What are the consequences of not paying off a payday loan?

You will be referred to the payday lender's collections department.

If you fail to pay back your payday loan you will be sent to the payday lender's collections department. And they will start to contact you--probably repeatedly.

Collections practices in the payday lending industry has similarities to collections practices in some other industries, but there are a few key differences.

A Few Similarities

Like all collections agencies, payday lenders are interested in collecting outstanding fees and the balance of the borrower's loan. They want their money. Like other collection agencies, payday lenders' collection departments are bound by Federally mandated rules of conduct, called the "Fair Debt Collection Practices Act" or just FDCPA. The full text of the act can be found at http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm and is written in plain, clear language defining "dos" and "don'ts" for debt collectors. (Note: While the language in this document is clear we are not legal counsel so we cannot vouch for how various portions of this document have been interpreted and upheld by the courts.)

A Few Differences

(A) There is a common feeling from borrowers that are behind in their payments that payday lenders are more aggressive in their collections policies than other industries. It has been widely reported that payday lenders will call people multiple times per day--at home, at work, or by cell--to request payment. This "more agressive" behavior is to be expected--while unwanted--as payday lenders are normally engaged in loaning funds to high-risk clientele.

(B) Payday lenders usually have the borrower's check (given to them as collateral by the borrower) to deposit. If the loan itself (or the fees, in some States) are not paid voluntarily by the borrower, many payday lenders will deposit the check to withdraw the loan amount out of the borrower's checking account on payday. (This is normally part of the agreement made by the borrower when he or she agrees to the loan.) If funds are not available (non-sufficient funds or NSF), the check will "bounce" and the borrower will not only still owe the balance of the payday loan (and possibly fees) but will now also owe any NSF fees from his or her bank.

(C) Due to the relatively small value of the loan (usually less than $300), payday lenders have extra incentive to collect--the $300 amount is not enough to automatically sue a person over. Instead, it is more cost-effective to be aggressive in the collections process before "writing off" the loan amount.

(D) Most payday lenders do not report non-payment to the standard U.S. credit agencies. The payday lender may, however, report a non-paying customer to TeleTrack, DP Bureau, or another payday-industry related payment tracking firm. This reporting ensures that the person who didn't pay back the loan will be "tagged" in these systems--in wide use throughout the industry--as being associated with an unacceptible lending risk.

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