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FOR IMMEDIATE RELEASE
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Kentucky Rate Adjustment for Small Loans Going into Effect
As reported in Carleton's April 2023 Compliance Alert, Kentucky Chapter 123 (SB 165) became law without the Governor's signature on March 29, 2023. Chapter 123 clarifies definitions that were previously ambiguous and provides a revised tiered rate structure for precomputed loans up to $15,000.
Provisions Impacting Computational Requirements:
Revised Rates and Tiers:
- While there is no prescribed requirement that loans be precomputed, the maximum thresholds will continue to be evaluated as precomputed loans.
| Principal amount of the loan, excluding charges: | Rate: |
|---|---|
| Up to $5,000 | 3% per month on principal and charges |
| Greater than $5,000 up to $10,000 | 2.42% per month on principal and charges |
| >$10,000 up to $15,000 | 2.25% per month on principal and charges |
- Each threshold and rate have been modified, with the third tier (>$10,000) being added as a new tier.
Clarified Definitions:
- Due to the language in the bill, Kentucky's use of “original principal amount of the loan” appears to mimic the Amount Financed, as defined by the Truth in Lending Act. The threshold for determining which rates apply is based on this “principal amount of the loan” (or the TILA Amount Financed).
- In contrast to the threshold determination, the rate is applied on the “original principal amount of the loan” and “any charges, including fees, costs, expenses...”. Therefore, the rate is applied to what is commonly referred to in the industry as the true “principal” which includes fees and charges.
- The language allowing a loan processing fee (5% up to a maximum of $150) continues to use the base of the “original principal amount of the loan.” Based on the revisions to the language stated above, the base for this fee is now clarified to be a base of principal not including charges and fees.
Fees:
- The bill kept the loan processing fee intact, but modified the non-refundable portion from $50 to $75.
- The bill adds a new “funding fee” of $3 for loan funding that is in a manner other than by physical check.
Effective Date: June 28, 2023
Carleton has maintained regular communication with industry professionals and trade associations to ensure we are assisting our clients to implement these necessary updates. The information contained herein is for informational purposes only and shall not be construed as legal advice.
About Carleton, Inc.:
Carleton is the country's leading provider of financial calculation software, loan origination compliance support, and document generation software. With over 50 years of experience, our ongoing expertise and industry knowledge reaffirms why we are a trusted partner. Founded in conjunction with the Truth In Lending Act, Carleton provides expert compliance support with continuous accuracy in all our calculations and disclosures at a state and federal level. To learn more about Carleton's lending solutions, visit www.carletoninc.com or contact our sales team at sales@carletoninc.com or 574-243-6040 option #3.