Payday Lenders Can Take You to Court: Here’s How to Avoid It

These days you can be sued for almost anything, and that applies to lenders. A lender can take you to court if you don’t repay a payday loan.

Yes, payday lenders can sue you

Unfortunately, any creditor — including a payday lender — has the right to sue you and take you to court if you default on your payments or otherwise violate your loan agreement. When you obtain a payday loan, you’re signing a legally binding contract that can’t be broken without repercussions.

But even though lenders will follow through on their threat, they typically don’t want to. Court proceedings, even in a small-claims court, are expensive and time-consuming. It’s usually not worth getting into a legal battle for either side.

Instead, payday loan companies would prefer negotiating with you outside of court as they’re more likely to collect what they are owed. That means you can avoid legal problems if you’re proactive and contact the payday lender when you know you won’t be able to pay them back.

Don’t call their bluff

If your balance is small, you can hope that your lender won’t sue you. However, that’s a mistake. Even if the lender doesn’t sue you, you’ll have to deal with a debt collection agency, which can also take you to court.

Before the problem spirals out of control, talk to your lender. See if you can arrange for an extended payment plan to buy some time.

What should you do if a payday lender sues you?

The key is to show up for any court appearance. DO NOT IGNORE A COURT SUMMONS.

Unfortunately, most borrowers who take out payday loans can also have difficulties making it into court for their proceedings because they:

• Can’t afford to take time off work
• Can’t pay for transportation to the courtroom
• Are too afraid to show up

But if you’re sued by a payday lender and fail to show up to your court summons, the judge will automatically rule in their favor. This happens often, and the court will work to collect your debts.

If you’re summoned to court, show up. Unfortunately, if your lender comes prepared, you won’t have much of a legal defense unless:

• You have evidence of fraud (the payday loan was taken out by someone who stole your identity.)
• You can prove the lenders were using illegal tactics like threatening you with jail time.

However, by showing up, you won’t have to deal with possible contempt of court charges that could land you in jail, and even if the judge agrees to garnish your wages, at least you get to defend yourself, which may affect the wage garnishment that’s ordered.

What actually happens in court?

For a case surrounding payday loans, court proceedings will be straightforward. Small-claims court, where your hearing would be held, isn’t like the courtroom scenes in TV shows.

You and your lender will each tell your side and present evidence, often without legal representation, and the judge will make a ruling.

But since most lenders aren’t expecting you to show, they may not bring any evidence to back up their claims, which would mean you’d win by default.

The burden of proof lies with the payday lender, though they’ll only need to demonstrate a “preponderance of evidence” that you’re guilty of owing them money and failing to pay.

That’s a fancy way of saying that they need to prove that it’s “more likely than not” that you’re guilty, as opposed to “beyond a reasonable doubt” (which is much more difficult).

Can you go to jail for not paying payday loans?

No, you will not go to jail for not paying payday loans, no matter what your lender or a debt collector might say. You can, however, land in jail for other reasons for lack of repayment.

There are two basic types of court proceedings:

• Civil: Disputes between individuals or organizations where a successful plaintiff is awarded compensation for damages
• Criminal: Disputes between the government and an alleged criminal offender where an unsuccessful defendant is punished with fines and jail time (and in rare cases in some states, death.)

Payday lenders can only sue you in civil court, meaning a conviction will never land you in jail.

Your debt collectors may try to scare you by threatening to send you to jail if you fail to pay, but that’s not possible under the American legal system. They’re limited to:

• Damaging your credit
• Penalties and fines
• Attempting to seize your assets

Again, if they do threaten to send you to jail, that can actually work in your favor. Try to get it in writing, so you can use it as evidence of their illegal practices when you appear to court.

To learn more about the differences between civil and criminal charges, watch this video:

What you need to know about payday loans

A payday loan is repaid in a single payment on the borrower’s next payday, or when income is received from another source such as a pension or Social Security. The due date is two to four weeks from when the loan was made. The specific due date will appear on the payday loan agreement.

Payday loans are considered so predatory that many state laws ban payday lenders or have cracked down on their practices.

What is a tribal lender, and how are they different from payday lenders?

Tribal loans are a form of payday or installment debt offered by lenders who claim immunity from state lending regulations via ownership by or association with a Native American tribe. These are short-term, online loans with small to medium balances and carry interest rates above typical legal limits.

Know your rights

On Nov. 30, 2021, the Debt Collection Rule became effective. The rule clarifies how debt collectors can communicate with you, including what information they must provide you.

If a debt collector contacts you about your debts, you may have concerns about whether the debt collector is legitimate, if the debt is yours, or if the amount the collector is seeking to collect is accurate.

The Fair Debt Collection Practices Act makes it illegal for debt collectors to harass or threaten you when trying to collect on a debt. When the Consumer Financial Protection Bureau’s new Debt Collection Rule became effective, it clarified how debt collectors can communicate with you, including what information they’re required to provide at the outset of collection about the debt, your rights in debt collection and how you can exercise those rights.

Debt validation notice

When a debt collector first contacts you, they must provide certain information about the debt. When the information is provided in writing or electronically, it’s a validation notice, and it will include information like:

• Name and mailing information of debt collector. 
• Name of the creditor to whom the debt is owed.
• Account number (if any) associated with the debt.
• An itemization of the current amount of the debt that reflects interest, fees, payments, and credits since a particular date you may be able to recognize or verify with records.
• The current amount of the debt as of when the validation notice is provided.
• Information about your debt collection rights, including how to dispute the debt.

READ MORE: Did you get a debt validation notice?

How often can a debt collector call?

The FDCPA prohibits debt collectors from repeatedly or continuously calling with the intent to harass, oppress, or abuse you.

Under the Debt Collection Rule, collectors are presumed to violate the law if they make a telephone call to you about a particular debt:

• More than seven times within seven days, or
• Within seven days after engaging in a phone conversation with you about a particular debt.

These call frequency presumptions only apply to calls placed by the collector to you. They don’t apply to text messages, emails, and other types of media. Other media have different limitations.

When can a debt collector report my debt to a credit reporting company?

Debt collectors must take certain steps before reporting a debt to a credit reporting company. They must:

• Talk to you by telephone or in-person about the debt; and
• Mail a letter or send an electronic communication about the debt and wait for a reasonable amount of time, 14 days, in case it is returned as undeliverable.

If the debt collector sends a validation notice, they’ve satisfied the requirement and can begin reporting the debt to credit reporting companies, provided they follow other laws about credit reporting.

Can a debt collector contact me on social media?

Debt collectors must follow rules if they contact you via social media, including:

• Keeping the messages private – Messages to you must be private and not viewable by the public or by your friends, contacts, or followers.
• Disclosing that they are debt collectors – If a debt collector attempts to send a private message requesting to add you as a friend or contact, the debt collector must disclose his or her identity.
• Providing a way for you to opt out of their communications – They must also provide you, in each message, a straightforward way to opt-out of receiving further communications from them on that social media platform.

What is a “limited-content message?”

A “limited-content message” is a voicemail a debt collector may leave and must include specific information. Limited-content messages must include:

• A business name that does not indicate the caller is a debt collector.
• Number(s) you can use to return the phone call; and
• A request that you reply and the name(s) of who you can contact to reply.

There’s also optional information they can include like suggested dates and times for you to reply. Voicemails that don’t follow these rules aren’t limited-content messages.

If you’re having an issue with debt collection, you can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).

Can a payday lender garnish your wages?

If the judge rules against you in your hearing because you ignored a court order to show up or because the lender came prepared, your wages will be garnished to help pay off what you owe.

Wage garnishment requires your employer to withhold a portion of your earnings to pay down your debt, though there are hard limitations on what they can take from you.

What is the statute of limitations on debt?

A statute of limitations is a law that restricts the amount of time someone must sue for damages they’ve suffered. Therefore, a statute of limitations on debt is the length of time a creditor or debt collector must sue a borrower for defaulting on their account.

Can I sue a payday lender?

Yes, you can sue a payday lender, and you should if you have proof that they’re breaking the law. It can help you get your loan forgiven and discourage predatory lending practices, which can only be a good thing.

Unfortunately, the regulations for payday lending aren’t very strict right now. Your best bet would be to document proof that they’re threatening you in some illegal way.

States are trying to crack down on payday lending. Some states have already completely outlawed payday lending. In 2021, new legislation was put forth by 21 state legislatures. Much of it went nowhere, but according to the National Conference of State Legislatures, a few states took some minor action:

• Mississippi reenacted licensing requirements for check cashers under the Mississippi check cashers act.
• New Hampshire clarified and extended deadlines in consumer credit examinations applicable to certain entities licensed by the banking department.
• North Dakota amended and reenacted a portion of the North Dakota Century Code, relating to money broker exemptions, collection agency exemptions, and deferred presentment service transaction procedures

Are you facing legal threats over a hot check?

Writing a bad check, or hot check, is illegal. Anyone who writes a bad check is usually charged a fee. If you try to pass a bad check intentionally, the charge can range from a misdemeanor to a felony (a criminal charge that theoretically could mean jail time.)

Payday loan companies often threaten to file hot check charges with your local district attorney if you default.

This will certainly be a bluff because payday lenders rarely have the legal authority to file hot check charges, and they have no say over whether the DA will choose to pursue the case. Don’t let them bully you. You can potentially sue over these threats because they violate your federal rights.

Try to get help from other sources

• Payday loan consolidation programs: These are companies that will negotiate with payday lenders on your behalf and can typically reduce the total amount of debt that you owe. The way it works is simple, you choose to stop paying your lenders and instead set aside that money in a dedicated third-party savings account. Then the debt settlement company will negotiate better repayment terms on your behalf.
• Payday Alternative Loans: A PAL is a short-term loan with high-interest rates and annual percentage rates, offering a simple application process. You need proof of income and a bank account and must be a federal credit union member.
• Cash advance apps: Cash advance apps let you deposit money you’ve earned into a checking account before payday. Typically, cash advance apps are free or may charge a small fee. You won’t be charged interest on those loans. Dave is one of the most popular options, but there are plenty of other options. Even with nominal fees and/or upfront fees, a cash advance app can be a cost-effective alternative to payday loans or putting a charge on credit cards. Paycheck advance mobile apps work with iPhone and Android, and many offer repayment on your next payday.
• Peer-to-peer lending: Peer-to-peer lending is another form of personal loan and can be a smart choice for some. It connects individuals loaning money to borrowers with no go-between (i.e., banks or credit unions). Borrowers go to the lending website, fill out an application, and are assigned a risk category dependent on their financial profile. Investors offer loan terms and interest rates that the borrower can accept or reject. If the offer is accepted, the money is transferred through the website.
• Credit counseling: Credit counseling is a service that aims to help individuals get out of debt. Credit counselors may offer advice on managing money, adjusting financial habits, creating a budget, dealing with creditors, and planning to get out of debt.

The bottom line

A payday loan lender can sue you if you default on your payments. It’s best to pay back what you owe to avoid being sued. If you can’t pay it all back in one lump sum, contact the lender and try to work out a payment plan before heading to court.

Even if you can’t sue your payday lender, you can find other ways to fight back and escape debt.

If you’re struggling with payday loans, using an expert’s services can be a great help. DebtHammer can serve as a middle-man between you and your payday lender. We’ll stop their threats, negotiate down your loan amount and monthly payments, and create a workable plan to get you out of debt for good. Contact us for a free consultation so we can help you fight back against your payday lenders today.

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