The distinction between a pawnbroker and someone engaged in the business of making small loans is explained in 53A Am
The issue on appeal is whether KTL is a pawnbroker. Resolution of this issue is determinative of whether KTL’s actions were illegal pursuant to KRS , KRS , and KRS . KRS defines pawnbroker as:
A pawnbroker is to be distinguished from one engaged in the business of making small loans upon security of chattel mortgages or wage assignments
Any person who loans money on deposit of personal property, or who deals in the purchase of personal property on condition of selling the property back again at a stipulated price, or who makes a public display at his place of business of the sign generally used by pawnbrokers to denote their business, or who publicly exhibits a sign advertising money to loan on personal property or deposit is a pawnbroker. (Emphasis added.)
KTL argues that it is a pawnbroker pursuant to KRS because it advances money on the deposit of customers‘ personal property (car titles) and it displays a sign advertising loans on deposit of personal property
KRS Chapter 226 does not provide a definition or an explanation of the phrase “on deposit of personal property” as used in this chapter. Jur.2d Moneylenders and Pawnbrokers § 3 (1996) at 723:
Where, under the controlling statutory definition, a pawnbroker must be engaged in the business of receiving property in pledge or as security for money or other things advanced, one who lends money and takes as security a mortgage on real or personal property, stocks, bonds, notes, and other like things is not a pawnbroker.
Any pawnbroker, as defined in KRS , may, in loaning money on deposit of personal property, charge, contract for or receive interest at a rate not exceeding two percent (2%) per month on the unpaid principal balance of the loan, and may charge, contract for and receive a reasonable fee, not to exceed one-fifth (1/515) of the value of the loan per month, for investigating the title, storing and insuring the property, closing the loan, making daily reports to local law enforcement officers and for other expenses, losses and incidental costs associated with servicing such loans. It is further provided that such fee when made and collected shall not be deemed interest for any purpose of law. No pawnbroker shall directly or indirectly charge, receive or contract for any interest or consideration greater than that allowed by this section. (Emphasis added.)
However, the Attorney General counters that KTL does not meet the definition of pawnbroker as it does not advance money on actual deposit of personal property. In order to charge the interest rate and fees provided for in KRS , the Attorney General argues that the phrase “on deposit of personal property” requires the customer to place the item of personal property in the actual physical custody of the pawnbroker.
This is a case of first impression in Kentucky, and the trial court cited an analogous case from Alabama additional resources for guidance in reasoning its way to a decision. In denying the Attorney General’s motion for summary judgment and dismissing the complaint, the court relied upon Floyd v. Title Exchange and Pawn of Anniston, Inc., 620 So.2d 576 (Ala.1993). In that case, the Supreme Court of Alabama held that car title pledges were pawn transactions, concluding that the statutory definition of a “pawn transaction” did not specifically exclude this type of transaction and that it was broad enough to encompass the practice of allowing customers to retain physical possession of pledged property. In pertinent part, a “pawn transaction” is defined by Alabama law as “[a]ny loan on the security of pledged goods?” Ala.Code § 5-19A-2(3) (1975). In the case before us, the circuit court was persuaded that the reasoning of Floyd was applicable to the Commonwealth’s statutes on pawnbrokers.
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