Dealing with Unlicensed Payday Lenders (step by step)
OK, so you've determined that your payday loans are illegal. What do you do now?
First step is to talk to your bank. You'll want to sit down with a relationship manger (the people who have offices or cubicles at the bank) not a teller. Let them know you're revoking ACH authorization for all/any PDLs you have and will supply them with a copy of your revocation letter if they wish, but want to secure your account before any further activity takes place. If you've already overpaid the principal of the loan, fill out fraud paperwork. Explain that you have overpaid the loan and the company refuses to stop debiting your account. If you still owe, tell them you've discovered this type of loan is illegal in your state and you need to protect yourself from the illegal lender having further access to your account.
Tell your banker you'd like to keep your business with their bank and ask them to CLOSE the account and open a new one for you. Be sure that the two accounts are not linked in any way. If their policy is that the old account can't officially close for a certain period of time, have the old account put on deposit only status until that time has passed.
If the bank is uncooperative, move up the chain of command until you are certain that your new account is not linked with the old one and that no further debits will be in the account or cause you to be charged fees. Anything presented after you've taken these steps should be returned at no cost to you. Period.
In some cases, you may end up having to open a new account with a different bank.
Closing your account is the only sure way to protect yourself from further withdrawals.
If your banker wants a copy of the revocation email first, go ahead and skip to step 2 but get that revocation to your bank and get your account closed on the SAME DAY you contact the lender.
Next, you want to contact your lenders. I don't suggest bothering with finding physical addresses, sending certified mail, etc. Why spend more of what you already don't have? Most of these lenders have a customer service email on their website in the "contact us" section. Email is fine; it's a written record of your communications and you're more likely to receive a response via email anyway.
You want to notify the lender that you have discovered that these types of loans are not legal in your state. Tell them the reason for the illegality. It could be that they aren't licensed in your state or even anywhere in the U.S.; it could be that all PDLs are illegal in your state; it could be that their interest rate is too high based on your state's laws; it could be that they're etc. Do the research regarding your state and tell them why they're illegal. You do not have to copy and paste the laws of your state. Just keep it simple and to the point. You can find your state's information in this sticky. (link pending, to be provided asap - still working on it)
In your email, you also want to tell the lender that you are revoking both ACH authorization and anyy wage assignment you may have signed as part of your loan agreement.
If you have not yet repaid the principal (the actual amount deposited into your account), tell them that, although you are not required to do so, you are willing to repay the principal balance of the loan. Then tell them how you intend to do so, on your time, on your terms. I suggest paying using a prepaid debit card account.
If you have repaid exactly the principal, tell them you will be making no further payments and expect to receive an email response noting that your account has been paid in full.
If you have overpaid the principal, ask for a refund of that overpayment. Tell them to send a check to your address on file. If you DO receive a refund check, do NOT deposit it into your new account. Instead, take it to a check cashing store and pay the fee to have it cashed.
Under NO circumstances are you to give any of these lenders access to your new account by any method.
Here are a couple sample letters to use as a guideline for your letters. Alter them to fit your situation.
It has come to my attention that payday loans are prohibited in my state. Therefore, the loan contract that I have with you, according to my state's laws, is not enforceable. Although I am not required to do so, I am willing to repay the principal balance of the loan. To date, I have received $500 and have made 3 renewal's payments of $120 leaving a balance due of $140. I am willing to repay the $140 balance via credit card in 2 monthly installments of $70 each on (insert date(s)).
At this time I am revoking ACH authorization. You are no longer authorized to withdraw payments from my checking account. I am also revoking any wage assignment I may have signed. I have given a copy of these revocations to both my bank and my employer. Any future attempts to collect funds in this manner will be blocked.
Please contact me to set up payment arrangements as outlined above.
It has come to my attention that payday lenders must be licensed by the state of (insert state) in order to offer loans to its residents. Since your company has no license in my state, the loan contract I have with you is not valid. Although I am not legally required to do so, I am willing to repay the principal balance of this loan. To date, I received a deposit of $500 on (insert date), and have had 6 bi-weekly withdrawals of $120 debited from my account. This results in an overpayment of $220.
At this time I am requesting a return email acknowledging that my loan has been paid in full. Also, I would like a refund of the $220 overpayment. A refund check of $220 should be mailed to me at the address you have on file.
I am also revoking authorization for ACH withdrawals and any wage assignment I may have signed. I have given a copy of these revocations to both my bank and my employer. Any future attempts to collect funds in this manner will be blocked.
Please respond to this email with acknowledgment that my account has been satisfied in full. Details of when I can expect the refund check, as discussed above, should also be included in the email.
Give a copy of your emails to your bank (if they needed one to close your account) and to your employer's HR/Payroll department, or whatever department handles garnishment's. This will protect you should they try to invoke the voluntary wage assignment.
Next, file complaints. You should file a complaint with your state's Attorney General's office, the Federal Trade Commission (FTC) and your state's banking/financial regulatory agency. You can find links to this information in this sticky. (updated link will be added ASAP - still working on it)
Wait. While you're waiting for your reply, notify your friends/family members/co-workers that you've been a victim of fraud and, if they receive a phone call from someone in regard to your personal/financial/legal affairs, they are to simply tell them that they are aware this is a scam and not to call again. Any calls they receive after that first contact, they should simply hang up or ignore.
Sometimes you'll hear from the lenders immediately. Sometimes they wait until they have tried and failed to get at your money. Whenever they do contact you, if they try to feed you a line about how your state's laws don't apply to them, they're wrong. Don't let them intimidate you. You're in the right here. Keep in mind these people are operating ILLEGALLY and they know it. They just want your money and they will try anything to scare it out of you.
Sometimes you start getting calls from people claiming to be from some federal bureau, claiming there is a fraud case against you, claiming they're going to come to your home or your place of business and serve you a summons or arrest you. This is a scare tactic. Don't buy it. A fun idea is to give them the phone number and address of your local police department and tell them they can serve you there.
Sometimes you hear from a collection agency (or the lender pretending to be a collection agency). If this happens, tell them to send you something in writing and you will respond accordingly. If they refuse, you know it's a line of bull. If they actually send you something, simply respond with a debt validation letter. They cannot validate an illegal loan.
We do not advocate not repaying your loans. We always recommend repaying the principal balance of your loan, even to illegal lenders. If you still owe money on the loan and they simply will not cooperate with you after multiple attempts on your end, as a final step, tell them that if they don't want to agree to your terms, then you'll pay nothing.
If you need further assistance or have more specific questions, please start a new thread and supply the following details:
- The names of each of your lenders
- How you obtained the loan (internet, storefront, etc.)
- What state you live in
- How much was deposited by each lender (if you've had and repaid multiple loans prior to this one, add them all together)
- How much you've been debited by each lender (again, if you've had multiple loans, do the math and give us a total)
- Details of any communication you've had with the lender
- Any additional question(s) specific to your situation