What you can do , when you are unable to pay payday loan

I received a pay day loan and was unable to pay, can I be arrested or prosecuted for theft or fraud?

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Bill's Answer: Answered by Mark Cappel

No, you cannot be arrested. There is no concept of "debtors prison" as that concept was outlawed centuries ago. They can try to harass you and even potentially sue you (to obtain a judgment against you) -- but unless you did something fraudulent or unlawful they cannot send you to jail.

First, you need to protect your ability to have a checking account. Lenders base payday loans on checks/debits to secure loans, to make it easy to collect through the borrower's bank account, and to encourage loan renewals to keep checks used to get loans from bouncing.

Your banker can advise when it makes sense to close your account and open a new one to get control of loan payments and stop escalating Non-Sufficient Funds (NSF) fees generated by repeated attempts to collect on the check held by the payday lender. Contact your banker quickly, before payday loans cause your account to be overdrawn. If your bank closes your account due to repeated overdrafts, you may be placed on a list that will make it hard to get a checking account for five years. Your bank or credit union can also help you stop payment to lenders that electronically access your bank account. If the loan is not paid, lenders in some states can take action under civil bad check laws. In most states, however, lenders cannot file a criminal case for passing a bad check.

If you default on your payday loans, the lender can take the same action as any other unsecured creditor to enforce a defaulted debt. Generally, their collection efforts will start with telephone calls and dunning letters demanding that you pay the balance of the loan. If the payday loan company refers your accounts to a collection agency, you can usually stop the telephone calls by sending a cease communication demand letter, commonly called a cease and desist notice, to the collection agency. 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, such as California and Texas, 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. The most common methods of enforcing a judgment are wage garnishment, bank account levies, and property liens. To learn what actions a creditor can take to enforce a judgment in your state, see the Bills.com resources Collection Laws & Exemptions by State and Judgment Garnishment.

You may be in luck. There are eight states whose payday loan regulating statute 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. Check out the payday loan information from the Consumer Federation of America 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 your state, and if you live in one of the eight states requiring installment payments. If your state does require repayment plans, and the lender still won't accept payments, call your state 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, you may want to 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 up on the regulations in your state to find the best strategy for your situation. For more information on state law terms, please visit http://public.findlaw.com/

Bills.com also offers more information on the Payday Loan Information page, and has answered reader questions about payday loans in California, Massachusetts, Florida, Texas, Illinois, 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 Bills.com resource Collections Advice to learn more about the rights of creditors and debtors.

I wish you the best of luck in repaying these payday loans. I hope this information helps you Find. Learn. Save.

Bill

Bills.com

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