Opinion ID: 770271
Heading Depth: 3
Heading Rank: 3

Heading: The LIPL claim

Text: 31 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 of such other act shall prevail. Pa. Stat. Ann. tit. 41, S 604. The LIPL provides a cause of action to recover usurious interest: 32 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 . . . . 33 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. 34 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 law. A forbearance is widely considered a `use of money' for the purposes of usury law.). 35 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: 36 [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. 37 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. 38 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. 39 Thus, the facts of this case preclude us from finding 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. 40 Id. at 483 (citations omitted). 41 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 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: 42 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. 43 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.' 44 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 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. 45 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 consideration for the creditor's forbearance of asserting his right of collection.). 15 46 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 forbear 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. 47 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: 48 The Act of May 28, 1858, P.L. 622 . . . does not rule the question of `damages for detention'. The word `use' 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 49 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 a fixed 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 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., 326 Pa.Super.14,473 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 the finder 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). 50 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. 51 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 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. 52 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: 53 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 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). 54 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 . . . . 55 . . . 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 . . . 56 App. at 97. A payment plan enrollment form included with the letter provided as follows: 57 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 . . . . 58 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 59 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. 60 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 61 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 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. 62 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. 63 In sum, we conclude that homeowners (including those who entered into payment plans) have not paid a rate of 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. 64 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