Can a payday lender sue you or garnish your wages?

When a lender can sue

If you do not repay, the lender or a collector can generally file a lawsuit for the amount owed. If it wins, or if you do not dispute the claim, the court enters a judgment against you (CFPB ↗).

Lawsuits must be filed within the state’s statute of limitations. A debt collector must not sue or threaten to sue on a time-barred debt, but you usually have to raise that defense yourself in court (CFPB ↗).

Garnishment needs a court order

Wage garnishment means your employer is served with an order and holds back a legally required portion of your pay. Bank garnishment means your bank is ordered to withhold money from your account for the creditor (CFPB ↗).

A payday lender can do either only with a court order from a lawsuit. Almost all states allow wage garnishment, but a few do not allow it for payday loan debt. Some lenders threaten garnishment without having a judgment; if that happens, consider legal help (CFPB ↗). Threatening a garnishment that cannot legally happen violates the FDCPA when a debt collector does it (CFPB ↗).

Money that is protected

Federal law protects some earned wages, and state law may protect more. If federal benefits are directly deposited, your bank must protect two months’ worth before freezing or garnishing the account (CFPB ↗). Benefits covered generally include:

• Social Security and Supplemental Security Income (SSI)
• Veterans’ benefits
• Federal Railroad retirement, unemployment and sickness payments
• Civil Service Retirement and FERS payments

Benefits paid by check can also be protected, but you may need to claim the exemption. LawHelp.org explains how in each state (CFPB ↗).

If you are sued

1. Read the papers and note the deadline. If you do not respond, you lose the chance to defend yourself and a judgment may be entered (CFPB ↗).
2. Check the debt. Is the amount right? Is the plaintiff the right company? Is the debt past the statute of limitations?
3. Go to court if ordered. Ignoring a court order is what can lead to an arrest warrant — not the unpaid loan itself (CFPB ↗).
4. Get legal help. A legal aid office or consumer attorney can raise defenses, negotiate a settlement or a payment plan (CFPB ↗).

Questions to ask a collector before you pay

1. Who is the original creditor, and who owns the debt now?
2. What is the amount, and how much of it is fees and interest added after default?
3. What was the date of my last payment? (This matters for the statute of limitations.)
4. Can you send the validation information in writing?
5. If we agree on a payment plan or settlement, will you confirm it in writing before I pay?

A collector must provide validation information about the debt (CFPB ↗). In some states a payment on an old debt can restart the statute of limitations, so check first (CFPB ↗).

Where to complain

Contact your state regulator or attorney general, and submit a complaint to the CFPB online or at (855) 411-2372 (CFPB ↗). To check whether a lender is licensed, see how to verify an online lender.

Questions

Can a payday lender take my Social Security?

Social Security is generally exempt from garnishment under federal law, and directly deposited benefits get automatic protection of two months’ worth in your account (CFPB ↗). A debit you authorized yourself is different: revoke it if you need to.

Can a payday lender press criminal charges?

Not for simply failing to repay. You cannot be arrested for defaulting on a payday loan (CFPB ↗). Report threats of arrest to your attorney general.