• 13
  • February
    2012

Payday loans are some of the most dangerous debts a consumer can accrue. While most initially involve small loans of a couple hundred dollars, many carry exorbitant fees and interest rates that aren't immediately apparent to the consumer.

According to the Center for Responsible Lending, the average interest rate on payday loans is approximately 400 percent. When borrowers can't repay right away, rates rapidly compound, quickly sending the borrower into debt collection.

Payday Lenders Must Follow Fair Debt Collection Rules

The Federal Trade Commission recently ordered one payday lender to pay more than $294,000, after it was determined that the company was engaging in illegal debt collection practices.

The lender required borrowers to agree to loan terms that gave the the lender power to garnish borrower's wages without obtaining a court order. When it came time to pursue garnishment, the lender lied to the borrowers' employers, telling them that the borrower was aware of the garnishment action and that the borrower had been given a chance to contest the proceedings.

In addition, the lender talked to borrowers' employers and co-workers about the debt without first obtaining consent.

All of these practices are illegal under federal law. Only the government has the power to garnish wages without a court order. Private companies must secure the court's permission before garnishing wages, and must give the debtor a chance to contest the action.

Further, the Fair Debt Collection Practices Act prohibits creditors from discussing a debtor's obligation with third parties, unless the debtor has granted permission.

Every debtor is entitled to the protections offered by the Fair Debt Collection Practices Act. Individuals who are being victimized by unfair wage garnishment, creditor harassment or other unfair collections practices can sue their creditors and may be able to recover financial damages.

Source: ACA International, "Court Orders Payday Lenders to Pay More Than $294,000," Jan. 9, 2012.