Opinion ID: 770271
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Heading: Whether the payment plans constitute consumer credit transactions

Text: 108 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. 109 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: 110 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. 111 15 U.S.C. S 1602(h). 112 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). 34 113 As to the tax obligations, however, the district court concluded that the payment plans do not constitute consumer credit transactions. The court reasoned as follows: 114 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). 115 . . . 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. 116 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 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 . . . . 117 Pollice, 59 F. Supp.2d at 490-91. 118 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. 119 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: 120 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. 121 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 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. 122 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: 123 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. 124 Id. at 1393 (citations omitted) (emphasis added). We believe the same reasoning should apply to defendants' payment plans relating to the tax obligations. 125 In sum, we conclude that the payment plans constitute 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. 36 126