A number of consumers who have found themselves in a position where they need some extra cash opt for short-term payday loans. The price of these loans comes in the form of extremely high interest rates that usually become due on the date of the consumer's next paycheck.
The combination of short repayment periods and high service fees unfortunately often lead the consumer stuck in short-term load debt trap. The result of the one-time, quick financial relief can often lead to perpetual, long-term debt.
However, if you have found yourself in a position where you are unable to repay a payday loan, there are a number of alternative options that are available to you. Educate yourself as to your rights regarding these often unfair loans can many times lead to a void in your responsibility to some of these charges.
The Uniform Commercial Code defines an actual check as being "a draft drawn on a bank and payable on demand" Section 3-104(2)(b). In other words, the post-dated check does not legally fall under this definition. This is because a post-dated check is unable to be paid upon demand.
Typically, most states in America do not consider a post-dated check to be a fraudulent act or an issue that falls under the bad check laws once the check is cleared on the date it was intended for. Because of this, if your payday loan was founded on a post-dated check and, because of unforeseen circumstances you do not have the money for it to clear on the date agreed, then the loan company cannot legally file any fraudulent charges against you. Instead, they must go through the services of a debt collection agency to redeem their loss.
Still, not paying on this debt can eventually lead to a lawsuit in the long run. If they happen to win, a judgment will then be placed against you which will include the not only the amount you had owed, but the collector can then seek a garnishment order notifying your bank to surrender the funds to them in order to cover your debt.
At the same time, a number of states have established laws in order to protect any consumers who have found themselves in a position where they are unable to repay their short-term payday loans. In Illinois, you have the right to request a one year repayment plan which is free of interest with your lender once you have found yourself in debt for over 35 days. This alternative, however, only applies to payday loans and is not applicable to payday installment loans.
In Utah, it is against the law for a lender to threaten any sort of criminal proceedings or charges if your check was returned to them due to insufficient funds. You can make a minimum of $5 incremental payments towards the loan free of any additional finance charges. In addition, you also have the right to request what is called an Extended Payment Plan or EPP every 365 days. This plan consists of an interest free, four payment minimum over a period of at least 60 days. Furthermore, if default on the loan and it then happens to enter into collection proceedings, your employer can request that they do not contact you regarding payment at work either verbally or in writing.
Washington law states that you have the option of rescinding your loan before the close of business on the day after you received your loan. To do this, you must pay the lender the amount that was paid to you in full and the lender must return your personal check to you or destroy it. If you authorized them to take the money out of your checking account, your authorization is immediately voided once you have rescinded the loan.
When attempting to collect on a loan, the lender is prohibited from resorting to any form of intimidation or harassment. They are not allowed to exceed contacting both you and your spouse over three times per week. They also are restricted from calling between the hours of 9 p.m. and 7:30 a.m.
The Deferred Presentment Service Transaction Act in Michigan also protects people from short-term lenders. The Act allows consumers the option of requesting the lender to delay the cashing of the check for up to 31 days. If you are then still unable to pay on the loan after as many as eight deferments, the law allows you to instead pay in installments. In fact, the lender you borrow from must advise you of this right once this is an option. If you then choose to pay the installments, you must notify the lender in writing, or verbally within 30 days of the last deferment. Michigan State law also makes it illegal for lenders to pursue any criminal processes in order to collect the money.
Of course all of these avenues are options that are available for lenders that are legally licensed to make proper loans. It is illegal altogether for some of these establishments to even loan money at all if they do not hold the proper license. If they do not have a valid license, then the loan is considered unenforceable.
Many online payday loan establishments who violate any state laws are completely unable to win in any state court. In fact, most online payday sites have never even taken a borrower to court. If you have received a payday loan via an online lender and are unable to pay, it is important that you check with your state authorities to see if your loan was even made legally. If it turns out that it was, simply close your account as you are not under any further obligation to pay that money back.
A surprising number of online lenders seem to claim that certain state laws do not apply to them since they are located offshore. Other lenders claim that they are owned by Native American tribes or hide behind shell companies. This means that some lenders are even making loans in the 18 states where they are not allowed.
Recently, the Federal Trade Commission received a preliminary order of injunction against such tribal lenders located in South Dakota as Western Sky Financial. These lenders were submitted letters to the employers of consumers stating that they were within their rights to garnish the wages of an employee without obtaining a court order. This is not true as the FTC has stated that tribal payday loan lenders do not have any legal authority to do this. The same suit also states that is illegal to require only automatic debits from bank accounts in order to obtain a payday loan.
Short-term lending and payday loans whether they are conducted online or through a branch are big business. As the recession set in and people began to struggle with paying their bills, the industry has grown even larger making almost $11 billion in loans just in 2010 alone. A high profile investment firm known as Stephens Inc. has tracked that number as being up almost 90 percent from the numbers in 2006.
If you are considering a payday loan or having difficulty paying on your loan, the Federal Trade Commission encourages all consumers to first consider other options such as small loan companies or credit unions. If this is not an option for you, be sure to read the terms of the agreement with the lender carefully and double check to make sure they are a legitimately licensed company.