Payday loans are loans that are small in size and short in duration, typically lasting several days to a month. Most payday lenders charge extremely high rates of interest. According to the Federal Trade Commission, annual interest rates on payday loans can reach 391 percent. Failure to pay back a payday loan can result in severe financial consequences, including additional fees and a lower credit score. However, in Texas, as in other states, you cannot be placed in jail for defaulting on a payday loan.
Lending Money
Most payday lenders require that borrower offer payment on the loan in one of two ways. First, a borrower can write out a post-dated check that the lender can cash on the date the loan comes due. Secondly, the borrower can offer a bank account number, which the lender can use to withdraw the money. If the account provided by the borrower has insufficient funds to pay back the loan, the loan will go into default.
Penalties
If you default on a payday loan, you will be assessed a number of additional fees and potentially charged a higher rate of interest on the loan itself. In pursuing repayment of the loan, the lender or a collection agency acting in its stead may take a number of actions, including attempting to place a lien on your property, garnishing your wages, or freezing your bank account. However, according to the Federal Trade Commission, it is illegal for a payday lender to threaten a debtor with jail time.
Texas' "Hot Check" Law
Texas has a law, known as the "hot check" law, that makes writing a bad check a criminal offense, punishable by up to two years in jail. Theoretically, if you write a check to the payday loan company and it bounces, you could be placed in jail. However, for this to happen, a prosecutor would have to prove that you knew that the check was going to bounce and wrote it with intention of defrauding the payday lender.
Jail For Other Offenses
The United States does not have debtor's prisons. Save for some people who owe child support, debtors cannot be arrested for owing money. However, if you fail to comply with a judge's orders in a case related to debt -- for example, if a judge orders you to appear in court on a certain day and you refuse -- you can be placed in contempt of court and potentially arrested.
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