What Happens if I Close My Bank Account With Outstanding Payday Loans Due?
Some consumers in a financial pinch turn to so-called payday loans: high-interest, short-term notes that provide immediate cash upfront in exchange for an automatic checking account debit a few weeks in the future. Although payday loans do help some struggling people, the high interest rates sometimes make it hard to keep up—and really desperate borrowers occasionally close their checking accounts to avoid paying back the loan.
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Payday Loans
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Payday loans, despite that they function differently from ordinary installment loans or lines of credit, are nevertheless legal. When the borrower signs the loan agreement, this creates a valid and binding contract between the borrower and the lender. For that reason, if the borrower engages in any activity that disrupts repayment of the loan, he will be in breach and the payday loan company can file a lawsuit or pursue collections.
Bank Account Closures
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In general, people are free to close their checking accounts whenever they wish. However, the laws of each state differ regarding check fraud. In Missouri, for example, the attorney general's office has ruled that closing a checking account knowing a payday loan payment is coming due constitutes a "good old-fashioned bad check case." In Michigan, however, the attorney general's office requires payday lenders to agree that they will not file criminal charges against the borrower to collect on an outstanding balance.
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Criminal Liability
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Although statutes differ by state, for states that permit criminal complaints against payday loan customers who close their checking accounts, the offense usually falls into a "bad check" category that is usually considered a misdemeanor. The face value of the check matters; in Missouri, a bounced check for any reason is a misdemeanor unless the check is for $500 or more, at which point it becomes a Class C felony.
Civil Liability
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If a borrower defaults, a payday loan company may sue the borrower for the principal, interest and relevant costs. The overdue account may also be placed for collections. If a payday loan goes to lawsuit, and the judge upholds the debt, the payday loan company (or the collection agency acting on its behalf) may engage more aggressive collections including wage garnishments, bank account levies and liens against personal property or real estate.
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References
- Missouri Attorney General Chris Koster; Payday Loan Checks are Not "Bad Checks" -- Exception; September 2007
- MIchigan Office of Attorney General: Payday Loan - Know Your Rights and Decide If One Is Right for You
- Missouri General Assembly; Missouri Revised Statutes: Chapter 570, Stealing and Related Offenses, Section 120; August 2010
Resources
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