If a person fails to pay back a payday loan on time, the company that issued the loan may attempt to get the money back by hiring a collection agency. This collection agency, which will either be hired on commission or will purchase the debt outright, may attempt to incur repayment through a variety of means. A payday loan borrower is legally required to pay any collection agency the lender hires. When he wishes to repay the loan, the debtor can make payments directly to the collection agency.
Payday Loans
A payday loan, although generally lasting for a shorter period of time and commanding a higher rate of interest than a normal loan, is structured the same as most other types of loans. The lender is allowed to transfer the debt to another party, such as a collection agency. If the loan is transferred, then the borrower is legally required to repay the money to the new owner of the loan.
Collection Agencies
Collection agencies, whether having purchased the debt or working in a lender's stead, are legally empowered to seek collection of a debt in the same manner as the original lender. This means that the collection agency can not only request repayment of the debt, but also can take legal action to compel it. This means the collection agency can sue the borrower and take more severe legal action such garnishing her wages.
Repayment
If a borrower chooses to repay the debt, he likely can make the payments directly to the collection agency. Depending on the collection agency's policies, the debtor may be allowed to make payment in a variety of different ways.
Debt Settlement
In some cases, the collection agency may be allowed to negotiate a settlement with the debtor. If the collection agency has purchased the debt outright, it can settle the debt for whatever amount it chooses. However, if it is working for the original lender, it may need the lender's permission before striking a deal with the debtor for an amount less than she actual owes.
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