House Panel OKs Capping Fees on Delinquent Tax Bills

Kentucky is considering a bill that would cap the fees collection agencies can attach to delinquent tax accounts. The Kentucky Department of Revenue alleges that some debtors are being gouged by collection companies.

Such fees can sometimes be more than five times the size of the outstanding tax bill, raising the possibility that families could lose their homes over a $400 overdue bill, Donald Guier, executive director of legal services for the revenue department, told the Lexington Herald-Leader.

The sale of delinquent tax bills has gained speed in Kentucky, since a 2004 change in state law made the practice more lucrative. The law allowed for "reasonable fees" to be charged. There is a difference of opinion, however, on what "reasonable" is.

Some lawmakers are on the side of the collection agencies, saying the bill would be so restrictive that private companies would have no financial incentive to buy the tax bills. If that happened, the counties might lose millions of dollars in revenue, said lobbyist Bob Babbage, who represents a company called American Tax Funding.

As written now, the proposal caps the fees companies can charge at 13 percent of the tax bill. For a $500 bill, that means a maximum $65 fee. Ballinger said the bill fails to acknowledge the work required to collect delinquent taxes. On average, he says legitimate fees of $1,500 are required to collect a $500 tax bill.

The measure now moves to the full House for its consideration.