Can Payday Lenders Sue You or Take You to Court?

These days you can be sued for about anything from hitting someone’s bumper to divorcing your spouse.

You can also be sued by a lender if you don’t pay back a payday loan.

Remember when you needed the funds borrowed to buy groceries and pay your electric and phone bill? You might want to find the money fast or you could be sued by the lender and land in court.

Can payday lenders sue you or take you to court?

Unfortunately, yes — any creditor — including payday lenders — 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 and pray that your lender won’t sue you, however, that would be a mistake. Even if they don’t immediately sue you, you’ll have to deal with a debt collection agency, and it can also take you to court.

Before the problem spins out of control, talk to your lender. See if you can arrange for an extended payment plan and stall off the payments.

What is a payday loan?

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 the date the loan was made. The specific due date is on the payday loan agreement. Many state laws have banned payday lenders or 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.

What should you do when 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 then work to collect on your debts.

If you’re summoned to court, at least 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.

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 criminal trials seen in TV crime shows.

You and your lender will tell your sides 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, death.)

Payday lenders can sue you but can only take you to civil court, which means that a conviction is never going to 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 that you can use it as evidence of their illegal practices when you show up to court.

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

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’re required to 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 collection 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.

How often can a debt collector call me?

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?

There are certain steps debt collectors must take 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.
  • Identifying themselves as a debt collector – If a debt collector attempts to send a private message requesting to add you as a friend or contact, the debt collector must identify themself as a debt collector.
  • 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 put toward paying down your debt, though there are hard limitations on what they can take from you.

Lenders can only garnish part of your disposable earnings, which are defined as your wages after taxes and qualifying deductions (in this case).

To calculate the portion that you’d lose to garnishment, calculate the smaller of:

  • 25% of your disposable income, if your disposable income is greater than $290
  • Any amount greater than 30 times the federal minimum wage

As a quick example, if you were to take home $1,000 a week of disposable income. 25% of $1,000 is $250, but the minimum wage is $7.25, and $7.25 times 30 is just $217.50. Since the latter is the smaller number, that would be the limit on your wage garnishment.

While this limits a lender’s ability to take your entire paycheck, it might be more than you can afford to pay. If so, there are ways to avoid wage garnishment, see below.

Hardship claims

If you can demonstrate the garnishment prevents you from paying for fundamental living costs, you can qualify for an exemption that reduces or eliminates the wage garnishment.

Financial hardship means something different to a person experiencing it and the businesses and organizations it affects.

Although understanding what constitutes a financial hardship is key to filing a successful claim, most find this to be difficult.

In general, a financial hardship situation forces you to either decide between meeting basic living expenses or paying bills. To prove this, a creditor requires information about income and expenses. While the specific requirements may vary between creditors, this often includes:

  • Pay stubs or a W-2 Wage and Tax Statement.
  • Income tax returns for the past one to three years.
  • Property tax bills.
  • Checking and savings account statements for the past three-to-six months.

Chapter 7 bankruptcy

Before you even consider any form of bankruptcy, it’s important to discuss the matter with a bankruptcy attorney, because this will have long-term financial implications for you, and it can be expensive. It might be more cost-effective to consolidate your debts.

Bankruptcy has the power to dissolve most of your unsecured debts, payday loan debt included, but it will damage your credit score and may cost you some of your property.

Consult a local law firm and get some legal advice before you decide. Or you can also contact a local legal aid group.

There are restrictions on the types of bankruptcy you’re allowed to file. How you file depends on whether you are an individual or a business, as well as factors like level of income and the kind of debt.

Chapter 7 assists creditors in dealing with an insolvent debtor and lets individuals and businesses start fresh after a financial downfall. Bankruptcy can preserve a business’s assets by allowing distressed companies to reorganize rather than liquidate.

Bankruptcy cases go through federal court, and all decisions are made by judges.

To qualify to file Chapter 7, you must pass a “means test,” which requires proving you earn less than the state median current monthly income. If you cannot pass the means test, your case will be converted to Chapter 13.

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 the practices of predatory lending, 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 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 Alternative Loans (PALs)

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.

FAQs

Can I be sued for medical bills?

Yes, you can be sued for medical debts. However, it isn’t likely any creditor will be able to garnish your wages to collect.

What is a lien, and can payday lenders use one?

If you do not repay a payday loan, the payday loan company has several legal remedies, including wage garnishment, levy, and lien, which is a legal claim or a right against a property.

Can I be sued for credit card debt?

Being sued for a credit card debt means someone is claiming you borrowed money, that you failed to pay. The balance is what they claim it to be, and you are legally obligated to pay this company.

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