When someone takes out a payday loan, he will often be required to provide a means of repayment to the lender. This can be either a postdated check in the amount of the loan plus fees or the borrower's bank account number. If the lender attempts to extract the money and the account is closed, several things will happen.
Closing An Account
When a person closes a bank account, it means that no payments will be made from the account from that point. A person can close a bank account at any time, unless a freeze is placed on it. When the account is closed, anyone who attempts to withdraw money with a check will be informed of its closure, and the check will be sent back.
Penalties
When a person bounces a payday loan check, penalties are assessed. These include late fees, as well as a bounced check fee. In some cases, the interest rate on the loan may kick up. Depending on state laws, the fees may continue to snowball until the debt is paid in full.
Debt Collection
A payday lender has options for collecting the debt if the borrower refuses to pay. Many lenders outsource collection to an outside agency. This agency will attempt to track down the debtor to make good on the debt. If this fails, the agency may take the debtor to court.
Legal Actions
A creditor can sue a payday loan debtor for breach of contract. Although a payday loan lender may seek criminal charges for fraud or for submitting a "hot check," these criminal charges will not stick unless the lender can prove the person knew that he would not be able to pay the loan back by other means when he closed the account. If the debtor loses the civil suit, the money may be seized by court order.
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