When a person takes out a payday loan, he is generally required to provide the lender with a postdated check or an account number to a checking account. When the loan comes due, the lender will attempt to cash the check or to withdraw money from this account in the amount of the loan, plus fees. If the lender is unable to withdraw sufficient funds from this account, the borrower may face various legal repercussions.
Fees and Interest
According to Consumers Union, payday lenders are known for charging high fees. However, in California, a lender can only charge a maximum of 15 percent of the total amount in interest and fees. This means that all fees applied to the loan, including late fees and fees for issuing a bounced check, cannot total more than 15 percent of the original principal of the loan.
Rollover
In many states, payday lenders are allowed to "roll over" an unpaid debt from one month to another month. This means that the original loan, plus all interest and fees attached to this loan, forms the basis of a new loan if the loan is not paid. In such cases, a loan will generally roll over every month and continue to grow in size. However, in California, lenders are not allowed to roll over payday loans.
Debt Collection
Although a payday lender is limited in the fees he can charge a delinquent borrower, he has a number of legal actions he can take to collect on the debt. This includes suing the delinquent lender in civil court for breaching the loan contract. The payday lender will seek damages in the amount of the loan, plus fees. If he is awarded them, he may then attempt to seize the money forcibly, such as through garnishment or bank account seizure.
Fraud Charges
Sometimes, a payday lender will attempt to press fraud charges against a borrower or use the threat of such charges as a means of compelling him to pay back a delinquent debt. This is predicated on the idea that, by issuing a repayment check that bounced, the debtor committed a form of fraud. However, in California, debtors cannot be sued for fraud based merely on the basis of paying with a check that didn't clear.
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