Payday lending is legal in Kentucky.
In the state of Kentucky, the maximum payday loan amount is $500. The maximum loan term is 60 days. Rollovers are prohibited. Average APR for a $300 payday loan is 460%*. Finance charges per $100 should not exceed $15. Criminal actions are prohibited.
As of March 2019, Kentucky introduced a new S.B. 145 that separates licenses for check cashers and deferred deposit transactions businesses. Simultaneously, the bill’s amendment puts a stop to the issue of all the new payday loan licenses, which means that very soon payday lenders will seize to operate in the state altogether.
Kentucky Payday Lending Statutes
Payday loans in Kentucky are regulated by Stat. Ann. 286.9-010 et seq. (Deferred Deposit Service Business and Check Cashing) and, thus, they are officially called “deferred deposit transactions” and should be officially licensed as check cashers.
In 2009 the Kentucky Legislature has passed a law concerning the operation of such lenders in order to protect the borrowers. However, the same law presupposes certain restrictions in regards to fees and finance charges as well as amounts allowed and terms.
One of the peculiarities of the Kentucky state law concerning payday lending is a statewide database, the Kentucky Deferred Presentment Transaction System, introduced in May 2010. It allows the regulatory authorities to keep track and easily monitor all the payday lending transaction and in case of necessity easily to find out the information about the amount of loan, and their number, terms, and fees and so on. This measure must have been estimated rather negatively among lenders as all their transactions should be clear and there is no way to bypass the law.
Loan Amount in Kentucky
- The state law of Kentucky allows taking no more than 2 loans taken simultaneously from one lender every two weeks.
- $500 is a maximum total amount of all outstanding loans that a person can have at any one time.
Rates, fees and other charges in Kentucky
- Finance charge on $100 loan given for a period of two weeks cannot exceed $15.
“A licensee shall not charge a service fee in excess of $15 per $100 on the face amount of the deferred deposit check. A licensee shall prorate any fee, based upon the maximum fee of $15.” (Stat. Ann. 286.9-010 et seq.)
Real APR for payday loans in Kentucky can reach 460 % (*According to the Center for Responsible Lending 2019: “Typical APR based on the average rate for a $300 loan advertised by largest payday chains or as determined by a state regulator, where applicable.”).
Maximum term for a payday in Kentucky
- Loans are allowed to be given for not more than 60 days.
- Rollovers are not allowed in the state and therefore all the loans are required to be repaid in time.
- There is no cooling-off period between loans – borrowers are eligible for new loans as long as the previous ones are repaid.
- In terms of collection, the regulations are the following – for every defaulted loan only 1 non-sufficient funds fee can be charged; its amount is not specified.
- Any criminal actions against borrowers are considered in the state.
More information about payday loans in Kentucky can be found on the website of the Kentucky Department of Financial Institutions.
Also, the Kentucky Deferred Presentment Transaction System is a secure, online database where customers can ask questions and check the status of their payday loans.
The History of Payday Loans in Kentucky
- 1992 – Kentucky legislature passed HB 747 which enacted KRS Chapter 368. According to this bill, all check cashing businesses had to to be licensed by the Department of Financial Institutions(DFI). The bill had no mentioning of deferred deposit transactions at that time, however, allowed check cashers to charge some unspecified fee that wasn’t considered interest.
- 1992-1998 – Deferred deposit businesses were added to HB 747. They grew in numbers and flourished offering deferred deposit transactions without any interest rate or fee caps.
- 1998 – HB 266 was passed by Kentucky legislature. Deferred deposit transactions appeared the part of the check cashing statute, KRS Chapter 368 and, thus, capped the “service fees” at $15 per $100.
- 1999 – Supreme Court of Kentucky found out that before 1998 all deferred deposit businesses were not supposed to be exempt from the state usury laws (which sort of made all the past transactions illegal?)
- 2006 – The Military Lending Act effectively capped payday loans offered to the military at 36% APR. This federal law has no exceptions, thus, no lender in Kentucky is now allowed to offer loans to the military in excess of 36% APR.
- 2009 – The Kentucky Legislature passed a payday loan law that introduced a 2-loan limit with a $500 total. Also, the 10-year moratorium on new check cashers began July 1. The new licenses were not to be issued since that time. Current licenses were transfer-able or assignable, subject to approval by DFI.
- 2010 – A statewide database, the Kentucky Deferred Presentment Transaction System, was added as one of the amendments of the payday loan law. It was intended to enforce the aforementioned limitation. The fees and charges stayed the same. Yet, according to the 2014 report, “The 2010 reform has a loophole – under Kentucky’s current law, payday loan customers can take out up to 52 loans per year.”
- 2014 – There was another attempt to pass a more restrictive bill on payday loan (Kentucky Senate Bill 32). It was presupposed to introduce an interest cap for payday loans that would prohibit charging more than 36% of the total borrowed amount. This bill was discussed in the Kentucky House of Representatives as well and it failed to pass in the House Banking and Insurance Committee. Provided that the legislation had passed, Kentucky would have joined 18 other states (DC including) that have already had the law in action. However, the votes were divided in the following way: 10-13, and at the moment no changes in the law in this respect so far.
- June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (the federal rule is expected in November 2020).
- 2018 – Another attempt to bass a bill that would effectively cap payday loan rates at 36% failed.
- March 2019 – Kentucky practically banned all new payday loan providers in the state. B. 145 was signed by the governor, it establishes separate licenses for check cashing and deferred deposit service businesses.
- Initially, the new law only presupposed to set apart the licenses for check-cashing businesses and deferred deposit businesses (payday lenders). However, the bill’s amendment put a full stop to any new permanent deferred deposit licenses. In other words, a temporary moratorium on new payday loan licenses that have been in effect for 10 years (from 2009 – to expire this summer) in Kentucky would now be permanent.
- For now, payday lenders with a currently valid state license are allowed to continue to operate. However, with time, when they expire, they won’t be renewed, and new ones won’t be issued altogether. The new law comes into effect on July 2019.
(As of April 2019)