Can Payday Loans Take You To Court In Canada?

By: Kristina0 comments

Courts look cool in movies, however, the last place you’d ever want to be is in front of a judge. It happens so fast that most people find themselves in a web confusion and don’t know what to do. Three words can shake you to your core- “You’ve been served”.

Payday loans (also referred to as deposit loans) are short-term loans offered by payday lenders- In short, they’re “quick fixes”. The most enticing thing about payday loans is that the lender usually ignores the borrower’s credit score. Yes, these loans are easy to secure even to those with bad credit scores. They’re sometimes even referred to as “no credit check loans”. However, this good deal also comes with high interest (as high as 400%). With such high interest, it’s fairly easy for borrowers to find themselves in vicious debt cycles. That’s why it’s always best to go for credit consulting services before and after applying for payday loans.

Why would someone take a payday loan? As risky as it might sound, a payday loan can be your savior in times of financial crisis. You just need to be careful.

Payday loans are offered by both traditional lenders and private companies as store-front loans or via online service.

Can Payday Loans Take You To Court In Canada?

Yes, payday loans can take you to court in Canada. However, there is more to this. There are

some payday lenders who will sue and take you to court should you default in repaying the loan.

As mentioned earlier, you’ll be served and summoned to court to appear before the judge. This is usually an attempt by the lender to force you to pay back the loan. Such severe measures will be taken after failed communication with your lender. In short, it’s usually the last resort.

When Do Creditors Take You To Court?

Payday loan Creditors will sue defaulters as the last resort. This is usually after weeks of trying to reach you via calls and emails. They’ll often seek the services of debt collectors who are known for their tenacity. However, there are certain regulations they’re supposed to follow when contacting you.

Speaking of regulations, there are lines a debt collector shouldn’t cross. Each province has its own rules and laws that debt collectors should adhere to. A good example is the Collection and Debt Settlement Services Act in Ontario. These rules are set to protect borrowers from harassment.

Always pick debt collector phone calls no matter how annoying they might be. It’s tempting to just keep your phone on “silent mode” and pretend nothing is wrong, however, we’d advise you to have open communication with your creditor. In addition to that, keep a call log of your communication with them.

Say something. If you’re unable to repay your loan, some debt collectors might be willing to compromise on a repayment plan.

That being said, there are specific times that a debt collector is allowed to call you (Please note these times might vary from one province to another).

  • 8 am – 9 pm on Mondays to Fridays
  • 1 pm – 5 pm on Sundays

Debt collectors are not allowed to call you on statutory holidays. Also, depending on the laws in your province (check the Canadian Consumer Handbook), you can request the debt collectors to stop calling and instead communicate via mail.

Some debt collectors might even use unscrupulous methods such as issuing threats- This illegal. There have been situations where debt collectors threaten borrowers with jail time. Some even fake documents to try and push you to settle the debt.

Even before resorting to debt collectors, payday loan lenders will often try to get you to agree to a repayment plan.

A repayment plan is a legal agreement where you and your creditor will agree on a prolonged specified period that you’re supposed to repay the loan. However, you need to acknowledge the fact there will be “late fees” on top of the interest and principal amount.

It’s after fruitless attempts at communication and your failure to adhere to the repayment plan that payday lenders take you to court.

What Happens When Your Ignore And Don’t Repay Your Payday Loan

Payday loans can save you from a tight fit, however, you’ve got to make sure you repay them on time.

Payday loan defaulters are followed up by a series of problems that eat away their peace of mind. It all starts with those annoying calls from credit collectors, then a decrease in credit score, and finally, payday loan court summons followed up by paycheck garnishments.

Paycheck garnishment is a situation where the court instructs your employer to withhold a certain amount of your earnings and direct them to the creditor. This will, in turn, affect your monthly budget and plunge you into more debt as you try to achieve financial stability.

Automatic bank withdrawals and annoying collection calls

Collection calls start immediately after defaulting (a day after the agreed date). Don’t ignore them. After several attempts, creditors will go ahead and reach out to your family and friends (anyone you listed as a reference contact). However, creditors and debt collectors need to do this within the law. As they reach out, they can’t reveal their identity or disclose your situation to the person.

Bank withdrawals usually follow up on the phone calls. In some cases, the withdrawals are automatic (if you’ve given them access to your bank account). They’ll slowly withdraw everything from your bank until the debt is settled. Now you’ve got to be careful because every attempt at withdrawing money might attract a bank fee and affect other transactions.

Repayment plan negotiations

Reach out to your payday loan lender once you’ve taken note of the bank withdrawals and collections. It’s always best to try and explain your current financial situation with them. The majority of creditors are willing to agree on a repayment plan.

A repayment plan gives you a second chance at repaying your loan over a prolonged period with manageable fixed monthly payments. Please note that there will be extra fees you’ll have to pay if you decide to take this option.

Court summons

At this point, the creditor has tried everything to get you to honor your loan. Many people think “my loan amount is too small for them to sue me”, this quickly turns to “I can’t believe a payday loan company is taking me to court”.

No amount is too small, payday loan companies will carry your loan details to debt collectors who will go ahead and sue you.

Will you find yourself behind bars?

No, you can’t go to jail for failure to repay your loan. This is because loan defaulting is not a criminal offense. You will be taken to civil court, not a criminal one. It will only evolve into a criminal case if it’s proven that you took the loan intending to never repay it. However, there are payday lenders that have managed to use bad-check laws to their advantage and put their borrowers behind bars.

This is why it’s always best to have clear communication with your payday lender before the situation escalates and the court is involved.

What To Do When Your Receive A Payday Loan Court Summon

Payday loan court summons can be scary but ignoring them is the last thing you’d want to do. Allow us to explain.

The damage is already done and you’re now suddenly “served” and summoned to court. It could be you ignored their calls or you just couldn’t agree on a repayment plan. Ignoring a court order will only worsen things.

What To Expect When In Court For Unpaid Payday Loans

Most people don’t know this, but payday lenders hate using third-party means to collect their debts. They’d prefer agreeing on terms directly with you instead of selling the debt to debt collectors for a small amount or going to court- The long legal processes will cost them a lot of money.

The first thing you want to do is seek the legal services of a lawyer and explain your case. When payday lenders sue you, they’re betting on the fact that you’ll not obey the court summon. As a result, the court will immediately give the ruling against you. If you’re not careful, the payday lender might end up claiming more than the amount owed in the name of “late compensation”.

If a payday loan takes you to court, look for a lawyer, and appear before the judge.

If things get difficult, you can always try to consult debt settlement companies in Canada,

Conclusion

Can payday loans take you to court in Canada? Yes. It’s best to avoid the whole situation by having clear and open communication with your payday lender. Don’t ignore a payday loan court summon, instead, show up with your lawyer.

Frequently Asked Questions

Can you be taken to court for a payday loan?

Yes. Payday lenders consider this the last resort when dealing with loan defaulters.

Can a collection agency take you to court in Canada?

Yes. Although it rarely happens, there is always a chance that the collection agency will sue you.

What happens if I don’t pay my payday loans?

Expect several phone calls a week from the payday loan company or credit collectors. If you gave them access to your bank account, then expect automatic bank withdrawals. Some lenders will try to call you in for a repayment plan. If all that fails, then you might find yourself in a civil court.

A payday loan company is taking me to court- what should I do?

Don’t ignore the court summon. Look for a lawyer and show up.

Do payday loans affect your credit in Canada?

Yes. The payday loan company is most likely going to seek the services of a debt collector and the debt will be recorded against your credit score.

Do payday loan lenders call your employer?

Some will call to verify your job status. However, they won’t call your employer if you default on your loan payment. They will, however, call those you listed as your references (family and friends). Nevertheless, they not allowed to reveal their identity or disclose your situation.

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