Payday Loans & Hot Checks in Texas

BILL'S ANSWER

These small loans, often 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’s 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.

Texas’ Hot Check Law

Texans refer to checks returned to the merchant with an insufficient funds stamp as “hot checks.” It is a criminal offense in Texas for a person to write a check if the person knows his or her account lacks or will lack sufficient funds to cover the amount of the check. (See Texas Penal Code 32.41 Issuance of a Bad Check to read the Texas statute.) There is an exception for post-dated checks.

Payday loans are withdrawn directly from the customer’s checking account using the Automated Clearing House (ACH) system. When the customer lacks sufficient funds for the payday lender to make an ACH withdrawal, the payday lenders state (erroneously, I believe) that this is the same as writing a hot check. 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 the check was written, the customer must have known 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 only plausible way a DA could prove this type of case is if the check writer admits to a police officer or investigator he or she did not expect the account to contain sufficient funds.

Texas Finance Code Title 4, Subtitle B, Chapter 342, Subchapter E sets the fee and interest limits on Texas payday loans. In Texas, a lender is allowed to charge no more than $1 per $5 borrowed for loans less than $30. For loans between $30 and $100, a service fee of 10% of the loan amount is allowed. For cash advances more than $100, the maximum fee is $10. Texas payday loan laws allow a $3.50 handling charge for loans less than $35. For cash advances between $35 and $70, the law allows a $4 monthly handling charge. For loans more than $70, a $4 monthly fee is allowed for every $100 borrowed. The maximum term limit for Texas payday loans is 31 days. The minimal term limit for payday loans is 7 days. Texas law prohibits lenders from dividing one loan into two loans for the purpose of collecting higher interest fees.

The Texas attorney general offers an array of Web pages devoted to Texas consumers’ rights, and specifically Texas debt law and consumers’ rights in debt collection situations. The Texas Office of Consumer Credit Commissioner regulates payday loans in Texas. Call the OCCC at 800-538-1579 or visit the hyperlink for the OCCC to learn more about Texas payday laws.

As a Texas resident, the payday loan collection agent you spoke to is bound by the Fair Debt Collections Practices Act, which among other things, prohibits collection agents from making false or misleading statements to debtors. Some Texas payday loan employees claim that as original creditors they are not bound by the FDCPA. That is an incorrect statement. See my answer to a fellow reader, Harassed by a Collection Agent to gain a better understanding of your rights.

More Payday Loan Information

I assume that you your payday lenders are contacting you because you are having a hard time repaying the short term loans you borrowed. While payday loans can help some individuals to pay one-time unplanned expenses, when consumers try to use these high-interest loans to pay everyday expenses, they often find themselves quickly overwhelmed and unable to pay.

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.

Also, I encourage you to visit the Consumer Federation of America’s payday loan information site. This site offers state-specific information that may help you dig yourself out of the payday loan trap.

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 Texas Collection Laws to learn more about the rights of creditors and debtors in Texas.

I wish you the best of luck in resolving these payday loans, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

Bills.com

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Please read the article and prior comments in order to resolve your question.

Comments (48)

George J.
Sanger, TX  |  October 03, 2011

what if the payday loan collaterial check has a "stop check" put on it. Does that not become a "hot check" cause they knowingly stopped payment?

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Bills.com
October 04, 2011

I would argue stopping payment on a check would not cause it to be a hot check. Here is TPC 32.41:

Sec. 32.41. ISSUANCE OF BAD CHECK. (a) A person commits an offense if he issues or passes a check or similar sight order for the payment of money knowing that the issuer does not have sufficient funds in or on deposit with the bank or other drawee for the payment in full of the check or order as well as all other checks or orders outstanding at the time of issuance.
(b) This section does not prevent the prosecution from establishing the required knowledge by direct evidence; however, for purposes of this section, the issuer's knowledge of insufficient funds is presumed (except in the case of a postdated check or order) if:
(1) he had no account with the bank or other drawee at the time he issued the check or order; or
(2) payment was refused by the bank or other drawee for lack of funds or insufficient funds on presentation within 30 days after issue and the issuer failed to pay the holder in full within 10 days after receiving notice of that refusal.

TPC 32.41 focuses on insufficient funds being the cause of the failure of presentment, and not on the willful action of the account owner to order the bank or credit union to stop payment. However, my research is incomplete on this matter because I have not reviewed Texas case law on this issue.

Consult with a Texas lawyer who has consumer law experience to learn if stopping payment on a check falls under TPC 32.41.

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Buckie B.
Point Venture, TX  |  September 27, 2011

I have a couple of different loans, I have every intention of paying these back but just can't with the interest being so high. I want to close my bank account, move to another bank and open an account, so that I can start paying my debt without them taking all my money each month. Is this considered bank fraud? Can I go to jail for this?

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Bills.com
September 27, 2011

I can't give you legal advice. Only an attorney can properly dispenses legal advice. I will share an opinion with you, but you should consult with an attorney to receive an authoritative answer..

Closing your account and opening a new account should not be viewed as a fraudulent action. You could suffer collection activity, however, if you are breaking a payment agreement when you close the account. I do not believe that you can go to jail for this or that it would be considered bank fraud.

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Angela P.
Kerrville, TX  |  June 21, 2011

I took out several payday loans and paid on them several times and got into trouble paying them back with the high interest. I ended up being so overdrawn with these payments that my account is still negative. I have several of the payday loan companies calling me regularly. One in particular thinkcash has sent my loan documentation apparently to a legal company who called me this morning stating that they were attempting to serve me papers regarding the loan if i did not settle the account in full. told them i could not had no money. they said i would be served papers for an arbitration hearing to be held in another state so frazzled can\'t even remember which state they said. i believe it was new york. they said i would have to then appear. i live in texas. i don\'t have money to pay them back and don\'t have money to travel to another state for this payday loan arbitration. what can happen to me if i do not appear. can i be arrested. i thought that my payday loan was like any other loan and if i defaulted they would attempt to collect and if they could not they would place it against my credit report. why are they threatening me, they have called and said i am going to be arrested for fraud. i am not guilty of fraud. it was not my intention not to pay back the loans but the interest was just to high to get out from under them. what can i do? please help!!!

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Bills.com
June 21, 2011

Re-read the original answer above to understand your rights and liabilities as a Texas resident. Threatening people with arrest is a common ploy for unscrupulous collection agents. You will be much less frightened if you know your rights, and file a complaint with the Texas Attorney General regarding the collection agent's harassment.

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Sandie H.
September 21, 2011

First of all I reviewed the Cross Point and other websites pertaining to PD loans. Unless the account was closed when you presented the check there is no such action on their part to even claim criminal or fraud. I founded out that when a company can not collect on a payday loan after attempting to debit an OPEN account more than once and then the person close the account due to insufficient funds which can cause the account to become severely over drawn, they can not say that this was fraud or a criminal intent. They are just blowing smoke to get you to pay the company off. I also found out that the company who made the loan can present lies to a third party collection or pretend to be legal assistance blah blah about the customer has committed a crime due to the fact that they could not KEEP trying to withdraw the payment from their account. So they fabricate these lies to third party collections to get you to pay them away. At that point they harass customers with threats of arrest, court dates, jail and whatever they feel like saying unless you fall for their foolish games.Know YOUR RIGHTS and just hang up on these fools who is just trying to bring you down into paying them OLD/or NO debt that you owe . The less they can do is put it on your credit. But most companies can care less because payday loan co. shouldn't be in business anyway with their OUTRAGEOUS fees. That is why so many of them will be in Class Action Law suits in the near future.

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Bills.com
September 21, 2011

Thanks for sharing your thoughts. As you advise, it is prudent for anyone to know his or her rights.

Laws vary from state-to-state, so a person should look at the laws in the state of residence and contact the state agency that regulates payday lenders.

While it is quite true that debt collectors may make idle threats and try to pressure a person to paying on an expired or even a non-existant debt, it is also true that a person with an unpaid payday loan can end up with a wage or bank levy.

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Carol R.
Richardson, TX  |  June 08, 2011

Bill, why would banks in Texas refuse to honor ACHs for payday loan companies if they have valid signed contracts from the people who got the loans? would the DA consider it fraud if the people don't pay? If people are in trouble and need a loan, why can't they be responsible and try to pay it back?

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Bills.com
June 08, 2011

Based the messages Bills.com receives from other Texas residents regarding payday loans, I would be surprised that all Texas banks dishonor ACH transactions from payday lenders.

Adults should have the ability to contract for any legal transaction. However, the unrelenting string of messages from Bills.com readers regarding problems they have repaying these high-interest loans tells me payday loans are more trouble than they are worth. I do not recommend them under any circumstance.

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Patricia G.
Plano, TX  |  June 03, 2011

wrote a postdated ceck icant cover offered to pay some of it wrote postdated because of income tax return but my ck is lost irs looking for it she went to bank even though she knew no money in acct wont work with me and is going to D A ;s office on monday can i get arrested

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Bills.com
June 03, 2011

You are asking me to predict the behavior of a Texas district attorney. As I read the Texas Hot Check law, I would answer your question as "No." However, I am not a Texas district attorney. Consult with a Texas lawyer for a more in-depth analysis of how your local DA treats these cases.

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Jean S.
Mckinney, TX  |  June 01, 2011

I received a call from a "restricted number" today telling me that I MUST call Global Mediation Services immediately to resolve an issue because "a complaint and charges had been filed against" me and that she was the process server ready to serve me with "papers" if I do not "work out my issues" with Global Mediation Services before she gets to me. I questioned her on the papers filed, the court information, etc. - but she refused to answer my questions stating that she was a process server and that I must call Global ASAP. So, I called Global. They informed me that I took out a payday loan from a company called Authorized Payday in January 2007 and never paid it back. I don't recall this. I have taken out payday loans in the past, but have paid them all back (to my knowledge)and haven't taken out such a loan in over 2 years now. I have not located my bank statements from that long ago, and am not sure whether or not I still have them. My emails only go back to September 2007. In event, I asked Global several times to verify the debt, fax me or my attorney the loan documents and proof of debt - at first they said that the documents were electronic and did not exist, then they recounted and said that I would be served with the paperwork, then they finally, of course, refused to provide any documentation, threatening me with legal action (although it was unclear as to what type of legal action) and kept talking very rudely over me accusing me of fraud and stating that they would go ahead and authorize the process server to serve me with the paperwork and I can explain to the judge why I committed fraud. I continued to asked for court information and that they fax the documents to my attorney. They refused and said that I would be served accordingly. I cannot find Global Mediation Services online. One lady I spoke to at the number I called did state they were in California. I did find an Authorized Payday, LLC online. I have no idea what these people are talking about. If the transaction occurred in January 2007, I believe the 4 year statute has run. Furthermore, why would they wait over 4 years to attempt to collect this loan???? It sounds VERY fishy to me. Nonetheless, I am worried and I don't like to be threatened in that manner. I have checked the counties' in my area websites, and don't see any cases filed against me. I am unable to check JP cases online though. What is your advice and do you have any further suggestions or comments other than to direct me to those websites to file complaints and read up on consumer law? I cannot file a complaint against companies I have no information on.

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Bills.com
June 01, 2011

Trust your memory. If you do not recall the loan, and the collection agent refuses to validate the debt, then you are dealing with a fake debt collector.

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Jean S.
Mckinney, TX  |  June 01, 2011

Thanks for the input. I forgot to mention that I called the number back 3 times to get the address and fax number for Global Mediation Services, I was put on eternal hold two times and hung up on the 3rd time. How can I send a validation letter when I have no contact information other than a letter? Should I contact Authorized Payday directly? When I went on their website and clicked on registered user (as I thought I should already be a registered user if I had received a loan from them), my antivirus popped up with a message that the trusted validation certificate had expired in April 2011 and warned me that I should not proceed because it was a highly possible that a third party was extracting information from that site. I welcome your further input on this subject. I will be talking with an attorney tomorrow morning. Thank you!

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Bills.com
June 02, 2011

Really now, how difficult is it to give a caller your employer's fax number?

So many of the facts in your message reek of "scam" that I applaud your taking all of the documentation you have regarding this so-called debt to a lawyer for a consultation. Yes, a lawyer's time is not cheap, but paying a debt you do not owe is very expensive indeed.

Please return here and let us know what you learn, and what course of action you decide to take.

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Amelia H.
Fort Worth, TX  |  June 23, 2011

I just wanted to thank you for this post. I got a call today from a company called American Litigation in regards to a pay day loan I took out with Authorized Payday in September 2007. They say they're going to file a summons against me and I'll have to pay them back an excess of $2500 in fees if I don't agree to settle right now... they said the original loan amount was $100. I did take out some payday loans a few years ago but I know I've paid them all back. Although when they started claiming law suits and criminal action I got scared... this article put my mind at ease. So thank you =)

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Deb V.
Mckinney, TX  |  February 23, 2011

There's one town in Texas that prosecutes hot checks cases for payday loan companies. I have recieved threats from this particular loan co. and they made good on it. I received 2 warrants for the post dated checks and have had to hire an attorney for this injustice or I would have went to jail. I now have a court case coming up. I paid on these loans for app 18 months, but became financially distressed. I did everything I could to try to keep up these payments but finally had to make a choice between being homeless or pay another month of payments to the loan companies. I thought they could not do this? Why would a Justice of the Peace court accept these cases? As far as having to pay the court costs or warrants, I guess it does bring money into the county.? By accepting these cases doesn't it just encourage the payday lenders to be even more aggressive and threatening and feel they can get by with it?

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Bills.com
February 23, 2011

There are 254 counties in Texas, the most of any state, and more than 254 district attorneys who decide which cases to prosecute under Texas law.

In my opinion, district attorneys misapply Texas hot check law when prosecuting delinquent payday borrowers. I also think if a local district attorney has the time to function as a payday collection agent, he or she sends taxpayers the message the DA's office is overstaffed.

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Deb V.
Mckinney, TX  |  February 24, 2011

The prosecutor has refused to dismiss this case on the fact that it goes against the FDCA and we're going to jury trial. Is this a good idea? how much of a chance am I taking on digging a deeper and more expensive hole for myself. What might jurors feel on this case? I'm just looking for an opion.

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Bills.com
February 24, 2011

Consult with a Texas lawyer who has civil litigation experience. If you cannot afford an attorney, call your county bar association. Ask for the name of the organization in your area that provides legal services to people with low and no income. Make an appointment with that organization and bring all of the documents you have relating to the debt and legal action filed against you to your meeting. The lawyer you meet will advise you accordingly.

Neither the Fair Debt Collection Practices Act (FDCPA) nor the FCRA, the Fair Credit Reporting Act, give prosecutors a legal basis to file criminal charges against debtors. If the DA plans to charge you, he or she must rely on Texas law. Again, a local Texas attorney will be able to review any court documents in person and can advise you accordingly.

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Lisa G.
League City, TX  |  February 24, 2011

I am having this issue as well. My boyfriend is getting calls from IAG saying their attorneys purchased a check from Pay Day One...which is an online loan place. They are saying a summons is being sent to our address and that he is going to be going to court... Now, I used to work for Advance America..So i had to know these laws in a summary atleast.. We couldnt threaten a customer with legal action because we were a CSO..which from what I understand..Thats the ONLY way to do payday loans in Texas. Second, we did our collections... yes, we had collection agencies, but none of our customers EVER got put in jail or anything. (I had to quit this job because morally.. it just wasnt for me.) This IAG place is just being ridiculous, and i know they are pulling it out their butt.. How can i file a complaint on them? They are harassing us, and wont let us get a word in whatsoever. I mean, pay day loans cant even go on your credit report so i have no clue why they are trying to harass us so much... or thats probably why! lol

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Bills.com
February 24, 2011

The Federal Trade Commission operates the Complaint Assistant Web site. Texas residents can also file a complaint with the Office of the Attorney General Consumer Protection Division. To consult with a lawyer who has consumer rights experience, contact the National Association of Consumer Advocates (NACA). Some consumer rights lawyers take on these types of cases on a contingency basis, which will result in no out-of-pocket costs to you.

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Le E.
El Lago, TX  |  March 18, 2011

I too have fallen into this trap. So if I'm reading everything correctly, the company cannot file criminal charges? I have also received calls from someone with an Indian accent saying that I'm going to be arrested. Financially, I can't pay these loans right now. What is the worst thing that can happen to me if I do not pay anything right now even though they keep calling and threatening me?

(0)

Bills.com
March 18, 2011

One Bills.com reader (see the comments above) wrote that the district attorney in her county was using the Texas Hot Check law to prosecute the reader in criminal court. It is unclear to me if this was actually the case and criminal charges were filed against her, or if the payday lender was lying and told her the local DA would file charges against her. Regardless, in my opinion, which means nothing because I am not a Texas judge, a DA would misuse the Texas Hot Check law were he or she to use it for delinquent payments on a payday loan. I would also be surprised that a district attorney would have time for a payday lender case, given the much higher-priority cases in their in-box.

Unscrupulous collection agents lie to frighten delinquent borrowers into making their payments. Your best ammunition is to educate yourself about your rights under Texas law. Reread the original answer above to understand your rights and liabilities. File a complaint with the Texas Attorney General. Links to the Texas Attorney General's Web page are in my original answer above.

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Robert L.
Plano, TX  |  March 23, 2011

It is not the DA of Collin County that is prosecuting the payday loan checks. They send them back to the lenders. It is the Justice of the Peace office in McKinney, Tx that is doing this. The name of the payday loan lender is Cash Now. They are threatening me also. I think these people have some connection or somebody on the inside with the JP's office. Do you think it is time to contact the Texas Attorney Generals office to reiterate Texas law to their prosecutors?

(0)

Bills.com
March 24, 2011

I think it makes sense to contact the Texas Attorney Generals office and to also contact your elected state representatives. It may also be beneficial to contact the largest newspapers and TV news programs in your area. If there is a reporter that specializes in consumer affairs issues, contact him or her.

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Debee V.
Lowry Crossing, TX  |  April 28, 2011

U are exactly right. Cash Now is the one. Their collection tactics are brutal and stressful. I am taking it to jury trial. I,too,felt someone knows someone somewhere. They threaten,and tell ur business to other customers after making alot of money off of you and wont work with you and then turn you in for bad checks. Anyone know how jury trials come-out with them yet?

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Bills.com
July 26, 2010

I do not have experience with payday loan consolidation companies. Bills.com readers are silent on this subject, too. I would imagine the interest rates would be astronomical given the huge risks involved in lending money to consumers who cannot repay payday loans. Alternatively, I would imagine any lender in this business converts the unsecured payday loans into loans secured by vehicle titles or other property. In a nutshell, I do not see payday loan consolidation as a viable Plan A. You suggested a Plan B, which is a proven technique for handling payday loans.

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Angelica W.
Odessa, TX  |  November 03, 2011

I have a payday loan that I have set up payment arrangements on, but as I went to open a checking account was told that something came up on telecheck. When I called Telecheck they informed me that it was for a check, and provided me with check number, amount,date, and phone number to call. As I looked back to try and re-call of a check for that amount, I was very confused. I called the number and come to find out it was for the payday loan that I have arrangements on and have been paying on. Can they report my DL to telecheck in state of Texas? I asked to speak with a manager that stated to me that this was considered a "hot check" and they have every right to report me to telecheck?!? I have different understanding as to what constitutes as a hot check and I don't thing a payday loan is one of them. I explained to him that this was a loan that I defaulted on and when I postdated the check, it was obvious that they too are taking a chance of the funds not being available and are aware of that. I asked him to report to telecheck to remove me and he refused. What can I do about this?

(0)

Bills.com
November 03, 2011

Keep in mind the Texas hot check law is a criminal statute, which is not in play in the circumstances you described. Your issue falls under civil law.

When you wrote the check as the security for the payday loan, the payday lender probably had a Telecheck sign posted somewhere, which put you on notice that the lender would use Telecheck's services. It is fair to assume the check was returned to the lender as NSF, which the lender reported to Telecheck and is consistent with merchant practices who subscribe to Telecheck's services.

You asked for options. I see one: Pay off the payday loan as soon as humanly possible, and avoid payday lenders at all costs in the future.

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