Pay Day Loan Collections

I am having financial problems and I asked the payday loan company not to call my job. What should I do?

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Loan Collection | Man running and collecting
Bill's Answer: Answered by Daniel Cohen

Handling a payday loan is difficult. The biggest challenge is to take charge of the situation and create a solid repayment game-plan, especially since the payday loan cycle is so expensive. My answer discusses what a payday loan is and why you should avoid them, your rights as a consumer, tactics a payday lender will use in collections, and strategies for freeing yourself from the payday loan trap.

What is a Payday Loan?

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 often gives 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 400% to 1,460% APR depending on the number of times the principal is rolled.

One slightly light-hearted fact regarding payday loans:, the leading online encyclopedia, list 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, which we discuss later.

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 debt collection laws page.

If the payday loan company sells an account to a collection agent, the borrower may be obligated to pay the balance to the collection agent.

A federal law called the Fair Debt Collection 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 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.

Once the account is closed, the borrower can create and negotiate a repayment plan with the lender. There are eight states whose payday loan regulating statutes requires 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.

Learn more about the payday loan laws in your state, including each state's attempts to regulate them. You state may require a repayment plan. If your state does, and your lender will not accept a payment plan, call your state’s regulator of payday loans, usually an assistant Attorney General, and complain. You should get the results you want after the Attorney General’s office becomes involved.

If you are not in one of those states, consider simply making payments to the lender anyway to pay down the balance of the loan over time. In most states, the rollover limit will soon be reached, and the interest rate the lender can charge will be capped by state law. If the lender will not accept your payments, simply put what you can afford aside until you have enough money to either payoff the loan or to offer a settlement.

Read the regulations in your state to find the best strategy for your situation. To learn more about tactics and strategies for dealing with creditors, read the article Debt Negotiation and Settlement Advice. 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 resource Collections Advice to learn more about the rights of creditors and debtors.

See also the free Financial Planning and Budget Guide, which can help you manage your finances and help you learn about budgeting and prudent financial management.

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



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Comments (290)

Rodney J.
San Diego, CA  |  April 11, 2014
I obtained an Internet pay day loan about 4 years ago. I was trying to avoid bank fees because I did not have the cash to repay it and closed the account. I have since filed CH.7 bankruptcy and received my discharge. The lender said they are going to serve me a summons in the county in southern Ca. that I reside in and are claiming it was fraud and I never had any intention to pay it back. Can they even do that after a bankruptcy?
April 11, 2014
When a person files bankruptcy, they are required by the bankruptcy code to include a full and complete list of all assets and liabilities. Did you include the payday loan in your bankruptcy schedule?

If you included the payday loan, which as just mentioned you should have, and this loan was included in the discharge, the lender cannot collect this debt. If the payday lender or a collection agent files a lawsuit against you, consult with a lawyer immediately and give copies of your discharge paperwork to your lawyer. Your lawyer will file an answer to the court, including a motion to dismiss based on the debt being discharged in your bankruptcy.

In the meantime, the collector may try to bully you into making a payment on this debt, or signing a reinstatement document. The fraud charge claim is a bullying tactic. Don't fall for the collector's nonsense. Consult with a lawyer before you take any action the collection agent asks.
Paul B.
Leshara, NE  |  April 06, 2014
I live in Nebraska and took out an online payday loans last year. I did not know at the time that they are not even legal in Nebraska. I have had several call me and sent letters t me. I have spoken to the Regulators in Nebraska and they told me that these companies have no legal ground in the state since Online payday loans are not legal Now NCA is sending me letters claiming I owe 1400+ for a payday loan which is almost 3 times the legal limit for even In State payday loan companies I am going to contact the State again and send this letter to them. I paid the loan company more money then what the legal limit even was before I closed my Bank account to get them to stop taking money out every other week for months. Should I contact NCA and tell them to stop since NCA already knows these Payday loans are not even permitted under Nebraska law.
April 08, 2014
Excellent research. Now use what you learned to your advantage.

Send NCA a cease communications notice, and then file a complaint with your state's attorney general if NCA continues to collect a loan your state considers illegal.
Joray C.
Bay Point, CA  |  March 31, 2014
Thank you for the article. It helped tremendously. I am on Social Security disability, and a collection agency is threatening me saying a felony charge will filed against me for $98. Thanks for the help in the article posted.
March 31, 2014
No problem Joray. Thanks for the post and we are glad that we helped you out a bit.
Jeff ..
Richfield, OH  |  February 21, 2014
I think I might have been the victim of one of these recently... the more time passed, the more I felt like I might have been scammed. But since he had information about what I think was a real payday loan, I paid it. What should I do? Should I submit a chargeback to my bank to get the money back? Consult a lawyer?
February 21, 2014
Consult with a lawyer immediately, describe the details of your situation to him or her, and act accordingly.
Ana R.
Atascocita, TX  |  December 12, 2013
I received a call today - unknown caller showed on the caller ID. The message stated the following " this message is fully intended for xxxx this is Kevin Young with Consumer Recovery Group regarding a file that has been placed in my office with your name and ss number. I need to speak to you or your legal rep within the next 72 hours if you wish to settle this case voluntarily. I have been appointed to mediate a final disposition in your county court the filing date for this suit is within the next 72 hours. This is a courtesy call prior to the summons being served if you would like to contest these charges or obtain additional information give me a call at 888-958-0336. Thank you and good luck consider yourself notified." Now I haven't idea what this may be about but they did use a name that I have not used in 8 years... The statue of limitations in Texas is 4 years... I tried finding this company on the web but did not have much luck. Should i be concerned or is this some scam?
December 13, 2013
Just because Kevin Young or anyone at Consumer Recovery Group has your Social Security number does not prove you owe a debt.

If the date of delinquency was more than 8 years ago, the collection agent is attempting to trick you into paying a debt you could avoid paying if you were sued. You can call the collector to find out what debt they're trying to collect, so you can determine if it is passed the SOL. Ignore attempts at intimidation. Make sure they have your current address, so if they sue you, you will get the paperwork. It is important to go to court, if sued, so you can argue the SOL as a defense.

If the debt is older than your state's statute of limitations, send the collection agent a cease communications notice.

Some unscrupulous collection agents file lawsuits on debts where the statute of limitations clock has run out, even though this is contrary to the Fair Debt Collection Practices Act. Pay attention to any written legal notices you receive, and consult with a lawyer if you receive a summons.
Samuel K.
Chesapeake, VA  |  December 06, 2013
In 2009 I was being sued in civil court by a payday lender for a loan that was forged using my name. I successfully had the case dismissed because not only did I not sign for the loan but I was not even in the state at the time. I contacted the lender at the time and requested any and all documents that had allegedly been signed by me. I was given only the one loan document for which I was being sued for and was told that it was the only one. I have since misplaced my documents but believe that they are still stored in my attic. Last week I went back to the payday lender to secure the previous copies for use in a pending separation agreement with my wife only to discover that my name had been forged up to 25 separate times. In 2009 I was told that it was an isolated case involving my wife and now I learn that this company allowed her to forge my name numerous times. Not only was my name forged but the documentation utilized to secure the loan had expired. It was clear in 2009 that this company allowed my wife to utilize expired documents and forge me name and it is even more clear today as to why they denied me access to additional 24 forged documents. I forgave my wife and the company for what I believed to be an isolated case but would not have forgiven her nor Advance America for a pattern of abuse and fraud. Can anything be done to hold these people accountable?
December 06, 2013
Sam, you need to consult with a lawyer who has consumer law experience. The fact you just discovered the harm may mean that even though the events took place in 2009, you still have grounds for legal action. The first thing a lawyer will ask you is what financial or physical harm you suffered as a result of the loans. Were you denied a loan, or paid more in interest expenses for a loan as a result of Advance America's actions? Has this caused you to seek medical treatment?

File a complaint with your state's payday loan regulator, the FTC, and the CFPB.
Alyssa G.
Helena, MT  |  November 26, 2013
I sent a request for debt validation via Certified Mail (with confirmation of receipt). The debt collector insists they don't have to comply with that, as I electronically signed an agreement that says everything can be done online and they legally don't have to send any correspondence via paper mail (supposedly). Can they do that? Or do I still have a right to get it in writing? I also sent with that request a request to cease calling me, and they still are. Can I do anything about that?
November 27, 2013
Some areas of the law are black and white. Other areas of the law are a gray area. Electronic mail in debt collections sits in a gray area.

Collection agents are subject to the rules found in the federal Fair Debt Collection Practices Act, a law written long before electronic mail was in common use or could be imagined by Congress. It's clear to me Congress was thinking of the US Postal Service when it refers to "mail" in the FDCPA. With the widespread use of electronic mail today, and the invention of secured e-mail and electronic signatures, collection agents have argued to Congress and the FTC that the FDCPA should be amended to make it clear e-mail and paper-mail are equivalent. Or, if the two are not the same, then create rules for when and how e-mail can and should be used.

This is an unsettled area of law. The collection agent is not wrong, in so much that I cannot find a court ruling or FTC statement indicating e-mail is not compliant with the FDCPA. On the other hand, the collection agent is not really right either because I cannot find a court decision or FTC statement indicating e-mail is an acceptable alternative to USPS-delivered mail.

I do not have satisfactory answers to your questions. Consult with a lawyer who has experience litigating FDCPA issues.
Helen S.
Fort Worth, TX  |  November 13, 2013
I was also recently called from an anonymous number stating they were informing me of a court order being place against me due to non payment of a Installment loan. I was told if I did not pay I would have my wages garnished. How true can this be? The second thing is they called a friend of mine and basically left a message saying my name, the reason of the call, and saying it was regarding a court order against me, which made me so upset. Can they do this? Call friends, relatives and give this much detailed information? I live in Texas.
November 14, 2013
A judgment-creditor may not garnish the wages of a Texas resident. However, a Texan's wages can be garnished for delinquent child support, taxes, and student loans. Because a payday loan is not one of these three exceptions, the collection agent lied to you when it said the result of a court order would be wage garnishment.

To learn more about your rights and how to handle this caller, I have three reading assignments for you. First, read the article Payday Loans & Hot Checks in Texas to understand your rights as a Texas resident. Second, you did not mention if you believed you may have liability for the debt, so I will assume you were surprised by the call. Read How to Handle a Fake Debt Collector, and pay special attention to the discussion of how to validate a debt.

Finally, the collection agent violated federal law when he or she disclosed the nature of the debt to your friend. See the article Learn Your Rights Under the Fair Debt Collection Practices Act to understand how to respond to this violation.
Ryan S.
Payson, IL  |  September 09, 2013
My wife took out one of these loans in Illinois, but hers is the installment ones, where they take out 120 out of her checks the first three months there were no problems. Until the last time she had to replace the water pump in her car, and called on Monday and every day after that and all she got was their voice mail. So she explained what was going on and told them that the money would not be there because of the 300 dollar repair bill. And they still tried to push it through, and acknowledged that they did receive the message stating that their system was set up to withdrawal the money no matter what.. Is this legal? Since they knew the money would not be there and still tried to push it through?
September 13, 2013
Pretend for a moment you and the lender are standing in front of a judge arguing this case. You would say, "We didn't have the money because of an unforeseen repair, we told the lender that, and they still hit our account with an ACH transfer even though they knew the money wouldn't be there." The lender would say, "We signed a contract where both parties agreed to a $120 ACH transfer from the borrower's account every month. The borrower here asked for a forbearance, but we didn't agree to it and doing so is not in our contract."

How do you think a judge would decide this case? Would he or she sympathize with the borrower who tried to do the right thing and negotiate a forbearance with a non-responsive lender? Or would the judge stick with what both parties agreed to in the contract?

My guess — note that word choice — the answer to your "is this legal" question would depend on the judge and how persuasive both parties are in presenting their case. I realize you probably wanted a yes or no answer to your question, but the law is full of gray areas.
Tay J.
Camby, IN  |  September 05, 2013
I got a loan for $225. And as soon as I got the loan I lost my first job. With money being tight and having every bill due at once with a part time job the loan lady asks when I can pay it. I tell her I can pay it by the 10th of this month. She took it out of my account this morning the 6th without me saying she could after I told her the 10th. What do I do?
September 06, 2013
In theory, you could file a breach of contract lawsuit against the lender because it did not follow-through on its promise. However, as a practical matter, the cost of filing the lawsuit and your time is not worth the bother.

File a complaint with the attorney general's office in your state, and use social media to share your experiences with the lender so that others avoid it.
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