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February, 1999
This article was written by the Consumers Union Southwest Regional Office.
Using the Criminal Justice System as a Collection AgencyThe one thing that clearly differentiates "cash advance" lenders is their use of local law enforcement to collect unpaid loans. When companies ask customers to write a personal check for the amount they borrow plus a fee, they are likely aware that the customer does not have the funds in their account to make good on the check. That's why they need a loan. The Travis County District Attorney's office will not accept a check for prosecution as theft by check if they know that it was taken with the knowledge that it would not be cashed, or would be held for any length of time. But the District Attorney, handling thousands of bounced checks each year, may not be able to differentiate one from another. Justices of the Peace, who prosecute people for Issuance of a Bad Check (IBC), also a misdemeanor charge, do not require proof that the check was not held. Therefore Justices of the Peace sometimes act as the collection agent for these lenders. Cash advance companies are frank about what happens when a customer defaults. Public Leasing of Dallas told our surveyor, "If you don't repay us we will cash your check. If your check bounces then we will file for a hot check." Companies may also require that customers sign an "Assignment of Salary and Wages" that authorizes the company to go directly to a borrower's employer. The cash advance company uses the employer as a collection agent, asking him or her to deduct the full amount owed from the employee's check and pay it directly to the lender. As frightening as it is to face "hot check" prosecution by county law enforcement , or your employer for wage garnishment, the mere threat of these collection practices is a powerful incentive for borrowers to repay or continue to refinance loans. |
