Taking out a short term, or “pay day,” loan may make you feel put on the spot. When you need money urgently and are struggling to make the repayments on time, you’re in an uncomfortable, perhaps even embarrassing, position. The good news is that you do have rights regarding how your loan payments are handled. If the lender makes any type of unauthorized transaction, this action is legally considered theft and you have recourse against them according to the law.
When you apply for the loan
At the time you apply for a loan, the pay day loan store will most likely require you to secure the application by giving them a postdated check or your bank account number. You will also need to sign a contract which lists in detail the terms for repayment of the loan. Read the contract carefully. It may state that you authorize the lender to make withdrawals from your account in specific circumstances.
For example, these circumstances may include coverage of late fees if your repayment is not received on time. Make sure you understand and agree to any and all authorizations listed before you sign the contract. If you are not sure, ask the lender to clarify for you. It’s important to note that only transactions which are explicitly stated in the contract are allowed.
Any withdrawals the pay day lender makes from your bank account which are not specifically spelled out in your original loan contract are, quite simply, illegal. Even if you end up late in repaying, the lender is not permitted to withdraw unauthorized funds from your bank account to cover the repayment or any late penalty.
Instead, the lender must take the matter to court. Only if the presiding judge decides in the lender’s favor will the lending institute be given authority to withdraw the sum in question from your account.
If the lender ignores the above and proceeds to withdraw an unauthorized amount from your bank account, you have recourse, according to the law. The procedure starts with your notifying the pay day loan store or other institution that they withdrew funds without your authorization and requesting repayment. Then let your bank know about the withdrawal, followed by contacting the consumer affairs office or attorney general for your state.
It’s recommended to document all these notifications in writing, keeping copies of your letters for yourself as backup. You may be able to get the bank to cancel an unauthorized withdrawal. If this is not possible, you are entitled to sue the lending institution for civil damages. For more information regarding payday loans click here (external link).