If you owe on a payday loan, you may be concerned about what happens if you cannot pay the loan back. Many states now have specific laws that apply to payday loans, including limits on collection fees, restrictions on how payday loan companies use bad check laws, and both federal and state laws place restrictions on the use of various common collection tactics.
Collection Fee Limitations
Many states now have laws that restrict the amount of money that a payday loan company can charge in collection fees. In some cases, payday loan companies can only charge a flat fee for a dishonored check, while others allow additional fees, such as bank charges or court costs.
Payday loan borrowers may worry that they'll be subject to criminal prosecution if they are unable to pay their payday loans. However, in the United States, unpaid debt is a civil matter, not a criminal one. While some payday loan companies have tried to use the threat of bad check laws to scare borrowers into paying, most states now specifically prohibit or restrict the use of bad check laws to prosecute payday loan customers. In some states, such as Missouri, a payday loan customer can only be prosecuted for bouncing a check if they wrote the check on a closed account.
Standard Debtor Protections
Each state has its own statute of limitations laws on how long a creditor has to file a lawsuit against a debtor for an unpaid debt (usually three to six years). If a payday loan lender doesn't get a judgment against you within the statute of limitations, it can no longer get a valid judgment against you for the debt. If the lender does get a judgment against you, state laws limit the assets it can seize and the amount it can garnish from your paycheck.
Other laws protect debtors from abusive debt collection tactics. If you have an unpaid loan, the lender can contact you about the debt, and may hire a third-party collection agency. Federal laws protect you from abuse from collection agencies, and many state laws restrict the collection activities of original creditors as well.