Opinion ID: 2745463
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Heading Rank: 1

Heading: Kentucky’s Usury Statute

Text: “Absent a contractually agreed upon rate, the appropriate rate of interest is governed by statute.” Reliable Mech., Inc. v. Naylor Indus. Servs., Inc., 125 S.W.3d 856, 857 (Ky. Ct. App. 2003). Section 360.010(1) of the Kentucky Revised Statutes provides, in relevant part: 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[;] . . . 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. . . . . There is no question that GE and Stratton “agree[d], in writing, for the payment of interest in excess of that rate.” Id. And for the purposes of this appeal, PRA concedes that GE waived its right to collect interest at the contractually agreed upon rate of 21.99%. The question is whether GE’s waiver of its right to contractual interest could somehow give it or PRA, GE’s assignee, the No 13-6574 Stratton v. Portfolio Recovery Assoc. Page 6 right to collect statutory interest. In other words, can someone collect interest if they agree not to collect interest? The answer must be no. The plain text of the statute supports this conclusion. It states that any assignee “shall be bound for such rate of interest as is expressed in any such . . . assumption” and that “no law of this state prescribing . . . interest rates shall apply to any such agreement or to any charges which pertain thereto.” Ky. Rev. Stat. § 360.010(1) (emphasis added). Nothing in the statute suggests that a contracting party retains the option to charge statutory interest. Rather, Kentucky’s usury statute states a default rule—it applies until displaced by a contract, whereupon the contracting parties and their assignees “shall be bound” by the terms of their agreement and the statutory rate shall not apply. Id. A party’s right to collect statutory interest is extinguished, superseded by her right to collect an interest rate she has specified by contract. A court must honor that party’s choice—even if it is a choice it or its assignee later regrets. But what if a party waives its bargained-for right to collect contractual interest? Does the waiver somehow resurrect that party’s forgone right to statutory interest? The district court concluded that GE’s waiver of its right to collect contractual interest allowed it (and PRA as its assignee) to seek statutory interest. Given the plain text of the usury statute and basic principles of waiver and freedom of contract, we must disagree. A waiver is “a voluntary and intentional surrender or relinquishment of a known right, or an election to forego an advantage which the party at his option might have demanded or insisted upon.” Conseco Fin. Serv. Corp. v. Wilder, 47 S.W.3d 335, 344 (Ky. Ct. App. 2001) (quoting Greathouse v. Shreve, Ky., 891 S.W.2d 387, 390 (Ky. 1995)). GE concededly waived its right to collect contractual interest, a right it had acquired in part by forgoing its right to collect statutory interest. GE gave up the right to collect 8% statutory interest when it had Stratton agree to a 21.99% contractual rate of interest. GE cannot recover the right it bargained away simply because it later chose to waive the right for which it bargained. GE and any party “who may assume or guarantee any such contract or obligation[] shall be bound by such rate of interest;” GE’s choices are binding and “no law of No 13-6574 Stratton v. Portfolio Recovery Assoc. Page 7 this state prescribing or limiting interest rates shall apply” to relieve it of the consequences of those choices. Ky. Rev. Stat. § 360.010(1).1 PRA, as GE’s assignee, moreover, “acquire[d] no greater right than was possessed by [its] assignor . . . but simply stands in the shoes of the latter.” Whayne Supply Co. v. Morgan Constr. Co., 440 S.W.2d 779, 782–83 (Ky. 1969). PRA cannot be given a right to collect interest—contractual or statutory—that GE waived. Based on the limited record before the panel, Stratton has plausibly alleged that PRA does not have a legal right to collect interest on her debt. It may be that the discovery process could reveal some contractual provision that entitles PRA to collect some sort of interest, but there is currently no such provision before us. And it is true that in certain cases, Kentucky law permits courts to award prejudgment interest as a matter of equity to fully compensate a prevailing party. See Nucor Corp. v. Gen. Elec. Co., 812 S.W.2d 136, 144 (Ky. 1991). But PRA did not request that the court exercise its equitable discretion to award interest. Instead, PRA asserted that it had a legal right to “$2,630.95, with interest thereon at the rate of 8% per annum” as a factual matter. Section 360.010(1) makes clear that PRA had no such right.