Payday Loans & Hot Checks in Texas

These small loans, often called "cash advance loans," "check advance loans," or "deferred deposit check loans," are a frequent pitfall for consumers. A fee anywhere from $15-$30 per $100 borrowed is charged for an average loan of $300. With rates so high and the term of the loan so short, there’s no wonder that a very high percentage of these loans are rolled over by the borrower again and again so that the accumulated fees equal an effective annualized interest rate of 390% to 780% APR depending on the number of times the principal is rolled over.

Texas’ Hot Check Law

Texans refer to checks returned to the merchant with an insufficient funds stamp as "hot checks." It is a criminal offense in Texas for a person to write a check if the person knows his or her account lacks or will lack sufficient funds to cover the amount of the check. (See Texas Penal Code 32.41 Issuance of a Bad Check to read the Texas statute.) There is an exception for post-dated checks.

Payday loans are withdrawn directly from the customer’s checking account using the Automated Clearing House (ACH) system. When the customer lacks sufficient funds for the payday lender to make an ACH withdrawal, the payday lenders state (erroneously, I believe) that this is the same as writing a hot check. I am not aware of any Texas district attorneys today who prosecute payday loan customers under Texas’ hot check law — TPC 32.41 Issuance of a Bad Check.

The district attorney must prove that not only did the customer know he or she did not have the funds at the time the check was written, the customer must have known there would not be sufficient funds in the account at the time the check would be cashed. In other words, this is a specific intent crime, and the DA must prove the defendant intended to commit the act (the check writer knew there would not be enough money in the account when the post-dated check was cashed). The only plausible way a DA could prove this type of case is if the check writer admits to a police officer or investigator he or she did not expect the account to contain sufficient funds.

Texas Finance Code Title 4, Subtitle B, Chapter 342, Subchapter E sets the fee and interest limits on Texas payday loans. In Texas, a lender is allowed to charge no more than $1 per $5 borrowed for loans less than $30. For loans between $30 and $100, a service fee of 10% of the loan amount is allowed. For cash advances more than $100, the maximum fee is $10. Texas payday loan laws allow a $3.50 handling charge for loans less than $35. For cash advances between $35 and $70, the law allows a $4 monthly handling charge. For loans more than $70, a $4 monthly fee is allowed for every $100 borrowed. The maximum term limit for Texas payday loans is 31 days. The minimal term limit for payday loans is 7 days. Texas law prohibits lenders from dividing one loan into two loans for the purpose of collecting higher interest fees.

The Texas attorney general offers an array of Web pages devoted to Texas consumers’ rights, and specifically Texas debt law and consumers’ rights in debt collection situations. The Texas Office of Consumer Credit Commissioner regulates payday loans in Texas. Call the OCCC at 800-538-1579 or visit the hyperlink for the OCCC to learn more about Texas payday laws.

As a Texas resident, the payday loan collection agent you spoke to is bound by the Fair Debt Collections Practices Act, which among other things, prohibits collection agents from making false or misleading statements to debtors. Some Texas payday loan employees claim that as original creditors they are not bound by the FDCPA. That is an incorrect statement. See my answer to a fellow reader, Harassed by a Collection Agent to gain a better understanding of your rights.

More Payday Loan Information

I assume that you your payday lenders are contacting you because you are having a hard time repaying the short term loans you borrowed. While payday loans can help some individuals to pay one-time unplanned expenses, when consumers try to use these high-interest loans to pay everyday expenses, they often find themselves quickly overwhelmed and unable to pay.

Bills.com also offers more information on the Payday Loan Information page, and has answered reader questions about payday loans in California, Florida, Illinois, Massachusetts, Missouri, New York, and Virginia.

Visit the Bills.com resource payday loan laws page to learn state-specific information that may help you dig yourself out of the payday loan trap.

If you do not repay a payday loan, the payday loan company has several legal remedies, including wage garnishment, account levy, property lien. See the Bills.com resource Texas Collection Laws to learn more about the rights of creditors and debtors in Texas.

I wish you the best of luck in resolving these payday loans, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

Bills.com