What to do if a payday lender file lawsuit against you

What to do if a payday lender file lawsuit against you?

You know a payday loan can hurt your credit score. But do you have any idea that failing to repay one payday loan can take you to court?

Common people do not want to be in a courtroom in their entire life. Even most lawyers like to settle cases out of court. That’s why it’s important to know how to handle such cases if you face such a situation. And when you talk about a predatory payday loan, you could certainly be the victim and end up in court.

But before going into further discussion, let me give you a small introduction about payday loans.

What is a payday loan?

A payday loan is a short-term, high-interest loan programmed for financial emergency purposes. A payday loan is also called a cash advance loan, deferred deposit loan, or post-dated check loan by different lenders.

Payday loans can be obtained directly or online. You have to provide your personal and financial details while applying for a payday loan. You may request for up to $1000 depending on the state laws.

A payday loan borrower allows the lender to access the borrowers’ checking accounts. Apart from that, a lender may require a post-dated check for the amount borrowed plus interest from the borrower.

The tenure of these loans is typically for two weeks or 15 days and have an annual interest rate of as much as 400%.
There are also six states with no limit on payday loan interest rates: Delaware, Idaho, Nevada, South Dakota, Utah, and Wisconsin.

Payday loan companies do take people to court, but they don’t do it very often.

Now, a payday lender might file a lawsuit against you, the borrower, if your debt amount is high and you have stopped making further payments.

According to the Fair Debt Collection Practices Act (FDCPA), threats of criminal charges against a payday loan borrower is against the law. But, there are exceptions. Criminal charges can be filed against borrowers who never tried to repay the original loan, at least the principal amount. It is called absent fraud.

Borrowers who fail to repay their payday loan on time can experience threatening calls or emails from collection companies to file criminal charges. The law is strictly saying that borrowers shouldn’t be arrested for not repaying a debt unless it was a fraud.

In case of fraud, the collection agency can file a lawsuit against the borrower for non-repayment.

If a payday lender files criminal charges and takes you to court, they’re hoping you won’t show up.

As per Damon Duncan (@Damon_Duncan), an attorney with Duncan Law (@DuncanLaw), how the litigation process works:

“Absolutely you can end up in court for failure to pay a payday loan. I’m a board-certified consumer bankruptcy attorney and will periodically see folks being sued for failure to pay these payday loans. It is, however, uncommon.”

“After late payment(s) the payday loan company would likely sue the debtor in an area where the debtor has real property and, if they don’t have real property, a location convenient for the creditor. Most debtors will fail to respond to a lawsuit so a default judgment would be entered against them.”

“Once the creditor has a judgment they can attach liens to property like houses, cars, bank accounts, etc. Liens in North Carolina (where I live) last for 10 years and can then be renewed for an additional 10 year period. Other states are very similar.”

You might be thinking that your payday loan lender will sue you for more than you owe. Sometimes it is possible. If you have stopped making payments on your payday loan and wish for the issue to be resolved automatically, then guess again.

Shaolaine Loving (@LovingLawyer), a Las Vegas attorney added – “You should study your loan agreement to see the terms on defaulting and late/missed payments. Generally speaking, the lender can start assessing late fees and other penalties. Depending on how late you are, they or a collection company will probably start calling to collect on the debt. They can report delinquencies on your credit. Eventually, they can sue you. Even if it’s a small amount, don’t presume the company won’t sue.”

“Payday loan companies routinely sell their accounts to debt collectors or use attorneys to handle their debt in bulk. Thus, no amount is too small to sue you over, particularly when they can seek late fees, collection costs, court costs, and late fees. The final sum against you can greatly surpass the original amount owed.”

“The only way to prevent a court judgment against you is if you have some legitimate legal defense, like fraud or illegal practices on their part. Otherwise, once they get a judgment against you, they can garnish your wages/assets or lien your property.”

Don’t ignore collection agency calls, try to negotiate. If you receive the summons, show up.

Katie Ross, Education and Development Manager at American Consumer Credit Counseling, or ACCC (@TalkCentsBlog), gave us her valuable advice on this issue:

“When you miss a payment, the lender will try to contact you via the contact information you provided (address, phone, email). If you ignore the lender and don’t make any payments, they will turn to a third-party collections agency to try to get the debt back. This can happen even after thirty days of a missed payment.”

“Their tactics may be aggressive, including threatening to notify the credit bureaus. Each city/state has its own laws regarding payday loans, so make sure you know your rights under the Fair Debt Collections Practices Act.

“If the collection agency fails to collect your debt, they may sue you even over a small amount. Make sure you show up to court. If a judge rules against you, the collection agency can levy your bank account, garnish your wages, or put liens on your property, depending on the state’s laws.

“Prevent ending up in court by trying to negotiate your repayment terms with your creditor or entering into a settlement plan. If you do receive a court summons, go to court and ask that the collector show proof that you owe money. If they don’t show proof, your case may get dismissed or at least postponed until they do.”

If a payday loan lender or a debt collection agency did a bad job, you can also take them to court.

Don’t forget that the power to sue someone and file a criminal charge against him/her can go both ways. A payday lender may have more resources than you, but you will also have a few options left, even if you’re just going to use them for negotiation.

Normally, borrowers end up with solid grounds to sue payday loan lenders. Many payday lenders, especially online lenders, are not licensed to distribute loans to consumers in many of the states as per the laws.

Payday loans are banned completely in twelve states: Arkansas, Arizona, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, North Carolina, Vermont, and West Virginia.

Debt collectors, who try to collect payday loans, often violate the FDCPA rule by giving abusive calls to borrowers. They might also file criminal charges and have the borrower arrested for giving a ‘bad check.’

What to do immediately when a payday lender threatens you

If you are dealing with a debt collector on the phone, you may just ignore them. Debt collectors may make your idle threats, don’t entertain them at all. Try to verify their identity. If you can’t track them online, then it is probably a scam.

If you have a “bad check” charges against you, then act quickly. Talk to the prosecutor’s office and see if the complaint was filed by a payday lender.

You may also hire a lawyer to defend the complaint. The payday lender must prove the allegation to the Judge. At the hearing, you should introduce evidence that you are innocent and did not commit any fraud. You may also file a fraud case against the payday lender or collection agency for harassing you.

You may sue them for violating the Fair Debt Collection Practices Act or the state Payday Lending Act. You may even get attorney fees paid by the lender if you can prove them wrong.