Garnishment

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Michigan – Attachment and Garnishment

Act 236 of 1961
Chapter 40
Attachment and Garnishment

• MCL §600.4001 – Attachment; ex parte application; service of writ; jurisdiction.

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• MCL §600.4011 - Garnishment; property or obligation applicable to satisfaction of claim; jurisdiction; state and governmental units as garnishees; ex parte application for writ of garnishment; service; conditions to commencement of garnishment proceeding; immunity of sheriff or other public officer; fee; conveyance of money or property.
   
  • (1) Subject to sections 4061 and 4061a, and the conditions in subsections (2) to (10), the court has power by garnishment to apply the following property or obligation, or both, to the satisfaction of a claim evidenced by contract, judgment of this state, or foreign judgment, whether or not the state has jurisdiction over the person against whom the claim is asserted:
    • (a) Personal property belonging to the person against whom the claim is asserted but which is in the possession or control of a third person if the third person is subject to the judicial jurisdiction of the state and the personal property to be applied is within the boundaries of this state.
    • (b) An obligation owed to the person against whom the claim is asserted if the obligor is subject to the judicial jurisdiction of the state.
  • (2) Except as provided in sections 4061 and 4061a, the court may exercise the jurisdiction granted in this section only in accordance with the Michigan court rules. Except as otherwise provided by sections 4061 and 4061a and the Michigan court rules, the state and each governmental unit within the state, including but not limited to a public, municipal, quasi-municipal, or governmental corporation, unincorporated board, public body, or political subdivision, may be proceeded against as a garnishee in the same manner and with the same effect as a proceeding against an individual garnishee.
  • (3) A writ of garnishment may be issued before judgment only as provided in this subsection. Upon ex parte application showing that the person against whom the claim is asserted is not subject to the judicial jurisdiction of the state or, after diligent effort, cannot be served with process as required to subject the person to the judicial jurisdiction of the state, a copy of the writ of garnishment shall be served upon the person against whom the claim is made in the same manner as provided by the Michigan court rules for service of process in other civil actions in which personal jurisdiction over the defendant is not required. Upon entry of judgment in the principal action, the obligation or property garnished shall be applied to the satisfaction of the judgment.
  • (4) A garnishment proceeding shall not be commenced against the state or a governmental unit of the state, including but not limited to a public, municipal, quasi-municipal, or governmental corporation, unincorporated board, public body, or political subdivision, until after the plaintiff’s claim has been reduced to judgment.
  • (5) A garnishment proceeding shall not be commenced against a person for money owing to a defendant on account of labor performed by the defendant until after the plaintiff’s claim has been reduced to judgment.
  • (6) A sheriff or other public officer is not subject to garnishment for money or things received or collected by him or her pursuant to an execution or other legal process in the favor of the defendant or because of any money in his or her hands for which he or she is accountable merely as a public officer to the defendant.
  • (7) A garnishment proceeding shall not be commenced if the commencement of such a proceeding is forbidden by a statute of this state.
  • (8) Except as otherwise provided in sections 4012 and 4061, a plaintiff shall pay a fee of $1.00 to the garnishee at the time the garnishee is served with a writ of garnishment.
  • (9) If the court or garnishee possesses money or property pursuant to a writ of garnishment after the court releases the garnishee from liability under that writ, the court shall convey or order the conveyance of the money or property to any of the following, as the court determines appropriate:
    • (a) The defendant’s attorney, if the defendant is represented by counsel in the garnishment proceeding.
    • (b) The defendant, if the defendant is not represented by counsel in the garnishment proceeding.
    • (c) The plaintiff.
  • (10) A writ of garnishment is not effective if both of the following conditions are met:
    • (a) The plaintiff fails to provide the garnishee with information sufficient for the garnishee to identify the defendant.
    • (b) The garnishee provides the court with written notice of the insufficiency described in subdivision (a).

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• MCL §600.4012 – Writ of garnishment as to periodic payments; duration; priority of writs of garnishment; liability of garnishee defendant; fee; “periodic payments” defined.
   
  • (1) Except for garnishment of a tax refund under section 4061a, and subject to subsection (2), a writ of garnishment of periodic payments remains in effect for the period prescribed by the Michigan court rules.
  • (2) A garnishee is not liable for a writ of garnishment of periodic payments under subsection (1) to the extent that the garnishee is required to satisfy another writ of garnishment against the same defendant having a higher priority or having the same priority but received at an earlier date. For purposes of this subsection, writs of garnishment have priority in the following order:
    • (a) A garnishment resulting from an obligation of court ordered support as defined in section 2 of the support and parenting time enforcement act, Act No. 295 of the Public Acts of 1982, being section 552.602 of the Michigan Compiled Laws.
    • (b) A levy of the state or a governmental unit of the state to satisfy a tax liability.
    • (c) Any other garnishments, in the order in which they are served.
  • (3) Except as otherwise provided by statute, a plaintiff shall pay a fee of $6.00 at the time a writ to the garnishee of garnishment of periodic payments is served upon the garnishee.
  • (4) As used in this section and section 8410a, “periodic payments” means wages, salary, commissions, and other earnings, land contract payments, rent, and other periodic debt or contract payments that are or become payable during the effective period of the writ of garnishment. Periodic payments do not mean any of the following:
    • (a) Payments by a financial institution of interest on a deposit account.
    • (b) Charges made by a financial institution automatically against an account which applies to a debt under an automatic payment authorization executed by the account owner.
    • (c) Payments made by a financial institution to honor a check or draft or to comply with an account holder’s order of withdrawal of funds from an account.
    • (d) Interest earned on a certificate of deposit that is paid into a deposit account.

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• MCL §600.4015 – Actions as cause of discipline or discharge of principal defendant from employment; reinstatement; civil action.

  A garnishee defendant shall not use the fact that the principal defendant has had 1 or more actions brought against him under the provisions of this chapter or section 8306 as a cause of discipline or discharge of the principal defendant from employment. A garnishee defendant who violates the provisions of this section shall be required to reinstate the principal defendant to employment and reimburse all compensation lost by the discipline or discharge. The principal defendant may enforce his rights under this section by appropriate civil action.

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• MCL §600.4021 – Attachment; venue.

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• MCL §600.4025 – Venue; garnishment.

  The county which would be a proper county of venue as designated in RJA chapter 16 of an action against the defendant who is garnisheed is a proper county of venue for garnishment if —

  • (1) the county is designated in RJA chapter 16 as a proper county of venue of the action against the principal defendant; or
  • (2) there is no common proper county of venue designated in RJA chapter 16 of an action against the principal and garnishee defendant; or
  • (3) personal jurisdiction cannot be obtained over the principal defendant.

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• MCL §600.4031 - Exemptions; attachment and garnishment; partial exemptions.
   
  • (1) The provisions of the statutes relating to exemptions from execution, and the manner of levying upon property belonging to a class or species in which exemptions are by law allowed, shall be applicable to the application of property and obligations to claims by attachment and garnishment.
  • (2) In any garnishment proceeding where the indebtedness of the garnishee to the principal defendant is money owed to the principal defendant on account of
    • (a) the sale to the garnishee of milk or cream or both produced on the farm or farms of the principal defendant, the garnishee’s liability to the plaintiff is limited to 40% of such money;
    • (b) personal labor performed by the principal defendant or his family, the garnishee’s liability to the plaintiff is limited by the exemptions allowed under section 7511.

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• MCL §600.4035 – Attachment; effect; personalty; realty.

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• MCL §600.4041 – Attachment on realty; discharge.

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• MCL §600.4045 – Attachment or garnishment; dissolution by bond.

  In every case where property is attached or garnishment is served, the attachment or garnishment may be dissolved by the posting of a bond in accordance with the rules of the supreme court.

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• MCL §600.4051 – False answer by garnishee or agent; civil liability.

  Any person summoned as a garnishee or any officer, agent, or other person who appears and answers for a corporation summoned as a garnishee, who knowingly and wilfully answers falsely upon his disclosure or examination on oath is liable to the plaintiff in garnishment, or to his executors or administrators, to pay out of his own goods and estate the full amount due on the judgment recovered with interest, to be recovered in a civil action.

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• MCL §600.4061 – Garnishment against state; employees designated to receive process; procedures.
   
  • (1) A plaintiff shall serve garnishment process issued from a court in Michigan against the state of Michigan upon the state treasurer or other state employee designated by the state treasurer to receive garnishment process. The state treasurer shall designate as many employees as he or she considers necessary to receive garnishment process, at least 2 of whom shall have offices in Lansing.
  • (2) The state treasurer shall designate the employees under subsection (1) in writing and maintain a copy of the written designation in the state treasurer’s office. If the state treasurer revokes the designation, the revocation shall be made in the same manner as the designation. If a designated employee ceases to be employed by the state treasurer to receive process under subsection (1), the designation of that person is revoked immediately upon termination of his or her employment.
  • (3) In a garnishment proceeding in which the state is the garnishee, a plaintiff shall do all of the following:
    • (a) Serve upon the state treasurer or designated employee a writ of garnishment that includes a verified statement signed by the plaintiff, or his or her attorney or agent, identifying the full amount including interest and taxed costs, claimed by the plaintiff to be due upon the judgment against the defendant.
    • (b) At the time of service of the writ of garnishment, pay to the state treasurer or designated employee a fee of $6.00.
    • (c) Within 7 days after service of the writ of garnishment on the state treasurer or designated employee, do both of the following:
    • (i) If the writ of garnishment is for a state tax refund or credit, serve a copy of the writ of garnishment upon the defendant in the manner prescribed by the Michigan court rules.
    • (ii) Serve upon the state treasurer any discovery request for information related to the garnishment proceeding that may be in the possession of the department of treasury.
  • (4) After receiving a discovery request pursuant to subsection (3)(c), the state treasurer shall provide only that information in the possession of the department of treasury that is not otherwise exempted by law from disclosure. The plaintiff shall pay to the state treasurer the reasonable costs incurred by the state treasurer in providing the requested information.
  • (5) After receiving service of a writ of garnishment as provided in subsection (3), the state treasurer or designated employee shall do 1 of the following:
    • (a) If the writ is not for the garnishment of a state tax refund or credit, respond in the manner prescribed for garnishment procedures under the Michigan court rules.
    • (b) If the writ is for garnishment of a state tax refund, respond in the manner prescribed by section 4061a.

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• MCL §600.4061a – Interception of state tax refund or credit.
   
  • (1) The state treasurer shall intercept a state tax refund or credit that is subject to a writ of garnishment served upon the state treasurer pursuant to section 4061. Upon intercepting a state tax refund or credit pursuant to a writ of garnishment, the state treasurer shall do all of the following:
    • (a) Calculate the amount available from the interception to satisfy all or part of the garnishment, and within 90 days after establishing other liability for which the state tax refund or credit may be applied under section 30a of Act No. 122 of the Public Acts of 1941, being section 205.30a of the Michigan Compiled Laws, do both of the following:
      • (i) File with the court a verified disclosure that identifies the intercepted amount, less any setoff, counterclaim, or other demand of the state against the defendant.
      • (ii) Serve upon the plaintiff and defendant a copy of the disclosure described in subparagraph (i).
    • (b) Unless notified by the court that objections to the writ of garnishment have been filed, deposit the amount available for the garnishment with either of the following pursuant to the terms of the writ not less than 28 days after filing the disclosure pursuant to subdivision (a):
      • (i) The clerk of the court.
      • (ii) The plaintiff’s attorney of record in the garnishment action, or, if the plaintiff is not represented by counsel, the plaintiff or the plaintiff’s designee.
  • (2) Objections to the writ of garnishment of a tax refund shall be filed with the court within 14 days after the date of service of the disclosure on the defendant.
  • (3) If an interception of a state tax refund or credit does not occur before October 31 of the year during which a writ of garnishment for a state tax refund or credit is to be processed, both of the following apply:
    • (a) The state treasurer is not required to provide to the defendant or file with the court a disclosure.
    • (b) The state treasurer is not required to provide to the plaintiff a disclosure unless the plaintiff provides the state treasurer with a written request for a disclosure between November 1 and December 31 of the tax year following the tax year for which a writ of garnishment of a state tax refund or credit was filed.
  • (4) A disclosure described in subsection (1) is not required to be made under oath.
  • (5) The state’s liability to the plaintiff under a writ of garnishment issued under this section is limited to the amount of the tax refund or credit due to the defendant for the period the writ is in effect, less any setoff, counterclaim, or other demand of the state against the defendant. As used in this subsection, “state” includes the state treasurer.
  • (6) If all or a portion of an intercepted state tax refund or credit is deposited with the clerk of the court under subsection (1), the court shall convey the deposited amount to the plaintiff’s attorney of record in the garnishment action or, if the plaintiff is not represented by counsel, to the plaintiff.
  • (7) Michigan court rules that do not conflict with this section or section 4061 govern a garnishment in which the state is a garnishee.
  • (8) As used in this section, “state treasurer” includes an employee designated by the state treasurer to act on his or her behalf.

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• MCL §600.4065 –

  Evidence in criminal proceedings; disclosure.No disclosure made under the provisions of the garnishment statutes or rules shall be used in evidence upon a criminal prosecution except upon a prosecution of the garnishee for perjury in making his disclosure.

Washington Mutual credit cards -or-
WaMu credit cards

See: Hypothetical example of active duty military member with WaMu credit card recovering excessive interest charges.

Washington Mutual Card Services
P.O. Box 660487
Dallas, Texas 75266-0487
800-280-9441
800-280-9441

Washington Mutual Card Services
3801 S Collins St
Arlington, TX 76014
817-276-5900‎

WaMu Branch banks in Texas

Chase to Take Washington Mutual’s Card Business In House

Columbus, Ga., December 2, 2008 — TSYS announced today that it has entered into an agreement with JPMorgan Chase (Chase) with respect to the discontinuation of the servicing of Washington Mutual Bank’s (WaMu’s) consumer card portfolio by TSYS. In addition, the parties agreed to an extension of the processing agreement between TSYS and JPMorgan Chase Bank, N.A. (Toronto Branch) for its Canadian card business through April 30, 2012. Chase will pay TSYS fees for deconversion and termination which both parties have agreed not to disclose. The deconversion is expected to take place in March 2009 after which Chase will process the WaMu portfolio in house on the technology platform it licenses from TSYS.

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Washington Mutual, Inc.
Washington Mutual, Inc.
1201 3rd Ave
Seattle WA 98101
(Holding company)

Washington Mutual Bank, Henderson, NV
2273 North Green Valley Parkway
Henderson, Nevada, 89014
www.wamu.com
Immediate parent – Washington Mutual, Inc.
Source: iBanknet

Washington Mutual Bank, FSB
6250 Sagewood Drive,
Park City, UT 84098
435-655-4929
435-655-4920 Fax
www.wamu.com
Immediate parent – Washington Mutual, Inc.

Regulated by Federal Office of Thrift Supervision (OTS)

F.D.I.C. – Bank Acquisition Information – for Washington Mutual Bank, Henderson, NV and Washington Mutual Bank, FSB, Park City, UT

F.D.I.C. – Continuation of Contracts Transferred From Washington Mutual Bank

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J. P. Morgan Chase & F.D.I.C. purchase and assumption agreement of  Washington Mutual Bank, Henderson, NV

F.D.I. C. press release September 25, 2008

Office of Thrift Supervision – Fact Sheet on Washington Mutual Bank

NYT: Government Seizes WaMu and Sells Some Assets
By ERIC DASH and ANDREW ROSS SORKIN
Published: September 25, 2008

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history. Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution. . .

. . . By taking on all of WaMu’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C.

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WaMu’s credit card operation acquired from Providian National Bank on October 1, 2005

Brief history of Washington Mutual

An even briefer history of Washington Mutual

Kentucky exemption law

Kentucky Revised Statutes (KRS)
Title 39 – Provisional Remedies, Enforcement
Chapter 427 – Exemptions

Contents:

• KRS §427.005 Definitions.
• KRS §427.010 Exempt personal property and disposable earnings of individual debtors.
• KRS §427.020 Appraisement of defendant’s property — Selection by defendant.
• KRS §427.030 Debtor’s tools exempt.
• KRS §427.040 Professional libraries and vehicle exempt.
• KRS §427.045 Exemptions not applicable to claims for child support.
• KRS §427.050 Out-of-state law applicable when wages earned and payable out-of-state — Exceptions.
• KRS §427.060 Homestead and burial plot exemptions — Exceptions.
• KRS §427.070 Right of spouse and children to homestead.
• KRS §427.080 Valuation and allotment of homestead exemption.
• KRS §427.090 Payment of money in lieu of homestead exemption.
• KRS §427.100 Waiver of homestead exemption — Continuance after death
• KRS §427.110 Insurance benefits — Exemptions.
• KRS §427.120 Police and firefighters’ pension fund in cities of the first, second, and third classes — Exempt from process in some cases.
• KRS §427.125 Police and firefighters’ pension fund in cities of fourth class — Exempt from process in some cases.
• KRS §427.126 Repealed, 1966.
• KRS §427.130 Salaries of public officials and employees and sums due from governmental agencies are subject to attachment or garnishment — Service of process.
• KRS §427.140 Employee may not be discharged for garnishment for one (1) indebtedness.
• KRS §427.150 Property totally or partially exempt.
• KRS §427.160 Additional general exemption.
• KRS §427.170 Federal bankruptcy code exemptions applicable in Kentucky.
• KRS §427.180 Grain storage receipt or scale ticket as prima facie claim of right to possession.
• KRS §427.990 Penalty.

11 U.S.C. sec. 522(d) provides the following exemptions:

(d) The following property may be exempted under subsection (b)(1) of this section:

• (1) The debtor’s aggregate interest, not to exceed $15,000 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.
• (2) The debtor’s interest, not to exceed $2,400 in value, in one motor vehicle.
• (3) The debtor’s interest, not to exceed $400 in value in any particular item or $8,000 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books,animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
• (4) The debtor’s aggregate interest, not to exceed $1,000 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
• (5) The debtor’s aggregate interest in any property, not to exceed in value $800 plus up to $7,500 of any unused amount of the exemption provided under paragraph (1) of this subsection.
• (6) The debtor’s aggregate interest, not to exceed $1,500 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.
• (7) Any unmatured life insurance contract owned by the debtor,other than a credit life insurance contract.
• (8) The debtor’s aggregate interest, not to exceed in value$8,000 less any amount of property of the estate transferred in the manner specified in section 542(d) of this title, in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.
• (9) Professionally prescribed health aids for the debtor or a dependent of the debtor.
• (10) The debtor’s right to receive -
  • (A) a social security benefit, unemployment compensation, or a local public assistance benefit;
  • (B) a veterans’ benefit;
  • (C) a disability, illness, or unemployment benefit;
  • (D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
  • (E) a payment under a stock bonus, pension, profit sharing,annuity, or similar plan or contract on account of illness,disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless -
    • (i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor’s rights under such plan or contract arose;
    • (ii) such payment is on account of age or length of service; and
    • (iii) such plan or contract does not qualify under section401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.
• (11) The debtor’s right to receive, or property that is traceable to -
  • (A) an award under a crime victim’s reparation law;
  • (B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
  • (C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
  • (D) a payment, not to exceed $15,000, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or
  • (E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

“An estate in bankruptcy consists of all the interests in property, legal and equitable, possessed by the debtor at the time of filing, as well as those interests recovered or recoverable through transfer and lien avoidance provisions. An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor. Section 522 determines what property a debtor may exempt. Under 522(b), he must select between a list of federal exemptions (set forth in 522(d)) and the exemptions provided by his State, “unless the State law that is applicable to the debtor . . . specifically does not so authorize,” 11 U.S.C. 522(b)(1) — that is, unless the State “opts out” of the federal list. If a State opts out, then its debtors are limited to the exemptions provided by state law. Nothing in subsection (b) (or elsewhere in the Code) limits a State’s power to restrict the scope of its exemptions; indeed, it could theoretically accord no exemptions at all.”

MPM Financial Group, Inc. v. Morton
No. 2005-CA-002539-MR
Kentucky Court of Appeals, May 18, 2007

MPM FINANCIAL GROUP, INC.
Appellant
v.
MICHAEL P. MORTON
Appellee

APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE JAMES D. ISHMAEL, JR., JUDGE
ACTION No. 03-CI-00740.

Brief For Appellant:

Carroll M. Redford, III – Lexington, Kentucky

Brief For Appellee:
R. Bruce Stith, III – Lexington, Kentucky

The opinion of the court was delivered by: Paisley, Senior Judge

TO BE PUBLISHED

OPINION – AFFIRMING

Before: Chief Judge Combs, Judge Wine, and Senior Judge Lewis G. Paisley (sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.)

MPM Financial Group, Inc. (MPM) appeals from an opinion and order of the Fayette Circuit Court in which the trial court held that the federal bankruptcy exemptions incorporated into Kentucky Revised Statutes (KRS) 427.170 apply to non-bankruptcy debtors in the Commonwealth, thus depriving MPM of a garnishable source of funds from one of the corporation’s judgment debtors. On appeal, MPM argues that the General Assembly has consistently used the words “debtor” and “estate” in KRS Chapter 427 to refer to bankruptcy; therefore, the use of those words in KRS 427.170 means the statute applies only to bankruptcy debtors. MPM also argues that the trial court’s interpretation of KRS 427.170 renders KRS 427.150 superfluous. Lastly, MPM argues that, based on the legislative history of KRS 427.170, the statute applies only to bankruptcy debtors. Agreeing with the trial court, we affirm.

On January 5, 2004, MPM obtained a judgment against Michael P. Morton in the amount of $14,000.00 plus pre-judgment interest, post-judgment interest and attorney’s fees. However, the corporation had difficulties collecting from Morton. In June of 2005, MPM learned that Morton had a disability insurance policy with UNUM Provident Insurance Company (UNUM) and that he was receiving $3,750.00 per month in benefits pursuant to that policy. On June 24th, MPM served an order of garnishment on UNUM seeking Morton’s disability payments. UNUM complied with the garnishment order and began forwarding Morton’s monthly benefit payments to MPM. On August 11, 2005, Morton filed an affidavit with the Fayette Circuit Court challenging MPM’s garnishment. In his affidavit, Morton argued that his disability payments were exempt from garnishment pursuant to KRS 427.150. Later, Morton filed a notice with the trial court claiming that his disability payments were exempt pursuant to KRS 427.170 and 11 USC § 522(d)(10)(C) even though Morton had not filed for bankruptcy.

On November 9, 2005, the trial court entered an opinion and order in which it held that Morton’s disability payments were not exempt from garnishment pursuant to KRS 427.150(2)(d). However, the trial court noted that, on June 20, 2005, the General Assembly had amended KRS 427.170 to incorporate the federal bankruptcy exemptions found in 11 USC § 522(d), which include an exemption for disability payments. Furthermore, the trial court held that the federal exemptions incorporated into KRS 427.170 were not limited to bankruptcy debtors but applied to all debtors in the Commonwealth. So, the trial court determined that Morton’s disability payments were exempt from garnishment pursuant to KRS 427.170.

On appeal, MPM insists that the trial court misapplied KRS 427.170. MPM points out that the federal exemptions incorporated into KRS 427.170 are virtually identical to the exemptions set forth in KRS 427.150, although the federal exemptions are more generous. MPM argues that if we were to adopt the trial court’s interpretation of KRS 427.170, then we would render KRS 427.150 superfluous, in essence repealing that statute. According to MPM, if the General Assembly had intended to repeal KRS 427.150 when it amended KRS 427.170, then it would have done so.

When we interpret a statute, we will attempt to ascertain and effectuate the General Assembly’s intent from the language found in the statute if possible. KRS 446.080(1); Commonwealth v. Reynolds, 136 S.W.3d 442, 445 (Ky. 2004); Moore v. Alsmiller, 289 Ky. 682, 160 S.W.2d 10, 12 (1942). Generally, a statute is open to construction only if its language is ambiguous. If the language is clear and the application of its plain meaning would not lead to an absurd result, then further interpretation is unnecessary. Overnite Transportation v. Gaddis, 793 S.W.2d 129, 131 (Ky.App. 1990). However, if a statute is ambiguous and its meaning uncertain, then the legislative intent should be determined by considering the whole statute and the purpose to be accomplished. Department of Motor Transportation v. City Bus Co., 252 S.W.2d 46, 47 (Ky. 1952). Furthermore, our interpretation of the statute should neither add to nor subtract from it; should not produce an absurd result; and should produce a result that is both practical and reasonable. Commonwealth v. Reynolds, supra at 445; Walker v. Kentucky Dept. of Education, 981 S.W.2d 128, 130 (Ky.App. 1998).

KRS 427.170, as amended in 2005, reads, in its entirety, “An individual debtor domiciled in this state is authorized to exempt from property of said debtor’s estate the property specified under 11 U.S.C. sec. 522(d).” We can find no ambiguity in this statute. Applying the plain meaning of the statute’s language, we conclude that the federal exemptions apply to all individual debtors in the Commonwealth, including bankruptcy debtors and non-bankruptcy debtors. If the General Assembly had intended to limit the application of the federal exemptions to bankruptcy debtors, then it would have included language to that effect as it did in KRS 427.160. Appellant argues that this interpretation renders KRS 427.150 superfluous. We disagree. We point out that KRS 427.170 does not set forth the text of 11 USC § 522(d) but incorporates that statute’s exemptions by reference. The exemptions available pursuant to KRS 427.170 are contingent upon the language currently found in 11 USC § 522(d); however, the exemptions currently found in 11 USC § 522(d) are subject to change by the United States Congress. At any time, Congress can amend or repeal 11 USC § 522(d), thereby effectively amending or repealing KRS 427.170. Given this possibility, KRS 427.150 now provides debtors in the Commonwealth guaranteed exemptions independent of those federal exemptions incorporated into KRS 427.170. In other words, KRS 427.150 establishes a floor for exemptions, while KRS 427.170 provides a ceiling. KRS 427.170 does not repeal KRS 427.150; instead, the two statutes complement one another. We do not agree with MPM that this is an absurd result. It is both practical and reasonable.

In the alternative, MPM argues that, while the General Assembly used the word “individual” in KRS 427.150, in KRS 427.170 it used the words “individual debtor” and “estate”, words that, MPM claims, are used consistently in KRS Chapter 427 to refer to bankruptcy. We find this argument unconvincing. Those are words of plain and ordinary meaning. If the General Assembly had intended KRS 427.170 to apply only to those who had filed for bankruptcy, it could clearly have said so.

MPM also argues that the legislative history regarding KRS 427.170 supports the proposition that it applies strictly to bankruptcy debtors. In 1978, the United States Congress enacted the Bankruptcy Reform Act of 1978 which provided the federal exemptions set forth in 11 USC § 522(d). However, the Congress granted the individual states the right to “opt out” of the federal exemptions and adopt their own. As MPM points out, in 1980, the Commonwealth originally enacted KRS 427.170 to opt out of the federal exemptions. In addition, the General Assembly enacted KRS 427.150 to provide exemptions for bankruptcy debtors, as well as all other debtors, in the Commonwealth. MPM points out that in 2005, Congress amended 11 USC § 522 and “toughened up the federal exemptions.” According to MPM, in response to Congress’s action, the General Assembly amended KRS 427.170 to give bankruptcy debtors in the Commonwealth access to the exemptions found in 11 USC § 522(d). MPM insists that the General Assembly meant for these exemption to apply only to bankruptcy debtors because, when the General Assembly first enacted the prior KRS 427.170 in 1980, the statute applied only to bankruptcy debtors.

KRS 427.170’s legislative history does not place any constraints on the General Assembly’s power to amend the statute in any way that it sees fit. As we previously held, the language of KRS 427.170, as amended, is not ambiguous, and it applies to all debtors in the Commonwealth, the statute’s legislative history notwithstanding.

We note that, in Morton’s brief, he argues that the trial court erred when it held that KRS 427.150(2)(d) did not apply to his disability benefits. KRS 427.150(2)(d) contains an exemption for debtors who receive compensation for the loss of future earnings. Morton argues that his disability benefits constitute compensation for the loss of future earnings. While Morton’s argument is interesting, he failed to file a cross-appeal regarding this issue; therefore, we cannot address its merits since it is not before us.

The opinion and order of the Fayette Circuit Court is affirmed.

COMBS, CHIEF JUDGE, CONCURS.

WINE, JUDGE, DISSENTS AND FILES SEPARATE OPINION.

WINE, JUDGE, DISSENTING: Respectfully, I dissent.

Contrary to the trial judge’s contention that the Kentucky legislature never intended for KRS 427.170 to be limited to bankruptcy proceedings, the very title of the statute, “Federal bankruptcy code exemptions applicable in Kentucky,” and its reference to 11 U.S.C. § 522(d) can lead to no other conclusion. Further, KRS 427.150(2)(f) provides for an exemption of certain retirement accounts under both Kentucky law as well as the Federal Bankruptcy Code, thus, distinguishing exemptions under KRS 427.150 from KRS 427.170.

Because he has not sought protection under the Bankruptcy Code, the appellee is limited to those exemptions under KRS 427.150, which do not exempt disability payments.

Kentucky Revised Statute
Title 24 – Commerce and trade
Chapter 360 – Interest and usury

• KRS § 360.010
  Legal interest rate
  Agreement for higher rate
  Minimum charge for negotiated bank loan.
  • KRS § 360.010(1) The legal rate of interest is eight percent (8%) per annum, but any party or parties may agree, in writing, for the payment of interest in excess of that rate as follows:
    • KRS § 360.010(1)(a) at a per annum rate not to exceed four percent (4%) in excess of the discount rate on ninety (90) day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve District where the transaction is consummated or nineteen percent (19%), whichever is less, on money due or to become due upon any contract or other obligation in writing where the original principal amount is fifteen thousand dollars ($15,000) or less, and
    • KRS § 360.010(1)(b) at any rate on money due or to become due upon any contract or other obligation in writing where the original principal amount is in excess of fifteen thousand dollars ($15,000); and any such party or parties, and any party or parties who may assume or guarantee any such contract or obligation, shall be bound for such rate of interest as is expressed in any such contract, obligation, assumption, or guaranty, and no law of this state prescribing or limiting interest rates shall apply to any such agreement or to any charges which pertain thereto or in connection therewith; provided, however, nothing herein contained shall be construed to amend, repeal, or abrogate any other law of this state pertaining to any particular types of transactions for which the maximum rate of interest is specifically prescribed or provided.
  • KRS § 360.010(2) Any state or national bank may charge ten dollars ($10) for any loan negotiated at the bank in this state, even if the legal interest does not amount to that sum.

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• KRS § 360.020
  Civil penalty for charging excessive interest
  Partial payment applied first to interest.
  • KRS § 360.020(1) The taking, receiving, reserving, or charging a rate of interest greater than is allowed by KRS 360.010, when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon. In case the greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover, in an action in the nature of an action of debt, twice the amount of the interest thus paid from the creditors taking or receiving the same: provided, that such action is commenced within two (2) years from the time the usurious transaction occurred.
  • KRS § 360.020(2) Partial payment on a debt bearing interest shall be first applied to the interest then due.

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• KRS § 360.022
  Other laws not affected by KRS 360.010, 360.020, or 360.990.
  Nothing contained in KRS 360.010, 360.020, or 360.990 shall be construed to amend, repeal, or abrogate any other law of this state pertaining to any particular types of transactions for which exemptions, pleading of defenses is denied, or the maximum rate of interest is specifically prescribed or provided.
  

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• KRS § 360.025
  Excess rate of interest prohibited as defense of corporation.KRS § 360.025(1) No corporation shall hereafter plead or set up the taking of more than the legal rate of interest, as a defense to any action brought against it to recover damages on, or enforce payment of, or other remedy on, any mortgage, bond, note or other obligation, executed or assumed by such corporation: provided, that this section shall not apply to any action which is now pending or to any suit or action instituted subsequent to June 16, 1960, upon any mortgage, bond, note or other obligation executed or assumed by such corporation prior to June 16, 1960.
  KRS § 360.025(2) The provisions of subsection (1) of this section shall not apply to a corporation, the principal asset of which shall be the ownership of a one (1) or two (2) family dwelling.

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• KRS § 360.027
  Excess rate of interest prohibited as defense of limited partnership, limited liability company, or business trust.KRS § 360.027(1) No limited partnership, limited liability company, or business trust shall hereafter plead or set up the taking of more than the legal rate of interest, as a defense to any action brought against it to recover damages on, or enforce payment of, or other remedy on, any mortgage, bond, note or other obligation, executed or assumed by such limited partnership, limited liability, or business trust; provided, that this section shall not apply to any action instituted subsequent to June 16, 1972, upon any mortgage, bond, note or other obligation executed or assumed by such limited partnership or business trust prior to June 16, 1972.
  KRS § 360.027(2) The provisions of subsection (1) of this section shall not apply to a limited partnership, limited liability company, or business trust, the principal asset of which shall be the ownership of a one (1) or two (2) family dwelling.

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• KRS § 360.030
  Premiums on insurance to secure loan not considered as interest.Where an insurance company, as a condition for a secured loan, requires the borrower to insure his life or the life of another, or his property, with the company, and to assign the policy of insurance to the company as security for the loan and agree to pay the premiums thereon during the continuance of the loan, and the premiums charged do not exceed those charged for similar policies to persons who do not obtain loans, the premiums in any such case shall not be considered as interest on the loan, and the loan shall not be rendered usurious by reason of any such requirement.

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• KRS § 360.040
  Interest on judgment.A judgment shall bear twelve percent (12%) interest compounded annually from its date. A judgment may be for the principal and accrued interest; but if rendered for accruing interest on a written obligation, it shall bear interest in accordance with the instrument reporting such accruals, whether higher or lower than twelve percent (12%). Provided, that when a claim for unliquidated damages is reduced to judgment, such judgment may bear less interest than twelve percent (12%) if the court rendering such judgment, after a hearing on that question, is satisfied that the rate of interest should be less than twelve percent (12%). All interested parties must have due notice of said hearing.

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• KRS § 360.050
  Presumption as to interest on foreign debt or judgment.Any indebtedness incurred or judgment rendered out of this state is presumed to bear interest in accordance with the provisions of KRS 360.040.

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• KRS § 360.060
  Interest on holdbacks or reserves by persons financing loans on personal property – Reports to dealers.KRS § 360.060(1) Each person engaged in the business of financing loans on personal property sold by dealers to purchasers on credit shall pay interest at the rate of two and one-half percent (2.5%) per annum on holdbacks, reserves or other money withheld from the dealer under any contract for financing such a purchase on credit. Interest on such money withheld shall be paid to each dealer on January 1 and July 1 of each year.
  KRS § 360.060(2) Any amount withheld by a person engaged in making such loans shall be due immediately upon the close of the loan account.
  KRS § 360.060(3) Each person engaged in making such loans shall furnish each dealer as of January 1 and July 1 of each year, a report showing the status of the dealer’s reserve or holdback account, if any.

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• KRS § 360.070
  Rates of exchange for commercial paper, how fixed.Once in each month or oftener, each bank and each institution authorized to deal in bills of exchange shall fix the rates of exchange at which bills shall be purchased and enter them upon the proceedings of the board of directors, designating the difference to be made, if any, on account of the time the bill has to run. A copy of the rates shall be posted in some conspicuous place in the public room of the bank or institution. If the rates of exchange are fixed by a branch of the bank or institution, they shall not be entered on its records or acted upon by it until corrected, if necessary, and approved by the principal bank or institution. Any alteration made in the rates of exchange shall, before it is acted upon, be noted on the copy posted in the public room. All officers of any such bank or institution shall conform to its rates of exchange so fixed.

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• KRS § 360.080
  Rates of exchange to be transmitted to Governor.Each bank and each institution authorized to deal in bills of exchange shall, each month, transmit copies of its rates of exchange to the Governor for his information and for the information of the General Assembly.

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• KRS § 360.100
  Predatory lending
  Definitions
  Limitations on high-cost home loans
  Conditions
  Penalties.KRS § 360.100(1) The following definitions apply for the purposes of this section:
  • KRS § 360.100(1)(a) “High-cost home loan” means a loan other than an open-end credit plan or a reverse mortgage transaction in which:
  • KRS § 360.100(1)(a)1. The principal amount of the loan is greater than fifteen thousand dollars ($15,000) and does not exceed two hundred thousand dollars ($200,000);
  • KRS § 360.100(1)(a)2. The borrower is a natural person;
  • KRS § 360.100(1)(a)3. The debt is incurred by the borrower primarily for personal, family, or household purposes;
  • KRS § 360.100(1)(a)4. The loan is secured by a mortgage on residential real property or secured by collateral which has a mortgage lien interest in residential real property, which is or will be occupied by the borrower as the borrower’s principal dwelling; and
  • KRS § 360.100(1)(a)5. The terms of the loan exceed either or both of the following thresholds:
  • KRS § 360.100(1)(a)5a. Without regard to whether the loan transaction is or may be a “residential mortgage transaction” as defined in 12 C.F.R. 226.2(a)(24), as amended from time to time, the loan at the time the loan is consummated is such that the loan is considered a “mortgage” under section 152 of the Home Ownership and Equity Protection Act of 1994, Pub. L. No. 103-325, 15 U.S.C. sec. 1602(aa), as the same may be amended from time to time, and regulations adopted pursuant thereto by the Federal Reserve Board, including 12 C.F.R. 226.32, as the same may be amended from time to time; or
  • KRS § 360.100(1)(a)5b. The total points and fees payable by the borrower at or before the loan closing exceed the greater of three thousand dollars ($3,000) or six percent (6%) of the total loan amount as shown as the amount financed on the final Truth-in-Lending Statement.
  • KRS § 360.100(1)(b) “Lender” means any person who funds or negotiates the terms of a high-cost home loan or acts as a mortgage broker or lender, finance company, or retail installment seller with respect to a high-cost home loan. However, any person who purchases or is otherwise assigned a high-cost home loan shall be subject to an action for violation of this section only if the violation for which the action or proceeding is brought is apparent on the face of the disclosure or the underlying promissory note.
  • KRS § 360.100(1)(c) “Material change” means any of the following:
  • KRS § 360.100(1)(c)1. A change in the type of loan being offered, such as a fixed or variable rate loan or a loan with a balloon payment;
  • KRS § 360.100(1)(c)2. A change in the term of the loan, as reflected in the number of monthly payments due before a final payment is scheduled to be made;
  • KRS § 360.100(1)(c)3. An increase in the interest rate of more than one-quarter of one percent (0.25%), or an equivalent increase in the amount of discount points charged;
  • KRS § 360.100(1)(c)4. A change regarding the requirement of escrow for taxes and insurance; and
  • KRS § 360.100(1)(c)5. A change regarding the requirement or payment, or both, of private mortgage insurance.
  • KRS § 360.100(1)(d)
  • KRS § 360.100(1)(d)1. “Total points and fees payable by the consumer at or before the loan closing” means all amounts payable by a borrower at or before the closing of a home loan, excluding any interest or time-price differential due at closing on the loan proceeds and includes:
  • KRS § 360.100(1)(d)1a. All mortgage broker fees, including fees paid by the consumer directly to the broker, fees paid by the consumer to the creditor for delivery to the broker, and yield spread premiums paid by the creditor to the broker;
  • KRS § 360.100(1)(d)1b. Any amount payable under an add-on or discount system of additional charges:
  • KRS § 360.100(1)(d)1c. Service, transaction, activity, and carrying charges that exceed similar charges on a noncredit account;
  • KRS § 360.100(1)(d)1d. Points, loan fees, assumption fees, finder’s fees, and similar charges;
  • KRS § 360.100(1)(d)1e. Appraisal, investigation, and credit report fees when service is provided by the lender or an affiliate and not by a third party;
  • KRS § 360.100(1)(d)1f. Charges imposed on a creditor by another person for purchasing or accepting the borrower’s obligation, if the borrower is required to pay the charges in cash, as an addition to the loan obligation, or as a deduction from loan proceeds;
  • KRS § 360.100(1)(d)1g. Premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage, whether or not the debt-cancellation coverage is insurance under applicable law; or
  • KRS § 360.100(1)(d)1h. Closing agent fees charged by a third party, but only if the lender requires the particular services for which the borrower is charged and the lender requires the imposition of the charge or the lender retains a portion of the charge.
  • KRS § 360.100(1)(d)2. “Total points and fees payable by the consumer at or before the loan closing” does not include real estate related fees paid to third parties if the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor. Real estate related fees include:
  • KRS § 360.100(1)(d)2a. Fees for title examination, abstract of title, title insurance, property survey, and similar purposes;
  • KRS § 360.100(1)(d)2b. Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents;
  • KRS § 360.100(1)(d)2c. Notary and credit report fees;
  • KRS § 360.100(1)(d)2d. Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest infestation and flood hazard determinations; and
  • KRS § 360.100(1)(d)2e. Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.

  KRS § 360.100(2) A high-cost home loan shall be subject to the following limitations:
  KRS § 360.100(2)(a)
  KRS § 360.100(2)(a)1. No lender may make, provide, or arrange a high-cost home loan with a prepayment penalty unless the lender offers the borrower a loan without a prepayment penalty, the offer is in writing, and the borrower initials the offer to indicate that the borrower has declined the offer. The lender shall disclose the discount in rate received in consideration for a high-cost home loan with the prepayment penalty; and
  KRS § 360.100(2)(a)2. If a borrower declines an offer required in paragraph (a)1. of this subsection, the lender may include a prepayment penalty schedule. No prepayment penalty shall be assessed against the borrower following the third anniversary date of the mortgage or sixty (60) days prior to the date of the first interest rate reset, whichever is less. No prepayment penalty shall exceed three percent (3%) for the first year, two percent (2%) for the second year, and one percent (1%) for the third year of the outstanding balance of the loan; but in no event shall a prepayment penalty be assessed against a borrower refinancing with the mortgage loan company that funded the mortgage;
  KRS § 360.100(2)(b) A high-cost home loan may not contain a provision which permits the lender, in its sole discretion, to accelerate the indebtedness. This provision does not apply when repayment of the loan has been accelerated by default, pursuant to a due-on-sale provision, or pursuant to some other provision of the loan documents unrelated to the payment schedule;
  KRS § 360.100(2)(c) A high-cost home loan may not contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower;
  KRS § 360.100(2)(d) A high-cost home loan may not contain a payment schedule with regular periodic payments that cause the principal balance to increase;
  KRS § 360.100(2)(e) A high-cost home loan may not contain a provision which increases the interest rate after default. This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, provided the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness;
  KRS § 360.100(2)(f) A high-cost home loan may not include terms under which more than two (2) periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower;
  KRS § 360.100(2)(g) A lender may not charge a borrower any fees to modify, renew, extend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan, unless the fees are less than one-half (1/2) of any fees that would be charged for a refinance or unless the borrower is in default and it is in the borrower’s best interest;
  KRS § 360.100(2)(h) A lender may not make a high-cost home loan unless the borrower has been provided the following notice or a substantially similar notice, in writing, not later than the time that notice provided by 12 C.F.R. 226.31(c), as amended from time to time, is required:

  NOTICE TO BORROWER
  IF YOU OBTAIN THIS LOAN, THE LENDER WILL HAVE A MORTGAGE ON YOUR HOME. YOU COULD LOSE YOUR HOME AND ANY MONEY YOU PUT INTO IT IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THE LOAN.
  MORTGAGE LOAN RATES AND CLOSING COSTS AND FEES VARY BASED ON MANY FACTORS, INCLUDING YOUR PARTICULAR CREDIT AND FINANCIAL CIRCUMSTANCES, YOUR EMPLOYMENT HISTORY, THE LOAN-TO-VALUE REQUESTED AND THE TYPE OF PROPERTY THAT WILL SECURE YOUR LOAN. THE LOAN RATE AND FEES COULD ALSO VARY BASED ON WHICH LENDER OR BROKER YOU SELECT. YOU SHOULD SHOP AROUND AND COMPARE LOAN RATES AND FEES.
  YOU SHOULD ALSO CONSIDER CONSULTING A QUALIFIED INDEPENDENT CREDIT COUNSELOR OR OTHER EXPERIENCED FINANCIAL ADVISOR REGARDING THE RATE, FEES, AND PROVISIONS OF THIS MORTGAGE LOAN BEFORE YOU PROCEED. YOU SHOULD CONTACT THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR A LIST OF CREDIT COUNSELORS AVAILABLE IN YOUR AREA.
  YOU ARE NOT REQUIRED TO COMPLETE THIS LOAN AGREEMENT MERELY BECAUSE YOU HAVE RECEIVED THESE DISCLOSURES OR HAVE SIGNED A LOAN APPLICATION.
  REMEMBER, PROPERTY TAXES AND HOMEOWNER’S INSURANCE ARE YOUR RESPONSIBILITY. NOT ALL LENDERS PROVIDE ESCROW SERVICES FOR THESE PAYMENTS. YOU SHOULD ASK YOUR LENDER ABOUT THESE SERVICES.
  ALSO, YOUR PAYMENTS ON EXISTING DEBTS CONTRIBUTE TO YOUR CREDIT RATINGS. YOU SHOULD NOT ACCEPT ANY ADVICE TO IGNORE YOUR REGULAR PAYMENTS TO YOUR EXISTING CREDITORS;

  KRS § 360.100(2)(i) A lender may not make a high-cost home loan unless the lender reasonably believes at the time the loan is consummated that one (1) or more of the borrowers, when considered individually or collectively, will be able to make the scheduled payments to repay the loan based upon a consideration of their current and expected income, current obligations, current employment status, and other financial resources, other than the borrower’s equity in the dwelling which secures repayment of the loan. A borrower shall be presumed to be able to make the scheduled payments to repay the loan if, at the time the loan is consummated:
  KRS § 360.100(2)(i)1. The borrower’s total monthly debts, including amounts owed under the loan, do not exceed fifty percent (50%) of the borrower’s monthly gross income as verified by the credit application, the borrower’s financial statement, a credit report, financial information provided to the lender by or on behalf of the borrower, or any other reasonable means;
  KRS § 360.100(2)(i)2. The loan has been approved by an automated underwriting service offered by FNMA or Freddie MAC;
  KRS § 360.100(2)(i)3. The lender verifies and documents that the borrower has liquid assets equal to fifty percent (50%) of the principal loan amount; or
  KRS § 360.100(2)(i)4. The borrower has sufficient residual income as defined in the guidelines established in 38 C.F.R. 36.4337(e) and United States Veterans Administration form 26-6393;
  KRS § 360.100(2)(j) If the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan held by the same lender as noteholder, the lender may not directly or indirectly finance:
  KRS § 360.100(2)(j)1. Any prepayment fees or penalties payable by the borrower; or
  KRS § 360.100(2)(j)2. Points and fees, excluding those provided for in 12 C.F.R. 226.4(c)(7), which in the aggregate are in excess of four percent (4%) of the total amount financed;
  KRS § 360.100(2)(k) A lender or mortgage loan broker may not, within one (1) year of the consummation of a high-cost home loan, charge a borrower points and fees in connection with a high-cost home loan if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan on which points were charged. A lender may not, at any time, charge a borrower points and fees in addition to those allowed by 12 C.F.R. 226.4(c)(7) if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan, on which points were charged, held by the same lender as noteholder. However, points and fees in accordance with this section may be charged on any proceeds of a high-cost home loan which are in excess of the amount refinanced on the existing high-cost home loan;
  KRS § 360.100(2)(l) A lender may not pay a contractor under a home-improvement contract from the proceeds of a high-cost home loan other than by an instrument payable to the borrower or jointly to the borrower and the contractor, or at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the disbursement;
  KRS § 360.100(2)(m) A lender shall not refinance, replace, or consolidate a zero interest rate or low interest rate loan made by a governmental or nonprofit lender with a high-cost home loan. For purposes of this paragraph, a low interest rate loan is defined as a loan that carries a current interest rate that is two (2) percentage points or more below the current yield on United States Treasury securities with a comparable maturity;
  KRS § 360.100(2)(n) A lender shall not finance single premium credit life, credit accident, credit health, credit disability, or credit loss of income insurance in connection with a high-cost home loan;
  KRS § 360.100(2)(o) A lender shall not make a high-cost home loan unless the lender has made available to the borrower a videotape, or other similar audio-video media format such as DVD or CD, approved by the Office of Financial Institutions, which explains the borrower’s rights and responsibilities with regard to this section or high-cost home loans. A lender shall have available for viewing at least one (1) copy of the video in the principal office and each branch office of the lender;
  KRS § 360.100(2)(p) A lender shall not make a high-cost home loan subject to a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers. Arbitration clauses that comply with the standards set forth in the Statement of Principles of the National Consumer Dispute Advisory Committee of the American Arbitration Association in effect on June 24, 2003, shall be presumed not to violate this subsection;
  KRS § 360.100(2)(q) A lender shall not charge a late payment fee on a high-cost home loan except in accordance with the following:
  KRS § 360.100(2)(q)1. The late payment fee may not be in excess of five percent (5%) of the amount of the payment past due or ten dollars ($10), whichever is greater;
  KRS § 360.100(2)(q)2. The loan documents must specifically authorize the late payment fee;
  KRS § 360.100(2)(q)3. The late payment fee may only be assessed for a payment past due fifteen (15) days or more; and
  KRS § 360.100(2)(q)4. The late payment fee may only be charged once with respect to a single late payment;
  KRS § 360.100(2)(r) A lender may not charge a borrower a fee for the first request of each calendar year for a written payoff calculation. Thereafter, for each subsequent request in a calendar year, the lender may charge a reasonable fee not to exceed in excess of ten dollars ($10) or actual costs, whichever is greater, per request for a written payoff calculation on a high-cost home loan by a borrower in a calendar year;
  KRS § 360.100(2)(s) A lender shall not initiate a foreclosure or other judicial process to terminate a borrower’s interest in residential real property subject to a high-cost home loan without first providing the borrower, at least thirty (30) days prior to the initiation of any process, written notice of default and of the borrower’s right to cure. The notice shall include a statement of the amount needed to be paid by the borrower in order to cure the default and the date by which the payment is due to cure the default. If the amount needed to be paid will change during the thirty (30) day notice period, the notice shall provide information sufficient to enable a calculation of the daily change;
  KRS § 360.100(2)(t) A lender shall not recommend or encourage default on an existing loan or other debt in connection with the closing of a high-cost home loan that refinances all or a portion of the existing loan or debt;
  KRS § 360.100(2)(u) A lender shall not make a high-cost home loan that does not require an escrow account for taxes and insurance;
  KRS § 360.100(2)(v) A lender shall not process the application to make a high-cost home loan if the proceeds shall be used, in whole or in part, to repay the principal of an existing loan secured by the borrower’s principal dwelling that is not a high-cost home loan, without first requiring the borrower to obtain housing counseling by a HUD-approved counselor;
  KRS § 360.100(2)(w) A lender shall not make a high-cost home loan that allows the borrower, for any part or all of the term of the loan, to make payments that are applied only to interest and not to principal;
  KRS § 360.100(2)(x) A lender shall provide timely notice to the borrower of any material change in the terms of a high-cost home loan if the change is made after an application has been taken but before the closing of the loan. Notice shall be deemed timely if given not later than three (3) days after the lender has learned of the change or twenty-four (24) hours before the high-cost home loan is closed, whichever is earlier. If the lender discloses a material change more than three (3) days after learning of the change but still twenty-four (24) hours before the high-cost home loan is closed, it will not be liable for penalties or forfeitures if the lender cures in time for the borrower to avoid any damage;
  KRS § 360.100(2)(y) A lender shall not make a high-cost home loan without verifying the borrower’s income and financial resources through tax returns, payroll receipts, bank records, or other similarly reliable documents, whether provided directly by the borrower or through a third party with the borrower’s permission; and
  KRS § 360.100(2)(z) A lender shall not make a high-cost home loan without verifying the borrower’s reasonable ability to pay all scheduled payments of principal, interest, real estate taxes, homeowner’s insurance, and mortgage insurance premiums, as applicable. For loans in which the interest rate may vary, the reasonable ability to repay shall be determined based upon the following:
  KRS § 360.100(2)(z)1. In the case of a high-cost home loan in which the rate of interest varies solely in accordance with an index, the interest rate determined by adding the index rate in effect on the date of consummation of the transaction to the maximum margin permitted at any time during the loan agreement; or
  KRS § 360.100(2)(z)2. In the case of a high-cost home loan in which the rate may vary at any time during the term of the loan for any reason other than in accordance with an index, the interest charged on the loan at the maximum rate that may be charged during the term of the loan.
  KRS § 360.100(3) Except as provided in paragraph (e) of subsection (2) of this section, the making of a high-cost home loan which violates any provisions of subsection (2) of this section is usurious, subject to the penalties of this chapter, and unlawful as an unfair and deceptive act or practice in or affecting commerce in violation of the provisions of KRS 367.170. The provisions of this section shall apply to any person who in bad faith attempts to avoid the application of this section by:
  KRS § 360.100(3)(a) The structuring of a loan transaction as an open-end credit plan for the purpose and with the intent of evading the provisions of this section when the loan would have been a high-cost home loan if the loan had been structured as a closed-end loan; or
  KRS § 360.100(3)(b) Dividing any loan transaction into separate parts for the purpose and with the intent of evading the provisions of this section; or
  KRS § 360.100(3)(c) Any other such subterfuge.
  The Attorney General, the executive director of the Office of Financial Institutions, or any party to a high-cost home loan may enforce the provisions of this section. Any person seeking damages or penalties under the provisions of this section may recover damages under either this chapter or KRS Chapter 367, but not both.
  KRS § 360.100(4) A lender of a high-cost home loan who, when acting in good faith, fails to comply with subsection (2) of this section, will not be deemed to have violated this section if the lender establishes that either:
  KRS § 360.100(4)(a) Within thirty (30) days of the loan closing the borrower is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made, at the choice of the borrower, to the loan to either:
  KRS § 360.100(4)(a)1. Make the high-cost home loan satisfy the requirements of subsection (2) of this section; or
  KRS § 360.100(4)(a)2. Change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a high-cost home loan subject to the provisions of this section; or
  KRS § 360.100(4)(b) The compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid such errors, and within sixty (60) days after the discovery of the compliance failure, the borrower is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the borrower, make the high-cost home loan satisfy the requirements of subsection (2) of this section or change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a high-cost home loan subject to the provisions of this section. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors.
  KRS § 360.100(4)(c) For purposes of this subsection, “appropriate restitution” means the reimbursement by the lender of any points, fees, interest, or other charges made by the lender and received from the borrower necessary to put the borrower in the same position as he or she would have been had the loan, as adjusted in accordance with paragraphs (a) and (b) of this subsection, been originally made in accordance therewith.
  KRS § 360.100(5) For purposes of this section, any extension of credit shall be deemed to have been made in the Commonwealth of Kentucky, and therefore subject to the provisions of this section, if the lender offers or agrees in Kentucky to lend money to a borrower, who is a resident of Kentucky, on real property located within the Commonwealth of Kentucky, or if such borrower accepts or makes the offer in Kentucky to borrow, regardless of the situs of the contract as specified therein. Any oral or written solicitation or communication to lend originating outside of Kentucky, but forwarded to and received in Kentucky by a borrower who is a resident of Kentucky, shall be deemed to be an offer or agreement to lend in Kentucky and, therefore, subject to this section. Any oral or written solicitation or communication to borrow originating within Kentucky, from a borrower who is a resident of Kentucky, but forwarded to and received by a lender outside of Kentucky, shall be deemed to be an acceptance or offer to borrow in Kentucky. Any oral or written offer, acceptance, solicitation, or communication to lend or borrow, made in Kentucky to, or received in Kentucky from, a borrower who is not a resident of Kentucky, shall be subject to the provisions of this section, applicable federal law, law of the situs of the contract, or law of the residence of the borrower, as the parties may elect. The provisions of this section shall be severable and if any phrase, clause, sentence, or provision is declared to be invalid, the validity of the remainder of this section shall not be affected thereby.

  Effective: April 24, 2008

  ---

• KRS § 360.150
  Manufactured home financing.KRS § 360.150(1) As used in this section, unless the context otherwise requires:
  KRS § 360.150(1)(a) “Lender” means a person regularly engaged in the business of selling or financing manufactured homes:
  KRS § 360.150(1)(a)1. Who is an arranger of credit; or
  KRS § 360.150(1)(a)2. Who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four (4) installments (not including a down payment) and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract;
  KRS § 360.150(1)(b) “Interest” means finance charge expressed as an annual percentage rate. The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the lender as an incident to or a condition of the extension of credit;
  KRS § 360.150(1)(c) “Manufactured home” means a moveable dwelling unit, designed and constructed for permanent occupancy by a single family, which dwelling contains permanent eating, cooking, sleeping, and sanitary facilities; or a prefabricated dwelling that is manufactured in two (2) or more modules at a location other than a homesite and which is designed to be used as a residence when the modules are transported to the homesite, and the modules are joined together and installed on a permanent foundation system. The term includes the plumbing, heating, air conditioning, and electrical systems contained in the structure; and
  KRS § 360.150(1)(d) “Manufactured home financing transaction” shall include both the credit sale of a manufactured home and a direct loan used to finance the purchase of a manufactured home.
  KRS § 360.150(2) A manufactured home financing transaction may provide for a fixed rate of interest payable in substantially equal successive installments over a fixed term, or may provide that the rate of interest may be adjusted at certain regular intervals. In this latter event, the manufactured home financing transaction shall be subject to the provisions in this section.
  KRS § 360.150(3) Adjustments in the interest rate charged must be based on changes in a specific index, as set forth in the financing agreement. The index may be only:
  KRS § 360.150(3)(a) The monthly average yield on United States Treasury securities adjusted to a constant maturity of five (5) years; or
  KRS § 360.150(3)(b) An index approved by the Federal Home Loan Bank Board or by the Office of the Comptroller of the Currency, Department of the Treasury, for adjustable or variable interest rates on residential mortgage loans.
  KRS § 360.150(4) The rate of interest shall not increase or decrease during the six (6) month period beginning with the date of execution of the financing agreement, and at least six (6) months shall elapse between changes.
  KRS § 360.150(5) Adjustments, either up or down, to the rate of interest on each adjustment date shall, for the initial adjustment, be equal to the difference between the index value in effect on the first day of the second calendar month preceding the adjustment date and the value in effect on the first day of the month in which the financing agreement is executed. For adjustments after the initial adjustment, adjustments shall be equal to the difference between the index value in effect on the first day of the second month preceding the adjustment date and the index value in effect on the first day of the second month preceding the date of the immediately preceding rate adjustment.
  KRS § 360.150(6) Where the stated regular interval between rate adjustments is six (6) months, an adjustment to the interest rate may not result in a rate of interest which is more than one (1) percentage point greater or less than the interest rate in effect prior to such adjustment. If the stated regular interval between rate adjustments exceeds six (6) months, then the maximum adjustment either up or down shall be one (1) percentage point multiplied by the number of whole consecutive six (6) month periods in the interval between rate adjustments.
  KRS § 360.150(7) Any increase in the rate of interest permitted by this section shall be optional with the creditor. Decreases in the rate of interest shall be mandatory whenever the total decrease in the index value equals or exceeds one-quarter (1/4) of one (1) percentage point.
  KRS § 360.150(8) If the creditor agrees to impose limitations on interest rate changes that are more restrictive than the limitations specified in this section, then such limitations shall apply to both increases and decreases.
  KRS § 360.150(9) Any changes in the index which are not reflected in a rate adjustment may, by agreement of the parties, be carried over to subsequent rate adjustment periods, and be implemented to the extent not offset by opposite movement in the index.
  KRS § 360.150(10) By agreement of the parties, adjustments to the rate of interest may result in changes in the amount of regular installment payments due under the financing agreement, or in changes in the term of the financing agreement, or in a combination of such changes in amount and term. Adjustments to the amount of installment payments may be made less frequently than adjustments to the interest rate.
  KRS § 360.150(11) For all manufactured home financing transactions under this section, the creditor shall comply with all applicable requirements and disclosures pursuant to Part I of the Consumer Protection Act (Truth-In-Lending Act), 15 U.S.C. secs. 1601 et seq., as amended, and as implemented by Regulation Z promulgated by the Board of Governors of the Federal Reserve System.
  KRS § 360.150(12) The creditor shall send written notification of any rate adjustment, by first class mail, postage prepaid, at least one (1) month before the date that the new rate of interest shall take effect.
  KRS § 360.150(13) Notwithstanding any of the requirements and limitations set forth by subsections (3) through (12) of this section, the parties may agree on any terms or provisions in the manufactured housing financing agreement as may be authorized or permitted in any program for residential mortgage loans by the Federal Home Loan Bank Board or by the Office of the Comptroller of the Currency, Department of the Treasury, or any other federal department, agency or board. In such event, the creditor shall comply with all applicable limitations, requirements and disclosures of the agency that relate thereto.
  Effective: July 13, 1984

  ---

• KRS § 360.990
  Penalties.Any person who violates any of the provisions of KRS 360.060 shall be fined not less than ten dollars ($10) nor more than fifty dollars ($50) for each offense.

December 1, 2005
U.S. Treasury Department
Comptroller of the Currency – Administrator of National Banks

News release

WASHINGTON – Comptroller of the Currency John C. Dugan expressed strong concern in a speech today about negative amortization in consumer loan products, particularly in the areas of credit cards and mortgages. . . . The Comptroller noted that the issue of negative amortization in mortgages is similar to an issue that arose in the credit card industry, where monthly payment requirements had been set so low that borrowers who paid the minimum might see their balances increase, even if they made no new charges.

Regulators responded by requiring that minimum payments be sufficiently large to amortize credit card loans over a reasonable period of time. Most banks are expected to be in compliance by the end of the year.

“We recognize that the change in required minimum payments will make it more difficult for some existing credit card borrowers to pay the full amount of the increased minimum payments due,” the Comptroller said. “We have encouraged lenders to work with these borrowers to the maximum extent possible to avoid writing down the loan and cutting off the customer’s credit.”

Mr. Dugan said lenders have a variety of tools to do this, including restructuring or deferring payments and, in appropriate circumstances, re-aging accounts.

“In addition, lenders always have the option of reducing high interest rates charged to delinquent borrowers – sometimes exceeding 30 percent of the outstanding loan balance – and/or waiving fees in order to reduce a minimum payment while still amortizing a modest amount of the outstanding principal,” he added . . . .

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November 2004

PBS: Frontline: Secret history of the credit card: The ascendancy of the credit card

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September 14, 2004
AL 2004-10 – OCC ADVISORY LETTER

Subject: Credit Card Practices
Date: September 14, 2004

TO: Chief Executive Officers of All National Banks, Department
and Division Heads, and All Examining Personnel

PURPOSE

The Office of the Comptroller of the Currency (“OCC”) is issuing this advisory letter to alert national banks to the OCC’s concerns regarding certain credit card marketing and account management practices. These practices may entail unfair or deceptive acts or practices and may expose a bank to compliance and reputation risks.
* * * *
Repricing of Accounts and Other Changes in Credit Terms

Credit card issuers may increase a consumer’s APR to address credit risks that arise when a consumer fails to make timely payments on the account, and some credit card issuers may increase the APR when a consumer fails to make timely payments on other accounts, including accounts with other creditors. Some credit card issuers also may raise the consumer’s APR for other reasons, such as the consumer’s increased use of credit, failure to make more than the minimum monthly payment on the account with the issuer, or other behavior that reflects adversely on the consumer’s credit rating. Credit card issuers may take other actions that also effectively increase the cost of credit for some consumers, such as shortening the due date for receipt of payment or raising the amount of fees for late payment, exceeding a credit limit, or obtaining a cash advance. 3

[Note 3: In some circumstances, the credit agreement specifies when the credit card issuer may increase the APR, increase fees, or otherwise change the applicable credit terms. In other circumstances, the credit agreement permits the credit card issuer to make unilateral changes in terms.]

These practices may well be appropriate measures for managing credit risk on the part of the credit card issuer. However, certain practices in connection with repricing credit card accounts and changing terms of credit card agreements may raise heightened compliance and reputation risks. Accordingly, national banks should not:

* Fail to disclose fully and prominently in promotional materials the circumstances under which the credit card agreement permits the bank to increase the consumer’s APR (other than due to a variable rate feature), increase fees, or take other action to increase the cost of credit, such as, if applicable, failure to make timely payments to another creditor.

* Fail to disclose fully and prominently in marketing materials and credit agreements, as applicable, that the bank reserves the right to change the APR (other than due to a variable rate feature), fees, or other credit terms unilaterally.

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June 3, 2003

News release:  Remarks by Julie L. Williams First Senior Deputy Comptroller of the Currency and Chief Counsel before the Risk Management Association’s Retail Risk Management Conference Chicago, Illinois – June 3, 2000

“. . . . Our concern about credit line management stemmed from the growing number of card issuers extending and expanding credit without sufficient consideration of the cardholders’ ability to repay. In some cases, having established a profitable relationship with a borrower, lenders have gone on to increase credit lines or to issue additional cards, including store-specific private label cards and affinity relationships cards, without considering how such extensions might affect that relationship or overextend the borrower’s financial capabilities. It’s not unheard of for institutions to offer additional cards even to borrowers who have already started to experience repayment problems. . . . “

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January 8, 2003
Internal memo

Interagency Issuance

Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of Thrift Supervision

Subject: Credit Card Lending Description: Account Management
and Loss Allowance Guidance

Purpose

Recent examinations of institutions engaging in credit card lending have disclosed a wide variety of account management, risk management, and loss allowance practices, a number of which were deemed inappropriate. This interagency guidance communicates the Agencies’ expectations for prudent practices in these areas.

* * * *

Minimum Payment and Negative Amortization

Competitive pressures and a desire to preserve outstanding balances have led to a general easing of minimum payment requirements in recent years. New formulas that have the effect of further delaying principal repayment are gaining popularity in the industry. In many instances, the result has been liberal repayment programs that increase credit risk and mask portfolio quality. These problems are exacerbated when minimum payments consistently fall short of covering all finance charges and fees assessed during the billing cycle and the outstanding balance continues to build (“negative amortization”). In these cases, the lender is recording uncollected income by capitalizing the unpaid finance charges and fees into the account balance owed by the customer. The pitfalls of negative amortization are magnified when subprime accounts are involved, and even more so when the condition is prolonged by programmatic, recurring over-limit fees and other charges that are primarily intended to increase recorded income for the lender rather than enhance the borrowers’ performance or their access to credit.

The Agencies expect lenders to require minimum payments that will amortize the current balance over a reasonable period of time, consistent with the unsecured, consumer-oriented nature of the underlying debt and the borrower’s documented creditworthiness. Prolonged negative amortization, inappropriate fees, and other practices that inordinately compound or protract consumer debt and disguise portfolio performance and quality raise safety and soundness concerns and are subject to examiner criticism.

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July 22, 2002
Draft Guidance – 2002-64a

Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of Thrift Supervision

Subject: Credit Card Lending
Description: Account Management and Loss Allowance Guidance

Purpose:
Recent examinations of institutions engaging in credit card lending have disclosed a wide variety of account management, risk management, and loss allowance practices, a number of which were deemed inappropriate. This interagency guidance communicates the Agencies’ expectations for prudent practices in these areas.
* * * *
Repayment Period – Repayment terms for revolving credit in workout programs vary widely among credit card issuers. Practices range from programs designed to maximize collection of balances owed to programs apparently designed to maximize income recognition and defer losses. Some institutions’ programs have not reduced interest rates sufficiently to facilitate timely repayment and assist borrowers in extinguishing indebtedness. In many cases, reduced minimum payment requirements in combination with continued charging of fees and finance charges have extended repayment periods well beyond reasonable time frames.
Workout programs should be designed to maximize principal reduction. Debt management plans developed by consumer credit counseling services generally strive to have borrowers repay credit card debt within 48 months. Repayment terms for workout programs should be generally consistent with these time frames, with exceptions clearly documented and supported by compelling evidence that less conservative terms and conditions are warranted. To meet these time frames, institutions may need to substantially reduce or eliminate interest rates and fees so that more of the payment is applied to reduce principal.

Consumer credit protection – debt collection practices

United States Code – 15 USC 1692, et seq.
It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.

Title 15 – Commerce and Trade
Chapter 41 – Consumer Credit Protection
Subchapter V – Debt Collection Practices

• Section 1692. Congressional Findings And Declaration Of Purpose
• Section 1692a. Definitions
• Section 1692b. Acquisition Of Location Information
• Section 1692c. Communication In Connection With Debt Collection
• Section 1692d. Harassment Or Abuse
• Section 1692e. False Or Misleading Representations
• Section 1692f. Unfair Practices
• Section 1692g. Validation Of Debts
• Section 1692h. Multiple Debts
• Section 1692i. Legal Actions By Debt Collectors
• Section 1692j. Furnishing Certain Deceptive Forms
• Section 1692k. Civil Liability
• Section 1692l. Administrative Enforcement
• Section 1692m. Reports To Congress By The Commission
• Section 1692n. Relation To State Laws
• Section 1692o. Exemption For State Regulation
• Section 1692p. Exception for certain bad check enforcement programs operated by private entities

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Supreme Court of the United States

Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489 (1995)

Act applies to attorneys who “regularly” engage in consumer debt collection activity, even when that activity consists of litigation.

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Federal Trade Commission -

www.ftc.gov

Administrative enforcement of Fair Debt Collection practices is through the Federal Trade Commission

Code of Federal Regulations (CFR) – 2008 – 16 CFR (Commercial Practices) parts 0 – 999 Federal Trade Commission

Staff Commentary on the Fair Debt Collection Practices Act (December 13, 1988)

Staff Opinion Letters (April 1988 to May 2002)

NOTE: Except in unusual circumstances, the staff will no longer issue informal written interpretations of the FDCPA. However, the staff may issue informal opinions or revise its Staff Commentary as necessary to provide guidance regarding significant amendments to the FDCPA in the future.

March 2008 – Federal Trade Commission’s Annual Fair Debt Collection Practices Act Report Uniform Debt-Management Services Act – 2008 revision

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National Consumer Law Center

Fair Debt Collection Practices Act – Wikipedia

Americans for Fairness in Lending

ExpertLaw.com – The Fair Debt Collection Practices Act

October 1, 2005

Providian National Bank merged out of the National Bank System
OCC Quarterly Journal vol 25 no. 1

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NYT: Bank to Buy Credit Card Business for $6.45 Billion
By ERIC DASH
Published: June 7, 2005

Washington Mutual, which grew rapidly from a Seattle savings institution to a home loan giant, said yesterday that it would buy Providian Financial for $6.45 billion in cash and stock, its first major foray into the credit card business. . . .

Response to February 3, 2005 Request for Burden Reduction Recommendations; Money Laundering, Safety and Soundness, and Securities Rules; Economic Growth and Regulatory Paperwork Reduction Act of 1996 Review – May 4, 2005 letter of Mark R. Hillis
Chief Credit Officer, Washington Mutual Bank

Washington Mutual is a financial services company serving consumers and small to midsized businesses. Although we operate principally in California, Washington, Oregon, Florida, Texas and Utah, our operations serve consumers in all 50 states. Through our subsidiaries, we engage in mortgage banking, consumer banking, commercial banking, financial services and consumer finance. Two of our banking subsidiaries, Washington Mutual Bank, FA and Washington Mutual Bank fsb, would be subject to the revisions of the Thrift Financial Report (“TFR”) as stated in the proposal.

WaMu October 3, 2000 response to OTC Proposed Agency Information Collection Activities

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Providian National Bank
295 Main Street
Tilton, NH 03276-5147
603-286-4346
National Bank Charter Number: 1333

Description of Institution

Providian National Bank is a Competitive Equality Banking Act (CEBA) limited purpose bank specializing in credit card lending and deposit products. The main office of PNB is located in Tilton, New Hampshire, with a single branch office located in Belmont, New Hampshire. PNB offers proprietary credit card products nationwide under the Visa and MasterCard brands and in collaboration with third-party affinity partners. PNB’s credit card loans are sourced primarily through direct mail solicitations. As of September 30, 2004, bank assets totaled $13.1 billion.

PNB employs approximately 3,460 individuals with major employment centers for PNB’s credit card activities in San Francisco and Pleasanton, California, and Arlington, Austin, El Paso and San Antonio, Texas.

Providian Bancorp Services
201 Mission Street
San Francisco, CA 94105

Providian Financial Corporation
4460 Rosewood Dr
Pleasanton, CA
94588-3007
Phone: 925-738-4400

PNB is the result of the 1997 merger of PNB, Concord, New Hampshire, into First Deposit National Bank, Tilton, New Hampshire, with the combined bank retaining the PNB name. As an accommodation to customers who used the products and services of the predecessor institutions, PNB offers commercial and consumer loans and deposit products to local residents at PNB’s New Hampshire main office and branch. Generally, CEBA banks cannot make commercial loans nor accept any savings or time deposits less than $100 thousand. PNB, however, is allowed to provide commercial loans and to accept savings or time deposits at its New Hampshire main office and branch, as a result of the CEBA-grandfather provision. This provision allows “non-bank banks” chartered prior to March 5, 1987, to conduct these activities if they could lawfully conduct them prior to the CEBA being enacted. PNB was originally chartered in 1853 and designated as a limited purpose bank for CRA purposes on April 19, 1996. Lending activities at the main office and branch amount to less than 1% of managed assets.

PNB is a wholly owned subsidiary of Providian Financial Corporation (PFC), a Delaware corporation based in San Francisco, California. As of September 30, 2004, PFC reported total assets of $13.9 billion. Effective December 31, 2003, PNB acquired substantially all of the assets and assumed the liabilities of PFC’s other wholly owned bank subsidiary, Providian Bank (PB), a Utah industrial loan corporation organized under the laws of Utah and a member of the FDIC. Immediately following the transaction, PB was merged with and into PNB.

During the course of the evaluation period, PNB underwent significant changes in its financial condition, management, and business strategy. In late 2001, as a result of deterioration in its asset quality, PNB entered into a written agreement with the OCC to address various safety and soundness concerns. From year-end 2000 to year-end 2001 PNB’s earnings dropped from $665 to $189 million. PNB’s on-balance sheet Report of Condition and Income (Call Report) assets dropped from over $17 billion to just over $13 billion from year-end 2001 to the most recent quarter-end of September 30, 2004. While the financial condition of PNB has recently improved, during the majority of the evaluation period PNB experienced significant financial challenges. These challenges had the potential to impact PNB’s capacity in helping to meet the credit and CD needs of its AA.

OCC Public Disclosure
November 29, 2004
COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION
Providian National Bank
Charter Number: 1333

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“Re: Application from Providian National Bank, Tilton, New Hampshire to purchase substantially all the assets and assume all of the deposits of Providian Bank, Salt Lake City, Utah; and, application to merge, subsequent to the purchase and assumption transaction, Providian Bank, Salt Lake City, Utah, an affiliated Utah non-bank business corporation with and into Providian National Bank, Tilton, New Hampshire under the authority of 12 U.S.C. § 215a-3.
Application Control Numbers: 2002-WE-02-0007 and 2003-WE-12-0260″

Comptroller of the Currency Administrator of National Banks
Corporate Decision #2003-12 December 2003

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New York Times: Providian 57% drop in earnings
Published: July 29, 2003

The Providian Financial Corporation, a credit card issuer, said yesterday that second-quarter net income dropped 57 percent and net revenue decreased 27 percent. Net income fell to $39 million, or 13 cents, from $89.9 million, or 53 cents, in the period a year earlier. The company, based in San Francisco, was expected to earn 10 cents, according to analysts surveyed by Thomson Financial. Net revenue fell to $521.1 million from $718.3 million. Results include $8 million, or 3 cents a share, in costs for anticipated sales, as the company plans to sell $859 million in credit card loans in the next few weeks, Providian said. Its shares fell 14 cents, or 1.4 percent, to $9.80.

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“In November 2001, the OCC entered into a Formal Agreement with Providian National Bank, Tilton, New Hampshire, a monoline credit card bank that was experiencing substantial asset deterioration. In addition to the Formal Agreement, the bank also executed a Capital and Liquidity Maintenance Agreement to be executed by the bank. The terms of the formal agreement require, among other things, that the bank submit a Capital Plan and to immediately restrict the Bank’s growth in certain credit card products. In the Matter of Providian National Bank, Tilton, New Hampshire.”

Office of the Comptroller of the Currency (OCC)
- Special Supervision/Fraud and Enforcement Activities
Quarterly Journal, Vol. 21, No. 1, March 2002 pp. 79 – 83

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Providian sells $8.2 Billion is credit card loans
New York Times
Published: January 17, 2002

The Providian Financial Corporation, a leading issuer of Visa and MasterCard credit cards, has agreed to sell its proceeds from $8.2 billion in credit card loans to J. P. Morgan Chase & Company to raise cash and satisfy regulators. The loans, about one-quarter of its business, are with Providian’s most creditworthy customers. Providian, based in San Francisco, is trying to find a buyer for $3 billion in loans to customers with poor or short credit histories. In November, federal regulators told Providian to improve its capital ratios, measures of the company’s cushion against unexpected loan losses, after profit plunged because of an increase in the number of customers with blemished credit who could not pay their credit card bills.

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June 23, 2000
Stipulation and consent to the issuance of a consent order

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1997

Providian National Bank (PNB) is a limited purpose institution specializing in consumer lending and deposit products, including credit cards and certificates of deposit. The main office of PNB is located in Tilton, New Hampshire, with a single branch in Belmont, New Hampshire. PNB is the result of the 1997 merger of Providian National Bank (headquartered in Concord, New Hampshire) into First Deposit National Bank (headquartered in Tilton, New Hampshire). The combined company retained the name Providian. As an accommodation to customers who used the products and services of the predecessor institution, the bank offers commercial and consumer loans and deposit products to local residents. Lending activities at the main office and branch amount to less than 1% of managed assets.

PNB was designated as a limited purpose bank for purposes of the Community Reinvestment Act on April 19, 1996. While there are no financial impediments that would prevent PNB from helping to meet the credit needs of the assessment area, it is subject to the limitations of the Competitive Equality Banking Act of 1987 (CEBA). In general, banks subject to CEBA can not make commercial loans nor accept any savings or time deposits less than $100,000. PNB is allowed to provide commercial loans and to accept savings or time deposits at its main office in Tilton and branch in Belmont as a result of the grandfather provision in CEBA. This provision allows “non-bank banks” chartered prior to March 5, 1987, to conduct these activities if they could lawfully conduct them prior to CEBA being enacted. The bank was chartered in 1853.

PNB is a wholly owned subsidiary of Providian Financial Corporation (PFC), a publicly traded company with total assets of $15 billion and net income of $665 million as of December 2000, based in San Francisco, California. PFC was incorporated in Delaware in 1984 under the name First Deposit Corporation. The name of the company was changed from First Deposit Corporation to Providian Bancorp., Inc. in 1994 and to PFC in 1997. PFC has evolved from a one-market, one-product company into a multi-market, multi-product provider of consumer financial services. Loans are sourced primarily through nationwide mail solicitations and telemarketing. As part of its funding strategy, PFC securitizes varying percentages of its receivables. In 2000, the bank securitized 43% of the its receivables and retained the remainder. Table 1 highlights basic financial information regarding PNB.

Public Disclosure
February 20, 2001
Community Reinvestment Act
Performance Evaluation
Providian National Bank

“The court recognized that whether an activity falls within the ‘‘business of insurance’’ for purposes of the McCarran-Ferguson Act is a federal question and not determined by State law defining insurance. Id. at 780, n.8 (citing SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65, 69(1959)). See also Steele v. First Deposit Nat’l Bank, 732 So.2d 301 (Ala. Civ. App. 1999) (finding a credit protection debt deferral product was not within the meaning of the ‘‘business of insurance’’).”

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New York Times – Providian acquires First Union Credit Card Portfolio
Published: April 2, 1998

The Providian Financial Corporation of San Francisco said it would acquire the $1.1 billion credit card portfolio of the First Union Corporation. Both are bank holding companies.

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Andrew Kahr

Andrew Seth Kahr was the founder and CEO of First Deposit Corp, which later became known as Providian, and was acquired by Washington Mutual in 2005.

Class action lawsuit

In a 1999 cardholder class-action lawsuit against Providian, 12 internal company documents were obtained by The San Francisco Chronicle.[2]

In a July 1998 memorandum to David Alvarez and Dawn Greiner, Kahr urged the company not to tell customers that some credit cards don’t have “grace periods,” a limited time for paying off balances before finance charges kick in. And in a September 1998 memo to marketing executive Greg Pacheco, Kahr suggested how to promote a for-fee cardholder buyers club program that in most cases offered tiny 1% rebates at selected stores: “A 1% rebate is a ‘discount on everything you buy.’ We could easily make that discount ‘up to 30%’ just by randomly or systematically giving a few customers a big rebate.”

In a September 1998 memo to Mehta, Kahr advised calculating the credit protection charge as a percentage of the customer’s credit line:”The (credit protection) fee can be denominated at 9.8 cents per hundred dollars of line, or whatever, and this has the additional merit of making the $96 go away from the disclosure box.” The recommendation was underlined and the notation “excellent suggestion,” followed by the CEO’s initials, was penned in the margin.

For his role in forming the credit card business, he was interviewed by the PBS Frontline documentary “Secret History of the Credit Card”.[3] He claims to have introduced the two percent minimum monthly payment in the credit card business (as opposed to the usual five percent), as well as the idea of a zero percent financing introductory rate in mass mailings and solicitations.

Although Providian was prominently mentioned in “Secret History of the Credit Card”, Kahr’s specific connection to Providian as its founder was not mentioned at all, possibly as a provision of his agreement to be interviewed, previously mentioned therein.

Wikipedia – Andrew Kahr

New Hampshire Statutes
TITLE XXXV
BANKS AND BANKING; LOAN ASSOCIATIONS; CREDIT UNIONS
CHAPTER 384-G
REGULATION OF REVOLVING CREDIT PLANS
Section 384-G:5

384-G:5 Interest Charges.
I. In addition to or in lieu of interest at a periodic percentage rate or rates as provided in RSA 384-G:3 and RSA 384-G:4, a bank may, if the agreement governing the revolving credit plan so provides, charge and collect, as interest, in such manner or form as the plan may provide, one or more of the following:
(a) A daily, weekly, monthly, annual or other periodic charge in such amount or amounts as the agreement may provide for the privileges made available to the borrower under the plan.
(b) A transaction charge or charges in such amount or amounts as the agreement may provide for each separate purchase or loan under the plan.
(c) A minimum charge for each daily, weekly, monthly, annual or other scheduled billing period under the plan during any portion of which there is an outstanding unpaid indebtedness under the plan.
(d) Reasonable fees for services rendered or for reimbursement of expenses incurred in good faith by the bank or its agents in connection with the plan, or other reasonable fees incident to the application for and the opening, administration and termination of a plan including, without limitation, commitment, application and processing fees, official fees and taxes, costs incurred by reason of examination of title, inspection, appraisal, recording, mortgage satisfaction or other formal acts necessary or appropriate to the security for the plan, and filing fees.
(e) Returned payment charges or charges imposed for the return of a draft drawn on a revolving credit plan evidencing an extension of credit under such plan.
(f) Documentary evidence charges.
(g) Stop payment fees.
(h) Overlimit charges.
(i) Automated teller machine charges or similar electronic or interchange fees or charges.
(j) Prepayment charges authorized under paragraph II.
(k) Subject to any limitations contained in this chapter, such other fees and charges as are set forth in the agreement governing the plan.
II. An individual borrower may pay the outstanding unpaid indebtedness charged to the borrower’s account under a plan in full at any time. Except for a charge imposed to terminate a plan if the agreement governing the plan so provides, a bank may not impose any prepayment charge in connection with the payment of outstanding unpaid indebtedness in full by an individual borrower. A bank may charge and collect any prepayment penalty or charge specified in the agreement governing the plan in connection with the payoff and termination of a plan that is secured by a real estate mortgage. The terms of prepayment of the outstanding unpaid indebtedness relating to a revolving credit plan involving a borrower other than an individual borrower shall be as the bank and the borrower may agree.
III. No charges assessed by a bank in accordance with this section shall be deemed void as a penalty or otherwise unenforceable under any statute or the common law.

Source. 2002, 225:1, eff. July 16, 2002.