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Payday Loans & Hot Checks in Texas

Payday Loans & Hot Checks in Texas

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Mark Cappel
UpdatedMay 28, 2024
Key Takeaways:
  • Writing a 'hot check' is a criminal offense in Texas.
  • Texas district attorneys have not prosecuted delinquent payday loans under the hot check law.

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?

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Payday loans are withdrawn directly from the customer’s checking account using the Automated Clearing House (ACH) system.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



Struggling with debt?

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Housing debt totaled $12.82 trillion and non-housing debt was $4.88 trillion.

According to data gathered by 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 New York credit card delinquency rate was 3%, and the median credit card debt was $420.

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.



ggeorge, Oct, 2011
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?
BBill, Oct, 2011
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.

BBuckie, Sep, 2011
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?
BBill, Sep, 2011
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.
ccarol, Jun, 2011
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?
BBill, Jun, 2011
Based the messages 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 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.