Can A Payday Loan Company Sue You?

While it’s no secret that payday lenders can often be annoying and make their fair share of threats, the question remains– can they actually take you to court?

Understanding what a payday loan company can and can’t do can be tricky. In this article, we’re going to break down the process a payday loan company may take on the path to court.

What Is A Payday Loan?

Generally, a payday loan is a short-term, unsecured loan. These types of loans are often for smaller amounts of money. A payday loan is often characterized by higher interest rates, and you typically pay the loan back on your next payday. Learn more about how payday loans work here.

What Happens If You Can’t Pay The Loan Back?

If you fail to pay back your loan on time the first time, it seems like it can become harder and harder in the future.

Failing to pay back your loan, also known as “defaulting” on your loan, has many consequences. There is a process that follows and you want to do your best to avoid it. So what does the process look like?

Family Guy

Bank Withdrawals Come First

The first step a payday lender or collection agency will want to take are automatic bank withdrawals. If you gave the lender access to your bank account in your loan agreement, they will instantly initiate an automatic withdrawal to attempt to cover the loan.

If you don’t have enough money in your account for the withdrawal to go through, they may break the amount into smaller charges in an attempt to take whatever money you do have. 

With each failed attempt, your bank could charge you a fee. If the attempts are successful, your bank account could be drained. This could also lead to other transactions bouncing and more fees coming your way.

Constant Phone Calls

The next thing that will happen if you get behind on your payments is the payday loan company will call you. They will honestly call you a lot.

Receiving unwanted phone calls can be annoying, but the threat of a lawsuit can be scary. A good rule of thumb to have is to make sure you don’t avoid a debt collector’s phone calls. 

According to, federal law doesn’t specify a limit on the number of times a debt collector can call you. However, they can’t call you if their sole purpose is to annoy, abuse or harass you. It should also be noted that you can tell a debt collector to stop contacting you in a written letter. 


The phone calls may be coupled with them sending letters from their lawyers or contacting the friends or relatives you listed as references. They are going to do everything they can to contact you. 

They do this because they actually want to settle this out-of-court. Despite the stereotype that all payday loan companies are predatory, they are people too. They would much rather negotiate with you than take you to court. 

Going to court is the last resort. Going to court is expensive, and, since payday loans are often for small amounts of money, legal fees would likely be more than what the loan would recover.

If you do choose to go with the route of sending a written letter telling them to stop calling you, this is the point at which they may inform you they will be taking legal action to settle your debt. Telling a collector to stop calling you doesn’t mean they won’t take another form of action such as a lawsuit or a negative report to a consumer reporting agency.

But What Happens If You Are Summoned To Court?

Sure, lenders would much rather settle the dispute with you outside of the courtroom, however, you shouldn’t think they won’t take you to court. They will.

Let’s say you’ve defaulted on your loan and you’ve been served with an order to appear in court. What should you do? First of all, you should show up.

Going to court can be scary, but if you fail to appear, the judge will automatically be forced to rule in favor of the lender. If you at least show up, you may alternatively be able to reach an agreement with your lender.

Ignoring the inevitable doesn’t help you at all. It could cause you to lose the chance to fight your case if you have one. 

Judge Judy

What Happens If The Lender Wins In Court?

If your dispute is taken to court, and the lender wins, the most likely solution to the problem will be wage garnishment. 

According to the U.S. Department of Labor, wage garnishment is “a legal procedure in which a person’s earnings are required by court order to be withheld by an employer for the payment of a debt such as child support.” 

Each state will have its own procedures that apply to wage garnishment and under federal law, certain federal benefits are exempt from garnishment.

What Can A Lender Not Do?

Yes, a lender can take you to court, but what can they not do? There have been instances where a lender has attempted to collect a debt outside the confines of the law. Here are a few examples of what a lender can’t do in an attempt to collect a debt:

  • Threaten the borrower with a criminal arrest of jail time
  • Identify themselves as law enforcement or a government agency
  • Threaten garnishment without a court order

Taking someone to court can go both ways. If you feel a lender has wrongfully tried to collect a debt from you, you can take them to court, and potentially get your loan forgiven. 

Failing to repay a loan is not a criminal offense, therefore, it is illegal for a lender to threaten you with jail time. Under the Fair Debt Collection Practices Act, it is wrong for a lender to use unfair means to collect or attempt to collect a debt. 

The Consumer Financial Protection Bureau advises that if you are threatened with an arrest you should contact your state attorney general’s office.

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Riley Draper