American Express is asking a federal judge to throw out a new law because it was passed after the General Assembly's constitutional deadline of April 15.
A lawsuit filed by the New York-based financial services company challenges a law meant to help bolster the state's bottom line by changing the time period after which travelers checks are presumed abandoned.
Sign Up and Save
Get six months of free digital access to the Lexington Herald-Leader
The suit was filed just days before a state judge in Frankfort ruled last week that lawmakers cannot “stop the clock” so that their 60-day session can continue into the early-morning hours of April 16.
Travelers checks that are not cashed are considered abandoned after 15 years in every state. But the General Assembly made Kentucky the only state that considers the checks abandoned after seven years, said Molly Faust, a spokeswoman for American Express.
When the check is considered abandoned, companies that write travelers checks must transfer the funds to the state treasury.
The monies then go into the state's general fund.
Lawmakers and State Treasurer Todd Hollenbach supported shortening the so-called dormancy period to raise funds in a tight fiscal year, a spokeswoman in Hollenbach's office said.
But its an open question whether the practice actually helps the state budget much in the long run; according to American Express' lawsuit, 80 percent of “abandoned” checks are cashed.
When abandoned checks are cashed, American Express and other companies have the money refunded to them from the treasury.
Customers don't have to do anything. The checks are still valid and usable even if they're considered abandoned, Faust said.
Faust declined to comment on American Express's lawsuit, which was filed against Hollenbach.
But the lawsuit, filed in U.S. District Court in Frankfort, contends that Kentucky's new law will make free travelers checks unprofitable. Like most companies, American Express typically does not charge customers for writing travelers checks.
It makes money by investing the money during the “float,” the time that passes until the customer cashes the checks.
That sometimes can take several years. In one instance, a 46-year-old traveler's check was cashed, according to American Express.
The dormancy period for travelers checks was actually changed during this year's legislative session in two separate bills: the executive branch budget and House Bill 704.
American Express contends that both were passed after the constitutionally imposed deadline of April 15.
That's not accurate. The budget bill was passed before the deadline. It's not clear how that inaccuracy will affect the lawsuit.
House Speaker Jody Richards said the bill properly passed the legislature and is law.
He said this lawsuit and the one decided last week in Frankfort Circuit Court aren't comparable because that measure, the state's road construction plan, was vetoed by Gov. Steve Beshear.
“We're looking at apples and oranges here,” said Richards, D-Bowling Green. “The checks bill certainly is valid because the governor did not veto it.”
Richards acknowledged that the checks bill “will help a little bit with state budget problems but it is an issue we've been working on for quite a while and thought it was the way to go.”
The financial services company also is citing other reasons why the law should be thrown out. Among its arguments is that House Bill 704 is unconstitutional because it was an omnibus bill related to several unrelated subjects.
The General Assembly also changed the dormancy period for travelers checks in 2006, but a Franklin circuit judge ruled the law unconstitutional.
That lawsuit is pending before the Kentucky Court of Appeals and is to be heard on oral arguments on Tuesday.
Jill Midkiff, a spokeswoman for the state Finance and Administration Cabinet, said the state is still presuming that checks are abandoned after 15 years, rather than seven, because of the pending litigation.
The state is also reviewing laws passed after April 15 to determine whether they're valid.