I get 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 payment 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 will be $2,045.40.
I spoke with a consumer credit counselor. They said not to pay it and let it go to collection. I’m worried they’ll call my family. I don’t want them to know. Is there anything I can do to keep my family from being contacted?
I’m afraid you probably can’t stop the payday lender from contacting your family. If you have defaulted on this debt since you wrote to me, you are no doubt being bombarded with calls and texts.
The lender may already be contacting your family members as well. When you apply for a payday loan, you are often asked to provide references that the lender can contact in the event of a default. But lenders can also start calling your family and friends, even if you didn’t list them as a reference.
The rules for these communications probably fall into a gray area. The Fair Debt Collection Practices Act (FDCPA) is a federal law that governs debt collection practices. The law only allows collectors to call non-spouse family members if they are trying to locate you, but cannot discuss your debt. They are also prohibited from saying they work for a debt collector unless asked.
However, the FDCPA only applies to third-party debt collectors, not original creditors. Most payday lenders try to collect on delinquent loans internally before sending them to a collection agency. So the lender who gave you the loan is probably still trying to collect on it.
Some states have laws that place additional limits on collection efforts. You may want to ask your credit counselor if the laws in your state offer an additional layer of protection.
Knowing your rights could be helpful, but let’s face it: the payday loan and debt collection industries are notorious for their sketchy tactics, so even if there is a law limiting who a collector can contact, don’t assume that they will really follow her. .
This is where thinking like a debt collector might help. A collector has one goal, which is to get paid. The more pressure they exert, the more likely you are to pay. Even when they are supposedly calling family just to track him down, they know many people are embarrassed by their debt and will agree to just about anything once the calls to their loved ones start.
Don’t get into the shame game. Pick up the phone when the lender calls so it’s clear you have their correct contact information. Be firm about your inability to pay at this time. Avoid showing emotion or revealing details about your personal situation as it will be used against you.
As for your family, you don’t owe them an accounting of your finances just because a payday lender calls. You could say something vague like, “Thanks for letting me know. They have also called me. I’m still trying to get to the bottom of this. If they contact you again, I would appreciate it if you tell them I don’t live with you and stop calling.”
None of that is technically fake. I have no idea how nosy your family is, so I can’t guarantee this will satisfy inquiring minds. But as long as this debt does not affect them, they have no right to more information.
I’m glad you consulted with a credit counselor before deciding to let this loan go into collections. If you have to choose between rent and a payday loan payment, rent is the clear winner. But make sure you have considered all the consequences of non-compliance.
Once this account goes into collections, you probably won’t be able to get a payday loan or any other type of credit for at least a couple of years. Obviously, you’ve learned the hard way that payday loans are best avoided. But I guess you looked for a payday loan because you had no other choice. So you’ll need to think about what you would do if you came across another unexpected expense.
If you can save even a small amount of cash, it’s worth asking if the lender would be willing to work out a deal. One tactic that sometimes works is to tell the lender that you are considering bankruptcy. Because creditors have to cease collection efforts when you apply, they may be willing to settle for less.
Whatever happens, don’t be fooled by the threats you may encounter. You will not be arrested for this debt and your SSI benefits cannot be garnished. Most importantly, don’t let them talk you into turning this debt into a new loan. Doing so will only trap you in an endless cycle of payday loans. The damage from this loan may be unavoidable, but aim to never 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].