How to Handle Payday Loans

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  • Payday loans are usually small loan amounts that must be repaid in full when the borrower receives the next paycheck.
  • The borrower will also be required to pay any lender fees at the time of repayment.
  • Payday loans usually come with very high interest rates and fees.

Everything You Need to Know About Payday Loans, Why to Avoid Them, & How to Repay Them.

Are you considering a payday loan? If so, be very careful. Payday loans, often called cash advance loans, check advance loans, or deferred deposit loans, come with astronomical interest rates and fees. Payday loans should be your last resort if you need to borrow money.

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 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. Be aware that the accumulated fees for payday loans can have an effective annualized interest rate that of 780%, or higher, depending on the number of times the principal is rolled over.

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

Payday Loans and Consumer Rights

A payday lender itself may attempt to collect the balance. Alternatively, 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 to discuss the debt
  • Contacting your neighbors
  • Filing an arrest warrant

An important fact: Failure to repay a payday loan is not a crime! Aggressive payday lenders threaten borrowers arrest for check fraud: This is groundless 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.

If the payday loan company sells a collection 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 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. Not repaying a debt is a civil law and not a criminal law matter.

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 or credit union. 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. The best approach is to talk to your bank about the ACH withdrawals and ask for the forms you must use to cancel the ACH withdrawals. Complete the ACH cancelation forms, and return them to the bank. Alternatively, open an account elsewhere.

Once the account is closed or the ACH payment authorization is canceled, the borrower can 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 Your State’s Payday Loan Laws

Check out the payday loan information on the payday loan information by state page, where you will find how states attempt to regulate deferred deposit loans. Learn the specific regulations for payday lenders in your state, and if you live in a state requiring installment payments.

If your state does require repayment plans, and the lender still 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. has answered reader questions about payday loans for readers in California, Florida, Illinois, Massachusetts, Missouri, New York, Texas, and Virginia.

What a Payday Lender Can Do If You Do Not Repay Your Loan

If you do not repay a payday loan, the payday loan company has several legal remedies. These include:

Before a creditor can apply these remedies, it must file a lawsuit against you first. See the resources Collections Advice to learn more about the rights of creditors and debtors, and Collection Laws & Exemptions by State to learn more about debt collection laws that apply to you.

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

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Comments (61)

Albert12 M.
April 09, 2014
Awesome! Immense information there.
Clifford P.
Manton, MI  |  March 27, 2014
I live in Michigan, Did an online payday loan. Couldn't afford to repay it and still can't. They called me today threatening me with a charge of "Attempt to Defraud a Financial Institution." I have heard of that charge but my understanding of it was that one it only applied to federally chartered banks protected by the FDIC this was an online company. They said I had until 3pm today to come up with the full balance or they were putting this into court with that charge. They took my account information but I never issued them a check. In fact I never even had a book of checks to issue one from. The question is, can they actually come after me on that charge under Michigan law? Or is it just the garnishment, levy, and liens they can do?
March 27, 2014
When it comes to crimes, only district attorneys and prosecutors can file charges. You, me, and your payday lender can walk into the local office of our district attorney or prosecutor and wave our arms around and say so-and-so committed a crime. But it's the exclusive domain of our district attorneys and prosecutors to bring criminal charges in court, even if a payday lender insists otherwise.

It is possible for a lender to file a civil lawsuit against you for breach of contract. Or, if the lender has proof (such as an admission from you) you never intended to repay the loan, then it might try to include an argument for civil fraud.

You mentioned Michigan. Read the article Michigan Collection Laws to learn more about your state's rules and exemptions.
Patricia B.
Cottonwood Height, UT  |  March 30, 2014
I have dealt with these collection companies very successfully when they have purchased the "loan" from the original lender. It is against the law to threaten you with those types of charges. Go to the Consumer Fair Credit Protection Act. There is a new federal agency that was created to protect you from these scoundrels. Record those calls. I won two lawsuits where they had to pay my attorney and paid me a small award for distress. Gather information - ask them to PROVE THEY OWN THE DEBT. MOST CAN NOT - THEY ARE NOT THE ORIGINAL LENDER. GOOD LUCK.
March 30, 2014
Patty, thank you for your comment. If I may make a small clarification, the Fair Credit Reporting Act (FCRA) is a law that amended the Consumer Credit Protection Act.
Debra S.
Sacramento, CA  |  March 01, 2014
I have a payday loan on a bankruptcy post petition, once I put it on the amended schedule the payday loan says suspended. I've asked this numerous times, even tried googling an answer, What is suspension of payday loan and can they eventually start taking money from my account again??
March 03, 2014
Your bankruptcy lawyer is your best source of information about which accounts the court discharged. He or she will review the discharge documents issued by the court, and advise you accordingly.

If the court discharged the payday loan, then the payday lender violates state and perhaps federal law if it attempts to collect the debt. If the court denied your request to add the loan to your petition, then the loan is still collectible.
Debbie S.
Sacramento, CA  |  February 27, 2014
I filed bankruptcy and put a payday loan on it. it was a post petition so unsure if it will be discharged. I checked the site where payday loan was taken from and it states the loan was suspended. I am unsure what this means and what can happen. Can the pay day loan comp comes after me, Please explain the suspension etc. Thank you
Peggy P.
Las Vegas, NV  |  February 13, 2014
I have a small loan from a Payday loan company. After quite a while with this company and never forfeiting on it, they now call me numerouse times a day at home & work, on the day payment is due, and if I have not made the payment by the next day, they are calling my references stating its in reference to a "Legal" matter. Please advise what I can do to stop this harrassment until the loan is paid off. Thanks.
February 14, 2014
Original creditors are given wide leeway, when it comes to what they can do to collect a debt. They are not subject to the same rules that collection agents are, in most states. Collection agents' conduct is governed by the Fair Debt Collection Practices Act, a federal law.

Some states have their own, stricter debt collection laws. See if your state has a law that restricts the conduct of original creditors that would prevent what they are doing. While they may be allowed to call a third-party to get the contact information of a debtor, seeing they have your contact information, the repeated calls to your references seem shady. Consult with a lawyer in your state that handles Fair Debt Collection Practices Act violations. That kind of lawyer generally doesn't take a fee from you, but collects from the collection agent, if the lawyer can prove a violation has occurred.
Lori M.
Ocala, FL  |  September 16, 2013
I lived in Wisconsin in 2002 for about 6 or 7 months. I then moved back to Florida. During my time in Wisconsin I borrowed from a payday loan company. I moved and was never able to pay them. In any case, here we are in 2013 and a company is trying to collect for them. Is there a time limit on being able to come after me for this debt? Also this debt isn't even on any of my credit reports. Please advise!
September 16, 2013
If you were still a Wisconsin resident, the answer to your question would be easy: No. Wisconsin is one of two states that outlaws the collection of debts older than the state's statute of limitations for that type of debt. Of you were never a Wisconsin resident and always a Florida resident the answer would be equally easy: Yes. In all states but Mississippi and Wisconsin, it is legal for an original creditor or collection agent to collect on a debt where the statute of limitations clock has run out.

Your question is complicated because you borrowed the money as a Wisconsin resident, but now reside in Florida. So, which state's statute of limitations rules apply — Wisconsin or Florida? We could spend 1,000 words analyzing your situation, but the answer would come down to whether you could persuade a Florida judge to apply Wisconsin's statute of limitations rules when deciding to dismiss the case.

You mentioned this debt appearing on your credit report. Seven and a half years is how long most derogatory items can appear on consumer's credit reports. The 7½-year rule has nothing to do with determining whether the debt may be collected.

Our advice? Validate the debt. A debt that cannot be validated may not be collected.
Melissa B.
Spring Hill, TN  |  October 04, 2012
I live in Tennessee and have taken out 3 payday loans in which I am going broke paying. The payday lenders are Plain Green, Cash Call, and Flash Cash. My payments come out every payday except for the Cash Call which is monthly. By the time I am done paying for these I have hardly any money left for my home bills and for living. I have thought about closing out my checking account and trying to negotiate a new percentage rate or payment plan that will actually allow me to pay off the debt instead of accumulating more fees. It seems like the more I pay the more I owe. At this rate I will never have any savings and I will be paying this for the next 10 years. Any suggestions?
October 05, 2012
Eight states have payday loan regulations requiring lenders to set up an installment repayment plan if an account reaches the maximum number of rollovers allowed by law, or the debtor declares he or she is unable to pay the balance due.

Payday loans in Tennessee are regulated by the Tennessee Department of Financial Institutions, which calls payday lenders "Deferred Presentment Services Companies." Neither the Tennessee Department of Financial Institutions or the Tennessee Office of the Attorney General indicate that Tennessee payday borrowers are protected by state-required rollover plan. Therefore, you have two options:
  • Borrow the total balance due from a friend or relative, pay-off the lenders, and swear-off payday loans, or
  • Negotiate your own installment plan with the lenders.

Reread the original article above for instructions on how to cancel the ACH withdrawals and set up your own payment plan.

Aj S.
North Redington B, FL  |  September 23, 2012
I live in Florida and took out a payday loan that I now cannot afford to repay. I accidentally used a check from an old, closed account for the loan. I had used those checks and paid back the loans on time many times before. Now that I cannot repay this current loan, is there any danger of worthless check charges (criminal charges)? I don't believe there is based on your info, since I had repaid many previous loans that those same checks had been used for. Please advise!
October 02, 2012
I cannot give you a back-and-white, yes-or-no answer to your question. If you wrote a check to a payday lender on your current account, the answer to your question would be straightforward — there would be no criminal intent unless you told people, "I have no plans to ever repay this payday loan."

However, you wrote the check to a payday lender from a closed account, which is a different set of facts. Did you intend to give the payday lender a check from your old account? You say you did not, and I believe you, but what does the district attorney in your city or county infer from your actions? That is a question I cannot answer. My advice? Do your best to work out a successful plan to repay this loan so you do not find out how your district attorney views the matter.
Crystal J.
Jamaica, NY  |  October 27, 2011
I live in NY and have 6 payday loans, all done online. With the combined loans my account has been left with a negative balance of $300 or more for the past 2 months. I put a hold on the account for no further transactions and they are now calling my job (a lot), also I have been contacted by O'Brian, Wexler and Associates who say they are representing DJR group and they want me to pay triple on the principal loan. I am confused and would like to know is there a law firm in NYC that you can recommend that can help me and will they at least have them call my personal phone and not my job phone. I am a single mother of 4 and cannot afford to pay them all back at the same time and they have been taking their fees for the past 4 months which has not gone towards the principal loan, so in actuality, I have already paid in fees to each of them, about 3 times the original loan amount. Help PLEASE I an soooooooo very desperate!!!!!!!!
October 27, 2011
See the resource New York Payday Loans to learn how New York's laws protect consumers residing in that state. Contact the New York Legal Aid Society for legal assistance.
Mia S.
Kernersville, NC  |  October 22, 2011
I was at PayDay loans online through but once I saw the outrageous amount you pay for them I declined all offers over the phone and never responded to any emails. Then Anasazi group LLC deposited money.. 250.00 to be exact into my bank account without my permission and no legal documentation signed by me agreeing to the loan. I live in North Carolina and these kinds of loans are illegal. Am I legally bound to pay this back? I emailed them telling them to take the 250.00 back and nothing more and haven't received a response yet. Since it is the weekend I can't contact my bank or the loan company.
October 24, 2011
Contact the North Carolina Attorney General's Office.

My guess is that you will have to remit the $250, but hear what the Attorney General's office has to say.
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