Many of us have to take a loan from time to time when there is a need for some extra cash. It could be a big amount for a new home or car, or just a little to pay off the utility bills, make urgent car repairs, or something like this. For big sums, the best places to approach are the banks. For small dollar loans, millions across the United States, approach payday loan companies.
Unfortunately, however, sometimes we are unable to pay back the loan on time. This happens to the most honest individuals as well, people with the best intentions. There can be unforeseen circumstances, sudden developments that necessitate a delay.
If you miss a payment for whatever reason, debt collectors will probably come knocking. Many creditors or debt collection agencies will first give you a call, and then begin to repeatedly come knocking till the time you settle the debt. That is a huge hassle and an embarrassment. It is thus good to know your rights and obligations before you deal with these debt collectors. It will be wise to know the federal laws and your state rights about collections. This will surely prepare you better.
Payday loan debt is much the same as unpaid utilities or credit card bills. However, these loans are subject to your state laws, the state where this loan was issued, and also federal laws. Debt collection for payday lending has to comply with the Fair Debt Collection Practices Act. Plus, there are individual state versions of federal laws that must be adhered to.
What Are Your Rights Regarding Payday Loan Debt Collection
When you are taking a loan, you have to pay it back with the fee. There cannot be any questions about that. But if there is a delay, then there are laws to protect you, and laws to restrict the activities of the creditors and debt collectors. Know the laws even before you approach a lending agencies for a cash advance.
• No payday lending business can seize your next paycheck if you haven’t signed it. But having said this, if you fail to pay back the loan, then there can be paycheck garnishment once the lending agency approaches a court and wins the judgment for unpaid debt.
• What happens if you have suddenly become unemployed after taking a payday loan? You still have the obligation to pay back the loan. You can still pay back the loan taken by issuing a check, using your credit card, or by selling an asset even if you are not receiving the next paycheck.
• A payday lending business can only take an asset that you have pledged as collateral for the loan. A lender may also retain the car ownership if you have a title loan with the creditor, on the event of you not paying back the loan in time. The payday lender cannot take your car unless its title was held as collateral. The title must also be signed for this to happen. If the debt collector has approached the court, the court can attach a line for the money you owe to a property like house or car. But the process can take several months. They cannot take your house next month because of an unpaid payday loan.
But these are extremely rare circumstances. Firstly, a high majority of people pay back their payday loans. These are small dollar loans for a few hundred dollars. The loan amount rarely crosses $3000. So rarely will debtors lose their home or car because of unpaid debt.
• If you make a request, payday lending businesses will have to give you a letter that details the original debt, the interest owed, and also details of additional fees so that you clearly know the total amount you owe at this time. Debt collectors working on behalf of the lender will have to provide proof they are legally entitled to collect the loan. This prevents lawbreakers from extorting money.
• An unpaid payday loan will never land you in jail. Tell the creditor or debt collection agency not to call you at work and have it documented. They cannot do this. All payday lending businesses will comply, because most people will have a hard time paying back the loan if they lose the job. At the most, they may call you at home between 8 in the morning and 9 in the evening.
• Avoid paying back the payday loan with cash. It is better to pay it back with check or money order because this will create a financial record and proof that you paid back the money, the amount you paid, and the date when you did so. This can be critical information if you have to fight a claim made later that the debt was unpaid. This will also help you fight “zombie” collection agencies that purchases debt from a few unethical payday lending businesses to collect debt that has been paid back already.
• There are limits on how long a payday loan can remain on the books. Payday lending businesses can roll over an old debt into a new one. When this happens, interest and the fees of the old loan will be the starting balance of your new loan. The limit on fees will be a part of this balance, and interest is going to be charged over this. So, prevent rolling over the original loan. Also, avoid taking multiple loans to pay off the original debt.
• Only take a payday loan if you are certain that you will be able to pay it back in a couple of weeks or after receiving the next paycheck. Also remember, it may be cheaper to raise cash by selling items, rather than pawning them, as there will be interest or fees when you try to reclaim your pawned items. There is the risk that you may get into another loan. You can pay back a loan from a pawn shop by selling items. However, you may also go to collections if there is the option of seeking the difference, if any, between the sale and loan amounts.
• It would be unwise to show excess income through overtime receivable and bonuses to get your payday loan approved. You may face problems in repaying the loan later. The amount will be due next month, regardless of your paycheck amount.
State Fair Debt Collections Acts
Washington DC and fifteen other states in the country have come out with individual versions of the Federal Fair Debt Collections Act. Often, states provide people with more debt collection protection than the federal law, like shortening the statute of limitations or limiting the options of collectors.
Payday lending can help you immensely when you are a little short of cash, like it is helping the millions of Americans. However, it is good to know of your rights and the protections you enjoy under both the state and the federal laws. If something goes wrong, always cite your rights like the right to ask for a copy of proof that the debt a collector is trying to recover is owed, and its actual amount with interest and fees. Get everything in writing for proper documentation.
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