Payday loans are short-term loans issued by private companies to individuals. The duration of the loan is usually short --- generally under two weeks --- with interest rates that are exceedingly high, sometimes approaching 400 percent annually. While a person who defaults on a payday loan may face higher interest rates and a slew of fines, he can't be arrested and put in jail.
Features
Typically, people who take out payday loans have the loan deposited in a checking or savings account. The person then agrees to pay back the loan by the date it's due or to have the amount due withdrawn from his bank account on an appointed date. If the person defaults on the loan, the lender is allowed to take the same actions to reclaim this money as any other creditor.
Penalties
Payday lenders usually charge the borrower penalties in the event of a default, such as service fees and higher rates of interest. According to the website Payday Loan Center, lenders may require customers to sign an "Assignment of Salary and Wages" document, which allows the lender to approach the borrower's employer and ask that the money be withdrawn from the borrower's paycheck.
Jail
The United States doesn't have debtors' prisons. This means that if a person fails to pay a debt, it's illegal for her to be locked up as punishment or as a means of compelling her to pay. The only exception is child support payments. A person who fails to make child support payments can, in some cases, be incarcerated. A person can't be arrested for failing to pay back a payday loan.
Considerations
Although people can't go to jail for failing to pay debts other than child support, people can be arrested for failing to abide with court procedures related to their debt. According to MSN, debtors in Minnesota have been arrested for failing to appear in court when ordered or to fill out the form needed to initiate the garnishment of their wages.
Warning
According to the Fair Debt Collection Practices Act, it's illegal for creditors to threaten a debtor with arrest or jail. According to the Federal Trade Commission, a person who is illegally threatened by a collector can file suit within one year of the violation. The creditor may be required to pay up to $1,000 to the debtor, as well as reimburse him for court costs and attorney's fees. However, this doesn't make the debt go away.
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