{"data":{"id":"us-ky/krs-380.040","jurisdiction":"us-ky","citation":"KRS 380.040","heading":"Persons engaged in debt adjusting -- Powers and prohibitions --","body":"Requirements for registration, audits, insurance, and bond or letter of credit --\nIncrease in amount of bond or insurance when debt is primarily for personal\nuse.\n(1) Subject to subs ection (3) of this section, a person, whether or not located in this\nstate, who is engaged in debt adjusting and actually or constructively receives any\nmoney or other thing of value, other than the fees permitted by this chapter, for the\npurpose of disbursing the money or thing of value to the debtor's creditors, shall do\nboth of the following:\n(a) Unless specifically instructed otherwise by a debtor, disburse to the\nappropriate creditors all funds received from the debtor, less any contributions\nor fees not prohibited by subsection (2) of this section, within thirty (30) days\nof receipt of the funds from the debtor; and\n(b) Maintain a separate trust account for the receipt of any funds from debtors and\nthe disbursement of the funds to creditors on behalf of the debtors.\n(2) If a fee, contribution, or other consideration for engaging in debt adjusting is\naccepted, directly or indirectly, a person engaged in debt adjusting shall not do any\nof the following:\n(a) Accept a fee, contribution, or other considerati on exceeding seventy -five\ndollars ($75) from a debtor residing in this state for an initial set up;\n(b) Accept a fee, contribution, or other consideration exceeding fifty dollars ($50)\nper calendar year from a debtor residing in this state for consultation;\n(c) If money or anything else of value is received and held by the person engaged\nin debt adjusting for the purpose of disbursing the money or thing of value to\nthe debtor's unsecured creditors, accept a periodic fee, contribution, or other\nconsideration from a debtor who resides in this state that exceeds the greater\nof eight and one -half percent (8.5%) of the amount paid by the debtor each\nmonth for distribution to the debtor's creditors or thirty dollars ($30); or\n(d) Accept any other fee, contribution , or other consideration in advance of the\ncomplete performance of all promised services in relation to secured debt.\nAcceptance of a fee, contribution, or other consideration in advance of the\ncomplete performance of all promised services in relation to s ecured debt,\nincluding the placement of the fee, contribution, or other consideration into an\nescrow account to be paid upon completion of the services, is specifically\nprohibited. For purposes of this paragraph, \"secured debt\" means any debt\nprimarily for personal, family, or household use that is secured by a mortgage,\ndeed of trust, other equivalent consensual security interest on residential real\nproperty, or collateral that has a mortgage lien interest in residential real\nproperty.\n(3) Subsections (1) and (2) of this section shall not prohibit a person engaged in debt\nadjusting for a debtor who resides in this state from charging the debtor a bad check\ncharge of twenty dollars ($20) or the amount passed on from the debt adjuster's\nbank, whichever is greater, in addition to fees, contributions, or other consideration\nnot prohibited by subsection (2) of this section.\n(4) Fees, contributions, or other consideration permitted in subsections (1), (2), and (3)\nof this section may be adjusted on an annual basis  by the amount equivalent to any\nincrease in the consumer price index, published by the United States Department of\nLabor, Bureau of Labor Statistics.\n(5) Any person that engages in debt adjusting shall file an initial registration form,\naccompanied by an initial registration fee of two hundred fifty dollars ($250), and\nthe registration shall be renewed each year thereafter for a fee of two hundred fifty\ndollars ($250) to cover the actual cost of filing the registration, in accordance with\nadministrative regulations promulgated by the Attorney General.\n(6) Any person that engages in debt adjusting shall arrange for and undergo an annual\naudit of the person's business, including any trust funds deposited and distributed to\ncreditors on behalf of debtors, which shall be conducted by an independent, third -\nparty certified public accountant. Both of the following shall apply to an audit\nperformed under this subsection:\n(a) The person shall file the results of the audit and the auditor's opinion with the\nOffice of Consumer Protection in the Office of the Attorney General within\nthirty (30) days of the anniversary date of filing the initial registration; and\n(b) The Attorney General shall make available a summary of the results of the\naudit and the auditor's opinion upon written request of any person and\npayment of a fee not to exceed the cost of copying the summary and opinion.\n(7) (a) A person engaged in debt adjusti ng shall obtain and at all times maintain\ninsurance coverage for errors and omissions, employee dishonesty, depositor's\nforgery, computer fraud, and violations of this chapter in the amount of ten\npercent (10%) of the monthly average for the immediately pr eceding six (6)\nmonths of the aggregate amount of all deposits made with the person by all\ndebtors. The insurance coverage shall comply with all of the following:\n1. The minimum limit of the insurance coverage shall not be less than one\nhundred thousand do llars ($100,000), and the maximum limit of the\ninsurance coverage shall not be more than two hundred fifty thousand\ndollars ($250,000);\n2. The insurance coverage shall not include a deductible in excess of ten\npercent (10%) of the face amount of the policy coverage;\n3. The insurance coverage shall be issued by an insurer and rated at least\nA-, or its equivalent, by a nationally recognized rating organization; and\n4. The insurance coverage shall provide that the Office of Consumer\nProtection in the Office of  the Attorney General shall be named as an\nadditional interested party.\n(b) If the debt adjuster engages in debt adjusting in relation to any debt that is\nprimarily for personal, family, or household use that is secured by a mortgage,\ndeed of trust, other equivalent consensual security interest on residential real\nproperty, or collateral that has a mortgage lien interest in residential real\nproperty, the amount of insurance coverage required in paragraph (a) of this\nsubsection shall be increased by two hund red fifty thousand dollars\n($250,000).\n(8) (a) A debt adjuster shall maintain a bond issued by a surety company admitted to\ndo business in this Commonwealth. The bond shall be in the amount of\ntwenty-five thousand dollars ($25,000) in favor of the Attorney  General for\nthe benefit of the Commonwealth for any violation of this chapter or any\nperson suffering injury or loss by reason of any violation of this chapter. A\ncopy of the bond shall be filed with the Attorney General.\n(b) The bond required by paragraph (a) of this subsection shall be in effect during\nthe period of the debt adjuster's registration as well as for two (2) years after\nthe debt adjuster ceases to provide debt-adjusting services to debtors.\n(c) A change in ownership of a debt adjuster shall not release, cancel, or\nterminate liability under any bond previously filed unless the Attorney\nGeneral agrees in writing to the release, cancellation, or termination because\nthe debt adjuster has filed a new bond meeting the requirements of paragraph\n(a) of this subsection.\n(d) The proceeds of the bond required by paragraph (a) of this subsection shall be\npaid to any person suffering injury or loss by reason of any violation of this\nchapter or to the Attorney General for any violation of this chapter or sh all be\npaid pursuant to the terms of any order of a court of competent jurisdiction.\nAny person who is damaged by any violation of this chapter may bring an\naction against the bond to recover damages pursuant to this paragraph,\nprovided the aggregate liabi lity of the surety shall not exceed the amount of\nthe bond.\n(e) In lieu of the bond required by paragraph (a) of this subsection, a debt adjuster\nmay, with the written approval of the Attorney General, deliver to the\nAttorney General an irrevocable letter of credit issued or confirmed by a\nfinancial institution authorized by law to transact business in the\nCommonwealth. The irrevocable letter of credit shall be in the amount of\ntwenty-five thousand dollars ($25,000) in favor of the Attorney General for\nthe benefit of the Commonwealth or any person suffering injury or loss by\nreason of any violation of this chapter.\n(f) If the debt adjuster engages in debt adjusting in relation to any debt that is\nprimarily for personal, family, or household use that is secured by a mortgage,\ndeed of trust, other equivalent consensual security interest on residential real\nproperty, or collateral that has a mortgage lien interest in residential real\nproperty, the amount of the bond required in paragraph (a) of this subsection\nor the irrevocable letter of credit approved pursuant to paragraph (e) of this\nsubsection shall be increased by fifty thousand dollars ($50,000).\n(9) A debt adjuster may not, directly or indirectly:\n(a) Misappropriate or misapply money held in trust;\n(b) Settle a debtor's debt if the amount the debtor will owe after settlement is\nequal to or more than fifty percent (50%) of the amount of the debt prior to\nsettlement unless, after the creditor has assented, the debtor assents to a\nsettlement for which the amo unt the debtor will owe after settlement is equal\nto or more than fifty percent (50%) of the amount of the debt prior to\nsettlement;\n(c) Take a power of attorney that authorizes the debt adjuster to settle a debt,\nunless the power of attorney is expressly limited to the debtor's debts and\ngrants authority to settle debts only if the amount the debtor will owe after\nsettlement is less than fifty percent (50%) of the amount of the debt prior to\nsettlement. However, in no event shall an agreement confer on a d ebt adjuster\na power of attorney to negotiate or settle any of the debtor's debt that is\nprimarily for personal, family, or household use that is secured by a mortgage,\ndeed of trust, other equivalent consensual security interest on residential real\nproperty, or collateral that has a mortgage lien interest in residential real\nproperty;\n(d) Exercise or attempt to exercise a power of attorney after a debtor has\nterminated an agreement;\n(e) Initiate a transfer from a debtor's account at a bank or with another person\nunless the transfer is:\n1. A return of money to the debtor; or\n2. Before termination of an agreement, properly authorized by the\nagreement and this chapter, and for payment to one (1) or more creditors\npursuant to a plan or payment of a fee;\n(f) Structure a plan in a manner that would result in a negative amortization of\nany of a debtor's debts, unless a creditor that is owed a negatively amortizing\ndebt agrees to refund or waive the finance charge upon payment of the\nprincipal amount of the debt;\n(g) Settle a debt or lead a debtor to believe that a payment to a creditor is in\nsettlement of a debt to the creditor unless, at the time of settlement, the debtor\nreceives a certification by the creditor that the payment is in full settlement of\nthe debt or is part of a payment plan, the terms of which are included in the\ncertification, that upon completion will lead to full settlement of the debt;\n(h) Make a representation that:\n1. The debt adjuster will furnish money to pay bills or prevent attachments;\n2. Payment of a certain amount will permit satisfaction of a certain amount\nor range of indebtedness;\n3. Participation in a plan will or may prevent litigation, garnishment,\nattachment, repossession, foreclosure, eviction, or loss of employment,\nand will or may stop efforts to collect a debt from the debtor;\n4. Failure to make required minimum payments to creditors will not or\nmay not break the terms of agreements with creditors, will not or may\nnot lead creditors to increase finance charges and pursue liti gation, will\nnot or may not be reported to consumer reporting agencies, or will not or\nmay not have an adverse effect on the debtor's credit report and credit\nscore; or\n5. Fees paid to a debt adjuster will be used to pay creditors;\n(i) Misrepresent that it  is authorized or competent to furnish legal advice or\nperform legal services;\n(j) Take a confession of judgment or power of attorney to confess judgment\nagainst a debtor;\n(k) Purchase a debt or obligation of the debtor;\n(l) Receive from or on behalf of the debtor:\n1. A promissory note or other negotiable instrument other than a check or a\ndemand draft; or\n2. A postdated check or demand draft;\n(m) Lend money or provide credit to the debtor, except as a deferral of a\nsettlement fee at no additional expense to the debtor;\n(n) Obtain a mortgage or other security interest from any person in connection\nwith the services provided to the debtor;\n(o) Provide the debtor less than the full benefit of a compromise of a debt\narranged by the debt adjuster; or\n(p) Charge the debtor for or provide credit or other insurance, coupons for goods\nor services, membership in a club, access to computers or the internet, or any\nother matter not directly related to debt adjusting services or educational\nservices concerning personal finance.\n(10) Any unfair, false, misleading, or deceptive act or practice in the conduct of debt\nadjusting is prohibited. For purposes of this subsection, \"unfair\" shall be construed\nto mean unconscionable.","path":["KRS Chapter 380"],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=54571","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:59:09Z","sha256":"b22887ab1e533e8f7043cb66e836645c1fd0171b74d05b321dbcdf59b4c9a7ce","source_id":"us-ky","stale":false,"prev":"us-ky/krs-380.030","next":"us-ky/krs-380.050"},"notice":"GroundRules: Original legal text. Not legal advice."}