Think carefully before you stop payment on a payday loan check. It can incur expensive fees. If the lender sends your account to collections, it will harm your credit rating.
- 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 or close their checking account. Be sure to consult a legal 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.
If a borrower closes their checking account, illegal lenders sometimes threaten criminal charges for check fraud. This is an empty threat in most cases but you should always consult your lawyer. Generally speaking:
Section 3-104(2)(b) of the UCC defines a check as “a draft drawn on a bank and payable on demand.” A postdated check is not payable on demand so it’s generally held by most states that the giving of a post-dated check does not constitute a present fraud nor is it within the scope of the bad check laws. See Bad Check Laws by State. Also, threatening delinquent payday loan borrowers with criminal prosecution for check fraud is illegal in many jurisdictions.
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.
If you’re dealing with a licensed lender, contact them and work out a payment plan. Some states even have payment plan guidelines and limits on how much the lender can charge you to “roll over” or extend the loan. See State-licensed Payday Lenders by State to find a legal payday loan company.