Can payday lenders sue you or garnish your wages?

Can they take you to court?

Yes. A payday loan is a contract, and an unpaid contract can be enforced in civil court. Lenders usually sue in small claims court, or sell the debt to a collector that sues instead. Lawsuits are more common on larger balances.

What happens if you are sued

You will receive a summons and complaint with a deadline to respond, often 20 to 30 days. If you answer, the lender must prove that you owe the debt and that the amount is correct. If you do not, the court enters a default judgment for the full amount claimed plus costs.

Garnishment needs a judgment

A lender cannot take money from your paycheck simply because you missed a payment. It must first win a judgment and then obtain a garnishment order. Federal law limits garnishment for consumer debts to the lesser of 25% of your disposable earnings or the amount by which your weekly pay exceeds 30 times the federal minimum wage. Several states protect more, and a few prohibit wage garnishment for consumer debt altogether.

A wage assignment clause in a loan contract is different from garnishment. You can revoke it, and lenders cannot require one from service members.

Money that is protected

Social Security, Supplemental Security Income, veterans’ benefits and most other federal benefits cannot be garnished for payday loan debt. Banks must automatically protect two months of directly deposited federal benefits when an account is frozen.

Possible defenses

• The lender was not licensed in your state, or the loan broke state law.
• The amount claimed includes fees the law does not allow.
• The statute of limitations has expired; it runs from three to ten years depending on the state.
• The collector cannot prove it owns the debt.

Legal aid offices help low-income borrowers with these cases at no charge.

Can they have you arrested?

No. Failing to repay is not a crime. An arrest can only follow from ignoring a court order, such as an order to appear at a hearing, which is another reason never to ignore court papers.

If there is already a judgment

A judgment does not end your options. Ask the court clerk how to claim exemptions, which protect a share of wages and certain benefits. Ask the creditor in writing for a payment arrangement. And contact a legal aid office: a judgment entered without proper notice can sometimes be set aside.

Before it gets to court

Ask for an extended payment plan, talk to a nonprofit credit counselor and read what happens if you don’t pay. Your state’s page lists the regulator that takes complaints about collection practices.