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Question:
FEB 15, 2012

All About Payday Loan Default

I over-extended myself with 4 payday loans. How do I get myself out of this mess?

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Bill's Answer: Bills.com Resident Expert

These small loans, also called "cash advance loans," "check advance loans," or "deferred deposit check loans," are a frequent pitfall for consumers. A fee anywhere from $15-$30 per $100 borrowed is charged for an average loan of $300. With rates so high and the term of the loan so short there is no wonder that a very high percentage of these loans are rolled over by the borrower again and again so that the accumulated fees equal an effective annualized interest rate of 390% to 780% APR depending on the number of times the principal is rolled over.

You can get out of this trap if you are a resident of one of the 12 states where this type of loan is illegal once the effective rate passes the usury cap in that state. Usury laws dictate the maximum interest that many lenders may legally charge. If the payday lenders follow their normal business model the loan will most assuredly pass the limit very early. New York State even has a criminal statute that sanctions the lender if the rate exceeds 25%. If you are in one of those states, the loan may be void, and you may be only liable for the principal amount borrowed.

Editor’s note: Comments on this page are closed. See Payday Loans to learn how to handle payday loan collections. See the Bills.com payday loan resources for California, Florida, Illinois, Massachusetts, Missouri, New York, Texas, and Virginia to learn more about payday loan laws in those states.

In addition, there are eight states whose payday loan regulating statutes require lenders to set up an installment repayment plan if an account reaches the maximum number of rollovers allowed by law and the debtor declares that he/she is unable to pay the balance due. Such a repayment plan may help you in paying off these loans.

You can find a summary of your state's pay day loan statutes at Web site developed by the Consumer Federation of America. If you go to the same site and click on consumer help, you will find a comprehensive discussion of the best strategies of how to cope with and get out of the payday loan trap.

If you do not live in one of the states whose payday loan regulations favor consumers, the best solution would be for you to borrow the funds needed to repay these loans from a conventional lender or a family member or friend. Converting your payday loans to a conventional loan should allow you to repay the loans within a reasonable time frame and at a reasonable interest rate. If you cannot borrow the funds to repay the payday loans, you may want to make a payment each month to pay down the balances. In some states, the interest on the loans will prevent you from effectively repaying the debts in monthly installments; if you find that to be the case, you should contact the payday lender to try to work out repayment terms that will work with your budget. Hopefully, one of these options will work out for you so these loans do not go into default.

Bills.com also offers more information on the Payday Loan Information page, and has answered reader questions about payday loans in California, Florida, Illinois, Massachusetts, Missouri, New York, Texas, and Virginia.

If you do not repay a payday loan, the payday loan company has several legal remedies, including wage garnishment, levy, and lien. See the Bills.com resource Collections Advice to learn more about the rights of creditors and debtors.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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Comments (27)


Sam F.
Portland, OR  |  October 08, 2011
Hi, I have two pay day loans that I made over the internet with One Click Cash and The Cutter Group LCC. They were both for $200 and for the past few months I've been paying $60 on each every two weeks. I'm sure that by now I've payed over $200 on each loan in interest alone but have not even made a dent in the principal. I live in Oregon and I believe the loans are illegal in my state but does it still apply if the loans were made online? What should I do?
Bills.com
October 09, 2011
Your first step should be to find out if the lenders are licensed to make internet payday loans in Oregon. Contact the Oregon Division of Finance and Corporate Securities (DFCS) by telephone, 503-378-4140, or toll-free, 866-814-9710.

According to the DFCS, "As of July 1, 2007, the State of Oregon limits the fees that may be charged for payday loans. Lenders may charge an interest rate up to 36 percent per annum (The annual percentage rate (APR) — the total of all interest and fees calculated on an annual basis — will be 153.77 percent if the lender charges the maximum interest rate and the maximum origination fees allowed.). They may also charge a one-time loan origination fee for a new loan of up to 10 percent of the amount borrowed, up to a maximum of $30. A lender may not charge you any other fee or interest charge in addition to this interest and origination fee to get the loan.
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Bills.com
June 04, 2010
Please see New York Payday Loan to learn more about New York laws regulating consumer lending. The New York state attorney general is responsible for enforcing New York's laws.
Kimberly .
June 02, 2010
Living in NYS and working for the Poor... whom should be contacted if you find a person who has done this?... Does it only apply to pay day loans? or does it apply to things like cars when the dealer is holding the payment? Do you know where I could go for more information?
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Bills.com
October 29, 2009
I am not aware of any Texas district attorneys today who prosecute payday loan customers under Texas' "hot check" law -- TPC 32.41 Issuance of a Bad Check. The district attorney must prove that not only did the customer know he or she did not have the funds at the time he or she wrote the check, he or she knew there would not be sufficient funds in the account at the time the check would be cashed. In other words, this is a specific intent crime, and the DA must prove the defendant intended to commit the act (the check writer knew there would not be enough money in the account when the post-dated check was cashed). The Texas attorney general offers an array of Web pages devoted to Texas consumers' rights, and specifically Texas debt law.

Update: See "Payday Loans & Hot Checks in Texas" to learn more about collecting payday loans in Texas.
Kay .
October 29, 2009
I am in Texas anbd have several payday loans out and have defaulted on all of them several months ago due to job loss and other misfortunes. I have tried negotiating with the lenders to repay once I get myself back on my feet. I had always been current and trying to dig myself out from under these loans when I lost my job. I am now being threatened with criminal prosecution for the "Hot Check". Is this legal in Texas? I intend on paying these off but cannot at this time.
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Bills.com
September 24, 2009
Readers, please chime in here if you have been a party to a lawsuit involving an unlicensed or Internet payday loan provider, or can share any citations of New York case law that has dealt with these issues. Maybe I'm not looking at the issue with enough imagination, but I see the main issue here as collecting on an unsecured consumer debt. Of course there are interesting additional issues here, too, including possible unlicensed lending and lending above the state's statutory maximum rate. However, at the end of the day the creditor wants its principal back. Customarily, a foreign (out of state) creditor must domesticate the debt in the debtor's state of residence, and then file a lawsuit to collect on the debt. I just don't see these Internet payday loan companies or their proxies at the "rented" banks filing lawsuits in New York against New York consumers because the interest rates and fees they charge are illegal. However, I want to make it very clear that I am not a New York attorney.
Jay .
September 24, 2009
Hi Bill, Thank you for your reply. I think what I'm actually concerned about is these companies using FDIC banks to avoid New York State uaury laws...As of yet I've the advice from I recieved from the NYS consumer attorney has been over the phone and I haven't actually retained him yet due to the cost. I did not ask him about the FDIC banks avoiding usuary laws. Do you have any input out there or would one of your bloggers? Thanks for all of your help. -Jay
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Bills.com
September 23, 2009
Thank you for following-up. To bring other readers up to speed on the e-mail conversation Jay and I had, I observed that payday loans are illegal in New York. In the recent past, the New York attorney general has sued and reached settlement agreements with payday loan providers operating in New York who charged more than 16% interest, which is the maximum amount allowed under New York law. See the State of New York's Avoiding Dangerous or 'Predatory' Loans Web page. I also opined that because payday loans are illegal in New York, that would explain why these creditors refused to accept payment by cashier's check or disclose their addresses. I am glad to hear that a New York attorney experienced in consumer law essentially confirmed my guess that the payday loan companies you are entangled with (namely Ameri Loan, One Click Cash, Vince Enterprise, and Emerald) are operating outside of New York law. Here are my thoughts: First, file complaints with the State Attorney General. You may not get any immediate relief from complaining, but if I was Andrew Cuomo I would want to know that payday loan companies are operating in New York in defiance of the law. Second, I would wait. Legitimate creditors will sue a debtor eventually. If these companies do, they will need to do so using a New York law firm. They will also need to identify themselves, and state in their complaint that they engaged in a payday loan business in New York. At that point, you may have a cause of action under New York law. I recommend you return to your New York consumer attorney to see if my thought makes sense under New York law.
Jay .
September 23, 2009
Hi Bill, Location New York State: I wrote you awhile back about several payday loans my wife took out. We closed her account due to the massive NSF charges. I talked to a consumer law attorney and he told me these loans are totally illegal in NYS and at maximum can only charge the 25% usary cap in this state. But I've been researching several blogs about some of the company's useing "Rent-A-banks to evade the usary law making it legal for them to collect on their APR usually around 700%. We've been trying to contact these company's to pay the principle owed but are unable to get a hold of them as of yet. I was wondering if you have any input on this. We closed my wifes bank account about 2 months ago. Thanks for your help. -Jay
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Bills.com
July 17, 2009
Please see the Bills.com article Advice on payday loans and default for an answer to your question.
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