Can Payday Loan Companies Garnish Wages?

A payday loan is typically small in size and high in interest. It is issued for a short period of time, generally for several days to a month. If a borrower defaults on a payday loan, he usually faces punitive rates of interest, as well as additional fees. If the debt remains delinquent, the lender is legally allowed to take a number of actions to collect on the debt, including garnishing the debtor's wages.

Payday Loans

Payday loans, like most loans, are legal contracts between borrowers and lenders. In a payday loan contract, the borrower agrees to pay back the money owed the lender by a certain date. If the borrower fails to do this, the payday lender has the right to file a suit against the borrower in civil court. The case is then heard by a judge, who decides if it has merit.

Civil Suits

If the judge hearing a a lender's civil suit against a debtor finds that the debtor does, indeed, owe the lender money, the debtor is ordered by the court to pay. If he fails to do so, the lender may take a number of additional actions to force him to pay up. However, in many cases, the lender finds it prohibitively expensive to bring a civil suit against the defendant and chooses not to sue.

Wage Garnishment

If a debtor still refuses to pay the money he owes a lender, the lender can file a motion to garnish the debtor's wages. If the judge accepts this motion, the lender then presents a court order to the debtor's employer, requesting that it set aside a portion of the debtor's wages. According to the U.S. Department of Labor, the employer is nearly always legally obligated to comply with the court order.

Garnishment Laws

While some federal laws apply to wage garnishment, each state has its own set of laws. In many states, certain people, such as those with low incomes, are protected from wage garnishment. In addition, many state laws regulate precisely what percentage of a person's income a loan company can garnish. As of December 2010, no states have laws that prohibit a payday loan company from garnishing the wages of a borrower who owes them money. However, a company must always receive a court order before attempting garnishment.