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All About Payday Loan Default

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

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

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Updated: Sep 23, 2014

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Highlights

  • Take out a payday loan only as an option of last resort.
  • Examine your state's laws that protect consumers from predatory lending.

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

27 Comments

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  • SF
    Oct, 2011
    Sam
    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?
    0 Votes

    • BA
      Oct, 2011
      Bill
      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.
      0 Votes

  • BA
    Jun, 2010
    Bill
    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.
    1 Votes

  • 35x35
    Jun, 2010
    Kimberly
    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?
    0 Votes

  • BA
    Oct, 2009
    Bill
    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.
    0 Votes

  • 35x35
    Oct, 2009
    Kay
    I am in Texas and 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.
    24 Votes