Kentucky Payday Loan Laws: The Ultimate Legislative Guide

Payday lending is still running rampant in many parts of America. State governments have the authority to prohibit the industry within their borders, and unfortunately, many still have yet to find it necessary. Though many Americans recognize and appreciate the damage that payday lenders frequently do to their borrowers, there’s still controversy over whether the loans have a valid place in society. Some feel that they provide vital financial support to people who have no other source of funding.

Below, you’ll find out which side of the issue Kentucky’s state government falls on and a thorough explanation of the Kentucky payday loan laws.

Payday lending status in Kentucky: Legal

Payday lending is still legal in Kentucky, and lenders are operating as usual. However, as it stands, they will be on their way out over the coming years. In 2009, legislation passed that put a ten-year ban on new licenses for payday lenders, meaning no more could start doing business. In 2019, when that ban was supposed to expire, the state legislature passed S.B. 145, which separated licensing for check cashing services and deferred deposit transactions (payday loan) businesses. S.B. 145 also stopped the issue of new payday loan licenses, which means that the existing licenses will eventually expire, and since no new ones will be issued, the industry should disappear.

READ MORE: States where payday loans are illegal

Loan terms, debt limits, and collection limits in Kentucky

• Maximum loan amount: $500
• Minimum loan term: 14 days
• Maximum loan term: 60 days
• Number of rollovers allowed: None
• Number of outstanding loans allowed: 2 
• Cooling-off period: None
• Finance charges: $15 fee per $100 of principal
• Collection fees: One non-sufficient funds (NSF) fee, if disclosed
• Criminal action: Prohibited

The Kentucky payday loan laws don’t state an explicit annual percentage rate (APR) limit. In fact, they require that the fee for deferred deposit transactions be considered a fee and not interest. However, it is possible to extrapolate an effective APR using that fee. For example, a $15 charge on a two-week payday loan of $100 works out to the equivalent of 391% APR.

Feel free to take a look at the original legislation for more details.

READ MORE: Guide to debt relief in Kentucky

Kentucky payday loan laws: How they stack up

The fight against payday loans has been going on for many years. In most parts of the country, it’s been slow going. Currently, 34 of the 50 states still allow payday lenders to operate freely. Technically, Kentucky is one of those states, and there are plenty of lenders around who are still offering the service. That should change as their licenses expire in the coming years, but it’s not going to be an immediate transition.

The lenders will probably do their best to get around the license laws in one way or another when the time comes like they always do. In the meantime, consumers should still be aware of what they can do legally. They can still charge triple-digit interest rates in Kentucky for a while yet, and they’re going to take advantage of the time that remains available to them. Here’s a closer look at the most significant rules restricting them.

READ MORE: How to get out of a payday loan nightmare

Maximum loan amount in Kentucky

Payday loans in Kentucky can’t have a principal balance over $500. There are no income-based restrictions like there are in some of the other states. Regardless of a borrower’s income, lenders can provide them with loans up to the $500 limit. With the CFPB’s new rule stating that lenders don’t need to check a borrower’s ability to repay their loans, Kentucky lenders can provide loans almost indiscriminately.

Note that the maximum loan amount applies to the total principal balances across all outstanding loans. If a borrower already holds a payday loan, lenders must make sure that they don’t exceed the limit by offering them a second one. If a borrower already has two loans, lenders can’t provide them with a third, even if the previous two have a combined principal balance below $500.

READ MORE: Payday loan consolidation and relief that works

Rates, fees, and other charge limits in Kentucky

The Kentucky payday loan laws are crystal clear about the fees that payday lenders can collect. They only allow a $15 fee for each $100 of principal. Lenders have to prorate that fee for balances that fall between increments of $100. For example, a loan of $150 could cost no more than $22.50.

In addition to the allowable finance charge, lenders can demand a single non-sufficient funds fee per due date when a borrower’s payment doesn’t clear. That means they can’t try multiple times to debit the borrower’s bank account or cash their check and then hit them with fees for each failure. Unfortunately, there is no upper limit to the NSF fee, but lenders have to disclose the charge ahead of time.

Maximum term for a payday loan in Kentucky

The Kentucky payday loan laws require repayment terms to be between 14 and 60 days. In practice, lenders usually offer payday loans with two to four-week repayment terms. Two months is getting close to installment loan status, which is a slightly different market and usually comes with higher loan balances.

How many payday loans can you have in Kentucky?

Kentucky residents are allowed to have two outstanding loans at the same time, but if you need a second one, you’ll likely have to use a different lender. Though payday lenders don’t report loans to the three major credit bureaus, they do have their own reporting system, so if you already have a couple of outstanding payday loans — or have defaulted on a previous payday loan — the new lender will typically be aware.

There’s also no overall limit to the number of payday loans a Kentucky resident can have, so once you pay off your original loan, you’re immediately eligible for a new loan. However, this isn’t recommended.

READ MORE: Can you have multiple payday loans?

Are tribal loans legal in Kentucky?

Native American tribes are sovereign nations in the United States. That means they’re generally immune to state regulations and it’s hard to sue them for breaching the laws of the states they reside in, though they usually follow applicable federal laws.

Tribal lenders are a type of short-term loan provider that partners with Native tribes to try and share in their tribal immunity. They use that as an excuse to sidestep the regulations meant to protect consumers, such as the rate restrictions on payday loans.

Tribal lenders are technically legal in Kentucky. There are no prohibitions on offering lending services out of a Native American reservation. However, lenders must be licensed by the state’s Department of Financial Institutions, and the state has had legislation in place since 2009 prohibiting new payday lending licenses. Your loan may not be legally collectible if it is from an unlicensed lender.

If you think you have a loan from an unlicensed lender, please seek legal advice. You may not be obligated to repay the loan.

READ MORE: Is my payday loan lender licensed?

Consumer information

The Kentucky Department of Financial Institutions is in charge of regulating payday lenders in the state. The Kentucky legislature previously issued a single license to check cashers and deferred deposit service businesses, which essentially made them the same thing in the eyes of the law. A recent bill, SB 145, split the two apart and eliminated licenses for deferred deposit services.

Check cashers can still offer their services going forward, but the Department will issue no new licenses to deferred deposit businesses (payday lenders). In the meantime, they’ll continue to monitor and regulate the industry. When the licensees lose their legal status, they’ll make sure that none continue to operate illicitly. The Department also keeps a state-wide record of licensees, so consumers can verify a lender’s standing before working with them.

Where to make a complaint

The Kentucky Department of Financial Institutions is also the best place to register a complaint about illegal lending activities within the state. Here’s the contact information: 

• Regulator: Kentucky Department of Financial Institutions
• Address: 500 Mero Street, Frankfort, KY 40601
• Phone: 502-573-3390
• Email: [email protected]
• Link to website: https://kfi.ky.gov/newstatic_Info.aspx?static_ID=347

Consumers can also submit a complaint to the Consumer Federal Protection Bureau (CFPB). They are the federal government’s organization dedicated to helping consumers with financial issues, including payday lenders.

Number of Kentucky consumer complaints by issue

These statistics are all according to the CFPB Consumer Complaint Database.

The most complained about lender in Kentucky: PNC Bank N.A.

The most commonly complained-about lender in Kentucky is none other than PNC Bank. They’re an unexpected winner for the (undesirable) state championship title since Kentucky is full of payday lenders, and those usually take the top spot.

PNC Bank doesn’t offer payday loans. They provide unsecured installment loans for people with fair to good credit. Generally, their options are a lot more affordable than payday loans. Here are the terms that borrowers can expect:

• Principal balances between $1,000 and $35,000
• Interest rates ranging from 5.99% to 11.79%
• Qualification requirements that filter out those with poor credit
• Repayment terms between 6 and 60 months
• Monthly payment schedules

At first glance, it seems surprising that people would complain more about PNC Bank than they would about payday lenders who charge such outrageous rates. However, while they have advantages over payday lenders, they’re also much more sizeable than most payday operations. Serving such a large customer base naturally attracts more online attention and complaints.

Also, while they don’t charge triple-digit interest rates, it seems they have other problems. Take a look below for a closer look at their online reputation and the complaints people make about them to the CFPB.

Most common complaints about PNC Bank N.A.

The most common complaint consumers have about PNC Bank is an unusual one: Consumers have consistent trouble contacting the lender, presumably to get support for miscellaneous issues. Usually, the most common problem people have with their least favorite lenders (especially in states with payday loans) is that they charge unexpected fees or interest.

For consumers to have enough communication issues with PNC to win out against the resident payday lenders, the problems must be significant. Their Better Business Bureau (BBB) profile confirms this.

The BBB collects complaints and reviews to serve as a reference for potential future customers. There have been 1,669 complaints against the company over the last three years. Of those, 1,062 have been for problems with their service. Sorting through them reveals the following issues:

• PNC Bank being unresponsive to outreach from disgruntled customers
• Service representatives having poor or nonexistent records of ongoing customer disputes
• The company manipulating transaction orders to trigger overdraft fees, then refusing to address the issue or refund the charges

All of these support the complaints people make to the CFPB about having issues contacting PNC Bank. They’re a lot cheaper than payday lenders, but they still pose a lot of problems. It may be a good idea to work with another bank in Kentucky if possible.

Top 10 most complained about lenders

PNC Bank isn’t the only lender that consumers have issues with in Kentucky. In fact, payday lenders and their cousins, tribal installment lenders, seem to dominate the rest of the top ten least wanted list.

Big Picture Loans, LLC, the closest runner-up, is one of those tribal installment lenders.  They’re particularly dangerous because they partner with Native American tribes to get access to their tribal immunity.

Native American tribes are sovereign nations, so they don’t have to pay much attention to state laws. It’s incredibly difficult to sue the tribal lenders who partner with them, and they use that as an excuse to break state payday loan laws.

READ MORE: How to get out of high-interest tribal loans

Payday loan statistics in Kentucky

• Kentucky ranks as the 29th state for the most overall payday loan complaints
• Kentucky ranks as the 30th state for the most payday loans per capita
• There have been 18,281 payday loan-related complaints made to the CFPB since 2013―176 of these complaints originated from Kentucky
• The estimated total population in Kentucky is 4,467,673 people
• There are 3.9394 payday loan complaints per 100,000 people in Kentucky
• The most popular reason for submitting a payday loan complaint is “Charged fees or interest you didn’t expect.”

READ MORE: Payday loan debt statistics

Historical timeline of payday loans in Kentucky

The Kentucky payday loan laws haven’t always been what they are today. They’ve changed a bit during the history of the state, especially in the past 20 years as the conflict over payday loans came to a head in Kentucky. Here are the most significant highlights:

• 1992: A bill passes that requires all check-cashing businesses to apply for a license from the Department of Financial Institutions.
• 1992-1998: Deferred deposit businesses (payday lenders) become synonymous with check-cashing businesses. They operate without any limit on their fees.
• 1998: A bill passes that caps the fees payday lenders can charge at $15 per $100 of principal.
• 2009: A bill passes that puts a ten-year moratorium on licenses for check cashers/deferred deposit service businesses.
• 2010: The Kentucky Deferred Presentment Transaction System begins tracking payday lending activities in the state.
• 2019: As the moratorium on payday lending licenses is about to expire, a new bill passes that separates check cashers from deferred deposit businesses and prohibits the latter indefinitely.

While payday loans are still legal in Kentucky, it looks like their days are numbered. The current legislation means that there will be no new licensees going forward. As the existing ones expire, the industry should theoretically cease to exist.

It might not be that simple, though. Payday lenders have a habit of fighting back against the laws that limit them, and they’ve already found an effective tactic in partnering with Native American tribes. The battle to get them out of the Bluegrass State isn’t over yet.

Flashback: A Kentucky payday loan story

Understanding the Kentucky payday loan laws is one thing, but seeing first-hand how the interpretation of legislation affects people’s lives is another. To put the significance of the legal struggle against payday lenders into perspective, it helps to hear a true story that encapsulates the conflict. The perfect example took place in Kentucky back in 2010.

The Kentucky Department of Financial Institutions has been regulating payday lenders for a couple of decades by now, but they haven’t always known what they were doing. Back in 2010, they were still relatively new to the game, and many in Kentucky were still conflicted over the best way to treat the lenders. They charged expensive fees, but they also provided credit to a group of people who desperately needed financial support.

So when state regulators caught Cash Express (a large payday lending chain in Kentucky) breaking the law, they weren’t sure how strong of a stance they should take. It turned out that the business had been consistently and deliberately practicing underhanded tactics like: 

• Misreporting customer identification details which would allow them to take out more loans than were legal
• Wrongly reporting loans as closed, also so that borrowers could take out more debt than the law allowed
• Charging customers to roll over their loans even though the regulations specifically forbid the practice

The Department could have charged them fines up to $25,000 per violation or even revoked their business license, but they didn’t. They let Cash Express off with only $1,000 in fines for each offense in exchange for a promise that they wouldn’t do it again.

Unsurprisingly, they didn’t keep their word. Between 2010 and 2016, Cash Express went on to break the law in almost 100 known cases that involved 113 customers. Because regulators were afraid to take a strong enough stance, dozens of families paid the price.

The bottom line: Should you take out a payday loan in Kentucky?

The Kentucky payday loan laws in place do virtually nothing to protect consumers. Lenders can still charge fees that equate to interest rates well into the triple digits without breaking the law. Those who are willing to bend the rules a little bit because they’re not afraid of a slap on the wrist will happily charge even more.

The truth is that it’s never a good idea to take out a payday loan if you can help it, and loans in Kentucky are no exception. They’re far too expensive and consistently trap borrowers into a cycle of endless debt. If you’re having a tough time and need a few hundred dollars to make it until your payday, try a cash advance app instead. Sites like Earnin and Brigit can provide users with a small advance without any interest on the balance, and the fees are minimal.

They’re still not a long-term solution, though, and debt rarely (if ever) is. It can’t make up for an imbalance in your financial equation forever. If you’re consistently spending more than you’re earning, you’re going to get in deep trouble eventually. Look for ways to save more so you can stop relying on unsustainable financial tactics, especially payday loans.

If you’ve already taken out one or more payday loans in Kentucky and need help getting out of the debt trap, DebtHammer can help. Contact us today for a free consultation and we’ll help you get back on the right track!