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When a Payday Loan Cannot Be Repaid: Payment Plans and Garnishment

This guide presents selected U.S. government consumer education from CFPB. References to “we” or “us” in the source material refer to the issuing agency. Source dates and links appear below.

Can a payday lender garnish my bank account or my wages if I don't repay the loan?

A payday lender can garnish your wages or bank account only with a court order from a lawsuit filed against you. There may be other restrictions on a payday lender’s ability to garnish your wages or bank account, but never ignore any legal notices or orders.

Tip

Don’t ignore a lawsuit summons or other notices from a court or the lender, or any court proceedings against you. If you ignore a lawsuit, you may lose the opportunity to fight a wage or bank garnishment.

If you don’t repay your payday loan, the payday lender or a debt collector can generally sue to collect the money you owe. If they win, or if you do not dispute the lawsuit or claim, the court will enter an order or judgment against you for the amount of money you owe. The lender or collector can then get a garnishment order against you.

What is a garnishment?

If a court issues a judgment saying that you owe a debt, it could allow the creditor to garnish or take your wages or certain benefits to pay it off. Wage garnishment happens when your employer is served with a garnishment order and then holds back a legally required portion of your wages for your debts. Bank garnishment occurs when your bank or credit union is served with a garnishment order requiring them to withhold a certain amount for the payday lender or collector as allowed by your state law.

Each state has different procedures and exemptions from wage and bank garnishment. While almost all states permit wage garnishment, a few states don’t permit it for the collection of payday loan debt. Contact your state’s attorney general office for information about your state. Under federal law, certain benefits or payments, such as Social Security benefits, are generally exempt from garnishment.

Be aware that some payday lenders may threaten garnishment to get borrowers to pay, even though they do not have a court order or judgment. If this happens, you may want to seek legal assistance. Contact your state's regulator or attorney general office for more information. You may also contact a legal aid attorney or private attorney for assistance. You can also submit a complaint to the CFPB online or by calling (855) 411-2372.

What can I do if I can’t repay my payday loan?

If you’re having trouble repaying your payday loan, you should contact your lender right away and ask for an extended repayment plan or if there are other options.

An extended repayment plan lets you repay the loan in smaller installments over a longer period. Whether you can get an extended repayment plan will depend on your state law or on the payday lender’s policy. This repayment plan may be offered for free, or it might carry an additional fee, depending on state law. Take a look at the look at the APR on your loan documents.

If you still have trouble making payments or are not given the option of an extended repayment plan, there are other resources that may be able to help you. For example, you may wish to speak with a credit counselor in your area or contact a legal aid attorney to discuss your options. If you are a servicemember, contact your local Judge Advocate General’s (JAG) office to learn more. You can use the JAG Legal Assistance Office locator to find help, or ask your installation financial readiness office for information.

If you experience an issue with a payday loan, you can also submit a complaint to the CFPB online or by calling (855) 411-2372.

How do I repay a payday loan?

To obtain a payday loan, you typically must either provide a personal check to the lender or an ACH (Automated Clearing House) authorization to electronically withdraw money from your bank, credit union, or prepaid card account when your loan is due. Carefully read your loan documents so you know exactly how repayment works.

If you visit a store to get a payday loan, some lenders strongly encourage or, in some cases, require you to return to the store when it’s due so you can “redeem” your check and repay the loan in cash. Encouraging or requiring borrowers to return to the store on the due date provides lenders an opportunity to offer borrowers the option to reborrow or renew the loan after it’s been repaid.

If you don’t finish paying the loan or return to the store when the loan is due, your lender will likely repay itself by cashing a post-dated check or withdrawing the funds electronically from your bank or credit union account. When you first get the loan, the lender will generally require you to provide one of these alternative forms of payment in case you default on the loan.

Tip

Know how your ACH payment is set up. If you gave a payday lender permission to take money directly from your checking account, it is important to know exactly how much your lender will withdraw and when.

If you take out a loan online, you will likely be required to provide an ACH authorization for the lender to electronically access your checking account for repayment on the loan due date. Some lenders might set up payments assuming you only want to pay a renewal fee on the loan’s due date. This requires you to take action several days before the due date to pay off the loan in full. If you don’t pay it in full, you may end up paying several rounds of renewal fees while still owing the entire original loan amount.

Before you agree to a payday loan, make sure you fully understand how your loan will be repaid and how much the loan could ultimately cost you.

If you have problems with a payday loan or payment authorization, such as an unauthorized ACH, contact your state regulator or state attorney general . You can also submit a complaint to the CFPB online or by calling (855) 411-2372.

Sources and publication details

The federal agency source text is U.S. government work in the public domain. Fynoptic selected, adapted, and formatted it for this guide. No agency endorsement is implied. Follow the linked sources for current program details and the rules applicable to your circumstances.

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