Can you go to jail for not repaying a payday loan

I got an interesting question from a consumer in 2014 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 threatened jail time for writing a bad check.

Apparently in 2018, the question of debt collectors threatening prison time for unpaid debt still exists. Here is the latest question about that matter:

I keep getting a call from a lady that has called me, my ex-husband who I have been divorced for 14 years from and threaten me with theft by deception and breach of contract? She keeps telling me I’m going to go to jail over a payday loan. And it’s another company that bought the debt and are harassing my entire family. They said it’s from December 2013 that was 5 years ago. I always thought this would be a Civil not Criminal. Can you help me?

Disclaimer: Information on this site is a basic introduction to credit and personal finance. It is not legal advice. You have many more legal rights and avenues than we can possibly list here. We strongly urge you to obtain legal advice from a lawyer as your situation may require immediate action to resolve.

Debtor’s prison

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 a criminal matter

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.

Debt collectors don’t have the authority to bring criminal charges

“Theft by deception” charges would generally be brought by a District Attorney or even a state Attorney General — not a debt collector. Some rogue debt collectors use the “theft by deception” term to scare consumers into paying right away. Arrest charges will be threatened by them even though they have no legal ability to carry out such actions.

Be mindful that they do have the right to sue you in civil court if you fail to repay the loan and seek a wage garnishment or civil judgement against you.

Why do some consumers end up in jail

We’ve established that there is no debtor’s prison; however, some consumers have landed in jail. The process typically occurs like this:

  • Debtor fails to pay a bill

    An unpaid bill is sent to a debt collector. The debt collector is unable to get the debtor to pay the bill. A lawsuit is filed in civil or small claims court if the debt is within the statute of limitations. The consumer fails to file an answer to the court action, either by choice or because they were never served with the lawsuit.

  • Debt collector files a lawsuit

    The debt collector automatically wins the lawsuit because the debtor failed to respond. The debt collector then asks the court to hold a hearing in which the debtor must answer questions about his or her ability to pay. If the debtor does not show up (because they never learned of the lawsuit in the first place or they decided not to respond) — the debt collector requests the court to to issue a civil warrant for the debtor’s arrest for failure to appear in court.

  • Bench warrant is issued

    Once a bench warrant is issued a debtor who may be involved in a simple traffic violation can be subject to arrest. A bench warrant allows law enforcement officials the ability to arrest the debtor at their residence, their place of work, or anywhere else they are sighted.

The process is different for all states but in some states, the above scenario could occur. It’s technically not debtor’s prison because the debtor is not criminally charged, but it is going to jail for failure to appear in court AFTER a debt collector has won a lawsuit.

Once a debt collector has obtained a judgment against you, it can use the court to help make you pay by requiring you to appear for a debtor’s examination. At the debtor’s examination, you answer, under oath, questions about your finances.

If you do not attend the debtor’s examination then the court can find you in civil contempt for disobeying its order to appear. From there it proceeds to eventual jail time if you don’t pay, follow the court’s orders, or take other action to correct what happened.

Steps to take when a debt collector threatens jail

Step 1. The first action you should take is to contact a consumer law attorney to find out your rights. You can find an attorney in your state that specializes in debt collection at the National Association of Consumer Advocates.

Step 2. If you have not received a “Notice of Debt” from the debt collector after they have spoken with you, do not engage with the debt collector. The Fair Debt Collection Practices Act (FDCPA) says that debt collectors are required by law to send you written notice of the debt within 5 days of their first contact with you. If you have not received any type of notification by mail from the debt collector that is threatening jail time, this may likely be a scammer; or, at the very least, a debt collector just trying to scare you into paying them.

Step 3. The next step to take is to check the your state’s statute of limitations on debt. While unpaid debt never goes away, it does become uncollectible under a state’s statute of limitations. That means no matter how many debt collectors pursue the debt, they cannot legally sue you for the debt which essentially makes the debt uncollectible.

Step 4. The next step to take when a debt collector threatens jail is to request debt validation. Debt validation is basically requesting a copy of the documents which they claim is the basis of their demand for money.

Step 5. Request in writing the debt collector not contact you or your family members by telephone. You can request U.S. Mail contact only (not email).

Step 6. Report the debt collector to Consumer Financial Protection Bureau, the Federal Trade Commission and your state’s Attorney General. According to the Fair Debt Collection Practices Act, it’s actually illegal for a debt collector to threaten you with any jail time.

 

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