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I can’t repay my payday loan. What should I do?
Clear language definitions to common legal terms.
If you can’t repay a payday loan on time, it is best to talk to the payday lender. Try to work out a new payment plan. But the lender isn’t allowed to give you a new loan until the first one is paid off.
If you’re not able to work out a new payment plan, the payday lender can:
- add late fees and other charges, including up to 60% interest
- send your file to a collection agency
- sue you in Small Claims Court
If there isn’t enough money in your account to cover your preauthorized debit or postdated cheque, the bank may also charge you a fee.
Rules about contacting you
Most payday loans are paid back in a single payment. If you miss the payment, your loan is in default. The payday lender may contact you by phone, or in person.
Payday lenders are only allowed to contact you Monday to Saturday from 7 am to 9 pm, and Sunday from 1 pm to 5 pm. They aren’t allowed to contact you on statutory holidays. They also aren’t allowed to contact you more than 3 times during any 7-day period.
Payday lenders aren’t allowed to threaten you or swear at you. They aren’t allowed to bully you into paying or harass you.
If the payday lender can’t get in touch with you, they may call your friends, family, and employer to find out how to reach you. But, they aren’t allowed to ask these people anything else or give them any information about your loan.
1. Learn more about what the lender can do
If you can’t repay your payday loan on time, the lender can do one or more of the following:
- Add late fees and other charges, including up to 60% interest. These extra fees will make the loan even more difficult to pay off.
- Send your file to a collection agency. This will affect your credit score and make it harder for you to get loans in the future. The lender can’t give you a new loan to pay off your old loan.
- Sue you in Small Claims Court(link is external). If the lender wins in court, the court might allow them to take some of your money or property. The court might also allow the lender to take money directly from your paycheque. This is called garnishing your wages.
If you cannot repay your loan and the lender won’t agree to a new payment plan, try and speak to a non-profit credit counsellor. They may be able to help you.
2. Talk to your bank
Usually the payday lender would have asked you for a preauthorized debit or postdated cheque when giving you the loan. This gives the lender the right to take that amount out of your bank account. If you don’t have enough money in your account when the payment is due, the bank usually charges a service fee.
If you know you don’t have enough money in your bank account, ask the bank if they charge a fee in this situation. If they do, explain your situation. Ask the bank to waive the fee or refund it if they’ve already charged you.
3. Talk to a credit counsellor
If you have a lot of debt or if you often struggle to pay your bills, you can get help from a non-profit credit counselling service.
They can give you ideas about how to manage your debt. With their help, you can learn how to avoid the same problems in the future. This can help improve your credit score.
For example, they can help you:
- make a budget
- understand how you got into debt
- understand how to get out of debt
- talk with your creditors to reduce your debt
- make a debt repayment plan
The first appointment to discuss your options is usually free. If you want more help, you have to pay a fee. Non-profit credit counsellors aren’t in business to make a profit from you. If you can’t afford their fee, you can ask for a reduced fee. They may even agree not to charge you at all.
To find a non-profit credit counselling service near you, contact:
Only the credit counsellors listed on these websites are accredited. This means they promise to complete training and follow a code of ethics.
Not-for-profit credit counselling services are different from credit repair agencies and debt settlement companies.
4. Complain if you have a problem with the payday lender
Payday lenders have to follow certain rules. For example they:
- can’t charge more than $18 in interest and fees for every $100 you borrow
- can’t offer you other services when you apply for a loan, like buying your gold or jewellery, or cashing cheques
- must put your loan agreement in writing
- must give you a copy of the loan agreement as soon as you sign it
If you think your payday lender hasn’t followed one or more of these rules, you can file a complaint with the Ontario Ministry of Government and Consumer Services.
Lenders who haven’t followed the rules may get a warning, receive a fine, or even lose their licence.
The Ministry what check what the payday lender did. They may take the lender to court if the lender didn’t follow the Payday Loans Act. The Payday Loans Act is where all the rules payday lenders have to follow are written.
If the lender is convicted, they may be ordered to repay some of your money to you. They may also have to pay a fine or even be sent to jail.
5. Get legal help
If you didn’t repay your payday loan in time, the payday lender can sue you in Small Claims Court. If they do, you don’t need to hire a lawyer because you are allowed to represent yourself. But, it may be best to get legal help. Some of the places to look for a lawyer are:
Law Society Referral Service
The Law Society Referral Service is a list of all lawyers and paralegals licensed in Ontario that have agreed to give a free consultation for up to 30 minutes to people in need of legal help.
Visit the Law Society website at www.lsuc.on.ca and click on "Find a Lawyer or Paralegal", or call them at:
Toronto area 416-947-3330
JusticeNet is a non-profit service that has a list of lawyers, paralegals, and mediators who offer help at reduced rates to financially eligible people. Visit their website at www.justicenet.ca or contact them at:
Toronto area 416-479-0552
Pro Bono Ontario
Pro Bono Ontario offers free or reduced cost legal services to help people who have non-family or criminal legal problems. In Ottawa and Toronto, they have duty counsel lawyers who provide free legal advice to people who are representing themselves at court. At times lawyers may be able to represent people in court on that day.
Pro Bono Ontario uses volunteer lawyers, so clients must be low-income to qualify and may have to meet other criteria to be eligible for help.
For more information visit https://www.probonoontario.org.