Why you should never, ever consider taking out a Payday Loan

by Justin Weinger on February 13, 2015

In the great state of Texas it’s absolutely illegal to arrest people over unpaid debts, or even threaten to do it. That being said, payday loan lenders have been a illegally using the criminal justice system to do it anyway, turning to the court system to get criminal charges against borrowers who aren’t paying back their loans on time.

In some case these borrowers are being arrested and, although it seldom happens, serving jail time.

Ann Baddour, the director of the Fair Financial Service Project at Texas Appleseed, says  that “In addition to their outrageous rates and lending practices, payday loan businesses are illegally using the criminal justice system to coerce repayment from borrowers.”

Still think that payday loan is a good idea?

Even worse is that, with effective APRs of 500% on many of these loans, threats of criminal charges are an effective way to scare borrowers into paying them back.  A report from Appleseed showed that, in 2014, over 200 borrowers paid back more than $130,000 to payday loan lenders after criminal complaints were filed against them.

Indeed, after examining only 8 of the state’s 254 counties Appleseed found 1500 criminal complaints were filed by over 12 different payday lenders between 2012 and 2014.

Even though the Texas state constitution states that “no person shall ever be imprisoned for debt”, payday loan lenders get around this law by using Texas’ ‘bad check’ and ‘theft by check’ laws.  In effect, they aren’t saying that a debt is owed them but that, instead, these borrowers are committing fraud.

The way they do this is simple and insidious.  When borrowers sign up for a payday loan, they are asked to give a post-dated check to the lender.  If they don’t pay on time that check is then cashed and, if it comes back with ‘insufficient funds’  (bounces) the payday lenders have everything they need to start criminal complaints. The reason; buying goods or services with a check that the consumer knows will bounce is illegal.

Texas attorney Tracey Whitley, who has helped several clients to get bad check charges dropped, says it’s not easy or cheap, making it a problem for low income borrowers.  “It makes it very convenient for the payday lender,” Whitley said. “They are successfully using the criminal courts to collect their private debts.”

Payday loan lenders are some of the most notorious for their outrageous interest rates and hard-ball collection tactics. If you’re in a situation where you need money fast, do yourself a favor and avoid them as much as humanly possible.  Especially if you live in Texas.

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