Request By:
James P. Rode
Assistant County Attorney
Courthouse
Owensboro, Kentucky 42301
Opinion
Opinion By: Steven L. Beshear, Attorney General; Elizabeth E. Blackford, Assistant Attorney General
You have noted that pursuant to KRS 226.080 a pawnbroker is permitted to charge and receive interest not in excess of 3-1/2% per month on the unpaid principal balance of the loan for money lent upon deposits of personal property, and that the pawnbroker who purchases personal property on the condition of selling it back at a stipulated price may stipulate a fixed resale price which equals a sum that is no greater than the purchase price paid for the property plus interest at an amount no greater than 3-1/2% per month. It has come to your attention that pawnbrokers in your area are charging not only this amount, but an additional sum which is designated as a service charge or storage fee. You have asked whether the maximum ceiling established by KRS 226.080 is inclusive of storage fees and/or service charges or whether the customer may be charged separately for such costs.
It is the opinion of this office that the storage fees and/or service charges which are being made by pawnbrokers are illegal, and that such charges are an apparent attempt to avoid or circumvent the maximum charge permitted by KRS 226.080. Not only does KRS 226.080 say that pawnbrokers may charge interest at a rate of 3-1/2% per month, it also provides that:
"No pawnbroker shall directly or indirectly charge, receive or contract for any interest or consideration greater than that allowed by this section."
Since the legislature was obviously well aware when it enacted KRS 226.080 that the storage of items deposited with or sold to pawnbrokers was a normal part of the business, it is clear that the legislature intended for any storage costs to be included in and absorbed by the 3-1/2% per month rate it allowed. By the same token, the legislature did not intend to allow a service charge in addition to the charges permitted under KRS 226.080 because service charges have long been considered a portion of the consideration of a loan and, as such, are not usurious only if they are expressly permitted by statute. Cf. Munson v. White, 309 Ky. 295, 217 S.W.2d 641 (1949); also see, KRS 287.215 which expressly permits service charges in regulated amounts.
An examination of KRS 287.215 which governs installment loans, KRS 371.210 which sets out definitions to be used in retail installment sales, KRS 291.480 which governs loans by investment companies, and KRS 289.461 which governs certain loans made by saving and loan associations, clearly demonstrates that the legislature knows how to, and does provide specific exemptions for charges which are to be allowed in addition to or in excess of the maximum permissible interest charges. Therefore, when the legislature stated that a 3-1/2% per month charge was to be permitted to pawnbrokers, but that the pawnbrokers were not to charge directly or indirectly any other interest or consideration, it did not merely omit to mention that certain other charges were to be permitted in addition to the interest charge, but rather, meant to actively prohibit such additional charges. Consequently, the service fees and/or storage charges which are being made by pawnbrokers are in violation of the express provisions of KRS 226.080 and are subject to the penalty set out in KRS 226.990(4) .