With a payday loan, the borrower usually writes a post-dated check for the loan amount plus the lender’s fees. After the borrower’s next payday, the lender deposits the check.
If the money’s not in the bank, the check is going to bounce. The payday lender will then try other ways to collect the loan, like sending the debt to a collection agency. I’ve had more than one bankruptcy client tell me he or she received a call from a debt collector who threatened prosecution if the payday loan wasn’t repaid.
Here’s What the Law Says
The threat of criminal charges can sound believable because Indiana has a law that makes “check deception” a crime. This law says, “A person who knowingly or intentionally issues or delivers a check, . . . knowing that it will not be paid . . . , commits check deception, a Class A misdemeanor.” Does this mean the police will be on their way? No.
The same law has an exception: “A person does not commit a crime” if “the payee or holder [here, the lender] knows that the person has insufficient funds to ensure payment or that the check . . . is postdated” (my emphasis). So the easy answer is that no crime was committed because the borrower’s check was post-dated.
But let’s read the middle part again. There’s also no crime if, when the check is written, the lender “knows that the person has insufficient funds to ensure payment.” Didn’t the payday lender know the borrower wrote the check without enough money to cover it? After all, if the borrower had the money in the bank, then he or she wouldn’t have taken out a payday loan!
The collector’s threat is bogus. Even worse, it’s illegal. Why? Under the federal Fair Debt Collection Practices Act (FDCPA), a debt collector can’t say or imply that “nonpayment of any debt will result in the arrest or imprisonment of any person.” This is just one of your many FDCPA rights.
How to Fight Back
So what can you do when a collection agency’s threat crosses the line? Here are three options:
- Hang up the phone. You don’t have to talk with a debt collector if you don’t want to.
- Drop a dime. The Federal Trade Commission and the Consumer Financial Protection Bureau accept complaints about collection agencies that violate the FDCPA.
- Call a lawyer. The FDCPA gives you the right to sue debt collectors who break the law.
You don’t have to tolerate abusive collection tactics. If a debt collector tries to push you around, it’s time to push back.