Watch Your Bank Account
If you commit to a payday loan, 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 regain control over escalating loan payments and Non-Sufficient Funds (NSF) charges that come when a payday lender continually tries to collect on a check that you gave them. Your banker is the best person to determine when it is time to do this.
When you are having a problem with your payday loan lender, talk to your banker right away before the payday loans start causing 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.
There are some facts you should know about stopping payment on a check. If you order a stop payment on a check that you used to get a payday loan, you have not canceled the original contract you signed stating that you would repay the loan. You might be tempted to stop payment on the check in order to avoid paying NSF fees but you need to consider a few things before taking this step.
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 the process by giving the bank formal, written notice within fourteen days.
Banks normally charge a fee of between $18 and $32 to stop payment on a check. 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 it was written.
The order to stop payment on a check lasts for around six months. After this amount of time, 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 and/or close the bank account the check is written on, 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 and when that check gets returned because the borrower closed the bank account.
Colorado and Wyoming have laws that hold 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 a time when they receive a payday loan.
Missouri and Hawaii have laws that allow borrowers to face criminal prosecution if they order a stop payment on the check 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 check written by a borrower for a payday loan cannot be successfully presented for payment. However, lenders in Utah cannot threaten criminal prosecution.