Is Not Repaying Payday Loans a Felony? Know Your Rights

Payday Loan Felony

What happens when a payday loan is not paid off in the time allowed? Will lenders consider it a felony and seek legal resolutions to get their money back?

Failing to repay a payday loan is NOT a felony

In fact, it is actually illegal for lenders or payday debt collectors to threaten borrowers with felony charges. According to Consumer Financial Protection Bureau, customers cannot be arrested for refusing or being unable to pay back a payday loan.

But lenders can take borrowers to court to collect money from the loan as part of the collections strategy. And if borrowers ignore the summons and don’t attend these court hearings, the judge will decide the case without you, which theoretically could lead to an arrest depending on your state. But it won’t be because of the inability to repay the loan.

However, payday loan lenders can use other legal tactics to recover their money.

Payday loan collection tactics

Here are some of the common tactics payday lenders may use to try to get their money back:

Voluntary withdrawal of funds: If bank account information was obtained during the payday loan application process, lenders could use that information to withdraw the amount from a borrower’s bank account. Lenders could take the entire amount or smaller amounts with little to no notice. And if these attempts trigger overdraft fees, they’re the borrower’s responsibility.

READ MORE: How to stop automatic payments on a payday loan

Collection calls and letters: Consumers may find the collection call attempts pretty aggressive when dealing with payday lenders trying to get their money back. You may also find that you’re getting sternly worded letters in the mail more frequently from legal offices representing the payday lender attempting to collect the debt. But you have rights, courtesy of the Fair Debt Collection Practices Act (FDCPA). It typically covers personal, family, or household-related debt and doesn’t apply to debt by businesses and individuals for business purposes. The FDCPA applies only to third-party debt collectors and not the collectors connected with the original creditor. If you think your rights are being violated, read on to learn the steps you can take.

READ MORE: What is the Fair Debt Collection Practices Act?

Court summons: Some payday lenders will go so far as to seek the court’s assistance in collecting the debt. In doing this, lenders are usually just trying to get their money back; they typically have no desire to send anyone to jail. As mentioned above, the customer is required to show up for a court hearing. And while it may sound scary, it could be a good time to reason with the lender and even set up a payment plan to get the loan paid off gradually or negotiate a smaller amount. If customers are in a dire financial situation, sometimes the mention of bankruptcy as an option could make payday lenders more sympathetic to working with them. Bankruptcy could mean the lender doesn’t get paid at all.

READ MORE: Can payday lenders sue you?

Rollover loans: If customers are unable to pay the original loan amount, they may ask the payday lender to “roll over” the debt into a new loan. This usually does not result in annoying collection calls or letters, but it will mean the new loan will consist of new fees and charges in addition to the debt from the initial loan. And the fees associated with rollovers are almost always expensive. You could also try to set up an extended payment plan loan (EPP loan) with your lender.

READ MORE: All about payday loan extended payment plans

What to do if you’re being threatened

If you think your rights are being violated, or if a lender threatens you with jail time, the Consumer Finance Protection Bureau advises you to contact the appropriate state attorney general’s office — which can be found at the National Association of Attorneys General website — or the appropriate state banking regulator’s office. These sources will help borrowers with legal options to deal with the threats from payday lenders. If these lenders are found to be participating in widespread illegal actions against consumers, sources like your state’s attorney general office and banking regulators could start class-action lawsuits against these companies as well.

READ MORE: How to deal with debt collectors when you can’t pay

How to pay back a payday loan while facing financial difficulties

Like with any debt, it can be challenging to keep up with bills when facing financial problems. But there could be ways to work with the payday lenders so both parties win.

Debt consolidation: Seeking help from a reputable debt consolidation company could help consumers and lenders in a big way: customers pay an agreed-upon monthly payment to the consolidation company and the lender gets paid. Collection calls and letters stop, and the payday lender gets its money back.

Bankruptcy: Bankruptcy seems extreme for payday loans, considering the small amounts they usually are. Bankruptcy can get pretty expensive by those standards. And as mentioned earlier, payday lenders may not like the word ‘bankruptcy’ but sometimes the consumer may not have a choice. If unsecured debt (i.e., student loans, payday loans, personal loans, credit cards) consumes over half of a consumer’s income, bankruptcy could settle payday debt.

Want to know more about how bankruptcy works? Check out this video:

The bottom line

You will not face criminal charges for failing to repay a payday loan. It is a civil matter. However, you could end up in jail for a handful of other reasons, including failure to appear in court.


What is the Truth in Lending Act? 

The Truth in Lending Act helps you understand where your money will go throughout your debt repayment. You can take full advantage of the Truth in Lending Act by reading all disclosures carefully and comparing terms among multiple loans or credit cards.
The Consumer Financial Protection Bureau (CFPB) helps consumers by providing educational materials and accepting complaints. It supervises banks, lenders, and large non-bank entities, such as credit reporting agencies and debt collection companies. It also works to make credit card, mortgage, and other loan disclosures clearer, so consumers can understand their rights and responsibilities.

What happens if I can’t repay my payday loan?

Defaulting on a payday loan can lead to hefty late fees and penalties. Some other unwanted side effects are aggressive collection calls and threats, damage to your credit scores, a possible court summons, wage garnishment, property seizure and other liens against your property; and worst-case scenario, jail time if you ignore the summons, but not for the non-repayment of the loan itself.

Can I get a payday loan while I’m on Social Security?

Yes, you can get a payday loan even if you are on Social Security. Social Security benefits qualify as a steady source of income, making you eligible for payday loans.


About The Author

Scroll to Top