
that usury can only attach to a loan of money or to the forbearance of
a debt . . . .") (citation omitted); see also 20 Pennsylvania Law
Encyclopedia Interest and Usury S 22 (1990) ("Usury contemplates the
existence of a loan, and when there is no loan, usury cannot arise.").
Although Grannas addressed the LIPL's predecessor statute, that statute
--like the current LIPL--contained the "loan or use of money"
requirement.

22
the legal rate of 6% per annum until payment is made,
irrespective of the rate prescribed in the obligation itself for
the period prior to maturity . . . . [I]n the absence of an
agreement to the contrary, a liquidated claim carries
interest at the legal rate from the time the debt becomes
due."); Daset Mining Corp. v. Industrial Fuels Corp., 473
A.2d 584, 594-95 (Pa. Super. Ct. 1984) ("In claims that
arise out of a contractual right, interest has been allowed at
the legal rate from the date that payment was wrongfully
withheld, where the damages are liquidated and certain,
and the interest is readily ascertainable through
computation."); see also Pa. Stat. Ann. tit. 41, S 202 (setting
the "legal rate of interest" at six percent per annum). In the
latter situation--where the breach involves something other
than an obligation to pay a liquidated sum on a certain
date--recovery of delay damages "will not be a matter of
right, . . . [but] will be an issue for thefinder of fact, the
resolution of which depends upon all the circumstances of
the case." Frank B. Bozzo, 498 A.2d at 900 (citation and
internal quotation marks omitted).

According to the homeowners, there has been a "use of
money" under the LIPL when money is detained in the
former situation; that is, prejudgment interest is due for the
debtor's "use of the liquidated amount due the creditors
from the date due." Reply br. of appellants/cross-appellees
in Nos. 99-3858 and 99-3859 at 8. Homeowners contend
that this case falls into the former category, i.e., interest as
such, because it involves their failure to pay liquidated
sums for tax, water and sewer obligations which were due
on a certain date; they further contend that interest is
recoverable but only at the legal rate of six percent per
annum unless otherwise permitted by law. They argue that
Kenin falls under the latter category, i.e. , damages for
detention or delay, and therefore is not applicable here.

Despite the homeowners' argument, we adhere to our
belief that the Pennsylvania Supreme Court would hold
that there has been no "loan or use of money" within the
meaning of Pa. Stat. Ann. tit. 41, S 502 in the absence of a
loan or an agreement by the creditor to forbear. Plaintiffs'
argument revolves around the concepts of prejudgment
interest and damages for delay, both of which are awarded

23
by a court to compensate a prevailing party for the lost
time-value of money running from the date of the opposing
party's breach of contract or breach of duty. See American
Enka, 686 F.2d at 1056 ("Common law pre-judgment
interest is based on the principle of compensation and the
understanding that a plaintiff wrongfully deprived of a sum
of money is not made whole unless the delay in recovery is
accounted for."). We are not concerned here, however, with
the proper amount of prejudgment interest which
defendants might be awarded by a court. Rather, we are
called upon to address whether homeowners may employ
section 502 to recover interest and penalties already paid to
NTF. We believe they cannot in the absence of a loan or a
forbearance. Further, we note that case law indicates that
a creditor may collect interest at a rate higher than six
percent in situations involving the failure to pay a
liquidated sum, if the parties have agreed to such higher
rate. See Miller, 87 A.2d at 225-26; Daset Mining, 473 A.2d
at 595. If such agreements are permitted, then it is
apparent that there has been no "use of money" within the
meaning of sections 201 and 502 of the LIPL--otherwise,
such agreements would be usurious.

We further agree with the district court's conclusion that
the payment plans constitute a forbearance giving rise to
the "use of money" for purposes of the LIPL. See 47 C.J.S.
Interest & Usury S 131 (1982) ("The forbearance, or giving
time for the payment, of a debt is, in substance, a loan, and
when there is an existing and matured debt, a charge made
by the creditor for his binding promise to forbear for a
definite period to collect it, greater than that allowed by
law, will subject the debt forborne to all the penalties
prescribed by the law for usury."). A letter from CARC to
the Pollices stated as follows with regard to the payment
plans:

The full amount of the [assigned] Claims is due
immediately. Please make your check payable to
National City Bank of Pennsylvania as custodian for
NTF . . . .

In the event you are currently unable to satisfy this
obligation in full, you may pay the Claims over a longer
period of time in accordance with the installment

24
 purchase payment plan (the "Payment Program") . . . .
The longer you wait to pay the Claims, the more you
accumulate in additional interest, penalties, filing fees
and costs (including attorney's fees). Interest and
penalties are added to the total amount of the Claims
at a rate, not to exceed, 1.5% per month (compounded
monthly).

There are two different payment plans, 1) Water[and]
2) City, School and Sewer. Under the Payment
Program(s), you may choose to pay the Claims over
time in monthly installments . . . . Payments will be
calculated to ensure that the full amount of the
Claims, plus all interest, penalties and costs, will be
paid in full with the last payment you agree to make
. . . .

. . . If you successfully complete the Payment Program,
and the total amount of Claims, plus all acquired[sic]
interest, penalties and costs are paid in full, the liens
securing Claims against the Property will be removed
and marked satisfied. If you default under the Payment
Program, the money you have previously paid will not
be returned, but will instead be applied against the
Claims . . . .

App. at 97. A payment plan enrollment form included with
the letter provided as follows:

I understand that if I do default in the payment of
installments as provided above . . . all payments that
I have made under the Payment Program will be
applied pro rata to the principal, interest and penalty
due on the claims and thereafter NTF or agents may
take legal action against me or the Property to satisfy
the outstanding amounts owed on the Claims . . . .

App. at 98. Thus, by virtue of the payment plans, NTF has
agreed to forbear from taking immediate action to collect on
the assigned claims.17
_________________________________________________________________

17. It is evident that no forbearance occurred prior to the payment plans;
prior to the plans, neither the government entities nor defendants had
granted homeowners any right to defer payment of their debt. The fact
that the government entities sat idle for periods of time without taking
any action with respect to the claims does not mean that there was a
forbearance.

25
The district court concluded, however, that "an interest
rate beyond that allowed by law can only be considered
usurious if it exists as consideration for the creditor's
forbearance." Pollice, 59 F. Supp.2d at 483 (emphasis
added). The court stated that "it has not been shown that
the rate being charged is in any way consideration for this
forbearance" because "defendants are not charging
plaintiffs a rate for participating in the plans which is
higher than plaintiffs would be charged if they did not
participate." Id. We agree with the district court. " `Usury'
has been variously defined as contracting for or reserving
something in excess of the amount allowed by law for the
forbearance of money, the exaction of more than lawful
interest in exchange for the loan or use of money, directly
or indirectly, and as an excessive charge for the loan or
forbearance of money." 47 C.J.S. Interest & Usury S 4
(1982). Thus, "[i]n general, the elements of usury consist of
an unlawful intent, money or its equivalent, a loan or
forbearance, an understanding that the loan shall or may
be returned, and the exaction for the use of the loan of
something in excess of what is allowed by law." Id. S 119.

Here, no price in the form of heightened interest or
penalties has been extracted or charged in exchange for the
right to enter into a payment plan--rather, it appears
undisputed that those homeowners who have entered into
payment plans have been charged the same interest and
penalty rates as those who did not enter into a plan. See
br. of appellants/cross-appellees in Nos. 99-3858 and 99-
3859 at 9, 28-30; substituted br. of appellants/cross-
appellees in No. 99-4049 at 7. Thus, NTF simply has
continued to collect what it would have sought to collect
had the homeowners not entered into payment plans."The
prime purpose of [usury] statutes is the protection of weak
and needy borrowers from extortion and outrageous
demands of unscrupulous lenders who are ready to take
undue advantage of the necessities of others . . . ." 47
C.J.S. Interest & Usury S 88 (1982). Here, NTF has made no
"outrageous demands" for additional interest or penalties in
exchange for agreeing to forbear. Accordingly, the purposes
of the usury law are not implicated.18
_________________________________________________________________

18. Homeowners argue that "[i]t is inconceivable that the legislature
could have intended to protect debtors who agree to pay an excessive

26
Homeowners contend that NTF has received
consideration that is non-monetary in form; specifically,
they assert that the payment plans require homeowners to
agree to be personally liable for the delinquent obligations
and to be liable for attorneys' fees. Homeowners argue that
usurious "interest" can "take many forms other than
money." Substituted br. of appellants/cross-appellees in
No. 99-4049 at 33. They argue that "collateral
consideration for a forbearance, in addition to the interest
rate itself, should be taken into account" and that
"requiring a personal obligation as a consideration for a
_________________________________________________________________

interest rate in return for forbearance, but only if this excessive rate
was
not already being charged them." They contend that, "[b]ased on the
District Court's holding, . . . no sophisticated creditor would fail to
unilaterally impose excessive interest pre-forbearance agreement, if only
to avoid a usury claim." Reply br. of appellants/cross-appellees in Nos.
99-3858 and 99-3859 at 13-14. As we have indicated, sections 201 and
502 of the LIPL do not apply to charges which are imposed for a debtor's
detention of money owed. If a creditor who collects such charges for
detention subsequently agrees to forbear without imposing greater
charges, then the post-forbearance charges are still in effect charges for
detention, and the forbearance has not changed the relationship so far
as the usury law is concerned. The situation is fundamentally different
where a new or higher rate is charged in connection with the
forbearance.

In essence, those homeowners who made the decision to enroll in
payment plans found themselves in the same position with regard to the
payment of interest and penalties as homeowners who did not. It
appears that the payment plans do not prohibit homeowners from paying
their debts ahead of the schedule set forth in the plans. Thus, like those
homeowners who did not enter into plans, those who did could pay their
debts immediately and thus avoid the accrual of additional interest and
penalties; alternatively, both sets of homeowners could choose to delay
full payment of their debts and thereby accrue interest and penalties at
the same rate. The primary difference between the two sets of
homeowners lies in NTF 's promise to forbear from immediate action on
the liens--those who entered into payment plans could claim the comfort
of NTF 's forbearance, while those who did not ran the risk of losing
their
homes if they did not pay the claims in full immediately. Under these
circumstances, we do not believe that one set of homeowners should
have an LIPL claim in relation to the interest and penalty charges while
the other does not.

27
loan, may be sufficient additional consideration when
added to interest, to exceed the maximum allowable rate."
Substitute reply br. of appellants in No. 99-4049 at 24.

We do not question the proposition that non-monetary as
well as monetary consideration may be taken into account
in determining if a creditor has extracted an unlawful
amount of value in return for a loan or a forbearance. See
47 C.J.S. Interest & Usury S 154 (1982) ("Usury may be
paid and received in property as well as in money. In order
to determine whether the interest received by a lender, in
the form of property, is usurious, the medium of payment
is reduced to its equivalent in dollars . . . and if the value
of the medium when so ascertained is more than the lawful
rate on the debt or obligation on which the interest is paid,
it amounts to the collection of usury."); see also Hartranft
v. Uhlinger, 8 A. 244, 246 (Pa. 1887) ("It is, indeed, wholly
immaterial under what form or pretense usury is concealed,
if it can by any means be discovered, our courts will refuse
to enforce its payment."); Smith v. Smith, 45 Pa. Super. 353
(1911) (indicating that usury law was applicable where "the
defendant [borrower], in consideration of the loan, agreed to
give to the plaintiff [lender] something more than the
interest fixed by law as the compensation due to the
plaintiff, to wit, four atlases."). We believe, however, that
the usury analysis should take into account only those
items (be they monetary or non-monetary in form) which
actually are paid as consideration for the loan or
forbearance. We have concluded that the interest and
penalties paid by those who entered into payment plans
have not been paid as consideration for NTF 's forbearance;
thus, the interest and penalties should not be considered in
the usury analysis, regardless of the fact that other things
of value (such as personal liability or liability for attorneys'
fees) may have been given as consideration.19 Therefore, we
reject the position that Judge Oberdorfer takes in his
partial dissent.

In sum, we conclude that homeowners (including those
who entered into payment plans) have not "paid a rate of
_________________________________________________________________

19. We note that defendants dispute that the payment plans give rise to
personal liability or liability for attorney's fees.

28
interest for the loan or use of money" under Pa. Stat. Ann.
tit. 41, S 502 when paying the interest and penalties at
issue. Homeowners argue that they are nevertheless
entitled to recover under section 502 because they have
"paid charges prohibited or in excess of those allowed . . .
otherwise by law." We reject this argument. The term
"charges" in section 502 must refer to something other than
"interest," as the word "interest" is listed in section 502
separately from the word "charges." See section 502 ("A
person who has paid a rate of interest for the loan or use
of money . . . or has paid charges .. . may recover triple the
amount of such excess interest or charges . . . .").
Homeowners have paid "interest," but such interest has not
been paid "for the loan or use of money." See br. of
appellees in No. 99-4049 at 38-39. If we were to read
"charges" to include interest that is not paid"for the loan
or use of money," then the "loan or use of money" language
in section 502 would be superfluous.

We thus conclude that homeowners are without a remedy
under the LIPL, and we will affirm the dismissal of the
Houck plaintiffs' LIPL claim.20

4. Unjust enrichment

The district court viewed the Pollice plaintiffs' unjust
enrichment claim21 as "largely dependant on the argument
_________________________________________________________________

20. Defendants also rely on a line of cases holding that the usury statute
does not apply to a sale of goods on credit. See In re Estate of Braun,
650 A.2d 73, 77 (Pa. Super. Ct. 1994); Grannas , 218 A.2d at 82 ("[T]his
act [the predecessor to the LIPL] does not apply to a bona fide sale of
goods on credit. Such sales are the result of a decision by a buyer to
purchase property on credit at a higher price than he would pay if he
paid cash. There is no loan or use of money on the part of the buyer.").
In light of our conclusion that homeowners are not entitled to relief
under the LIPL in any event, we need not address this line of cases.

21. In Appeal No. 99-3998, the Houck plaintiffs present arguments
regarding unjust enrichment. Yet, at the time of the district court's July
29, 1999 ruling on the motions for summary judgment, only the Pollice
plaintiffs had asserted an unjust enrichment claim. It was not until
some two months later that the Houck plaintiffs were granted leave to
amend their complaint to add an unjust enrichment claim. As was the
case with the Pollice plaintiffs' LIPL claim, we lack jurisdiction to make
any ruling regarding the Houck plaintiffs' unjust enrichment claim
because the certified orders did not address that claim. As the unjust
enrichment issue is the only issue raised by the Houck plaintiffs in
Appeal No. 99-3998, we will dismiss that appeal.

29
that the original owners of the liens and claims[the
government entities] could not assign their right to charge
higher interest and penalties to National Tax." Pollice, 59 F.
Supp.2d at 491. In light of the Maierhoffer ruling on
assignability, the court dismissed the unjust enrichment
claim. While the district court viewed this claim as limited
to what may be termed a "non-assignability" theory, the
Pollice plaintiffs' complaint appears broad enough to
encompass a claim based on an "illegal rate" theory--i.e.
that the defendants have been unjustly enriched by virtue
of their collection of interest and penalties beyond that
allowed by Pa. Stat. Ann. tit. 53, S 7143. See app. at 93.
The district court did not address such a theory. Under the
circumstances, we will reverse the grant of summary
judgment in defendants' favor and allow further
proceedings with respect to the unjust enrichment claim.
The district court should consider whether the Pollice
plaintiffs have waived the illegal rate theory by choosing to
proceed on a non-assignability theory.22 The district court
also may consider any other defenses to an unjust
enrichment claim which have been properly preserved by
defendants.

B. FDCPA Issues

1. Whether the water, sewer and tax obligations
constitute "debts"

The Fair Debt Collection Practices Act ("FDCPA"), 15
U.S.C. S 1692 et seq., provides a remedy for consumers who
have been subjected to abusive, deceptive, or unfair debt
collection practices by debt collectors. See Zimmerman v.
_________________________________________________________________

22. Defendants contend that the Pollice plaintiffs are estopped to pursue
the illegal rate theory based on an interrogatory response in which the
plaintiffs stated as follows: "There is no authority under state law for
the
City, the School District and the Water Authority to assign the right
possessed by each of them to assess interest and penalties at an
aggregate rate of 1.5% per month." See app. at 1327 (emphasis added);
br. of appellees in No. 99-4049 at 22. The Pollice plaintiffs contend that
their response inadvertently omitted the word "allegedly" from the
emphasized phrase. On remand, the district court should consider this
interrogatory response, as well as other relevant factors, to determine if
the Pollice plaintiffs in fact waived the illegal rate theory.

30
HBO Affiliate Group, 834 F.2d 1163, 1167 (3d Cir. 1987). "A
threshold requirement for application of the FDCPA is that
the prohibited practices are used in an attempt to collect a
`debt.' " Id.; see 15 U.S.C. SS 1692e-f. The FDCPA defines
"debt" as "any obligation or alleged obligation of a consumer
to pay money arising out of a transaction in which the
money, property, insurance, or services which are the
subject of the transaction are primarily for personal, family,
or household purposes, whether or not such obligation has
been reduced to judgment." 15 U.S.C. S 1692a(5).

Like the district court, we conclude that homeowners'
water and sewer obligations meet the definition of"debt";
indeed, these obligations constituted "debts" from the time
they initially were owed to the government entities, and
they retained that status after their assignment to NTF. At
the time these obligations first arose, homeowners
("consumers" of water and sewer services) had an
"obligation . . . to pay money" to the government entities
which arose out of a "transaction" (requesting water and
sewer service) the subject of which was "services. . .
primarily for personal, family, or household purposes."23

Defendants, relying on a statement in our Zimmerman
decision, argue that the water, sewer and tax claims are not
"debts" because there was no "offer or extension of credit"
to homeowners. See Zimmerman, 834 F.2d at 1168 ("We
find that the type of transaction which may give rise to a
`debt' as defined in the FDCPA, is the same type of
transaction as is dealt with in all other subchapters of the
Consumer Credit Protection Act, i.e., one involving the offer
or extension of credit to a consumer.") (emphasis added). As
the district court noted, see Pollice, 59 F. Supp. 2d at 484
n.9, this statement from Zimmerman has been widely
_________________________________________________________________

23. As mentioned, the Pollice class includes all owners of real property
in
Pittsburgh subject to the assigned claims and liens, while the Houck
class is limited to owner-occupants of homes. We are certain that the
water and sewer obligations owed by members of the Pollice class who
own their property for business purposes are not "debts" because the
services are not "primarily for personal, family, or household purposes."
On remand, the district court will be required to distinguish any such
members of the Pollice class from those members who are owner-
occupants of homes for purposes of the FDCPA claims.

31
disavowed by several other courts of appeals, which have
taken the broader view that the FDCPA applies to all
obligations to pay money which arise out of consensual
consumer transactions, regardless of whether credit has
been offered or extended. See, e.g., Romea v. Heiberger &
Assocs., 163 F.3d 111, 114 n.4 (2d Cir. 1998) (noting that
several circuits have "disavowed" the "dicta" in Zimmerman
that the FDCPA applies only to transactions involving the
"offer or extension of credit"); Brown v. Budget Rent-A-Car
Sys., Inc., 119 F.3d 922, 924 n.1 (11th Cir. 1997) (rejecting
Zimmerman "[t]o the extent that it read an extension of
credit requirement into the definition of debt"); Bass v.
Stolper, Koritzinsky, Brewster & Neider, 111 F.3d 1322,
1325-26 (7th Cir. 1997) (rejecting Zimmerman and
indicating that "[a]s long as the transaction creates an
obligation to pay, a debt is created"); see also Wayne Hill,
Annotation, What Constitutes "Debt" for Purposes of Fair
Debt Collection Practices Act, 159 A.L.R. Fed. 121, 131
(2000) ("The term `debt' as used in the [FDCPA] has been
construed broadly to include any obligation to pay arising
out of a consumer transaction.").

We are not bound by the "disavowed" statement in
Zimmerman, as it was dictum.24 In our view, the plain
meaning of section 1692a(5) indicates that a "debt" is
created whenever a consumer is obligated to pay money as
a result of a transaction whose subject is primarily for
personal, family or household purposes. No "offer or
extension of credit" is required. Accordingly, homeowners'
original obligations to pay the government entities for water
_________________________________________________________________

24. In Zimmerman, we held that the FDCPA did not apply to attempts to
collect money from persons who allegedly had committed cable television
theft. See Zimmerman, 834 F.2d at 1167-69. We indicated that the
FDCPA was intended to protect those who have "contracted for goods or
services and [are] unable to pay for them," and that the statute was not
intended to "protect against a perceived problem with the use of abusive
practices in collecting tort settlements from alleged tortfeasors through
threats of legal action." Id. at 1168. Clearly, there was no "debt" in
Zimmerman because the obligations arose out of theft rather than a
"transaction." This was our holding and we certainly adhere to it. The
further statement that a transaction must involve the "offer or extension
of credit" in order to be covered by the FDCPA was not necessary to the
decision.

32
and sewer service constituted "debts," even though the
government entities did not extend homeowners any right
to defer payment of their obligations.

We further agree with the district court's conclusion that
homeowners' property tax obligations do not constitute
"debts" under the FDCPA. In Staub v. Harris, 626 F.2d 275,
we specifically held that a per capita tax obligation is not a
"debt" for purposes of the FDCPA. Id. at 276-79. We stated
that "at a minimum, the statute contemplates that the debt
has arisen as a result of the rendition of a service or
purchase of property or other item of value. The
relationship between taxpayer and taxing authority does
not encompass the type of pro tanto exchange which the
statutory definition [of `debt'] envisages." Id. at 278; see
also Beggs v. Rossi, 145 F.3d 511, 512 (2d Cir. 1998)
(following Staub and stating that in the tax situation
"[t]here is simply no `transaction' . . . of the kind
contemplated by the statute"). Staub is controlling here.
Simply put, property taxes are not obligations "arising out
of a transaction in which the money, property, insurance,
or services which are the subject of the transaction are
primarily for personal, family, or household purposes."

The Houck plaintiffs contend that the property tax
obligations are "debts" because they arise out of the
"transaction" in which each property owner acquired his or
her property. See reply br. of appellants/cross-appellees in
Nos. 99-3858 and 99-3859 at 47-48. We reject this
argument. Unlike a sales tax, for example, which arguably
arises from the sale transaction, the property taxes at issue
here arose not from the purchase of property but from the
fact of ownership. In Beggs, the Court of Appeals for the
Second Circuit rejected an argument similar to that of the
Houck plaintiffs regarding a tax on automobiles. See Beggs,
145 F.3d at 512. The court stated that "the tax is not levied
upon the purchase or registration of the vehicle per se, but
rather upon the ownership of the vehicle by the citizen";
thus, the court held that there was no "transaction" for
purposes of the FDCPA. Id. (emphasis added). We agree
with this reasoning.

In attempting to distinguish Staub, the homeowners
argue that the tax obligations changed in character and

33
became "debts" when they were assigned to NTF. We
disagree. Although the tax claims were transferred to a
private entity, the homeowners' obligation to pay the claims
still did not "aris[e] out of a transaction in which the
money, property, insurance, or services which are the
subject of the transaction are primarily for personal, family,
or household purposes." Rather, the obligation to pay arose
from the levying of taxes upon the ownership of property.
After assignment of the claims to NTF, there still had not
been a "transaction" involving the homeowners; their
obligation to pay NTF still arose from the levying of taxes.25

The Houck plaintiffs contend that the creation of the
payment plans distinguishes this case from Staub --that is,
the payment plans for the tax obligations represent
"transactions" giving rise to "debts" covered by the FDCPA.
See reply br. of appellants/cross-appellees in Nos. 99-3858
and 99-3859 at 44-45, 49. While we do not doubt that the
_________________________________________________________________

25. Plaintiffs rely on our decision in Simon v. Cebrick, 53 F.3d 17 (3d
Cir.
1995), in arguing that the tax claims changed in character upon their
assignment to NTF. The plaintiff in Simon was a private purchaser of tax
lien certificates on certain real property in New Jersey. Id. at 19. The
plaintiff requested the FDIC--which held mortgages on the property--to
consent to foreclosure of its mortgage interests. Id. The FDIC refused.
Id.
The plaintiff commenced foreclosure proceedings in state court; the FDIC
removed to federal court, where it argued that federal law precluded the
plaintiff from extinguishing its mortgages without its consent. Id. The
plaintiff argued that the Tax Injunction Act ("TIA") divested the district
court of jurisdiction. Id. at 22. We disagreed:

We do not necessarily agree with plaintiff that the district
court's
application of [12 U.S.C.] S 1825(b)(2) to protect the mortgage
interests of the FDIC violates the TIA because it suspends the
collection of taxes under state law until the FDIC consents to
foreclosure of the tax liens. Withholding consent to foreclose from
a
private citizen does not implicate the assessment, levy, or
collection
of any tax. The statute is intended to prevent interference with
taxation by governmental entities; however, upon the sale of the
tax
certificate, the tax obligation is satisfied. The holder's
inability to
foreclose does not affect the governmental entity's ability to
assess,
levy, or collect any tax, and thus, the TIA is not applicable.
Id. We believe Simon is inapposite here, as it involved an entirely
different federal statute (the TIA) with different underlying purposes.

34
payment plans are "transactions," we do not believe the
plans serve to bring defendants within the coverage of the
FDCPA with respect to the tax obligations. The FDCPA is
aimed at the conduct of debt collectors who are seeking to
collect "debts." See 15 U.S.C. S 1692 (statement of
congressional findings and purpose); Zimmerman , 834 F.2d
at 1167. For purposes of the FDCPA, we view the payment
plans simply as one aspect of defendants' course of conduct
in attempting to collect the original water, sewer and tax
obligations which were owed to the government entities and
then assigned to NTF; that is, all of defendants' debt-
collection activity (including the creation of the payment
plans and subsequent conduct) has been directed toward
the collection of the original obligations, not any obligations
which may have arisen from the payment plans. As we have
concluded, in their original form, the water and sewer
obligations were "debts" under section 1692a(5) but the tax
obligations were not. Accordingly, we hold that the FDCPA
is inapplicable to all of defendants' conduct relating to the
tax obligations, including conduct occurring after the
creation of the payment plans.

In sum, we will affirm the dismissal of the FDCPA claims
with respect to the tax obligations, and we further will
affirm the district court's determination that the water and
sewer obligations constitute "debts" under the FDCPA.

2. Whether NTF and CAH are "debt collectors" under the
FDCPA

The district court accepted defendants' argument that
NTF and CAH "cannot be considered `debt collectors'
because they are not in the business of collecting debts and
do not in fact collect debts." Pollice 59 F. Supp.2d at 486.
The court agreed with defendants' contention that CARC is
"the sole defendant which has contracted with the
[government entities] to service and collect the claims
owned by [NTF]." Id. Accordingly, the court dismissed the
FDCPA claims against NTF and CAH. Id. at 491. The Houck
plaintiffs argue on appeal that NTF and CAH, along with
CARC, are "debt collectors" under the FDCPA.

The FDCPA's provisions generally apply only to "debt
collectors." Pettit v. Retrieval Masters Creditors Bureau, Inc.,

35
211 F.3d 1057, 1059 (7th Cir. 2000). Creditors--as opposed
to "debt collectors"--generally are not subject to the
FDCPA. See Aubert v. American Gen. Fin., Inc. , 137 F.3d
976, 978 (7th Cir. 1998) ("Creditors who collect in their own
name and whose principal business is not debt collection
. . . are not subject to the Act . . . . Because creditors are
generally presumed to restrain their abusive collection
practices out of a desire to protect their corporate goodwill,
their debt collection activities are not subject to the Act
unless they collect under a name other than their own.");
Staub, 626 F.2d at 277 ("The [FDCPA] does not apply to
persons or businesses collecting debts on their own
behalf."); Hon. D. Duff McKee, Liability of Debt Collector to
Debtor under the Federal Fair Debt Collection Practices Act,
41 Am. Jur. Proof of Facts 3d 159, at S 3 (1997) [hereinafter
McKee] ("[I]nterestingly, the term `debt collector' does not
include the creditor collecting its own debt.").

The FDCPA contains a detailed definition of "debt
collector." See 15 U.S.C. S 1692a(6). The term means "any
person who uses any instrumentality of interstate
commerce or the mails in any business the principal
purpose of which is the collection of any debts, or who
regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due
another." Id. The definition excludes several categories of
persons, including officers or employees of government. See
id.

We conclude that NTF is a "debt collector," and
accordingly the district court should not have dismissed the
FDCPA claims against it. Courts have indicated that an
assignee of an obligation is not a "debt collector" if the
obligation is not in default at the time of the assignment;
conversely, an assignee may be deemed a "debt collector" if
the obligation is already in default when it is assigned.26
_________________________________________________________________

26. The FDCPA's definition of "creditor" is "any person who offers or
extends credit creating a debt or to whom a debt is owed, but such term
does not include any person to the extent that he receives an assignment
or transfer of a debt in default solely for the purpose of facilitating
collection of such debt for another." 15 U.S.C.S 1692a(4). The definition
of "debt collector" excludes "any person collecting or attempting to
collect
any debt owed or due or asserted to be owed or due another to the
extent such activity . . . (iii) concerns a debt which was not in default
at
the time it was obtained by such person." 15 U.S.C. S 1692a(6)(F).

36
See Bailey v. Security Nat'l Servicing Corp., 154 F.3d 384,
387-88 (7th Cir. 1998); Whitaker v. Ameritech Corp., 129
F.3d 952, 958-59 (7th Cir. 1997); Wadlington v. Credit
Acceptance Corp., 76 F.3d 103, 106-07 (6th Cir. 1996);
McKee S 3 ("[O]ne who acquires the debt after it is in default
is deemed a debt collector, and is subject to the provisions
of the Act. Conversely, the assignee of a debt who acquires
it before default is considered the owner of the debt and
may pursue collection without concern for the limitations of
the FDCPA."). Here, there is no dispute that the various
claims assigned to NTF were in default prior to their
assignment to NTF. Further, there is no question that the
"principal purpose" of NTF 's business is the "collection of
any debts," namely, defaulted obligations which it
purchases from municipalities.27

As mentioned, the district court was influenced by the
fact that only CARC contracted to undertake debt-collection
activity in connection with the assigned claims. We believe,
however, that NTF may be held vicariously liable for CARC's
collection activity. Although there is relatively little case law
on the subject of vicarious liability under the FDCPA, there
are cases supporting the notion that an entity which itself
meets the definition of "debt collector" may be held
vicariously liable for unlawful collection activities carried
out by another on its behalf. In Fox v. Citicorp Credit
Services, Inc., 15 F.3d 1507 (9th Cir. 1994), the court
indicated that a company which had been asked to collect
a defaulted debt could be held vicariously liable for its
attorney's conduct which was in violation of the FDCPA.
See id. at 1516. By contrast, in Wadlington , supra, the
Court of Appeals for the Sixth Circuit declined to impose
vicarious liability on a company for the actions of its
attorney; in the court's view, vicarious liability could not be
imposed because the company itself did not meet the
definition of "debt collector":
_________________________________________________________________

27. Defendants' motion for summary judgment before the district court
stated that "NTF exists solely for the purpose of holding claims for
delinquent taxes and municipal obligations." App. at 135. Further, an
affidavit of a CARC officer provides that "NTF purchases liens and claims
from municipal entities across the country" and it refers to "the
delinquent liens and claims [NTF] owns." App. at 514.

37
 We do not think it would accord with the intent of
Congress, as manifested in the terms of the [FDCPA],
for a company that is not a debt collector to be held
vicariously liable for a collection suit filing that violates
the Act only because the filing attorney is a`debt
collector.' Section 1692k imposes liability only on a
`debt collector who fails to comply with [a] provision of
this subchapter . . . .' The plaintiffs would have us
impose liability on non-debt collectors too. This we
decline to do.

Wadlington, 76 F.3d at 108 (citation omitted) (emphasis
added). The Wadlington court specifically distinguished Fox
because in Fox the entity allegedly vicariously liable for the
attorney's conduct was itself a debt collector. See id. The
rule to be gleaned from Fox and Wadlington has been
summarized by a state court decision as follows:

[F]ederal courts that have considered the issue have
held that the client of an attorney who is a `debt
collector,' as defined in S 1692a(6), is vicariously liable
for the attorney's misconduct if the client is itself a debt
collector as defined in the statute. Thus, vicarious
liability under the FDCPA will be imposed for an
attorney's violations of the FDCPA if both the attorney
and the client are debt collectors as defined in
S 1692a(6).

First Interstate Bank of Fort Collins v. Soucie , 924 P.2d
1200, 1202 (Colo. Ct. App. 1996) (emphasis added).

Although these cases involved the attorney-client
situation, we believe they may be applied here. Thus, we
conclude that NTF--which itself meets the definition of
"debt collector"--may be held vicariously liable for CARC's
collection activity. We believe this is a fair result because
an entity that is itself a "debt collector"--and hence subject
to the FDCPA--should bear the burden of monitoring the
activities of those it enlists to collect debts on its behalf.

We now turn to the status of CAH as a "debt collector."
As mentioned, CAH is the common general partner of CARC
and NTF, both of which are limited partnerships. App. at
1355. Some district courts have indicated that a general
partner of a "debt collector" partnership may be vicariously

38
liable for the partnership's FDCPA violations under general
principles of partnership law.28See Peters v. AT&T Corp., 43
F. Supp.2d 926, 930 (N.D. Ill. 1999); Randle v. GC Servs.,
25 F. Supp.2d 849, 850-52 (N.D. Ill. 1998); see also Miller
v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, 214
F.3d 872, 876 (7th Cir. 2000) (stating in an FDCPA case
that "[t]he liability of a partnership is imputed to the
partners, and so the plaintiff was entitled to sue the
partners as well as the partnership"). The Houck plaintiffs,
however, indicate that they "do not rely on [CAH's] vicarious
liability" in this case. See reply br. of appellants/cross-
appellees in Nos. 99-3858 and 99-3859 at 57. Instead, they
argue that CAH is directly liable because it "is involved [in
the collection of debts] through the corporations[sic] it has
set up and fully control." Id.

Despite the Houck plaintiffs' conclusory statement that
they do not rely on vicarious liability, in effect their
argument that CAH is directy liable seems to us in fact to
implicate vicarious liability principles because they contend
that CAH's involvement in the debt collection is through the
other defendants. Thus, we consider the case on that basis
and conclude that the general partner of a "debt collector"
limited partnership may be held vicariously liable for the
partnership's conduct under the FDCPA. In light of the
_________________________________________________________________

28. As we have indicated, NTF meets the definition of "debt collector." It
is clear that CARC meets the definition as well. An affidavit of a CARC
officer states that "NTF does not service or collect the . . . claims it
owns," but instead "[t]he collection or servicing . . . is done by CARC,
NTF 's servicing agent." App. at 514. CARC does not argue on this appeal
that it does not meet the primary definition of"debt collector"; it merely
argues that it falls under an exclusion for government officers or
employees. We reject that contention in the succeeding section of this
opinion.

We note that the FDCPA contains the following exemption from the
definition of "debt collector": "[A]ny person while acting as a debt
collector for another person, both of whom are related by common
ownership or affiliated by corporate control, if the person acting as a
debt collector does so only for persons to whom it is so related or
affiliated and if the principal business of such person is not the
collection of debts." See 15 U.S.C. S 1692a(6)(B). This exemption has not
been raised in this case.

39
general partner's role in managing the affairs of the
partnership, we see no reason why the general partner
should not be responsible for conduct of the partnership
which violates the FDCPA. Liability for the general partner
is particularly appropriate under the facts of this case--NTF
has no employees, app. at 514, and accordingly we
presume that its actions are taken through the personnel of
CAH. Indeed, an officer of CAH executed the Purchase
Agreements on behalf of NTF, as well as the Servicing
Agreements on behalf of CARC. See app. at 540, 874, 906,
1113. Accordingly, we conclude that CAH may be held
liable for any conduct of NTF and CARC which violated the
FDCPA.29

In sum, we conclude that NTF and CAH may be held
liable under the FDCPA, and accordingly we will reverse the
grant of summary judgment in their favor.

3. Whether CARC is exempt as a government officer or
employee

CARC argues that it is exempt from the definition of "debt
_________________________________________________________________

29. The Court of Appeals for the Seventh Circuit has stated as follows
regarding the liability of shareholders and employees of "debt collector"
corporations:

Because such individuals do not become `debt collectors' simply by
working for or owning stock in debt collection companies, we held
[in a prior decision] that the [FDCPA] does not contemplate
personal
liability for shareholders or employees of debt collection
companies
who act on behalf of those companies, except perhaps in limited
instances where the corporate veil is pierced . . . . Individuals
who
do not otherwise meet the statutory definition of`debt collector'
cannot be held liable under the Act . . . . FDCPA suits against the
owners of a debt collection company who are not otherwise debt
collectors are frivolous and might well warrant sanctions.

Pettit, 211 F.3d at 1059 (citations omitted). Here, we do not deal with
the
liability of a shareholder of a "debt collector" corporation, nor do we
deal
with the liability of a person who merely works for a "debt collector"
company. Rather, we deal with the liability of the general partner where
the limited partnership meets the definition of"debt collector." We
believe that a general partner exercising control over the affairs of such
a partnership may be held liable under the FDCPA for the acts of the
partnership. See Miller, 214 F.3d at 876.
40
collector" under 15 U.S.C. S 1692a(6)(C) because it is "in
effect acting as an `officer or employee of the United States
or any State' pursuant to the Servicing Agreements with the
City and the PWSA." Br. of appellees/cross-appellants in
Nos. 99-3856 and 99-3857 at 44-45. Section 1692a(6)(C)
provides:

The term [`debt collector'] does not include-- . . . (C)
any officer or employee of the United States or any State30
to the extent that collecting or attempting to collect any
debt is in the performance of his official duties.

Like the district court, we reject this argument. The
exemption expressly is limited to "any officer or employee of
the United States or any State." CARC is not an"officer or
employee" of any government entity. The exemption does
not extend to those who are merely in a contractual
relationship with the government. See Brannan v. United
Student Aid Funds, Inc., 94 F.3d 1260, 1263 (9th Cir. 1996)
("This exemption applies only to an individual government
official or employee who collects debts as part of his
government employment responsibilities. USA Funds is a
private nonprofit organization with a government contract;
it is not a government agency or employee.") (emphasis
added).

4. Substantive FDCPA violations

The homeowners claim that defendants have violated 15
U.S.C. S 1692f(1), which provides:

A debt collector may not use unfair or unconscionable
means to collect or attempt to collect any debt . . . .
[T]he following conduct is a violation of this section: (1)
The collection of any amount (including any interest,
fee, charge, or expense incidental to the principal
obligation) unless such amount is expressly authorized
by the agreement creating the debt or permitted by law.

S 1692f(1) (emphasis added). The homeowners contend that
defendants have violated this provision by collecting
interest and penalty rates which are neither authorized by
_________________________________________________________________

30. The term "State" includes political subdivisions. See 15 U.S.C.
S 1692a(8).

41
agreement nor permitted by law--that is, rates in excess of
the ten percent limit set forth in Pa. Stat. Ann. tit. 53,
S 7143. The Pollice plaintiffs further claim that the
defendants have violated 15 U.S.C. S 1692e, which
prohibits the use of various "false, deceptive, or misleading"
representations or means by debt collectors. The district
court held that CARC has violated section 1692f(1)"to the
extent that it charged a rate of interest and penalties for
water and sewer claims not authorized by law," but it
expressly declined to rule on the section 1692e claims in its
summary judgment ruling. See Pollice, 59 F. Supp.2d at
486. In light of the district court's decision not to address
the section 1692e claims, we will not address them on
appeal. Further proceedings with respect to such claims
will be required on remand.

With regard to section 1692f(1), the question is whether
the rates of interest and penalties the defendants charged
are "expressly authorized by the agreement creating the
debt or permitted by law." We agree with the district court
that the rates are not "permitted by law" because they are
in excess of the ten percent limit set forth in Pa. Stat. Ann.
tit. 53, S 7143. Although the rates charged by the
defendants are in a sense authorized by the local
ordinances and resolution, we cannot say that they are
"permitted by law" as they are in direct violation of a state
statute.31
_________________________________________________________________

31. The defendants raised before the district court the FDCPA's "bona
fide error" defense. A provision of the FDCPA states:

A debt collector may not be held liable in any action brought under
this subchapter if the debt collector shows by a preponderance of
evidence that the violation was not intentional and resulted from a
bona fide error notwithstanding the maintenance of procedures
reasonably adapted to avoid any such error.

15 U.S.C. S 1692k(c). The defendants argued that "in determining the
rates to be charged plaintiffs, it relied on the representations of the
City,
School District and PWSA that the rates were appropriate, as well as the
fact that these entities had empirically been charging these rates."
Pollice, 59 F. Supp.2d at 486-87. The district court indicated that the
bona fide error defense may apply to errors of legal judgment as well as
clerical errors, but it denied summary judgment because "questions of

42
Defendants argue, however, that the rates are "expressly
authorized by the agreement creating the debt." In this
regard, defendants contend that "[w]here rates are set by
municipal ordinance or regulation, the ordinance or
regulation should be considered the `agreement creating the
debt.' " Br. of appellees/cross-appellants in Nos. 99-3856
and 99-3857 at 39. In other words, they contend that a
consumer who subscribes to water or sewer service
impliedly agrees to pay the rates set forth by local laws.
Defendants further contend that the rates are "expressly
authorized" by the payment plans.

The Court of Appeals for the Second Circuit recently
addressed section 1692f(1) in a case involving a debt
collector's imposition of a service charge for a dishonored
check. See Tuttle v. Equifax Check, 190 F.3d 9 (2d Cir.
1999). The court commented as follows:

Under the FDCPA, [the debt collector] may impose a
service charge if (i) the customer expressly agrees to
the charge in the contract creating the debt or (ii) the
charge is permitted by law. See 15 U.S.C.S 1692f(1). In
other words,

If state law expressly permits service charges, a
service charge may be imposed even if the contract is
silent on the matter;
_________________________________________________________________

material fact exist concerning those measures which were taken by
defendants to insure that they are entitled to charge a rate of over 10%
in interest and penalties for past-due tax debts, water charges and sewer
charges." Id. at 487. The district court's ruling on the bona fide error
defense is not at issue on appeal, and accordingly we do not address the
matter. It suffices to say that defendants may argue at trial that they
cannot be held liable under the FDCPA based on their reliance on the
local ordinances and resolution and the representations of the
government entities. For purposes of section 1692f(1), however, we must
conclude that defendants' rates are not "permitted by law."

The defendants further contend that the Pollice plaintiffs are estopped
from challenging the legality of the interest and penalty rates based on
a statement in an interrogatory response. See reply br. of cross-
appellants in Nos. 99-3856 and 99-3857 at 12-13. As we indicated with
regard to the unjust enrichment claim, see supra note 22, we leave it to
the district court to determine if the Pollice plaintiffs in fact are
estopped.

43
 If state law expressly prohibits service charges, a
service charge cannot be imposed even if the contract
allows it;
If state law neither affirmatively permits nor
expressly prohibits service charges, a service charge
can be imposed only if the customer expressly agrees
to it in the contract.

Id. at 13.32 The court further indicated that an agreement
authorizing a particular charge need not be in writing;
thus, a debt collector " `may collect a service charge on a
dishonored check based on a posted sign on the merchant's
premises allowing such a charge, if he can demonstrate
that the consumer knew of the charge.' " Id. at 15 (quoting
Federal Trade Commission Staff Commentary on the
FDCPA, 53 Fed. Reg. 50,097, 50,108 (1988)).

Under the interpretation set forth in the Staff
Commentary and Tuttle, the defendants presumably have
violated section 1692f(1) regardless of the presence of any
agreement authorizing the rates of interest and penalties,
because state law specifically prohibits charging interest in
excess of ten percent on the assigned claims. In any event,
we do not believe the rates defendants charged are
"expressly authorized by the agreement creating the debt."
Although the agreement need not be in writing, we believe
the term "expressly authorized by the agreement creating
the debt" requires some actual knowledge or consent by the
consumer during the course of the transaction which gives
_________________________________________________________________

32. The court relied on a Federal Trade Commission Staff Commentary
on the FDCPA. See 53 Fed. Reg. 50,097 (1988). The commentary
provides:

A debt collector may attempt to collect a fee or charge in addition
to
the debt if either (a) [sic] the charge is expressly provided for
in the
contract creating the debt and the charge is not prohibited by
state
law, or (B) the contract is silent but the charge is otherwise
expressly permitted by state law. Conversely, a debt collector may
not collect an additional amount if either (A) state law expressly
prohibits collection of the amount or (B) the contract does not
provide for collection of the amount and state law is silent.

53 Fed. Reg. at 50,108.

44
rise to the debt. As we have indicated, the "debts" which
defendants have undertaken to collect are homeowners'
original obligations arising out of their subscription to
water and sewer services. The "agreement creating the
debt" therefore was the transaction between each
homeowner and the relevant government entity relating to
the provision of water and sewer services. Defendants do
not contend that the interest and penalty rates were
"expressly" set forth in these agreements or transactions,
nor do they contend that homeowners actually consented to
or were aware of the rates when they subscribed to the
services. The most defendants can say is that the rates
were made an implicit part of such transactions because
they are set forth in municipal ordinances and resolutions.
We do not believe this suffices. Nor can defendants rely on
the payment plans, as the plans are not the "agreement
creating the debt." Rather, as stated, the "debts" to which
all of defendants' collection activities have been directed are
the original water and sewer obligations, which arose out of
the transactions between homeowners and the government
entities.

Thus, we conclude that defendants have violated section
1692f(1) by collecting amounts not expressly authorized by
the agreement creating the debt or permitted by law.

5. Summary of conclusions regarding FDCPA claims

We will affirm the grant of summary judgment in favor of
defendants with respect to the tax obligations, and we
further will affirm the district court's determination that the
water and sewer obligations constitute "debts" under the
FDCPA. We will reverse the grant of summary judgment in
favor of NTF and CAH, and we will affirm the district court's
determination that CARC is not exempt from the definition
of "debt collector." We further conclude, as did the district
court, that defendants have violated section 1692f(1). We
will remand for further proceedings on the FDCPA claims in
light of these rulings.33
_________________________________________________________________

33. As mentioned, such further proceedings will include a determination
of defendants' entitlement to the "bona fide error" defense.

45
C. TILA Issues

1. Whether the payment plans constitute "consumer
credit transactions"

The Pollice plaintiffs' claim under the Truth-in-Lending
Act ("TILA"), 15 U.S.C. S 1601 et seq., arises under 15
U.S.C. S 1638, which requires certain disclosures by a
"creditor" in connection with a "consumer credit
transaction." Plaintiffs argue that they entered into
"consumer credit transactions" when they entered into the
payment plans.

TILA defines "credit" as "the right granted by a creditor to
a debtor to defer payment of debt or to incur debt and defer
its payment." 15 U.S.C. S 1602(e) (emphasis added). It
further defines "consumer":

The adjective `consumer', used with reference to a
credit transaction, characterizes the transaction as one
in which the party to whom credit is offered or
extended is a natural person, and the money, property,
or services which are the subject of the transaction are
primarily for personal, family, or household purposes.

15 U.S.C. S 1602(h).

We believe that "consumer credit transactions" arose
when homeowners entered into payment plans with respect
to the water and sewer obligations. As to these obligations,
NTF has extended "credit" (the "right . . . to defer payment
of debt") to homeowners ("natural person[s]"), and the
"services" which are the subject of the credit transaction
(water and sewer) are "primarily for personal, family, or
household purposes." See sections 1602(e), (h).34

As to the tax obligations, however, the district court
concluded that the payment plans do not constitute
_________________________________________________________________

34. This conclusion does not apply with respect to members of the Pollice
class who own property for business purposes, as opposed to owner-
occupants of homes. Water and sewer services provided to businesses
are not "primarily for personal, family, or household purposes." On
remand, the district court will have to distinguish between those who
own property for business purposes and those who are owner-occupants
of homes with respect to the TILA claim.

46
"consumer credit transactions." The court reasoned as
follows:

National Tax [NTF] claims that it is [not subject to
TILA liability], at least with respect to the tax liens at
issue, on the basis that the Court of Appeals has
determined that a tax debt is not considered primarily
for personal, family or household purposes under the
FDCPA. See Staub, 626 F.2d 275. Defendants further
contend that Regulation Z expressly states that the
payment of tax liens is not considered `credit' subject
to the TILA. The Federal Reserve Board Official Staff
Commentary to Regulation Z, 12 C.F.R. Pt. 226, Supp.
I at 299 (1998), concerning exclusions from the
definition of credit found at 12 C.F.R. S 226.2(a)(14),
provides that `tax liens, tax assessments, court
judgments, and court approvals of reaffirmation of
debts in bankruptcy' are excluded from the definition.
The Staff Commentary continues, noting that `third-
party financing of such obligations (for example, a
bank loan obtained to pay off a tax lien) is credit for
the purposes of the regulation.' 12 C.F.R. Pt. 226,
Supp. I at 299 (1998).

. . . National Tax, as the legal holder of the tax liens
at issue, maintains the rights of the original holder of
the liens. Such liens are not considered any less tax
claims by virtue of their assignment to National Tax.
This holding is consistent with Maierhoffer v. GLS
Capital, Inc., where the court found that tax liens are
assignable as a matter of law under the Municipal
Claims and Tax Liens Act.

While we have found that the payment plans offered
by defendants altered the relationship between the
parties so as to create a forbearance where none
otherwise existed, we did not conclude that the nature
of the underlying claim had been extinguished. Thus,
we cannot agree with plaintiffs' contention that
defendants somehow altered the nature of the tax liens
by offering payment plans. The forbearance by National
Tax under the terms of the payment plans does not
constitute third-party financing as contemplated under
Regulation Z. Further, National Tax, as the owner of

47
 the tax liens, is not a third party lender. Accordingly,
we will grant defendants' motion for summary
judgment with respect to the tax liens at issue . . . .

Pollice, 59 F. Supp.2d at 490-91.

We agree that the payment plans do not constitute
"consumer credit transactions" with respect to the tax
obligations. A "consumer credit transaction" involves the
offer or extension of "credit" to a consumer. See section
1602(h). "Credit" is defined as "the right granted by a
creditor to a debtor to defer payment of debt or to incur
debt and defer its payment." See section 1602(e) (emphasis
added). As we have concluded with regard to the FDCPA, a
tax obligation is not a "debt"; thus, the payment plans do
not involve an extension of "credit" under TILA with regard
to the tax obligations. Although section 1602 does not
contain a definition of the term "debt," we believe the term
as used in section 1602(e) should be construed as it is
defined in the FDCPA.35 Simply put, the payment plans
with respect to the tax obligations do not involve the
granting of a right to defer payment of "debts," but rather
the granting of a right to defer payment of tax obligations,
which are not "debts."

We agree with the district court's interpretation of the
Staff Commentary to Regulation Z, TILA's implementing
regulation. See 12 C.F.R. pt. 226 (2000). The commentary
provides as follows:

The following situations are not considered credit for
purposes of the regulation: . . . . Tax liens, tax
assessments, court judgments, and court approvals of
reaffirmation of debts in bankruptcy. However, third-
party financing of such obligations (for example, a
bank loan obtained to pay off a tax lien) is credit for
purposes of the regulation.

12 C.F.R. pt. 226, supp. I at 299 (2000). The commentary
thus implies that the granting of a right to defer payment
of a tax obligation is not "credit" for purposes of TILA. We
_________________________________________________________________

35. Such a construction is logical in light of the similarity between the
definition of "consumer" in section 1602(h) and the definition of "debt"
under the FDCPA. See 15 U.S.C. S 1692a(5).

48
believe the payment plans are not analogous to the
situation in which a third party, such as a bank, makes a
loan to a consumer which is then used to satisfy a tax
obligation. In that situation, the third party's loan to the
borrower constitutes an extension of "credit" which is
independent of the tax obligation--the lender grants the
borrower the right to "incur debt [the loan] and defer its
payment," see section 1602(e), and the loan is "for
personal, family, or household purposes," see section
1602(h), because it is used to satisfy an obligation on the
borrower's home.

Our reasoning with regard to the tax obligations is
supported by Bonfiglio v. Nugent, 986 F.2d 1391 (11th Cir.
1993). In that case, state courts twice ordered the plaintiff
to pay sums of money for fees and costs directly to the law
firm which had represented his wife in divorce proceedings.
Id. at 1392. The law firm agreed to allow the plaintiff to pay
the sums in installments. Id. The plaintiff then sued the
firm under TILA, claiming that the firm had failed to
provide him with a financial disclosure statement when it
agreed to allow him to pay in installments. Id. The Court of
Appeals for the Eleventh Circuit, relying on the above-
quoted commentary to Regulation Z, affirmed the dismissal
of the plaintiff 's suit. The court commented:

It is frivolous to contend that the Truth in Lending
Act applies either to a debt created by a court order
requiring one party to pay another's fees and costs, or
to a related payment plan ordered by the court or
worked out by the parties. `Credit,' as that term is used
in the Truth in Lending Act, manifestly does not
include court judgments or orders. [Citing commentary
to Regulation Z]. [Plaintiff 's] court-ordered obligation to
pay the two sums to his ex-wife's law firm, and the
resulting installment plans, were clearly not`consumer
credit transactions' within the meaning of the Truth in
Lending Act.

Id. at 1393 (citations omitted) (emphasis added). We believe
the same reasoning should apply to defendants' payment
plans relating to the tax obligations.

In sum, we conclude that the payment plans constitute

49
"consumer credit transactions" under TILA with respect to
the water and sewer obligations, but not the tax
obligations. Accordingly, we will affirm the dismissal of the
Pollice plaintiffs' TILA claim with respect to the tax
obligations.36

2. Whether NTF is a "creditor"

NTF argues that it is not a "creditor" under TILA.
"Creditor" is defined in pertinent part as follows:

The term `creditor' refers only to a person who both (1)
regularly extends, whether in connection with loans,
sales of property or services, or otherwise, consumer
credit which is payable by agreement in more than four
installments or for which the payment of a finance
charge is or may be required, and (2) is the person to
whom the debt arising from the consumer credit
transaction is initially payable on the face of the
evidence of indebtedness or, if there is no such
evidence of indebtedness, by agreement.

15 U.S.C. S 1602(f). Regulation Z provides:

Creditor means: (i) A person (A) who regularly extends
consumer credit that is subject to a finance charge or
is payable by written agreement in more than 4
installments (not including a downpayment), and (B) to
whom the obligation is initially payable, either on the
face of the note or contract, or by agreement when
there is no note or contract.

12 C.F.R. S 226.2(a)(17)(i) (2000).37 "[W]hether one is a TILA
_________________________________________________________________

36. While we affirm the dismissal of the claim relating to the tax
obligations, we do not characterize the claim as"frivolous" as did the
court in Bonfiglio.

37. Regulation Z further addresses the meaning of"regularly extends":

A person regularly extends consumer credit only if it extended
credit
(other than credit subject to the requirements ofS 226.32) more
than 25 times (or more than 5 times for transactions secured by a
dwelling) in the preceding calendar year. If a person did not meet
these numerical standards in the preceding calendar year, the
numerical standards shall be applied to the current calendar year.
A person regularly extends consumer credit if, in any 12-month

50
creditor is a bifurcated question, requiring a person both to
be a `creditor' in general, by extending credit in a certain
minimum number of transactions, and to be the `creditor'
in the specific transaction in dispute." James Lockhart,
Annotation, Who is "Creditor" within Meaning of S 103(f) of
Truth in Lending Act, 157 A.L.R. Fed. 419, 443 (1999).

NTF does not present an argument on appeal, and
apparently did not present an argument in the district
court, regarding the first prong of the definition requiring
that a person "regularly extends" consumer credit. Rather,
NTF limits itself to the second prong of the definition. It
contends that, even assuming the payment plans constitute
"consumer credit transactions," there are no"debt[s] arising
from" the payment plans. In this connection, NTF argues
that the only "debts" involved are the water, sewer and tax
obligations, which were "initially payable" to the
government entities, not NTF.

Like the district court, we reject NTF 's arguments and
thus hold that it is a "creditor" with respect to the water
and sewer payment plans.38 The payment plans are the only
"consumer credit transactions" involved here, as they
represent the first time that anyone extended the
homeowners the right to defer payment of their water and
sewer obligations. On the face of the payment plan
enrollment forms, they are directed to make payments to
NTF through a custodian. See app. at 98, 213-21.
Accordingly, any debts "arising from" these"consumer
credit transactions" are "initially payable" to NTF.39
_________________________________________________________________

period, the person originates more than one credit extension that
is
subject to the requirements of S 226.32 or one or more such credit
extensions through a mortgage broker.

12 C.F.R. S 226.2(a)(17)(i) at n.3 (2000).

38. The district court accepted CARC's argument that it is not a
"creditor" under TILA because "it is merely an agent, rather than the
entity to which the debts are payable." Pollice, 59 F. Supp.2d at 488
n.14. This holding has not been challenged on appeal.

39. The Staff Commentary to Regulation Z provides that "[i]f an
obligation is initially payable to one person, that person is the creditor

51
The question arises, then, whether there are any debts
"arising from" the payment plans. We have given due
consideration to NTF 's argument that there are no debts
"arising from" the plans because the plans merely provide
for the extended payment of debts which previously arose
from homeowners' dealings with the government entities.
The definition of "credit," however, encompasses not only a
right granted by a creditor to "incur debt and defer its
payment" but also a right to "defer payment of debt." See
section 1602(e). This latter phrase must encompass
situations in which a debtor is granted the right to pay over
time a pre-existing debt. See Bright v. Ball Mem'l Hosp.
Ass'n, Inc., 616 F.2d 328, 336 (7th Cir. 1980) (indicating
that a hospital which reached agreements with its patients
prior to discharge to pay their bills in more than four
installments was a "creditor" under section 1602(f)); Rogers
Mortuary, Inc. v. White, 594 P.2d 351, 353 (N.M. Ct. App.
1979) ("Credit is extended [under TILA] when a consumer
incurs a debt and the parties agree to a repayment
schedule which allows for the deferred payment of the
debt."). Yet, in such situations, the argument may be raised
that the grantor of the right to defer payment is not a
"creditor" under section 1602(f) because the debt does not
"aris[e] from the consumer credit transaction." We reject
such a construction, as we believe the term "creditor" was
intended to apply to one who confers such a right to defer
the payment of a pre-existing obligation.

We believe the statutory definition of "creditor" is satisfied
in such cases because there is in essence a new"debt"
which "aris[es] from" the "consumer credit transaction."
Thus, there really are two types of "debt" at issue here. The
first is the original "debt" owed by a homeowner to one of
the government entities and later assigned to NTF. It is this
"debt" as to which NTF has granted the "right . . . to defer
_________________________________________________________________

even if the obligation by its terms is simultaneously assigned to another
person." 12 C.F.R. pt. 226, supp. I at 300 (2000). Although NTF is an
assignee of claims from the government entities, plaintiffs' theory is
that
NTF is an initial creditor for purposes of TILA, rather than an assignee,
because the first "consumer credit transactions" (the payment plans) are
initially payable to NTF. See Pollice, 59 F. Supp.2d at 488 n.12.

52
payment" within the meaning of section 1602(e), and in
turn the granting of this right gives rise to a"consumer
credit transaction" within the meaning of section 1602(h).
The second "debt" is the new "debt" which "aris[es] from the
consumer credit transaction [the payment plan]" within the
meaning of section 1602(f). It is this "debt" which is
"initially payable" to NTF.40

NTF contends that a person who grants a right to defer
payment of a pre-existing debt is a "creditor" only if he
agrees to modify the relationship so as to give rise to some
new obligation which is "initially payable" to him. According
to NTF,

the `right to defer' portion of section 1602(e) applies
where an existing creditor agrees to modify a
previously-agreed consumer debt, for example, by
extending maturity of the debt in exchange for a higher
interest rate. In that situation, there is (1) `credit'
within the meaning of section 1602(e), (2) a `consumer
credit transaction' under section 1602(h), and (3) a
`creditor' under section 1602(f), because the new
interest obligation is a `debt arising from' the new
extension of credit, which is initially payable to the
creditor.
_________________________________________________________________

40. We point out that there is no inconsistency between our conclusion
here that there is a "debt arising from" the payment plans for purposes
of TILA and our prior rejection of the Houck plaintiffs' argument that the
payment plans served to bring the tax obligations within the scope of the
FDCPA. See supra part III.B.1. As stated, for purposes of the FDCPA, we
view all of defendants' collection activity (including post-payment plan
conduct) as activity undertaken for purposes of collecting the original
obligations which were owed to the government entities and then
assigned to NTF--the first type of debt described above. As discussed,
the original tax obligations do not meet the FDCPA's definition of "debt,"
and therefore the FDCPA is inapplicable to defendants' conduct relating
to the tax obligations regardless of the presence of payment plans.
Unlike the FDCPA, which is directed at debt-collection activity, TILA
focuses on the conduct of "creditors" who extend credit to consumers.
Accordingly, for TILA purposes, we must consider the second type of
"debt" which arises from the payment plans as"consumer credit
transactions."

53
Reply br. of cross-appellants in Nos. 99-3856 and 99-3857
at 2. We reject NTF 's argument, as we see nothing in the
language of section 1602 imposing such a requirement.
Indeed, the language of section 1602(f) indicates that a
person may be a creditor even if he does not impose any
charge for the extension of credit--the first prong of the
definition of "creditor" refers to a person who regularly
extends consumer credit which either involves a finance
charge or is payable in more than four installments. See
section 1602(f). Thus, the definition contemplates that one
who confers a right to pay a pre-existing debt in more than
four installments will be a "creditor" regardless of whether
any charge is imposed as an incident to such extension of
credit.41 See Bright, 616 F.2d at 334 n.2 ("Even if these
agreements [to pay a hospital bill over time] did not involve
an agreement to pay a monthly 3/4% finance charge, they
could still be a `credit' agreement requiring disclosures
since payment was to be in more than four installments.").
We believe that a consumer who is given the right to pay a
pre-existing debt in installments may benefit from TILA-
mandated disclosures even if no charge is imposed for the
extension of credit.

In sum, we conclude that NTF is a TILA "creditor" with
respect to the payment plans for the water and sewer
obligations, and accordingly the district court did not err in
denying NTF summary judgment.

3. Applicability of the public utility exemption

NTF argues that TILA's public utility exemption is
applicable with respect to the water and sewer claims. See
15 U.S.C. S 1603(4) ("This subchapter does not apply to the
following: . . . (4) Transactions under public utility tariffs,
if the Board [of Governors of the Federal Reserve System]
determines that a State regulatory body regulates the
charges for the public utility services involved, the charges
for delayed payment, and any discount allowed for early
payment."). Regulation Z provides:
_________________________________________________________________

41. "Finance charge" is defined generally as "the sum of all charges . . .
imposed directly or indirectly by the creditor as an incident to the
extension of credit." See 15 U.S.C. S 1605(a).

54
 This regulation does not apply to the following: . .. (c)
Public utility credit. An extension of credit that involves
public utility services provided through pipe, wire,
other connected facilities, or radio or similar
transmission . . ., if the charges for service, delayed
payment, or any discounts for prompt payment are
filed with or regulated by any government unit.

12 C.F.R. S 226.3(c) (2000) (footnote omitted); see Aronson
v. Peoples Natural Gas Co., 180 F.3d 558 (3d Cir. 1999)
(discussing this exemption).

NTF contends that it has charged the same interest and
penalty rates with respect to the water and sewer claims as
the rates established by City ordinance and PWSA
resolution; thus, NTF contends that the rates are"filed with
or regulated by" the government entities. NTF further
contends that the Purchase Agreements and Servicing
Agreements between the government entities and NTF and
CARC have imposed tight governmental "oversight" over
NTF 's and CARC's conduct.

The district court held that the exemption is not
applicable:

Defendants argue that . . . when a debt arises from
public utility services, it cannot constitute consumer
credit. We disagree. While we recognize that a public
utility is exempt from TILA disclosures upon extending
credit to a debtor for utility services, the exemption is
applicable only if the charges are filed [with] or
regulated by a governmental unit.

In the instant case, as we have established, the
payment plans offered by defendants constituted a new
extension of credit. This new extension was made well
after the liens and claims were acquired by National
Tax [NTF]. Defendants cannot claim reliance on the
public utility exemption, despite the fact that the
nature of the utility claims and liens have not changed
in essence by the assignment to National Tax. The
distinction here is that utilities are overseen and
regulated by a governmental unit to which National
Tax is not subject.

55
 The credit charges assessed by National Tax are not
`filed with or regulated by any government unit,' as
required under Regulation Z. While defendants argue
that the City and relevant authorities approved all
payment plans and charges, this type of contractual
relationship is too tenuous to constitute the
governmental unit regulation required for the
exemption.

Pollice, 59 F. Supp.2d at 490 (footnote omitted).

We agree with the district court that the public utility
exemption is not applicable. It is true that 12 C.F.R.
S 226.3(c) does not contain an explicit requirement that the
credit be extended by a public utility; the extension of
credit must simply "involve[ ] public utility services."
Nevertheless, we believe that Congress and the Board
intended the exemption to apply only to public utilities--
entities which are highly regulated by the government. See
66 Pa. Cons. Stat. Ann. S 1301 et seq. (regulating public
utility rates and rate-making). Although NTF is an assignee
of claims arising from public utility services, and thereby
stands in the shoes of the assignors, we reject its attempt
to invoke the public utility exemption.

4. Summary of conclusions regarding TILA claim

We will affirm the dismissal of the Pollice plaintiffs' TILA
claim as it relates to the tax obligations. We further
conclude that the court did not err in holding that NTF is
a TILA creditor, nor did it err in holding the public utility
exemption inapplicable.

IV. CONCLUSION

In view of the aforesaid, we will affirm in part and will
reverse in part. We will remand the case to the district
court for further proceedings consistent with this opinion.42
The parties will bear their own costs on these appeals.
_________________________________________________________________

42. In addition, we will dismiss the appeal at No. 99-3998. See n. 21,
supra.

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OBERDORFER, J., concurring in part and dissenting in
part.

I fully agree with Judge Greenberg's masterful analysis of
this very complex matter with one exception. I would also
reverse and remand the district court's grant of defendants'
motion for summary judgment dismissing the claim of the
Houck plaintiffs under Pennsylvania's Loan Interest
Protection Law ("LIPL"), Pa. Stat. Ann. tit. 41, S 101 et seq.
See majority op. Part III.A.3. I am persuaded that if
homeowners who agreed to payment plans assumed a
personal liability in addition to any imposed incident to an
original lien in rem, those homeowners have by those
agreements given the creditor valuable additional
consideration to forbear collection. If the payment plans
created an additional personal liability, that liability
imposed a detriment on the debtor by exposure of any free
assets, future earnings and expectancies to the risk of a
judgment, and reciprocally enhanced the value of the
creditor's claim. The addition of this value to the creditor's
claim together with the pre-existing interest obligation of
the Houck payment plan participants could be in
consideration "for the . . . use of money" within the
meaning of the LIPL. As the Court has noted,

If a creditor who collects [damages for detention, as
distinguished from forbearance] agrees to forbear
without imposing greater charges, then the post-
forbearance charges are still in effect charges for
detention . . . . The situation is fundamentally different
where a new or higher rate is charged in connection
with the forbearance.

Maj. op. note 18.

My colleagues "do not question the proposition that non-
monetary as well as monetary consideration may be taken
into account in determining if a creditor has extracted an
unlawful amount of value in return for a . . . forbearance."
Maj. op. p. 28. They conclude, however, that

the interest and penalties paid by those who entered
into payment plans have not been paid as
consideration for NTF 's forbearance, . . . regardless of

57
 the fact that other things of value . . . may have been
given as consideration.

Maj. op. p. 28.

I do not believe that the present record supports this
conclusion. Indeed, it is undisputed that payment plan
participants assumed a new obligation to pay attorneys'
fees. In addition, there is a fact dispute as to whether they
also assumed a personal liability. See maj. op. note 19.
Most important, whether or not the parties intended any
non-monetary thing of value to be consideration for
forbearance by the creditor is a quintessential question of
fact to be resolved in the first instance by a trier of fact.

Accordingly, I would also reverse and remand the district
court's grant of summary judgment dismissing the claim of
the Houck plaintiffs under "LIPL." To this limited extent, I
respectfully dissent.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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