If you took out a payday loan and didn't pay it back on time, you've probably had collectors call, and they may have threatened to garnish your wages. Or maybe the payday loan company is already taking part of each paycheck. Can they do that? Can you get them to stop?
It depends on one thing: are they actually garnishing your wages, or are they taking the money with a "wage assignment"? The result is the same: your paycheck is smaller, because your employer pays a percent of it each time to the payday loan company. But if it's because of a wage assignment, you can stop it or prevent it pretty easily. Here's how you tell the difference, and here's how to get it to stop.
When somebody takes out a payday loan where I work, there's a piece of paper they need to sign which says they agree to a wage assignment, if they don't pay the loan back. You may have signed something like it, either in person or electronically, when you took out the loan. But here's the point. It's voluntary. By law, it has to be. There's no such thing as an irrevocable wage assignment anymore, since 1985. You can read about the change in the law on the FTC's website here. "Wage assignments that can be revoked at will" are all that's legal, according to the FTC.
A wage assignment happens pretty fast. The lender mails you and your employer a letter of intent to ask for it, and it happens.
Actual garnishment of your wages, which isn't voluntary and is much harder to stop, requires the lender to first sue you in court, win, then send you a notice that they're going to garnish your wages.
During this whole long process, which can take weeks or even months, you'll get official-looking notices of court appearances, hearings, and so forth. If that hasn't happened, you've probably got a wage assignment, and you can stop it or prevent it from happening, just by revoking it. If you've got other debts, you may also want to check out services that help you consolidate or cut your debt and improve your credit score.
To stop a wage assignment, send a letter by certified mail to both the payroll department of your employer and to the payday loan company. It doesn't need to be very long or worded in any particular official way, just something like this that gets all the information across:
This letter is concerning: (name of lender, their address and your account number with them)
As of (today's date), I hereby revoke the right of the above company to use the wage assignment that I authorized on (date you originally authorized it).
Remember, if a debt collector calls and says you agreed to a wage assignment (even if he calls it a wage garnishment), you have the legal right to revoke it at any time, so it's an empty threat. Your company may not even comply with voluntary wage assignments. It's a paperwork hassle for them. But if they do, revoking the assignment will stop it.
Wage Garnishment: Not So Easy to Stop
Now we'll talk about real wage garnishment, which isn't so easy to stop. But it's not so easy to start, either.
In most states, a court-ordered wage garnishment requires the loan company to actually sue you in court with a civil suit, so you'll get an official notice that you're required to appear in court. The company has to win the suit (another notice) and then file a separate motion that they want to garnish your wages (another notice). So this isn't something that will happen in a few days, probably not even within a few weeks, and you'll get plenty of warning.
However, pay attention, because if the loan company goes through all those steps, once the garnishment starts, about the only thing that will stop it is either paying off the loan or declaring bankruptcy. This is serious stuff. If you can't win the lawsuit, the time to fight a garnishment is when you first receive the notice about it. How you do it depends on state law, so check with a lawyer in your state, if you didn't already have a lawyer when they filed the civil suit. The amount they can garnish is limited by federal law (usually no more than 25% of your income). Other laws affect whether they can garnish Social Security, pension or disability income (usually they can't). Some states have more ways to avoid garnishment, like an exemption for the income of heads of household in Florida, while other states make garnishing wages easier for the loan company. As of this writing, four states don't allow wage garnishment for payday loans or similar loans at all: Texas, Pennsylvania, North Carolina and South Carolina.
I'm not a lawyer, so take everything you've read here with a grain of salt and ask a lawyer in your state for legal advice. But if you haven't lost a lawsuit, and a loan company is taking money out of your paycheck or threatening to, it's probably a wage assignment, and you can make it stop. You'll still have to pay the loan back if you owe the money, but you can get your whole paycheck in the meantime.
9:41 p.m. April 16
A payday loan company got sued for being too aggressive with this kind of thing. Link to the article.
6:52 a.m. April 17
Sounds like they were doing a voluntary wage assignment but trying to make it sound like an actual court-order garnishment to both the employer and the borrower. Not cool.
8:09 a.m. April 17
Student loans can just start garnishing your wages, and you can't stop them.
9:40 a.m. April 17
Yep, student loans are different. They don't need to win a lawsuit; they can just skip right to the garnishment part. You can still object at a hearing, though.
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