Pitfalls When You Stop Payment on a Payday Loan Check

Posted by on Aug 7, 2006 in Pitfalls

Pitfalls When You Stop Payment on a Payday Loan Check

Before you consider stopping payment on a payday loan check, think very carefully.

In most cases, contacting your lender and working out a payment plan is the best move for all parties involved. Some states even have payment plan guidelines and limits on how much the lender can charge you to “roll over” or extend the loan.

Stopping payment on checks will incur expensive fees. If the lender sends your account to collections, it will harm your credit rating. Depending on your state, stopping payment may even be illegal…

Borrowers who do not compare lenders or don’t use a state licensed lender may run into unethical payday lenders who try to:

  • cash the check before payday knowing full well that there will not be enough funds in the account to cover it
  • cash the check several times in an attempt to incur more NSF fees
  • collect the loan using threatening, coercive and illegal methods

Some borrowers may opt to issue a stop payment order on the check. This may have far reaching consequences so be sure to consult a legal and financial professional before considering such a move.

Before you stop payment on a check, consider the expense and expiry date.

Stop payment orders are expensive.

Stop payment fees may range from $18 to $32 or more depending on your bank and the state in which you live. In many cases, stop payment fees exceed NSF fees.

Verbal stop payment orders expire quickly.

A verbal stop payment order will usually expire in 14 days if it is not backed up with a written stop payment order.

Written stop payment orders have an expiry date.

Under federal banking laws, written stop payment orders will expire in 6 months. Banks will purge a stop payment order from their system after the expiry date. When this happens, it will be possible to cash the check.

If you issue a stop payment order, payday lenders who understand the banking system will not throw away your check. They will hold on to it and attempt to cash it after six months.

If you issue a stop payment order and the check does not turn up, renew the order before the expiry date.

Never close your checking account to stop payment on a payday loan check.

If you write a post-dated check and close the account before the funds are drawn, depending on your state, you may be prosecuted under bad check and/or fraud laws.

Always keep in mind that the payday lender may turn you over to a collection agency. If this happens, it will hurt your credit rating.

Stop payment expenses are one of the pitfalls when dealing with unethical payday lenders.

The best way to avoid pitfalls, of course, is to use a state-licensed payday lender or consider payday loan alternatives.

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