California Payday Loan

In the state of California, if I put a stop-payment on a check, what can the payday loan company do?

I live in California and took out a payday loan of $300. I'm having a hard time paying the loan because of hard times. I have rent, car and other bills that i need to pay plus care for 2 boys. In the state of California, if i put a stop payment on the check, what can the payday loan company called California Check Cashing store do? Will it be a fraud to do a stop payment, i just don't have money to cover these NSF fees. I live paycheck to paycheck! Please advise!

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Highlights


  • Review your alternatives and take out a payday loan only as a last resort.
  • Payday loans are not legal in every state.
  • Understand your state's laws about payday loans, before you apply for one.

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. The borrower will give the lender a post-dated check, which the lender later uses to electronically transfer a payment or the entire balance of the loan from the borrowers account.

An especially insidious practice is to withdraw a partial payment from the account as a "customer service." This partial payment becomes a perpetual installment that continues despite the borrowers’ best efforts to halt it.

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.

One slightly light-hearted fact regarding payday loans: Wikipedia.org, the leading online encyclopedia, lists payday lending under Loan Shark, stating that "if the defining characteristics of loan sharking are high interest rates and a credit product that traps debtors, then the label certainly applies."

The Federal Trade Commission offers a great Web page regarding payday loan alternatives.

Payday Loans and Consumer Rights

A payday lender may attempt to collect the balance itself. If the borrower defaults, the payday lender may sell the debt to a collection agent.

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.

If the payday lender (or collection agency, for that matter) cannot convince you to pay through standard collection tactics, such as phone calls and letters, the payday lender may decide to file a lawsuit against you to obtain a judgment for the balance of the debt. If the lender sues and obtains a judgment against you, it can then take steps to enforce the judgment as allowed by your state law in civil court. The most common methods of enforcing a judgment are wage garnishment, bank account levies, and property liens.

Note that not on this list of enforcement actions are calling your employer, contacting your neighbors, or getting a warrant for your arrest. Failing to repay a debt is a civil matter and not criminal. A common threat many payday lenders use is arrest for check fraud: This is a groundless threat unless the payday lender has evidence to prove the borrower never intended to repay the payday loan. Proving that is very difficult. Remember, no one has been arrested or imprisoned for debt in the United States since the Civil War.

To learn more about debt collection laws in your state, see the Privacy Rights Clearinghouse Debt Collection Law Guide.

If the payday loan company sells an account to a collection agent, the borrower is now obligated to repay the balance to the collection agent.

A federal law called the Fair Debt Collections Practices Act (FDCPA) states that a third party collection agent must stop calling you if you notify them in writing to do so. Several states, such as California, New York, and Texas, extend many of the regulations in the FDCPA to cover original creditors as well. See "Advice If You’re Being Harassed by a Collection Agent" to learn what actions you can take if you believe a collection agent is violating the FDCPA.

If the payday loan company sells the account to a collection agent, the debtor can stop the telephone calls by sending a cease communication demand letter, commonly called a cease and desist notice, to the collection agent. (See the Bills.com debt self-help center for sample cease-and-desist letters.)

How Can I Handle Payday Loan Collections?

Many payday loan collectors use intimidation to strike fear into borrowers. Just because a person is in debt does not mean that person loses their rights as a consumer.

As mentioned above, many payday lenders require borrowers to provide their checking account numbers so that payments can be withdrawn from the borrowers’ accounts automatically using the Automated Clearing House (ACH). In instances where the borrower accounts lack sufficient funds, the payday lender will continue to attempt withdrawals. This may create overdraft charges for the borrower, and if done often enough, the bank may close the borrower’s account.

One common tactic to deal with payday lenders who repeatedly withdraw funds from a borrower’s account is for the borrower to close the account and reopen another at the same bank. This is effective unless the bank links all transactions from the old account to the new one. If that happens, when the payday lender makes a withdrawal, the bank simply reaches into the new account to remove the funds. The lesson here is to make sure the bank does not allow electronic withdrawals from the old account to be transferred automatically to the new account.

California Payday Loans

A federal law called the Fair Debt Collections Practices Act (FDCPA) states that third party collectors must stop calling you if you notify them in writing to do so. Several states, including California, extend many of the regulations in the FDCPA to cover original creditors as well.

If the creditor or collection agency cannot coerce you to pay through standard collection tactics, such as threatening phone calls, the creditor may decide to file a lawsuit against you to obtain a judgment against you for the balance of the debt. If the lender sues and obtains a judgment against you, it can then take steps to enforce the judgment as allowed by your state law. From my experience, the most common methods of enforcing judgments in California are wage garnishment and bank account levies. A creditor with a judgment against you may also file a lien against you. The lien will appear on your credit report and can be a barrier to your qualifying for any other loan, until the lien is satisfied.

You may be in luck in regard to your inability to repay these loans. California law limits the interest, fees, number of rollovers, and other penalties which payday lenders can charge. Check out the payday loan information from the Consumer Federation of America at PaydayLoanInfo.org where you will be able to read all about these loans and the various state attempts to regulate them. Follow the "state information" link to find out the specific regulations for payday lenders in California.

If you think that this lender is violating California's payday loan regulations by charging excessive fees, interest, or violating state collection laws, you can contact the California Department of Corporations to file a complaint at 1-866-ASK-CORP (1-866-275-2677). You may also wish to file a complaint with the Better Business Bureau which maintains information on this business, usually the BBB where the company is headquartered. Hopefully you will get the results you want after these regulatory and consumer advocacy agencies become involved.

Given the interest rate caps and limitations placed on payday lenders in California, you may want to consider simply making payments in whatever you can afford to pay down the balance of the loan over time. While the interest rate is capped under California law, it is still a high interest rate, so I would encourage you to pay off this debt as quickly as possible. If the lender will not accept your payments, simply put what you can afford aside each month until you have enough money to either pay off the loan or to offer a settlement.

It would be wise to learn more about how to negotiate with your creditors.

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. To learn more about California laws affecting payday loans, see What you need to know about payday loans and Wage Garnishment & Payday Loan in California

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.

Hopefully, one of the strategies I have discussed above will help you resolve these payday loans, and help you Find. Learn Save.

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

Best,

Bill

Bills.com

30 Comments

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  • AS
    Sep, 2011
    Anderson
    The result of making a stop payment of payday loan check and its repercussion has been explained
    1 Votes

  • DC
    Aug, 2011
    Dani
    A collection agency is threatening to sue my mom for a payday loan from January 2007. If I am understanding CA law, they only have 4 years to collect and/or sue for this debt. This is the first contact regarding this supposed loan. Also, we no longer live in California. Can she be sued in the state we're currently in?
    0 Votes

    • BA
      Aug, 2011
      Bill
      Validate the debt, then analyze the statute of limitations issue.

      Answers to statute of limitations questions are not easy or straightforward. See the Bills.com resource Statute of Limitations to learn more about this issue. Also, it is an oversimplification to say something like, "A creditor may not sue if the statute of limitations has passed," unless the consumer / defendant resides in Wisconsin. In all US jurisdictions but Wisconsin, a creditor can sue if the statute of limitations has passed. However, the defendant must raise a statute of limitations defense in a timely manner. If the court accepts the statute of limitations affirmative defense, then the court will dismiss the case. It is much easier to say, "The statute of limitations has passed, so they cannot sue," but that is an incorrect conflation of the law. As I mentioned above, see the link I mentioned for a longer discussion of statutes of limitations and which state rules apply.

      A lawyer suing a consumer must be licensed to practice law in the state where the consumer resides. In practice, this means the law firm must have an office in the consumer/defendant's state, or must pay a local law firm to file the lawsuit.
      1 Votes

    • DC
      Aug, 2011
      Dani
      I should have clarified that it was an internet payday loan, if that matters. We asked for validation (copy of the contract) and the rep said they didn't have that information.
      0 Votes

    • BA
      Aug, 2011
      Bill
      Send the collection agent a written request for validation using Certified Mail. Speaking with the collection agent on the telephone about a validation is not enough. The link I mentioned in my earlier response explains how to validate a debt, what is proper validation, what to do if the creditor does not provide validation, and what liability the consumer has if the creditor cannot validate a debt.
      1 Votes

    • CJ
      Aug, 2011
      chip
      What if there is no address provided or they keep giving you the run around on an address and on the actual collection agency name? Can they still file a lawsuit to garnish wages?
      2 Votes

    • BA
      Aug, 2011
      Bill
      Legitimate collection agents have no hesitation in providing a mailing address to consumers. People with fraudulent intent do, however. This is not to say that everyone who declines to tell you their mailing address is a scam artist, but I think a collection agent that refuses to say where his or her office is should be looked at with great suspicion.
      1 Votes

  • MM
    Jan, 2011
    Michelle
    Hello, I have a payday loan that went into default October 2010 with ACE Cash Express. I contacted their office the day before it was do to request a payment plan because i was laid off from work. I was told they would not give me one because i needed to call at least two days before. The Clerk stated i would have to work that out with their collections department. The collections dept contacted me about 10 days later i asked for a reasonable payment plan on a balance of $230. I asked for 3 payments. I was told it had to be paid in full. I had 2 other loans out and worked out payment plans that have now been paid. They keep calling me everyday and im still out of work and unable to make the payment in full. This company then called my employer i listed at the time and told them my financial situation that even my ex boss called my cell phone telling me that ACE called and wants me to repay a payday loan. That this person calls everyday for me and he's tired of telling them i no longer work there. They called every reference and did the same. Is this illegal? I mean if they are in contact with me why go out of your way to do this? Oh and did i mention this person even asked my Ex boss and Reference how many children i have and what kind of car i drive? Also what Have i been doing lately that has kept me from be responsible and paying my bills!! These people are insane!
    0 Votes

    • BA
      Jan, 2011
      Bill
      The behavior you describe violates the Fair Debt Collections Practices Act (FDCPA). The FDCPA is a federal law that regulates the activity of collection agencies. For example, the FDCPA prohibits harassment and intimidation by collection agencies in the course of their collection activities. The debt collector is not allowed to discuss your personal business with your employer or associates. You have the obligation to request the collector to "cease and desist" future communication with your sister. Find a sample cease communication letter at Debt Self-Help Center that you can copy, modify, and send to the person harassing you by repeatedly calling your ex-boss. Because YOU can sue a debt collector that violates the FDCPA, you should probably consult with an attorney specializing in consumer rights law. You could get as much as $1,000 for each violation of the FDCPA. You can find an attorney in your area by visiting www.naca.net. To learn more about the FDCPA and your rights as a consumer, visit the FTC's Fair Debt Collection Practices Act Web page. I wish you the best of luck!
      0 Votes

  • KG
    Dec, 2010
    kasandra
    Hello, i am worried i have a payday loan with check n go since 2008 i got laid of so couldnt pay them i made arrangement to make payments but couldnt keep up with them after awhile i gave up because i have more than one payday loan and just couldnt pay them so now i have someone calling me from a payphone sayin im going to get served at work and that i need my supervisor or manager present to sign and b witness and i need a form of ID i told him my manager is out of town so he said is the law that she be here is that legal what can happen to me i owed 300 and they want to charge me 1289.00 that insane and is alot of mony i dont have i tried to negotiate with them and they went down to 452 but i didnt have that eiter i askd for payment and didnt want to so now im scared can i go to jail since is not the only bad check i wrote in 2008?
    0 Votes

    • BA
      Dec, 2010
      Bill
      Unscrupulous collection agents make outrageous claims when collecting a debt in an attempt to frighten the debtor into paying. The collection agent's statement about your needing a manager present to witness your signature on a document was pure nonsense, as was his or her claim you would go to jail. I have two reading assignments for you that will help you deal with the collection agent more confidently if he or she calls you again. First, read the California Dept. of Corporation's document What You Need to Know About Payday Loans, which summarizes California's laws about the maximum fees payday lenders can charge, and other rules. Second, read the Bills.com document California Collection Laws to understand your rights and liabilities. Your solution is to start saving a bit each month, and then offer the collection agent a lump-sum settlement.
      0 Votes

  • 35x35
    Dec, 2010
    I have a pay day loan company who is threatening me on my job, threating to garnish my wages, the thing is, I have no record of using them. I never completed the application process to accept,their advance and the collection company wont give me any details about the transaction. I never got the money, and they keep insisting I have. When I called them they tried to strong arm me for 500. when the claim the advance was for 300. Can they do this without giving me the details to even contest the transaction?
    0 Votes

    • BA
      Dec, 2010
      Bill
      You are one of many to receive these obnoxious telephone calls. Just because a voice on the other end of the telephone claims you owe a debt does not make it so. Please see the Bills.com resource Fake Debt Collector to learn how to handle these calls.
      0 Votes