Can a Payday Loan Company Sue You?

Payday lenders make all sorts of threats, but can they actually follow through and take you to court?

If you’re stuck in payday loan debt, you’ve probably gotten your fair share of threatening collection calls. And being threatened with a lawsuit is particularly scary.

Courtroom trials may look glamorous on TV, but the courtroom is not where you want to end up.

Before we get started, if you’re getting lawsuit or jail threats from payday lenders, we HIGHLY recommend talking to an expert to help you sort out your situation. Click here right now to talk to a qualified expert for free advice.

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Disclaimer: Credit Summit may be affiliated with some of the companies mentioned in this article. Credit Summit may make money from advertisements or when you contact a company through our platform.

Key Points

  • Yes, payday loan companies can sue you
  • Most lenders would prefer to negotiate a partial repayment than to take you to court
  • Payday lenders cannot have you jailed simply for failing to repay a payday loan
  • If you don’t pay your payday loan, there are a few instances where you could be arrested
  • You can be jailed for failing to appear in court
  • If you default on a loan and lose in court, your wages will likely be garnished

Can a Payday Loan Company Sue You and Take You to Court?

The short answer is yes, a payday loan company can sue you in court if you default on your debt. In order for them to take you to court, you must be delinquent on your payments and in violation of your loan agreement.

Pro tip: Payday lenders can only take you to civil court — not a criminal court.

What’s the difference? A criminal case involves a crime against the state, while a civil case is a dispute between private parties. A U.S. court can only order jail time for criminal offenses. Failure to repay debt is not a criminal offense — it’s a dispute between you and your lender.

In short, payday lenders cannot put you in jail.

And just because a payday lender can sue you doesn’t mean they will. Most of the time, a lender would rather negotiate with you personally and help you with a payment plan instead of going to court. Going to court is inconvenient and expensive and usually costs more in legal fees than the loan they will recover.

In fact, if you’re served with a court order, they’re banking on you being a no-show. Do not fall for this.

Are Payday Lenders Threatening to Sue You?

Let us put your mind at ease.

Most Lenders Are Hoping You Don’t Show Up

You must show up if you are served with a court order regarding a defaulted loan. Do not ignore any court summons.

Yes, it’s scary and the last thing you want to do is go to court. You may even have to miss work and lose a day’s wages.

But if you don’t show, the judge will be forced to rule in favor of the payday lender. If you do appear, you’ll have a chance to make your case, and you might be able to reach an agreement.

What Happens if a Lender Wins in Court?

If you default on a loan and the lender wins in court, the most likely outcome is wage garnishment.

The Consumer Financial Protection Bureau defines wage garnishment as the following:

Wage garnishment happens when your employer holds back a legally required portion of your wages for your debts. Bank garnishment occurs when your bank or credit union is served with a garnishment order. The bank or credit union then holds an amount for the payday lender or collector as allowed by your state law. Each state will have different procedures, as well as exemptions from garnishment, that apply to both the wage and bank garnishment process. For example, under federal law certain benefits or payments are generally exempt from garnishment.


Asset seizure is not a likely outcome unless you declare Chapter 7 bankruptcy.

No, You Can’t Go to Jail for Not Paying Payday Loans

Debt collection agencies will say whatever they want to scare and intimidate you. Unfortunately, that’s the way things are.

So even if they are threatening jail time, the law is clear. In the United States, you cannot go to jail for not paying back a payday loan.

Failure to pay back a loan is not fraud, and it is not a criminal offense. So don’t believe the collectors when they tell you you’re going to jail.

Unlicensed Tribal Lenders Cannot Take You to Court

Tribal loans are payday loans offered by lenders headquartered on Indian reservations. About 99% of the time, they do not have a license with the state. They operate on sovereign Native American land and skate past state regulations.

Therefore, they cannot take you to a U.S. court. They might threaten to, but they can’t. The only court where they have any legal authority is on the Indian reservation. But those laws don’t apply to you.

You Can Take Payday Lenders to Court

The payday industry is full of liars, cheaters and scammers. It’s standard for payday lenders to bend or break the law when collecting debts. The Federal Trade Commission (FTC) offers many protections through the Fair Debt Collections Practices Act. So if you have proof that a lender violated one of the many federal laws governing short-term lending, flip the script and take THEM to court, and perhaps you can get your loan forgiven.

The Bottom Line

Defaulting on your payday loan is a crime, but it’s a civil crime — not a criminal one. Though a payday lender can take you to court, they should not be threatening you with jail time. But if you do receive a summons to appear in court, make sure to be there.

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