I can’t pay my payday loan. What is going to happen?
The loan lender has your check. You can cash it on the payment due date. If you don’t have enough money in your account, your review will be returned to the bank. Your bank and loan lender will charge you fees.
Some lenders may try to cash the check multiple times. The bank will charge you an overdraft fee every time the check bounces.
Some government benefits ( example: SSI) usually cannot be garnished by a debt collector. Payday loans are different. When you write a check on your account or authorize a payday loan lender to withdraw money directly from your account, you give that lender permission to withdraw money from your account, no matter what types of funds are in the budget.
At some point, the lender may send your debt to collections. In the end, you could end up owing the amount you borrowed, plus the loan fee, overdraft fees, returned check fee, possible collection fees, and possible court costs if sued by the lender or collection agency.
Most online payday loans and loans from tribal lenders are void (unenforceable) in Washington.
Contact the Washington State Department of Financial Institutions (DFI) immediately if you have a problem with an online lender. DFI probably can’t help you if the lender is a tribal lender.
Can my bank help me?
Maybe. Try to speak to someone at your bank, either in person at a branch or over the phone with customer service. Explain the situation. Ask if the bank can cancel the charges on your account resulting from the bounced check. If you have payday loan money automatically deducted from your bank account, ask the bank to stop the automatic deduction.
You may be able to stop payment on the check, close your bank account, and reopen a new bank account. Contact an attorney to discuss this option before attempting it.
Can I ask the payday loan lender for a payment plan?
And it is. By or before the loan is due (even if it is your first loan), if you tell the payday loan lender that you cannot pay the loan when it is due, the lender must tell you that you can have an installment plan (a payment plan).
Any such plan must be in writing. You and the lender have to sign it.
If your loan is $400 or less, the plan must be for a minimum of 90 days (3 months). If your loan is more than $400, your payment plan must be for a minimum of 180 days (6 months).
Does the installment payment plan imply any surcharge?
If you miss one of your plan payments, the lender may charge you a one-time $25 default fee and begin collecting your delinquent loan.
*Your lender cannot charge you a fee simply for entering into an installment plan.
Can I cancel my loan?
Yes, but you must pay it off (“rescind it”) before the close of business on the next business day after you take out the loan. The loan is canceled by returning the amount advanced to the lender. The lender then has to return or destroy your postdated check or cancel all electronic withdrawals from your bank account.
You have to pay off your loan in the same place where you got it.
Example: You took out a payday loan on Tuesday. Then you decide you don’t want the loan. You have to go back to the same lender before it closes on Wednesday. If the lender is open 24 hours, you must return to the lender by midnight the next day you take out the loan.
Your loan documents should have information about your right to cancel the loan. If not, contact DFI.
Will I have to pay to cancel a payday loan?
The lender should not charge you to pay off the loan. If you try to pay off your loan early, but the lender charges you something or refuses to pay off your loan, report it to DFI immediately.
I have a late payday loan. Should I solve it by paying a fee and taking out another payday loan?
No. _ A payday lender that makes you pay an additional fee to “refinance” your payday loan and have the entire loan come due later is violating state law. Contact DFI.
Under Washington law, you must pay off an existing loan first before you can take out another loan with that lender. To avoid falling into a debt trap, avoid taking out another payday loan to pay off the first one. These loans are so easy to get that you might think paying them back will be easy too. You can fall into the cycle of paying off one loan and immediately taking out a new one to cover other bills. This cycle is difficult to break. You could end up taking out multiple loans in a year if you take one out each payday to pay off the last one or to pay other bills. You will end up paying a lot more in fees and costs than you ever thought to borrow. Try the other alternatives we explain here.
Can I close my checking account to prevent a payday loan lender from taking money from it?
Yes, but the lender will probably take collection action quickly. When you take out a payday loan, you either write the lender a personal check or permit to draw money directly from your checking account. If you close the checking account to prevent the lender from taking what you owe, the lender may still try to cash the check or withdraw money from the account. That could result in you owing to your bank overdraft fees.
The lender may send your loan to collections. Then there will be more commissions and costs. If you don’t pay the debt while it’s in the group, the collection agency may try to sue you to get what you owe.
To avoid collection actions, try talking to the business manager where you got the payday loan. See if they allow you to pay what you owe with an installation plan. Explain to the manager:
- Your situation.
- Why can’t you pay everything you owe at once.
- That you need several months to be able to pay off the loan.
If they agree to let you pay what you owe on an installment plan, make your payments on time to avoid collection action.
You may find it challenging to close your account at one bank and then try to open an account at another. Some banks will not open a new account if you owe another bank. If this occurs, contact DFI or the regulatory agency with jurisdiction over the bank that denied service.
A payday loan lender sued me. He got a court judgment against me (so he won). My only income is from Social Security or a pension. Can the lender collect?
It depends. If the only money in your bank account is a direct deposit from Social Security or the Veterans Administration (VA), generally, a judgment creditor cannot garnish the account. Money from these sources is exempt from collection.
Even if a creditor hasn’t sued you, you should be on your guard to avoid being garnished by a payday loan lender if your income is exempt. If the lender has your checks or authorization to access your account, they do not have to sue you to get payment.
You can try to end the lender’s access to the funds in your account. You may have to close the account and transfer your money to an account at another bank. Some banks will not open a new account if you owe another bank.
Suppose you have your Social Security benefits or Veterans Administration (VA) payments directly deposited into a bank account that a lender has your permission to access (via your check or authorization). In that case, you can redirect where your automatic deposits are made. Read more about changing automatic deposits of social security benefits. Avoid any lender who wants your Social Security checks deposited directly into a bank account the lender controls.
Don’t mix non-exempt funds with your Social Security and Veterans Administration money. Example: You deposit a family member’s birthday check into the same account as your exempt social security funds. If you do, you cannot claim that all funds in the report are exempt from garnishment.
If the creditor sues you, you must respond to the lawsuit and any garnishment notice you receive by notifying all parties in writing that they cannot garnish your bank account because it only contains exempt funds.
Read more about the protection of exempt assets:
- When should I file a Declaration of Exempt Income and Assets?
- Money that cannot be taken from you (“garnished”) to pay a debt
