Payday lending allows customers in need of money to get a temporary, high-interest loan. At the customer's request, these businesses can also consolidate or roll over overdue loans -- again, for a big fee. State law, in Kentucky and elsewhere, sets down rules on payday lending, including limits on service fees, loan conditions and the legal options available to the lender if the borrower defaults.
With a checking account and verified employment, a borrower can use a payday lending shop to take out an expensive loan, which usually falls due on the borrower's next payday. The shop will hold a postdated check until that date, or automatically debit the borrower's bank account for the full amount of the loan plus its service fee. Kentucky allows payday lending, but limits the term of each loan to 60 days, and the service fee charged to $15 per $100 borrowed over a term of 14 days. In addition, a single borrower may not take out more than $500 in payday loans at any one time.
Bounced Checks and Defaults
Payday borrowers often find themselves without the funds to pay back these loans when they fall due. In case of a bounced check, Kentucky allows the lender to charge a non-sufficient funds fee. State law does not allow payday lenders to prosecute borrowers for overdraft charges, however, or for theft. In addition, lenders cannot charge attorney fees, unless they file a lawsuit and demand such fees as part of a judgment. State law also bans misleading or false statements about the consequences of an overdraft or default -- such as the possibility of a jail term.
Restrictions on Collections
A payday loan is a written contract enforceable by state law. If a borrower defaults, a lender has the right to attempt to collect a debt, but is subject to the Fair Debt Collection Practices Act. This federal law places restrictions on collections, including the time of day a collector may call, and a ban on harassment, misrepresentation, or the threat of criminal prosecution. Payday lenders can assign their accounts to collection agencies, but these agencies are bound by the same guidelines.
Civil Lawsuits and Judgments
Payday lenders have a 15-year statute of limitations on their contracts in Kentucky. This means they have 15 years from the date of the default to file suit in civil court. If more than 15 years have passed, the defendant in the suit would have to file an answer and defense to the claim in order to have a court dismiss it. If a lender wins a judgment against the borrower, it has the right to enforce the judgment through garnishment of wages, liens against property or a levy on a bank account.