I got an interesting question from a consumer the other day regarding an unpaid payday loan. The consumer had taken out a payday loan but unfortunately lost their job and did not have the money in their bank account when it was time to repay the loan.
This led to fees being added by not only the payday lender but also bank overdraft fees. Long story short the unpaid loan ended up with a debt collector who has threatened jail time for writing a bad check.
First, the United States does not have a debtor’s prison. The debt collector is committing fraud by alleging a debtor can be charged with “theft by deception” or “check fraud.” It simply is not true and here is why.
In order to prove fraud the payday lender would have to show you took out the loan with the intention not to pay it back. They would also have to prove that when you took out the loan you knew your bank account would be empty. There is no way a payday lender could prove your intention was not to repay the loan.
Debt is a Civil Matter not Criminal
A payday loan is a debt in which you have a civil, not criminal obligation to repay. The payday lender has every right to pursue you in a civil case matter but not a criminal case. The payday lender may be successful in a civil or small claims court in winning a judgment against you. Wages could be garnished or even your bank account levied. But there will be no jail time.
While a consumer who takes out a loan might be unable to pay it back, that’s not a crime. Debt collectors don’t have the authority to bring criminal charges against anyone.
If you or someone you know is being threatened with jail time by a debt collector report it immediately to your state’s attorney general along with the Federal Trade Commission and the Consumer Financial Protection Bureau.
The debt collector company is violating several federal laws and probably a few state laws. It is definitely a violation of the Fair Debt Collection Practices Act and you could be entitled to compensation.