Payday loans can be risky business, and it would be best to avoid them, except under extreme circumstances. It may be hard to believe that such quick and drastic action can ensue from borrowing only a small sum of money. If you don’t understand the particularities, it is rather easy to default on a payday loan. And payday lenders don’t waste time. They can get aggressive with debt collection because they are fully aware that you are financially vulnerable.
When Default Happens
They understand that if someone goes delinquent, it’s much more likely they’re going to default. So, payday lenders don’t tend to give their borrowers much time for repayment. If someone is delinquent on payments it’s likely they will default not long after. They’re not going to be interested in hearing any tales of woe before they start trying to collect on the debt.
When the money you borrowed is due, payday lenders don’t waste time trying to recoup their funds. Firstly, they’ll initiate automatic withdrawals from your bank account. That is a standard procedure as typically speaking you provide them with access to secure the loan in the first place. If the withdrawals don’t go through, they may break the owed amount into smaller increments in an attempt to gather whatever money is in your account. Each failed attempt can trigger bank fees further sinking you into debt.
Ample Phone Calls
In addition to the bank withdrawals, lenders will start calling relatives and friends, and sending letters from lawyers to those you used as references when you secured the loan. Federal law prohibits debt collectors from revealing their identity or your debt situation to anyone else. But they can ask only for assistance locating you, according to various advocates violations of this provision are widespread.
Options to Explore in Case of Default
If you think you’re being treated unfairly by a payday lender, send them a written complaint outlining all possible violations. It’s best to explore any and all options to buy some time in this situation. Let the lender know you are considering bankruptcy. They will likely be far more amicable in negotiating a repayment plan. Bankruptcy on your part means they get nothing, even a small amount of money repaid is better than nothing at all. Each state, province, and city has its laws and regulations regarding payday loans.
In case you’re being harassed by a collection agency, your most important step is to become informed about your rights and obligations according to the law in your particular area. This includes what agencies can and can’t do when trying to collect the debt.
If you do receive a court summons, it is imperative that you show up in court and ask that the collector provide proof that you owe the money. If they bring no proof, you may have grounds to postpone proceedings until they do. If a judge rules against you the collection agency, depending on your state’s laws, can levy your bank account, garnish your wages or put liens on your property.
Try to Negotiate
It stands to reason that a lender would instead collect money directly from you than proceed to the next step, which is to sell your debt to an outside collections agency. Most payday loan
providers will immediately hit you with a late payment fee if they cannot collect payment on its due date. The loan will also continue to raise interest, often at about 1% a day.
However, different lenders have different approaches. One of the biggest criticisms of payday lenders is the lack of transparency when it comes to late payment charges. It can be near to impossible to find detailed information on websites about late charges.
You Have Rights
The primary payday lenders must have signed up to a customer chartered agreement which requires them to:
- Deal with cases of financial difficulty with tact and diplomacy.
- Inform you as to how the loan works and the total cost of the loan before you apply.
- Freeze interest and charges if you make repayments under an agreed upon and reasonable repayment plan, or after a maximum of 60 days loan delinquency repayment.
Stand firm when dealing with aggressive collectors. The Fair Debt Collections Practices Act is a federal law that prohibits debt collectors from using abusive, unfair or deceptive practices to
collect from you. A lender can garnish your wages, but only if a court has ordered it accordingly.
Payday loans are meant to tie people over until their next pay period. But they can put you at risk of higher financial jeopardy if you’re vulnerable financially. Consider a short-term loan the last resort when it pertains to financial emergencies. When dealing with a collection agency, remember that they’re trying to scare you into paying whatever you can so don’t be easily swayed by their aggressive tactics. Stay informed and know that you do have rights in this situation.