Opinion ID: 3011294
Heading Depth: 3
Heading Rank: 1

Heading: Whether the water, sewer and tax obligations

Text: 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 ofdebt; 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 owneroccupants 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' debtcollection 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/crossappellees 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 ofdebt 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 ofdebt 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 anofficer 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 crossappellants 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