Do not allow lenders to take money directly from your paycheck

Get Out of the Payday Loan Debt Trap

Stay away from the trap created by piling up payday loan after payday loan. If you have to take out a second payday loan to pay back your first one, you will create a huge debt trap that is difficult to get out of.

If you cannot pay back your loan at the due date, tell the lender that you need to make a repayment arrangement that will allow you to pay back the loan in monthly installments. Some states require the lenders to allow this, including Alabama, Alaska, Florida, Illinois, Michigan, Nevada, Oklahoma, and Washington. If you do not get a positive response from the payday lender, your state regulator can help you.

Do not allow lenders to take money directly from your paycheck. Read any contracts carefully to see if you signed a clause called a voluntary wage assignment. If you did, you need to write the lender revoking that part of the agreement, so the lender cannot take your wages without approval from the courts. The Federal Trade Commission's Credit Practices Rule prohibits any mandatory wage assignments, which some lenders' contracts use anyway.

Beware of Bounced Check Fees on Payday Loans

Since you are securing your loan with a personal check, you open the potential for unexpected costs if you do not have the money to pay back the loan on the next payday.

Both the bank and the payday lender will charge a fee if your check bounces. Every time a check is returned by your bank unpaid, you are charged another fee by the bank. The bank fee usually ranges between $20 and $35. The payday loan company will also charge you if your check is returned by the bank.

When paper checks bounce, the lender can convert them into an electronic re-presentment. The self-regulatory rules that all banks must follow limit the amount of times that an electronic check can be presented for payment after it has been sent back. The lender should not try to return the check more than three times. However, that still means that you will be paying the fees charged by the bank and the lender three times if the payday loan check overdraws your account. If you see that the lender has sent the check in more than three times, you can file a complaint with your bank.

Even payday loans that are handled electronically can "bounce." Also, the agreements you sign for an online payday loan may allow the lender to break the payment into several different attempts to get the money from your bank account. Each time the lender tries to get the money electronically, you can earn NSF fees if you do not have the money in your account. The loan agreement may require you to keep your bank account open until all fees and payments have been collected by the lender.

Payday Loan Tip #7: Watch Bank Account

Safeguard Your Bank Account

When working with payday loans, protect your ability to open a checking account. Remember, payday loans are based on either checks or debits to secure the loans, which makes it easy for the payday lender to collect the money through the borrower's bank account. This encourages loans to be renewed when the borrower does not have enough money in order to avoid bouncing the checks. You must not write a check if you do not have the money in the bank to cover it.

Sometimes it is better to close your existing bank account and open a new one in order to gain back control over escalating loan payments and Non-Sufficient Funds (NSF) charges that come when a payday lender continues to try to collect on a check that you gave them, and your banker is the best person to determine when it is time to do this.

When you get into trouble, talk to your banker right away before the payday loans start bringing overdraft fees. If your account is closed because you continue to have overdrafts, you could end up on a list that keeps you from getting another checking account for up to five years. Your bank can also work with you to stop payments from being made to lenders who have electronic access to your account.

If you do not pay your loan, some states allow lenders to take civil action against you under civil bad check laws. However, most states do not allow payday lenders to file criminal cases on the grounds of a bad check having been written.

What to Know About Stopping Payment on the Check

If you order a stopped payment on a check that you used to get a payday loan, you have not canceled the contract you signed stating that you would repay the loan. Before you ask your bank to stop payment on the check that you wrote for your payday loan, which you might be tempted to do to stop the many NSF fees that are accruing, you need to consider a few things.

First, tell your bank before your loan comes due if you do not want the bank to pay the check when the lender asks for payment. You can orally ask the bank to stop payment, but this type of agreement only lasts for two weeks. You must complete it with written notice within fourteen days.

Banks charge a fee between $18 and $32 to stop a check, and this is similar to a bounced check fee. You will need to tell the bank the check number, whom it was made out to, the exact dollar amount, and the date you wrote it.

The order to stop payment on a check lasts for around six months. After that timeframe, the person or company that holds the check can present it to the bank again, and it will be processed unless you put another stop payment on it, and pay another fee. Be sure to check your bank statement for old checks. If you see them, ask your bank to put the money back in your account and send the check back as stale dated if it is older than six months.

The payday loan laws in some states put borrowers at risk for legal action if they order a stop payment on the check that they used to get a loan, close the bank account the check is written on, or both actions, no matter what the reason.

Payday lenders in Alabama and Alaska can pursue criminal action when borrowers do not make good on the check they used to secure a payday loan if that check gets returned because the borrower closed the bank account.

Colorado and Wyoming have laws that held consumers accountable if they close the bank account before the loan comes due. In North Dakota, the law states that borrowers cannot close their accounts at the time they receive a payday loan.

Missouri and Hawaii have laws that allow borrowers to face criminal prosecution if they order either a stop payment, or if the check is returned to the lender because the consumer closed the account.

Lenders in Mississippi can pursue criminal action if the payday loan check from the consumer bounces.

Arkansas law considers it a crime to close an account or stop payment on a payday loan check.

Lenders in Utah can sue for triple damages if a borrower cannot pay a check used for a payday loan. However, lenders in Utah cannot threaten criminal prosecution.

Payday Loan Tip #8: Your Payment Rights

Your Rights on Electronic Payment of Payday Loans

Both federal law and the loan industry give consumers the right to stop payday lenders from using electronic means to take money from a bank account for payment. However, this does not cause the debts to be settled. This simply stops the repeated finance charges and bounced check fees that consumers face when they are working on a repayment plan.

Loans with renewals built-in: Some online payday loans have loan renewals built in to the contract, but these lenders are not allowed to require you to pay electronically according to the Electronic Fund Transfer Act (EFTA at 15 U.S.C. 1693a(9)). This law gives you the right to stop payment on any withdrawal and also to revoke authorization for withdrawals by a lender in the future. This action allows the bank to impose a stop payment fee.

In order to stop individual withdrawals on loans that have built-in renewals, you need to tell your bank, either orally or in writing, at least three business days before the transfer is going to happen. You may be required by your bank to give written notice of your desire for stop payment within two weeks of giving oral notice. If you do not give written notice, your stop payment order will be canceled after the two-week period.

When you notify the bank that you no longer wish the debt authorization to be valid, the bank will need to block not only the next withdrawal by the payday lender, but also all payments that the online lender may request in the future.

To stop the withdrawals in the future, you will need to notify the payday lender in writing that a debit on your account is no longer authorized. Be sure to copy the letter and give it to your bank.

Your bank may want you to confirm that you have sent notification to the lender that the automatic debits are no longer authorized. Notify your bank in writing within fourteen days that you give them oral notice so your bank will not honor any other withdrawals from your account. Be careful when you get your bank statements to check for any unauthorized withdrawals in your account.

One-time payment loans: Federal law does not give you the right to stop payment when you make an agreement that includes a one-time debit transaction. However, your lender does have to comply with the rules of the private organizations that give you that right.

Online payday lenders must disclose that consumers have the right to revoke authorization to debit from their bank accounts. To access this right, you must notify both the bank and the lender three days before the debit is supposed to happen. The lender is required to tell you how to stop the authorization. Read all the fine print of the agreement to find instructions on how to stop the electronic access to your bank account.

The rules of the payday lending industry require you to also contact the lender stating that you are revoking the authorization, and then you must notify your bank. You may find it difficult to contact your online lender if you did not keep any copies of the documents about your loan, or if your lender does not post its contact information. The contracts on online payday loans usually require three days' notice before the due date on the loan if you are going to revoke this authorization.

Rights vs. Reality: While you do have the rights mentioned above, you might find that exercising these rights is difficult. Banks often set up their stop payment systems so they can only identify the dollar amount and the check number, but not the name of the person cashing the check. Also, some contracts on online payday loans allow the loan to be broken up into several separate debits, so the bank may not be able to locate the transaction that you want to have stopped. Also, if you have already authorized other withdrawals in the same dollar amount, the bank may stop the wrong one.

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