White v. Check Holders Inc.

• Decision Date: 17 June 1999
• Docket Number: No. 98-SC-739-CL.,98-SC-739-CL.
• Citation: 996 S.W.2d 496
• Parties: Sidney N. WHITE, Chapter 13 Trustee for the Estate of Victoria Tevis, Estate of Santina Turner, Estate of Regina Willis, and Estate of Francine Jackman; Victoria Tevis, Individually; Santina Turner, Individually; and Regina Willis, Individually, Appellants, v. CHECK HOLDERS, INC.; and Unknown Entities and Individuals, Appellees.
• Court: United States State Supreme Court — District of Kentucky

996 S.W.2d 496

Sidney N. WHITE, Chapter 13 Trustee for the Estate of Victoria Tevis, Estate of Santina Turner, Estate of Regina Willis, and Estate of Francine Jackman; Victoria Tevis, Individually; Santina Turner, Individually; and Regina Willis, Individually, Appellants, v. CHECK HOLDERS, INC.; and Unknown Entities and Individuals, Appellees.

No. 98-SC-739-CL.

Supreme Court of Kentucky.

June 17, 1999.

Rehearing Denied August 26, 1999.

John O. Morgan, Jr., Lexington, KY, Jack L. Block, Bina Sanghavi, Rachelle M. Niedzwiecki, Sachnoff & Weaver Ltd., Chicago, IL, Richard A. Fisher, Logan Thompson Miller, Bilbo Thompson Fisher, PC, Cleveland, TN, for appellants.

Steven L. Beshear, J. Clarke Keller, Daniel E. Danford, Stites & Harbison, Lexington, KY, Paul Markgraf, Ft. Mitchell, KY, for appellees.

J. Rick Jones, General Counsel, Robert B. Barnes, Counsel, Department of Financial Institutions, Frankfort, KY, for Amicus Curiae, Kentucky Department of Financial Institutions.

Barbara B. Edelman, Dinsmore & Shohl LLP, Lexington, KY, for Amicus Curiae, Kentucky Deferred Deposit Association.

LAMBERT, Justice.

Pursuant to CR 76.37(1), this Court granted the certification request of the United States District Court for the Eastern District of Kentucky to answer the following question of law:

When a check cashing company licensed under KRS 368 et seq. accepts and defers deposit on a check pursuant to an agreement with the maker of the check, is the service fee charged by the check cashing company a "service fee" and not "interest" under KRS 368 .100(2), or is the fee "interest" which is subject to the usury laws and disclosure provisions in KRS Chapter 360?

To resolve this issue of first impression, we must determine whether the General Assembly intended KRS 368.100(2) to encompass short-term loans based upon deferred deposit transactions as well as check cashing from current funds.

In 1992 the General Assembly enacted KRS Chapter 368. The 1992 Act required check cashing businesses to be licensed by the Department of Financial Institutions (DFI), KRS 368.020-.050, and allowed them to charge a fee for cashing checks without implicating Kentucky's usury laws. As stated in KRS 368.100(2):

Any fee charged by a licensee for cashing a check shall be disclosed in writing to the bearer of the check prior to cashing the check, and the fee shall be deemed a service fee and not interest.

While the Act clearly applies to check cashing businesses charging fees that might be otherwise considered discounted interest, see Hamilton v. York, 987 F.Supp. 953, 956 (E.D.Ky.1997), it is claimed to apply also to fees charged on short-term loans made by the check cashing licensee. Notably absent from this statutory text, however, is any language directly permitting check cashing businesses to advance funds and charge fees for holding checks, thus providing consumers with short-term loans. Rather, the 1992 Act simply permits check cashing by licensees for a fee providing the fee is disclosed to the drawer.

While the terms of KRS 368.100(2) are not ambiguous, the nature of the transactions at issue here may lead to uncertainty in the statute's application. The source of the uncertainty is the use of an order instrument which is "payable on demand and drawn on a bank" (KRS 355.3-104(6)(a)) to evidence a promise of an indebtedness due at some later time. See KRS 355.3-104(5). Thus, in an abundance of caution, we will resort to rules of statutory construction to supplement our analysis.

This Court's duty in construing statutes is to ascertain and give effect to the intent of the General Assembly. Beckham v. Board of Education, Ky., 873 S.W.2d 575, 577 (1994). When the words of a statute "are clear and unambiguous and express the legislative intent, there is no room for construction or interpretation and the statute must be given its effect as written." McCracken County Fiscal Court v. Graves, Ky., 885 S.W.2d 307, 309 (1994). However, where statutory language is unclear or the intent of the General Assembly cannot be discerned from the face of the statute, we look for guidance to outside sources, such as legislative history. Newberg v. Wright, Ky., 824 S.W.2d 843, 845 (1992). Thus, to determine whether the General Assembly intended to bring deferred deposit service transactions and loans under the purview of the 1992 Act, we turn to legislative history, administrative construction, relevant case law, and the 1998 statutory amendments enacted by the General Assembly in response to Hamilton v. York, 987 F.Supp. 953 (1997).

Legislative history reveals that the purpose of the 1992 Act, as explained by one of its sponsors, was to prevent check cashing companies from charging unreasonably high fees to cash payroll checks for unbanked military personnel and to prevent money laundering. Statement of Senator Smith, Third Reading and Vote on HB 747 before the Full Senate, Videotape 50-VVD2 (March 27, 1992), Kentucky Department for Libraries and Archives, Archives Video Vault; 1992 Leg. Record House Bill 747 (May 4, 1992), p. 157; see also Hamilton v. York, 987 F.Supp. 953, 956 (1997) (noting that, under the 1992 Act, check cashing businesses were authorized to charge fees to cash checks for unbanked people). House Bill 747 was passed without amendment, unanimously in both the House and Senate. 1992 Leg. Record House Bill 747 (May 4, 1992), p. 157. Similarly, its companion bill, Senate Bill 311, passed without amendment in the Senate and the House. 1992 Leg. Record Senate Bill 311 (May 4, 1992), p. 47-48. The absence of amendments indicates that the sponsors' assessment of the purpose of the 1992 Act was accurate. Thus, we conclude that the intent supporting the 1992 Act was to regulate check cashing services and to prevent money laundering.

The Department of Financial Institutions' (DFI's) interpretation of the 1992 Act is unclear. On the one hand, DFI is authorized to license deferred deposit service businesses under the 1992 Act. KRS 368.050-.080. On the other, DFI failed to promulgate any regulations for the enforcement of Chapter 368 as authorized by KRS 368.090. Significantly, DFI did not interpret the statutory terms "interest" and "fees" in a cohesive regulatory scheme. It also failed to set maximum check-cashing fees. It did not specify how many times a consumer's short-term loan payment on a check deferred for presentment could be delayed or "rolled over," nor did it set maximum fees for "roll over" transactions. Finally, DFI did not determine whether deferred deposit businesses could prosecute drawers for issuing worthless checks after having agreed to advance money and defer deposit of checks the payees knew were worthless. Cf. KRS 514.040(1)(e) (which states that a person is guilty of theft by deception when he intentionally issues or passes a check or similar sight order for the payment of money, knowing that it will not be honored by the drawee).

Regardless of the lack of administrative regulation by DFI, in applying the statute from 1992 to 1998, DFI implicitly construed the Act to include deferred deposit businesses because DFI licensed them to operate. It is a general rule that a "construction of a law or regulation by officers of an agency continued without interruption for a long period of time is entitled to controlling weight." Hagan v. Farris, Ky., 807 S.W.2d 488, 490 (1991)(citing Barnes v. Department of Revenue, Ky., 575 S.W.2d 169 (1978)). However, this Court limits the deference shown to informal agency interpretations that have been arrived at without rulemaking or an adversarial proceeding. See Delta Air Lines v. Commonwealth, Ky., 689 S.W.2d 14, 20 (1985) (holding that "an administrative construction arrived at in an uncontested nonadversarial proceeding is not entitled to great weight"). As noted, DFI did not promulgate regulations. Nor did it formally construe the 1992 Act by any adjudicative procedure. Therefore, we do not give DFI's informal interpretation of the 1992 Act any significant weight.

To conclude our analysis of the 1992 Act, we look to Hamilton v. York, 987 F.Supp. 953 (E.D. Kentucky 1997), and the statutory changes that followed. In Hamilton, consumers asserted that a deferred deposit business, by charging usurious interest for short-term loans on checks deferred for presentment, violated several state and federal statutes, including Kentucky's laws against charging usurious interest. Id. at 955-58. The deferred deposit company argued that the 1992 Act permitted the short-term loans and exempted fees charged for the loans from Kentucky's usury statutes. Id. at 956. After reviewing the evidence,...