Overzealous lenders, collection agents and scammers alike sometimes threaten consumers with arrest and jail if they do not pay a delinquent payday loan. Not only should you not be arrested for defaulting on a loan, it's a violation of the law for lenders or their agents to threaten you with arrest. Some lenders, however, have abused bad check laws and the courts themselves to have delinquent borrowers arrested.
Payday Loan Default
A payday loan is a legally enforceable debt, and lenders have legal means to collect when borrowers default. Despite this, some payday lenders have been found guilty of illegal collection practices, including unlawfully garnishing the wages of delinquent clients. There are numerous reports of payday lenders threatening these clients with arrest and jail.
Abuse of Bad Check Laws
Payday lenders, who generally require a signed post-dated check from a borrower as a loan condition, deposit the check if the borrower defaults. If the check bounces, it doesn't violate bad check laws. Some borrowers have been arrested, though, because the lender filed a criminal complaint anyway. Characterized as "the unlawful use of criminal charges by payday loan businesses to collect debts," the practice has been denounced by the trade association for short-term lenders, as well as by state legislatures.
Abuse of the Court
If you're sued to satisfy a debt and you do not appear in court, a judge might issue a warrant for your arrest. Some payday lenders and their agents have manipulated this system to secure the imprisonment of people who owe as little as $250. Some states have responded by outlawing the imprisonment of defendants in debt cases even if they never appear in court.
If you receive a call threatening you with arrest if you don't pay a debt, whether or not the debt is legitimate, the threat violates the Fair Debt Collection Practices Act. The act is part of a federal law administered by the Federal Trade Commission. The Consumer Financial Protection Bureau advises you call your state attorney general and file a complaint with the CFPB online by phone at 1-855-411-CFPB (2372). Reporting these violations can result in disciplinary action against offenders. Multiple violations can jeopardize their licenses.
- Consumer Financial Protection Bureau: My payday lender told me I could be arrested if I failed to pay back my debt. Is this true?
- Bond & Botes, PC: Can I Be Arrested for Defaulting on my Payday Loan?
- F.B.I.: Extortion Scam Related to Delinquent Payday Loans
- Time Magazine: Lenders Use a New Dirty Trick to Jail You for Small Debts
- NOLO.com: Debt Scavengers and Zombie Debt
- International Business Times: Group Warns of Debtors’ Prison Tactics Among Texas Payday Lenders
- Bankrate: How to handle Payday Loan Harassment
- Federal Trade Commission: Fair Debt Collection Practices Act