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Payday Loans & Hot Checks in Texas

I can't repay a payday loan in Texas. Is that a criminal offense?

A payday loan that I was making payments every month on because my account was negative, just called and acted like a second party to the collection effort. She said I had until noon to pay the balance of $732 or I needed to contact an attorney because writing a check over $200 in the state of Texas is a serious offense. She was going to contact my employer. anyway, I called the lender and found out the woman is in the collection dept for that lender. I asked if they still wanted me to make the $200 payment on the 15th but she said no I had to pay in full. Anyway, my question is ... is an online payday loan a check that can be prosecuted?

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Bill's Answer
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Updated: Oct 23, 2014

Texas
Highlights

  • Writing a 'hot check' is a criminal offense in Texas.
  • Texas district attorneys have not prosecuted delinquent payday loans under the hot check law.

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Payday loans are withdrawn directly from the customer’s checking account using the Automated Clearing House (ACH) system.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.

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.

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, and Virginia.

Visit the Bills.com resource payday loan laws page to learn 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, account levy, property 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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  • GJ
    Oct, 2011
    george
    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?
    0 Votes

    • BA
      Oct, 2011
      Bill
      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.

      0 Votes

  • BB
    Sep, 2011
    Buckie
    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?
    1 Votes

    • BA
      Sep, 2011
      Bill
      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.
      5 Votes

  • AP
    Jun, 2011
    angela
    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!!!
    0 Votes

    • BA
      Jun, 2011
      Bill
      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.
      2 Votes

    • SH
      Sep, 2011
      Sandie
      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.
      1 Votes

    • BA
      Sep, 2011
      Bill
      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.
      1 Votes

  • CR
    Jun, 2011
    carol
    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?
    0 Votes

    • BA
      Jun, 2011
      Bill
      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.
      1 Votes

  • PG
    Jun, 2011
    patricia
    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
    0 Votes

    • BA
      Jun, 2011
      Bill
      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.
      0 Votes