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Can payday loans take you to court

can payday loans take you to court

Can payday loans take you to court? Those suffering from financial hardship often find themselves feeling like they are drowning in debt and can’t get out. Medical bills, credit card debt, and other expenses can leave people vulnerable to predatory lending options like payday loans. But unfortunately, payday loans typically have APRs running as high as 400%, which can often make your financial situation worse.

If you have an unpaid payday loan and are worried about being taken to small claims court, know that there are steps you can take to avoid this. Keep reading to learn what payday lenders can do if you don’t pay back your loan and how to rectify the issue as quickly as possible. 

What Is a Payday Loan?

A payday loan is a type of funding marketed toward people with a less-than-perfect credit history. The purpose of payday loans is to help people get some extra cash while they are in between paychecks. 

Since payday lenders don’t really care about credit, this type of funding tends to appeal to people with lower scores. While most lenders will perform a credit check before approval, instant payday loans online are often available without a credit check at all. 

Payday loans may seem convenient on the surface, but they also come with high-interest rates and inconvenient payback terms. A payday advance company usually expects borrowers to pay back their loans at the time of their next payday, which is generally about two weeks. 

Before you commit to a payday loan, make sure you will be able to pay back your entire balance within fourteen days or less. There is a legal disclaimer in most payday contracts that allows lenders to charge extremely high-interest rates for borrowers who don’t pay back their loan within that two-week period. 

Pros and Cons of Payday Advance Loans

Here’s a quick summary of the pros and cons of payday advances:

Pros of Payday LoansCons of Payday Loans
Quick Access to Cash: These loans can be obtained quickly, often on the same day or within 24 hours. This makes them useful for emergencies.High Interest Rates: Often have extremely high interest rates, making them an expensive form of borrowing.
Easy to Qualify: Payday lenders usually don’t check your credit, so people with poor credit can still get these loans.Debt Cycle Risk: The short repayment period and high costs can lead some borrowers into a cycle of debt, where they have to take out new loans to pay off old ones.
Few Requirements: Typically, all you need is a bank account, proof of income, and identification to get a payday loan.Unfavorable Terms: The terms of these loans can be confusing and lead to additional fees and charges.
Convenience: Payday lenders often have longer hours than banks and you can even find online loans that are available 24/7.Legal Implications: If you can’t repay the loan, lenders can take you to court, which can lead to wage garnishment or other negative outcomes.
*Please note that this is a simplified chart and the actual pros and cons can vary depending on individual circumstances and the specific terms of the loan. Always read the loan agreement carefully and consider seeking advice from a financial advisor before taking out a loan.

Can a Payday Lender Sue You and Take You to Court?

Unfortunately, if you do not pay back a payday loan lender, they may have the right to take you to court. When you receive a loan, you sign a contract, which includes the payment plan terms. You break those contract terms if you fail to pay back the loan. This contract breach gives lenders the right to take legal action against you so that they may receive their money back. 

Payday lenders may also work with a debt collector first before taking delinquent borrowers to court. A debt collector is an agency lenders can work with when borrowers fail to pay back their loans. So, if you receive calls from a collections agency about an unpaid payday loan, it is best not to ignore those calls. 

What Happens if Payday Lenders Win in Court?

If a judge rules in favor of a payday lender or debt collector in court, court proceedings may entitle them to a certain amount of payments. In order to receive these payments, the court may decide on a legal procedure such as wage garnishment, bank garnishment, or putting a lien on your home or vehicle. 

Wage garnishment is when a certain amount of money is taken directly from your paycheck and given to an entitled party. Similarly, bank garnishment occurs when money is taken directly from your bank account. Depending on how much money you have in your account, you may find that the bank garnishment process leaves you with a negative balance. 

If a lien is put on a piece of your property, like a vehicle or home, the payday lender or debt collector will have partial ownership of that property. Then, if you fail to make payments according to the court proceedings and rulings, you run the risk of having that property taken away from you. 

Can I Go to Jail for Not Paying a Payday Loan?

Thankfully, you cannot go to jail solely for not paying back a payday loan. In fact, it is illegal for payday lenders to threaten you with jail time if you cannot pay back your loan. According to the Fair Debt Collection Practices Act, also known as the FDCPA, payday lenders are restricted from threatening borrowers with certain criminal charges, including jail time. Legally, failing to pay back a loan is not a criminal offense.  

What Should I Do if a Payday Lender Sues Me?

In most circumstances, debt collectors, not payday lenders, are the ones who sue borrowers who don’t pay back their payday loans. Regardless, if you receive a court summons from a debt collection agency or payday lender, you should take it very seriously. 

If you find yourself with a court summons regarding an unpaid payday loan, make sure you read it over completely. Ensure all the information given on the court summons is correct. 

Some information you may find on an unpaid payday loan court summons are: 

  • How much money is owed?
  • How much money the borrower has paid.
  • The date the borrower made their last payment (if they made any). 
  • The location and date the borrower is summoned to appear in court 

If you see anything amiss on the court summons, you may want to get in touch with a law firm and request assistance. A lawyer will be able to provide legal advice and help you navigate the court process. 

It is also important to never ignore a court order if you receive one. If you miss your court date, there may be an automatic default judgment in favor of the payday lender. That ruling may leave you responsible for court fees, legal fees, as well as any other charges the judge granted in favor of the payday lender. 

Can I Sue a Payday Lender? 

Yes! If you find that a payday lender is participating in illegal practices, you have the legal authority to sue them. You can also submit a formal complaint to the Consumer Financial Protection Bureau and report any unlawful activity you experience from a payday lender. 

Some reasons why you may report payday loan companies are: 

  • The lender makes incorrect charges to your checking account. 
  • The lender does not record payments you made towards your loan.
  • You receive a loan that you did not apply or sign for. 
  • You signed a loan contract and never received your loan proceeds. 
  • Your lender charges you any undisclosed or unexpected fees.
  • You are unable to contact your lender to discuss issues you are having with your original loan.

When you have a payday loan, make sure you pay close attention to your payments and charges. Your lender should be prompt about posting your payments and should disclose all intended charges in your loan contract. Before you sign and commit to a loan, make sure you read and understand your contract so nothing comes up unexpectedly. 

How To Deal With Debt Collectors 

Those who fail to pay back a payday loan may find themselves getting calls from debt collectors. If you receive calls from a debt collector, don’t ignore them. While collection calls are annoying, the best way to get rid of them is to pay back your loan. Debt collectors can also give helpful advice on how to have your loan forgiven, so it may be in your best interest to work with their collection efforts. 

If you find yourself in a situation where you are absolutely unable to pay back debt collectors, you may want to contact a bankruptcy attorney. They may be able to give you a free consultation for credit counseling

Tips for Paying off Payday Loan Debt 

It’s best to pay off your payday loan to avoid getting calls from collection agencies. Not paying back a loan not only puts you at risk of being taken to court, but it may also have a significantly negative impact on your credit score. 

Payment history is the most influential factor that contributes to your credit score, so delinquent payments hit your score hard. Late or missed payments on any kind of loan have the ability to hurt your credit score for up to seven years! Save yourself the hassle of dealing with bad credit and do everything you can to pay your bills on time. 

Check out the tips below for more helpful advice on paying off payday loan debt. 

Refinance With a Better Loan

Get rid of your payday debt instantly when you refinance a payday loan with a better loan. If you have a high credit score, you may consider traditional loans from a bank or credit union. Keep in mind that many credit unions require borrowers to live within a certain area in order to receive funding. 

You may consider a personal loan if you have a lower credit score. Personal installment loans often come with competitive interest rates and personalized repayment terms. An installment loan can also help you improve your credit if you pay on time and the lender reports to the credit bureaus!

Sign Up for Autopay

It may be a smart idea to opt for automatic payments to make sure you make all your loan payments on time. Automatic payments, also known as autopay, allow lenders to take money directly from your bank or checking account on the due date of your loan payment. 

Frequently Asked Questions about Payday Loans and Court

What can payday lenders do if I default on my payday loan?

It’s important to understand that if you default on your payday loan, the payday loan company may have the right to initiate collection actions. This could include contacting you, reporting you to credit bureaus, or even taking you to court to recover the debt.

Can a payday loan company garnish my wages without a court order?

Generally, a lender cannot garnish your wages without a court order. If you default on a loan, the lender must first sue you in civil court, win, and then obtain a court order for wage garnishment.

Can a payday loan company access my bank account without my permission?

When you sign a loan agreement with a payday lender, you may give them permission to automatically withdraw payments from your bank account. Make sure to read your loan agreement carefully to understand the terms.

What happens if a payday company sues me and wins in civil court?

If you lose a court case due to unpaid payday advances, the loan company can garnish your wages or levy your bank account. However, remember that this is a matter for civil court, not a criminal court, and you cannot be jailed for failing to pay back a payday loan.

Can I stop a payday loan company from taking money out of my bank account?

Yes, you can stop automatic withdrawals by contacting your bank or credit union and revoking the company’s authorization. You should also inform the payday lender of your actions in writing.

What should I do if I believe a payday loan company is treating me unfairly or breaking the law?

If you believe a payday loan company is acting unfairly or violating the law, you can file a complaint with your state’s attorney general’s office or your state’s department of financial regulation.

Can I negotiate with a payday lender if I can’t afford to pay back my loan?

Yes, it’s often possible to negotiate a new payment plan with your payday lender if you’re unable to repay the loan. It’s important to communicate with your lender as soon as you realize you’re having trouble making payments.

A Note From CreditNinja on Payday Loans

You may have heard that payday advance lenders can take you to court if you do not repay. And unfortunately, it’s true. A lender can take you to court and garnish your wages. While payday advances are convenient, they often have predatory repayment terms. Currently, sixteen states and the District of Columbia have laws prohibiting high cost payday lending.5 

Don’t let a payday advance ruin your financial situation! If you need more helpful advice on handling your finances and increasing your FICO score, check out the free CreditNinja resource blog!

References:

  1. The Truth About Payday Loans │ Illinois Attorney General
  2. Court Summons for an Unpaid Payday Loan │ UStatesLoans
  3. Can Payday Lenders Sue You or Take You to Court? │ DebtHammer
  4. You can submit a payday loan complaint │ Consumer Financial Protection Bureau
  5. Legal Status of Payday Loans by State │ CFA
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