The Federal Trade commission reported this week that it has halted a payday lender from attempting to garnish consumers’ wages without the necessary court order. The company, Payday Financial, LLC, reportedly did business under the names Big Sky Cash and Lakota Cash.
Sources note that, in order to garnish its customers’ wages, Payday Financial divulged information about alleged payday loan debts to their employers, which is illegal. The attempt to garnish wages also prevented customers from disputing the debts in court or working out a payment plan with the lender.
Wage Garnishment Rules
Federal law permits government entities to request wage garnishment for unpaid debts owed to the government; however, the law requires that private creditors (i.e. anyone other than the government) go through the court system if they want to pursue wage garnishment.
According to the FTC, Payday Financial sent customers’ employers paperwork designed to look like documents from the federal government requesting wage garnishment to repay debts. That move has led the FTC to charge Payday Financial with:
- Misrepresenting their legal wage garnishment status to employers (in other words, lying about their legal ability to garnish the employees’ wages);
- Lying about their communication with consumers (specifically, by indicating that they had already given the employees an opportunity to contest or pay the debt);
- Illegally revealing the existence and amount of alleged debts without consumers’ consent or knowledge;
- Violating the FTC’s Credit Practices Rule, which does not permit lenders to require that consumers consent to wage garnishment in the event of default; and
- Violating the Electronic Funds Transfer Act, which prohibits payday lenders from requiring borrowers to authorize direct debit payment of loans.
Payday Financial has agreed to stop garnishing its customers’ wages until a court decides on the case.
Halting Wage Garnishment through Bankruptcy
Consumers who are dealing with legal wage garnishment have the option of filing for bankruptcy to prevent further withdrawal of funds from their wages. Personal bankruptcy includes a legal protection called the automatic stay, which prevents collection actions of all kinds for the duration of the bankruptcy case.
The automatic stay can halt:
- Wage garnishment;
- Debt lawsuits;
- Foreclosure;
- Repossession; and
- Phone calls and mailings from creditors.
In bankruptcy, filers may have debts discharged or enter a repayment plan to catch up on past-due debts. Once a debt has been discharged or repaid in part through the bankruptcy court, creditors no longer have a legal right to collect on it (meaning they can no longer legally garnish wages to cover that debt).
Tags: consumer protection, FTC, payday lending, predatory lending
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