When Does a Debt Collector Come in a Payday Loan?
A payday loan is an unsecured money lending activity between a borrower and a lender. Whenever a person is in urgent cash need, he applies for a cash advance, and a financing company finances him for a short-term without any collateral. Where does a payday debt collector come from, then? The debt collector comes into picture when the lender needs it to collect debts from the borrowers who do not make the scheduled payment.
– Usually, the lenders assign the collection agency while retaining the lien (legal right) as the lenders, and give them a certain percentage of the collected debt for their work.
– However, sometimes it could be a bit different. Some collection agencies buy the lien from the original lenders in a lesser price than the principal amount and try to make more profit by collecting the payments from the debtor. In this case, they hold the legal right to recover the money from the debtors, and the original lender’s role gets over.
Can a Debt Collection Agency Take a Borrower to Court?
Debt collectors have been directed to follow the Fair Debt Collection Practices Act (FDCPA) by the Federal Trade Commission (FTC). However, not all the time they follow the directions properly. Some debt collectors go beyond their limits to harass debtor for payment. Some even threaten people to make them arrested. That is not acceptable. However, those collection agencies that have bought the liens from the original lenders, can sue the debtors in the court asking for their wage garnishment. That is not that easy, though. A debt collector can only go to court if the original lender is recognized by the state. If the original lender is not registered, then the debt collector loses the legal right to sue the debtor.
Even if the financing company is state registered, and the debt collector buys the lien legally from it, just by appealing in the court does not result in wage garnishment of the debtor. It has to win the case in the court, and the borrower by then must not have filed for bankruptcy.
Therefore, it is a challenging process for the debt collecting agency to take a borrower to the court for defaulting a payday loan. At the same time, a borrower should not default a cash advance intentionally which might lead to wage garnishment in some cases.