Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Dec 19, 2011

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While theoretically a lender may be able to have a payday loan borrower arrested, the chances of this happening are slim to none with our justice system.

Debtor’s prison was abolished in the United States back in the middle of the 19th century. Since then, debt and the failure to repay on loans are not considered criminal crimes, but rather they are civil crimes—which can only be compensated for with money, not jail time.

Some payday loan lenders and debt collection agencies try to skirt that civil and criminal borderline by claiming payday borrowers are guilty of writing fraudulent checks—which is considered a criminal offense. When borrowers fall behind on their payments, some begin to receive harassing and threatening phone calls from collectors. If those collectors fail to collect payment, they may begin to squeeze money out of borrowers by threatening them with potential jail time.

The good news is that our justice system looks on payday loan borrowers with sympathy. They realize the demographic that payday lenders appeal to, and they realize how extraordinarily damaging payday loans can be when rolled over many times. As a result, judges often sympathize with borrowers.

Additionally, judges are very well aware of how these loans work.

Payday loans require a postdated check. The loan will never be issued without one. If borrowers write a postdated check with the intention of paying the loan off then they are not committing fraud. Only if they write the check knowing full and well the check will bounce or is linked to a non-existent account are they guilty of fraud.

Any good attorney will run circles around a payday lender claiming otherwise. And judges have begun to unanimously take up the attitude that they won’t even listen to such a cry about fraudulent check writing when it comes to payday loans.

So if a payday lender calls and harasses a borrower about writing a fraudulent check, and threatening that borrower with potential jail time, just ignore them. Borrowers should then contact an attorney or check out their particular state’s payday loan laws to make sure the collector’s threats are hollow. If that is the case, then the borrower should ask the collector not to call and false threats any longer.