Often, when a consumer takes out a payday loan, they are required to write a postdated check to the payday lending company. The check is postdated for the next payday. As a consumer it is very important to understand the procedures of the payday lender that you are getting the loan from. For your protection you want to make sure this is in writing.
For example, if the payday lender automatically deposits the check, and there is not enough money in the account, it could result in overdraft fees. This raises the cost of your payday loan substantially. Remember the bank charges overdraft or NSF fees, even if they do not pay the check. The biggest challenge with overdraft fees is generally both sides charge you. This means both the bank and the payday lender can charge you fees of around $35 each. That could be a $70 fee for the bad check, assuming the bank does not pay the check. $35 for bank charges if they do pay the check.
The other concern is the legal consequences of writing a bad check. This can be both a civil and a criminal issue, if the payday lender chooses to pursue the legal route. It is considered illegal, and fraudulent, to write a bad check. When payday lenders are trying to collect on the loan, understand that the lender will know all the laws that benefit them. It is important, as a consumer, to understand these same laws. This will prevent them from making threats that are not valid, as well as knowing how to protect yourself.
Bad Check Laws
Payments for pre-existing debt: Generally when a debtor makes a payment on a loan, the bad debt laws do not apply, even if the check does not clear the bank. For COD orders they do. This is important when it comes to payday loans. These would be considered pre-existing debt and often will not fall under the bad check laws.
Postdated Checks: If for the payday loan you will provide a postdated check, then this rule will apply to your loan. Checks, in general are considered to be on demand. This means they can be cashed at any time. Since a postdated check cannot be cashed until the date on the check arrives, this generally disqualifies it for coverage under the bad check laws.
To learn more about the rules and penalties in each state visit the following website: http://www.ckfraud.org/penalties.html. This site covers both civil and criminal consequences for each state. If you begin to get collection pressure from a payday lender, it is wise to understand what the laws are, and how they apply to you.
Ideally every loan will be paid off on the next payday. Unfortunately, that does not always happen. If you find you are not going to have enough money to cover the loan, call the payday lender immediately. Sooner is always better. The payday lender will generally work with you. Often they can accept payment of interest and extend the loan until the following payday. Sometimes they will pay off the loan with your check and then issue you a second loan to cover your additional expenses.