Use of the criminal process gives payday lenders a collection advantage that no other creditor enjoys. The Florida Comptroller brought charges against a payday lender who used fake sheriff's office letterhead for collection purposes. Attorneys in Ohio report that lenders use the checks without supplying the contract as if they were the victims of bad checks, not a contract in dispute. Holding a borrower's check eases debt collection even when threats are not involved. There is a cost savings to the lender who can "collect" on the debt by sending the check through the bank clearing process. Some payday lenders get borrowers to sign authorization to permit the lender to electronically withdraw funds from the consumer's bank account, using the Automated Clearinghouse system.
While consumers may not believe they can be imprisoned for failure to repay loans, they do fear the consequences of failing to “make good” on personal checks. Our legal system is not supposed to permit incarceration for failure to pay a debt. A federal court in Tennessee ruled that threats to bring criminal prosecution for failure to repay a payday loan constituted an unfair trade practice. The court noted that the lender knew full well that the borrower had no money in the bank at the time the loan was made and could not later claim to be the victim of a fraudulent “hot” check. The court found that the loan did not involve a “bad” check and that threatening to take an action the lender had no legal right to take constituted an unfair or deceptive act.
Despite industry codes of conduct promising otherwise and state laws prohibiting
The free consumer organization "Bad Credit MD" offers additional advice on "Not Paying Back A Payday Loan" at http://www.badcreditmd.com/
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Did You Know? Payday loans (and certain other financing) offered to service members and their dependents must include certain protections, under Federal law and a Department of Defense rule. For example, for payday loans offered after October 1, 2007, the military annual percentage rate cannot exceed 36%. Most fees and charges, with few exceptions, are included in the rate. Creditors also may not, for example, require use of a check or access to a bank account for the loan, mandatory arbitration, and unreasonable legal notices. Military consumers also must be given certain disclosures about the loan costs and your rights. Credit agreements that violate the protections are void. Creditors that offer payday loans may ask loan applicants to sign a statement about their military affiliation.