Payday loans allow debtors to quickly access cash to pay bills or take care of emergency needs. Consumers write a post-dated check for the amount of the loan plus interest. The loan is generally due when the customer gets paid. If the customer is not paid on time, the post-dated check he writes may bounce, and the debtor then must make alternative payment arrangements with the payday lender.
Most payday loan companies require customers to write a post-dated check for payday loan amounts. Post-dated checks are generally exempt from bad check laws in most states. Since the check writer post-dated the check, the lender is presumed to be aware that he does not have funds in the account at the time of writing.
Prohibition on Criminal Prosecution
Payday lenders are prohibited from prosecuting debtors for failure to pay back the loan in most states. This stops lenders from using ethically questionable techniques such as threatening to throw the lender in jail to collect past due debts. Lenders may sue the debtor in court, but civil penalties for bad check writing do not apply, as payday loan checks are exempt from bad check laws.
If a payday lender sues you for not paying back a payday loan and wins the case, it can request wage garnishment. When a judge orders garnishment, your employer must withhold a certain amount of your paycheck each pay period and turn it over to your creditor. The garnishment ends when your debt is paid off. This process negatively affects your credit.
While you cannot be criminally prosecuted for failing to pay back a payday loan, your credit rating could be affected if the loan company chooses to pursue the matter. In addition, you will not be able to get another payday loan with that company and may have difficulty getting a loan from another company. Payday loan companies often charge higher interest rates than regular lenders. Before getting a payday loan in the first place, consider whether you will be able to pay the loan back and whether getting a payday loan is really worth the extra money you pay for it.