I’m on Supplemental Security Income (SSI) and my car broke down. I needed extra money to pay my rent, so I took out a $400 payday loan. The withdrawal amount is $567.91. I won’t be able to pay that much and still pay my bills. The monthly payment is $170.45, which I can’t afford either. The total balance is $2,045.40.
I spoke to a consumer credit advisor. They said not to pay for it and let it go into collections. I’m worried that they will call my family. I don’t want them to know. Is there anything I can do to stop them contacting my family?
I’m afraid you probably can’t stop the payday lender from contacting your family. If you’ve defaulted on that debt since you wrote to me, you’re no doubt being bombarded with calls and texts.
The lender may already be contacting your family members. When you take out a payday loan, you often need to list references that the lender can contact if you default on your payments. But lenders can also start calling your family members and friends even if you haven’t given them as a reference.
The rules for this communication probably fall into a gray area. The Fair Debt Collections Practices Act (FDCPA) is a federal law that governs debt collection practices. The law only allows collection agencies to call family members who aren’t married to the spouse when trying to locate you, but they can’t talk about your debt. They are also forbidden from saying they work for a debt collector unless asked.
However, the FDCPA only applies to third-party debtors, not original creditors. Most payday lenders attempt to collect delinquent loans internally before sending them to a collection agency. So chances are the lender who gave you the loan is still trying to collect it.
Some states have laws that place additional limits on collection efforts. Perhaps you could ask your credit advisor if your state’s laws provide an additional layer of protection.
It might help to know your rights, but let’s face it: the payday loan and collections industry is notorious for sketchy tactics. Even if there is a law restricting who a collection agency can contact, don’t assume they will actually follow it.
This is where it might be helpful to think like an invoice collector. A collector has one goal, and that is to get paid. The more pressure they apply, the more likely you are to pay. Even if they say they’re calling family just to locate you, know that many people are embarrassed by their debt and will agree to almost anything once the calls to loved ones begin.
Don’t play into the shame game. Pick up the phone when the lender calls to make sure they have your correct contact information. Be firm about your default. Avoid showing emotion or revealing details about your personal situation as this will be used against you.
As for your family, you don’t owe them a statement of your finances just because a payday lender calls. You could say something vague like, “Thanks for letting me know. They called me too. I’m still trying to get to the bottom of this. If they contact you again, I’d appreciate it if you let them know I’m not staying at your place and ask them to stop calling.”
None of this is technically wrong. I have no idea how inquisitive your family is, so I can’t guarantee this will satisfy inquisitive minds. But as long as these debts do not affect them, they are not entitled to any more information.
I’m glad you consulted with a credit counselor before deciding to put this loan in the collection. When you have to choose between rent and payday loan repayment, rent is undoubtedly the winner. But make sure you’ve considered all the consequences of a default.
Once that account goes into collection, you probably won’t be able to get a payday loan or any other type of credit for at least a few years. Obviously, you learned the hard way that payday loans are best avoided. But I suspect you were looking for a payday loan because you had no alternative. So you have to think about what you would do if you encountered another unexpected output.
If you can spare even a small amount of money, it’s worth asking if the lender would be willing to come to terms. One tactic that sometimes works is to let the lender know you’re considering bankruptcy. Since creditors have to stop their collection efforts when you file an application, they may be willing to settle for less.
In no case should you be fooled by the threats you may encounter. You will not be arrested for this debt and your SSI benefits cannot be garnished. Above all, don’t be persuaded to convert that debt into a new loan. If you do this you will only get caught in an endless payday loan cycle. The damage from this loan may be inevitable, but make it your goal never to go back to this predatory system.
Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].