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California Payday Loan

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Bills.com Team
UpdatedNov 30, 2022
Key Takeaways:
  • Take out a payday loan only as a last resort.
  • Payday loans are not legal in every state.
  • Understand your state's laws about payday loans, before you apply or when facing collections.
In the state of California, if I put a stop-payment on a check, what can the payday loan company do?

I live in California and took out a payday loan of $300. I'm having a hard time paying the loan because of hard times. I have rent, car and other bills that i need to pay plus care for 2 boys. In the state of California, if i put a stop payment on the check, what can the payday loan company called California Check Cashing store do? Will it be a fraud to do a stop payment, i just don't have money to cover these NSF fees. I live paycheck to paycheck! Please advise!

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 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.

One slightly light-hearted fact regarding payday loans: Wikipedia.org, the leading online encyclopedia, lists 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.

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.

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, locate the Attorney General in your state at the National Association of Attorney's General page, then navigate to the official site of your state.

If the payday loan company sells an 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 Collections 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 Bills.com 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.

California Payday Loans

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, including California, 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. From my experience, the most common methods of enforcing judgments in California are wage garnishment and bank account levies. A creditor with a judgment against you may also file a lien against you. The lien will appear on your credit report and can be a barrier to your qualifying for any other loan, until the lien is satisfied.

You may be in luck in regard to your inability to repay these loans. California law limits the interest, fees, number of rollovers, and other penalties which payday lenders can charge. Check out the payday loan information from the Consumer Federation of America at PaydayLoanInfo.org where you will be able to read all about these loans and the various state attempts to regulate them. Follow the "state inform ation" link to find out the specific regulations for payday lenders in California.

If you think that this lender is violating California's payday loan regulations by charging excessive fees, interest, or violating state collection laws, you can contact the California Department of Business Oversight to file a complaint.

You may also wish to file a complaint with the Better Business Bureau which maintains information on this business, usually the BBB located where the company is headquartered. Hopefully you will get the results you want after these regulatory and consumer advocacy agencies become involved.

Given the interest rate caps and limitations placed on payday lenders in California, you may want to consider simply making payments in whatever you can afford to pay down the balance of the loan over time. While the interest rate is capped under California law, it is still a high interest rate, so I would encourage you to pay off this debt as quickly as possible. If the lender will not accept your payments, simply put what you can afford aside each month until you have enough money to either pay off the loan or to offer a settlement.

It would be wise to learn more about how to negotiate with your creditors.

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. To learn more about California laws affecting payday loans, see What you need to know about payday loans and Wage Garnishment & Payday Loan in California.

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.

Hopefully, one of the strategies I have discussed above will help you resolve these payday loans,.

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

Best,

Bill

Bills.com

Struggling with debt?

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Auto loan debt was $1.50 trillion and credit card was $0.89 trillion.

According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Ohio credit card delinquency rate was 4%, and the median credit card debt was $412.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.

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10 Comments

AAnderson, Sep, 2011
The result of making a stop payment of payday loan check and its repercussion has been explained
DDani, Aug, 2011
A collection agency is threatening to sue my mom for a payday loan from January 2007. If I am understanding CA law, they only have 4 years to collect and/or sue for this debt. This is the first contact regarding this supposed loan. Also, we no longer live in California. Can she be sued in the state we're currently in?
BBill, Aug, 2011
Validate the debt, then analyze the statute of limitations issue.

Answers to statute of limitations questions are not easy or straightforward. See the Bills.com resource Statute of Limitations to learn more about this issue. Also, it is an oversimplification to say something like, "A creditor may not sue if the statute of limitations has passed," unless the consumer / defendant resides in Wisconsin. In all US jurisdictions but Wisconsin, a creditor can sue if the statute of limitations has passed. However, the defendant must raise a statute of limitations defense in a timely manner. If the court accepts the statute of limitations affirmative defense, then the court will dismiss the case. It is much easier to say, "The statute of limitations has passed, so they cannot sue," but that is an incorrect conflation of the law. As I mentioned above, see the link I mentioned for a longer discussion of statutes of limitations and which state rules apply.

A lawyer suing a consumer must be licensed to practice law in the state where the consumer resides. In practice, this means the law firm must have an office in the consumer/defendant's state, or must pay a local law firm to file the lawsuit.
DDani, Aug, 2011
I should have clarified that it was an internet payday loan, if that matters. We asked for validation (copy of the contract) and the rep said they didn't have that information.
BBill, Aug, 2011
Send the collection agent a written request for validation using Certified Mail. Speaking with the collection agent on the telephone about a validation is not enough. The link I mentioned in my earlier response explains how to validate a debt, what is proper validation, what to do if the creditor does not provide validation, and what liability the consumer has if the creditor cannot validate a debt.
cchip, Aug, 2011
What if there is no address provided or they keep giving you the run around on an address and on the actual collection agency name? Can they still file a lawsuit to garnish wages?
BBill, Aug, 2011
Legitimate collection agents have no hesitation in providing a mailing address to consumers. People with fraudulent intent do, however. This is not to say that everyone who declines to tell you their mailing address is a scam artist, but I think a collection agent that refuses to say where his or her office is should be looked at with great suspicion.