Payday Loan Wage Assignment: Just Say No!

by Wendell Sherk, Missouri Bankruptcy Attorney

September 21, 2007

An increasingly common collection tool for payday and small loan lenders is the voluntary wage assignment. It can be particularly effective for employed borrowers with no bank accounts. The assignment can make it harder for folks to pay the things they must pay –like rent and car bills – and makes the spiral into bankruptcy more likely.

A wage assignment is simply a direction to the borrower’s employer to deduct a specific amount from the borrower’s paycheck and send it to the lender. It is like a garnishment but not issued by a court of law. It is often included in the “standard” loan documents which many customers sign without reading. If the post-dated check from the customer bounces (or no post-dated check was provided), the lender can try to use the wage assignment.

In some states it is entirely legal, in some it is not, and in some it is severely limited. The Federal Trade Commission limits the amounts which can be taken where it is allowed and makes it an unfair trade practice to compel an irrevocable wage assignment. The most important aspect though is that it is supposed to be voluntary. It can be revoked any time.

A borrower can usually send a clearly written (certified mail) letter to the lender stating they revoke the assignment of wages executed on or about the given date of the loan, signed and dated, with a copy to the employer’s payroll. A sample explanation of the process and form are here. (Thanks to David Yen of Legal Assistance Foundation of Chicago.)

Why would anyone bother to lend on a collection tool the borrower could refuse to honor with a simple letter? Because most people probably won’t read the fine print of their contracts and they won’t realize when the wage assignment goes through payroll that they have a choice. And they fear the consequences of revoking it. But often pursuing more traditional collection on such small loans is not terribly cost-effective for the lenders so the consequences maybe a lot of ugly phone calls.

The hard truth is that taking back control of your financial affairs means standing up for your rights and not letting someone do things to you, even if you agreed to let them before. That’s harder but more rewarding in the long run.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively. I have represented bankruptcy trustees as well as creditors. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com

Last modified: July 8, 2010