Opinion ID: 770271
Heading Depth: 3
Heading Rank: 4

Heading: Substantive FDCPA violations

Text: 93 The homeowners claim that defendants have violated 15 U.S.C. S 1692f(1), which provides: 94 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. 95 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 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. 96 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 97 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. 98 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: 99 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, 100 If state law expressly permits service charges, a service charge may be imposed even if the contract is silent on the matter; 101 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. 102 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)). 103 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 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. 104 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. 105