You were short on cash and turned to a fast fix – a payday loan. But then something happened – your car broke down, you had extra expenses that week, or you just didn’t think too much past getting the money so that you could take care of immediate concerns. And now you can’t pay your payday loan. Every week the increasing fees and interest rates make it even less likely that you will be able to fulfill your obligations for the payday loan.
• What will this mean for my bank account?
• What will this mean for my financial future?
• Will I have to go to court – or even jail?
These might be just some of the questions you are asking yourself if you have a payday loan that you are unable to pay. The answers depend in part on your state, the amount of the loan and how you intended to repay it, as well as intent.
Unpaid Payday Loans – What do lenders do?
If you are unable to fulfill your payday obligations and pay for the agreed upon sum, you cannot be prosecuted with the threatened consequence of jail time by the lender. The lender can, however, file a civil suit against you for breach of contract. A civil suit claim will be addressed in small claims court, where a judge might order you to repay the loan in full, plus all of the interest and fees that are due, as well as associated court costs.
If you don’t comply with this ruling, the court can rule that:
• your wages are garnished (taken) in order to pay for your debt
• you must sell assets in order to pay for your payday debt
• you must sell property in order to pay for your payday loan debt
Lenders may not, however, file criminal charges against you. They are also not eligible to receive any social security benefits you might be collecting.
Unpaid Payday Loans – What do banks do?
While the lender is not able to file criminal charges against you, your banking institution can. When your lender attempts to collect on your debt by cashing the check you gave them or accessing the bank account you authorized, you might incur insufficient funding charges. If you do not supply your bank with both the amount you authorized to be taken from your bank account as well as the banking fees, you can be subject to criminal charges brought against you by your banking institution. These charges can be punishable by monetary damages as well as jail time.
An important distinction that is made, however, when a bank attempts to hold you criminally responsible is intent. Most states have criminal laws against writing bad checks. However, when it comes to payday loans, the contractual intent is to pay back the money owed. The contract is formed with the clear understanding that you don’t have the money (which is why you are asking to borrow this short-term amount at such a high interest rate). This technically can be seen as you having the intent to pay back the loan. It can be more difficult to prove criminal intent to write a bad check in these cases. The exception is if you write the post-dated check or make electronic authentication on an account that has already been closed or on which you have already defaulted.
How Else Will Defaulting on My Payday Loan Affect Me?
Not only might you be taken to civil court and charged in criminal court by your banking institution, your credit report can take a drastic dive. If your financial circumstances are so dire that you end up filing for bankruptcy, know that according to federal law, payday loans are not exempt from bankruptcy filing. Some lenders might attempt to convince you otherwise, but they are not guaranteed repayment in circumstances of bankruptcy claims.
It is also important to note that lenders (and banks that are acting as third parties with lenders) are subject to the Fair Debt Collection Practices Act (FDCPA). This means that lenders and agencies representing lenders may not call and harass borrowers with threats of criminal charges or fees beyond those that the contract listed. The lender must also keep your information confidential, and may not contact you for repayment issues if you file for bankruptcy.