Can You Dispute a Payday Loan Transaction You Never Authorized?

Although payday loans differ from traditional loans in various respects -- they generally command a higher rate of interest, and lenders do not require much, if any, credit information from the borrower -- the laws that apply to them are, in most cases, identical. Under U.S. law, a party can only withdraw money from an individual's bank account if the person has the permission of the account holder or a judge.

Payday Loans

When a person takes out a payday loan, he is generally required to provide the lender with some way of being repaid when the loan comes due. Often, the borrower will provide the lender with a post-dated check. In other cases, the borrower will provide the lender with a bank account number. In all cases, the lender is only allowed to withdraw money from this account when explicitly authorized to do so by the borrower.

Loan Terms

When an individual takes out a payday loan, she signs a contract in which she agrees to certain terms. This contract may authorize the lender to withdraw money from the borrower's account in certain instances. For example, a contract may allow the lender to extract a penalty fee from the borrower's account if she is late in paying the loan. However, unless the contract specifically authorizes the lender to make these transactions, the lender cannot do so.

Unauthorized Transactions

Unauthorized transactions are a form of theft. Even if the borrower does indeed owe the money to the lender, the lender must go through the proper legal channels before seizing the money owed. To withdraw money from a borrower's account, the lender must file suit against the borrower, receive a favorable ruling from a judge and get authorization to seize funds from the account.

Disputes

If you believe that a payday loan company has illegally withdrawn money from your account, you should inform several parties. First, you should inform your bank that the money was taken out without your permission. Second, you should inform your state attorney general or consumer affairs office. Third, you should consider seeking civil damages against the lender, particularly if the amount of the transaction was sizable and your bank will not cancel the transaction.