## Facts

- Gregory and Dana Hamilton, consumers, conducted business with Larry York d/b/a HLT Check Exchange, a licensed check-cashing company in Kentucky.
- In “check-cashing” transactions, the Hamiltons gave HLT a check in exchange for cash; HLT agreed to hold the check for two weeks before presentment.
- HLT charged 20% of the amount advanced for the two-week hold.
- After two weeks, HLT allowed further postponement of presentment in exchange for an additional 10% of the amount originally advanced for each week of “deferral.”
- The Hamiltons alleged HLT knew or should have known they lacked sufficient funds to cover the checks at the time of the transactions.
- The Hamiltons alleged the fee structure produced an effective annual rate of about 520% and, in substance, operated as short-term lending rather than a mere service.
- The Hamiltons sued under Kentucky usury and consumer-loan statutes, the Truth in Lending Act (TILA), civil RICO, and common-law fraud theories.
- HLT moved to dismiss under Rule 12(b)(6), arguing the charges were lawful check-cashing service fees authorized by Kentucky’s check-cashing statutes, not interest on loans.

## Issues

1. Whether the complaint plausibly alleged that the “check-cashing” and “deferral” arrangements were, in substance, consumer loans with interest/finance charges rather than noncredit service transactions.
2. Whether, accepting the allegations as true, the Hamiltons stated viable claims under Kentucky usury and consumer-loan statutes, TILA, civil RICO, and common-law fraud sufficient to survive a Rule 12(b)(6) motion.

## Decision

- The court denied HLT’s motion to dismiss.
- The court held the Hamiltons plausibly alleged the transactions functioned as interest-bearing loans, making state usury and consumer-loan limits potentially applicable.
- The court held the TILA claim was adequately pleaded because the allegations described an extension of consumer credit with a finance charge, regardless of labels.
- The court declined to dismiss the RICO and fraud counts at the pleading stage, finding the alleged concealment and charging of unlawful rates could support those theories if proven.
- The court rejected dismissal based on technical objections such as misnaming the defendant, given the complaint’s substantive allegations.

## Legal Principles

- On a Rule 12(b)(6) motion, dismissal is improper unless it appears beyond doubt that the plaintiff can prove no set of facts supporting relief.
- Courts assess the substance of a transaction, not its labels, when determining whether fees are interest and whether an arrangement is a loan for usury and consumer-protection purposes.
- Regulatory authorization to operate as a check-cashing business does not necessarily immunize a fee structure that plausibly operates as a device to evade usury and lending laws.
- TILA applicability turns on whether there is consumer credit and a finance charge; characterization as a “service fee” does not control if the charge is incident to an extension of credit.
- Allegations that a business disguised high-cost credit as a different product and used deceptive practices may support fraud and, depending on proof of predicate acts and pattern, civil RICO claims.

## Conclusion

The court allowed the case to proceed past the pleading stage because the Hamiltons plausibly alleged that HLT’s check-hold and deferral fees were, in economic reality, extremely high interest on short-term consumer loans, potentially violating Kentucky lending limits and triggering federal disclosure duties and related fraud-based theories.


Hamilton v. York, 987 F. Supp. 953 (E.D. Ky. 1997)