Pay Day Loan Collections
- Avoid pay day loans if at all possible.
- Make every effort to repay a pay day loan as agreed, or you will face severe financial penalties.
- Knowing your rights under the FDCPA to protect yourself from debt collector harassment.
I am having financial problems and I asked the payday loan company not to call my job. What should I do?
I have several payday loans I cannot repay right now. The payday loan collector threatened me with arrest, and said they will call my job and have me fired. They also threaten civil legal action. What can I do?
Handling a payday loan is difficult. The biggest challenge is to take charge of the situation and create a solid repayment game-plan, especially since the payday loan cycle is so expensive. My answer discusses what a payday loan is and why you should avoid them, your rights as a consumer, tactics a payday lender will use in collections, and strategies for freeing yourself from the payday loan trap.
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 often gives 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 400% to 1,460% 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, list 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, 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, 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, see the Bills.com debt collection laws page.
If the payday loan company sells an account to a collection agent, the borrower may be obligated to pay 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 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.
Once the account is closed, the borrower can create and 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 more about the payday loan laws in your state, including each state's attempts to regulate them. You state may require a repayment plan. If your state does, and your lender 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 Bills.com article Debt Negotiation and Settlement Advice.
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.
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.
See also the free Bills.com Financial Planning and Budget Guide, which can help you manage your finances and help you learn about budgeting and prudent financial management.
I hope this information helps you Find. Learn. Save.
Dealing 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 Q4 2022 was $16.91 trillion. Auto loan debt was $1.55 trillion and credit card was $0.99 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 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Ohio, 28% have any kind of debt in collections and the median debt in collections is $1369. Medical debt is common and 15% have that in collections. The median medical debt in collections is $607.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.
If you included the payday loan, which as just mentioned you should have, and this loan was included in the discharge, the lender cannot collect this debt. If the payday lender or a collection agent files a lawsuit against you, consult with a lawyer immediately and give copies of your discharge paperwork to your lawyer. Your lawyer will file an answer to the court, including a motion to dismiss based on the debt being discharged in your bankruptcy.
In the meantime, the collector may try to bully you into making a payment on this debt, or signing a reinstatement document. The fraud charge claim is a bullying tactic. Don't fall for the collector's nonsense. Consult with a lawyer before you take any action the collection agent asks.
Send NCA a cease communications notice, and then file a complaint with your state's attorney general if NCA continues to collect a loan your state considers illegal.
Regarding your questions, contact your state attorney general's office to learn if non-Louisiana-licensed consumer lenders are permitted to file actions for delinquent debt in your state. Some states prohibit unlicensed lenders from taking court action against their residents. Learn if your state is one of them.
Consult with a Louisiana lawyer who has consumer law experience if you receive notice of a lawsuit against you.