A payday loan is a small loan taken out for a short period, usually several days to one month, at an exceptionally high rate of interest. When a borrower takes out a payday loan, he generally signs a contract agreeing to pay back the loan within a set period. If the borrower defaults, the lender has the right to sue him. However, generally the borrower cannot be criminally charged for defaulting.
Payday Loans
Although the interest rates for payday loans are generally far higher than for most other types of loans, the legal protections are the same. According to U.S. law, if a person signs a written contract in which he promises to pay an amount of money at a certain time, he is legally obligated to do so. If the person fails to pay this money according to the contract's terms, he violates civil law.
Criminal Debt Laws
The U.S. does not have debtors' prisons. Unless a person owes money to the federal or state government for child support, he cannot be charged criminally or placed in jail for owing money. While a person can sometimes be charged criminally if the debt is obtained illegally, such as through fraud, defaulting on a payday loan is not a criminal offense. The matter must be settled in civil court, and then only if the lender files suit.
Hot Check Laws
Some states, such as Missouri and Texas, have criminal laws for "hot" checks -- checks that the issuer knows cannot be cashed. It is a common misconception that borrowers who attempt to pay for payday loans with bad checks can be charged criminally. However, according to the attorneys general for Missouri and Texas, checks issued for payday loans do not count as "hot checks".
Ancillary Charges
While a person cannot be criminally charged for defaulting on a payday loan, he can be charged for other offenses stemming from issuing the bad check. For example, if the debtor is sued in civil court by the creditor and then fails to appear on the required date, he may be held in contempt of court, a jailable offense.
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