Can Payday Lenders Garnish Wages?
4 Min Read
Let’s get straight to the point. A payday lender has the right to garnish your wages, but only when there are legal grounds for this. More than that, wage garnishment is not the first step a lender takes to force a defaulter to pay. It’s a long-lasting process that doesn’t happen overnight and usually takes place only as a last resort. Let’s find out when wage or bank garnishment occurs and when it’s considered legal action.
Table of Content
- What Is Wage Garnishment?
- When Can Payday Loans Garnish Your Wages?
- How Much Can A Payday Lender Garnish?
- Wage Garnishment Exemptions
- Will Payday Loan Lenders Warn You Before They Garnish Your Wages?
- How to Prevent Wage Garnishment?
What Is Wage Garnishment?
Wage garnishment refers to a form of debt collection that involves withholding a portion of your salary toward paying off your outstanding debt. This payroll deduction is made directly by your employer and can cover various forms of financial obligations. It’s not only about unrepaid personal and payday loans. Credit card debt, alimony, tax debts, and medical bills can also be reasons for wage garnishment.
Additionally, a lender can send a request to your bank or credit union. This is called bank garnishment. In both cases, a creditor must file a lawsuit against an unreliable borrower to initiate the process and collect the balance. Thus, even if you experience lingering difficulties with making your debt payments, a lender can’t request this form of debt collection from your employer or bank without a court decision.
When Can Payday Loans Garnish Your Wages?
A payday lender can garnish your wages only if it has a corresponding garnishment order. This court order requires that a portion of a borrower’s earnings will be withheld towards debt repayment. Thus, a lender needs to pursue you first and hope the judge will rule in its favor.
If a lender threatens you with wage garnishment without a court order, it violates federal law under the Fair Debt Collection Practices. In this case, you can turn to a credit counselor for legal assistance.
However, keep in mind that a lender can resort to alternative methods of getting the funds back from you. For example, it can sell your account to a debt collector. This way, your credit scores will go down.
How Much Can A Payday Lender Garnish?
The maximum amount a lender can garnish is set by the Consumer Credit Protection Act. The sum it can deduct is the lesser of the two following figures:
- 25% of a borrower’s disposable income;
- The sum that exceeds 30 times the federal minimum wage per hour (based on your disposable weekly earnings).
The federal minimum wage is considered $7.25 per hour. If we multiply this value by 30, we get $217.5. Thus, if your weekly income is less than or equal to $217.5, a lender won’t be able to garnish your wages.
Suppose that your weekly earnings are $300. Let’s find out how much money a lender can potentially withhold from your salary:
- Find out how much is 25% of your disposable income: $300 * 0.25 = $75.
- Calculate the amount that is over 30 times the federal minimum wage: $300 – $217.5 = $82.5.
- Compare these two amounts. As $75 is less than $82.5, $75 will be the sum that a lender can potentially garnish.
Wage Garnishment Exemptions
Keep in mind that not all forms of income can be withheld toward debt collection. Here are some earnings that can’t be legally garnished:
- Child support;
- Supplemental Security Income benefits;
- Federal veteran’s benefits;
- State disability benefits;
- Federal student loans.
Will Payday Loan Lenders Warn You Before They Garnish Your Wages?
Sure, payday lenders always warn borrowers about potential wage garnishment. As this form of debt collection requires a court process, you won’t be kept in the dark. You will receive a court summons if a loan provider decides to sue. But first, a payday lender will attempt to deduct money from your account. If that doesn’t work, a loan provider will turn to debt collectors. If this attempt fails too, it will resort to lawsuits.
How to Prevent Wage Garnishment?
In fact, the easiest way to avoid wage garnishment is to repay your payday loan debt on schedule. However, life happens, and everyone can find themselves in financial hardships.
If this happens to you, the first thing you should do is contact your lender and be honest with it about your financial difficulties. Most payday loan borrowers skip this step and go into hiding. This is a fundamentally wrong strategy that can result in wage garnishment and accumulating penalties and fees.
Payday lenders often offer flexible payment plans or rollovers to those who can’t repay their loans in full when due. Also, you can get a debt consolidation loan to combine all your existing debts into one. Thus, you will be able to avoid default and make it easier to manage your loan payments.
Apply for a loan with us and say goodbye to the stress and anxiety of struggling to pay off payday loans.Apply