On March 16, 2017, Governor Matt Bevin signed into law HB 223.  That legislation slashes the interest rate applied to litigated claims for money owed.   Previously, Kentucky plaintiffs had the right to collect prejudgment interest on fixed, “liquidated” damages at a rate of up to 8 percent.  Trial judges may also extend this prejudgment interest recovery to other categories of damages, including those allowed in personal injury cases.  For post-judgment interest, Kentucky statutes previously allowed interest at a rate up to 12%; higher than any other state except New Mexico.  Kentucky originally codified these rates in 1982, when far different conditions prevailed over the economy.

The changes made by HB 223 will square prejudgment and post-judgment interest with the express purpose of those recoveries; namely, to compensate plaintiffs for the lost time value of money owed to them.  Use of the excessive 8% interest rate overshot that purpose and produced an interest windfall for plaintiffs.  Defendants were forced to pay excessive damages simply because the statute incorporated an out-of-date interest rate with no connection to the current economic situation.  HB 223 brings the maximum interest rate back in line with marketplace conditions in which mortgages, savings accounts, and government bonds have hovered at or below 4% for nearly a decade.   Notably, HB 223 preserves the right of contracting parties to fix the right of interest in a promissory note or other written obligation, and continues the 12% rate on judgments for unpaid child support.

Kentucky’s enactment of HB 223 continues a legislative trend to bring prejudgment and post-judgment interest rates more in line with marketplace conditions.  A number of states, including Oklahoma, Arizona, and Michigan, employ floating prejudgment or post-judgment interest rates that vary annually with rises and declines in the prime rate.  Although Kentucky chose a fixed rate, it will achieve the same goal: compensating plaintiffs for the lost time value of money without unfairly penalizing defendants.