Can You Be Taken To Court By a Payday Loan Company?

Yes, you can technically be taken to court by a payday lender for missed repayments, but it is not common at all, because payday loans are typically for small amounts and missing repayments is not a legal offence.

Payday lenders will take various measures to recover any debt and missed repayments and if all standard practices such as email follow ups, text messages, phone calls and letters are not successful, they may try to take you to court to settle your debt.

What Are The Steps For Missing a Payday Loan Payment?

1. The lender will send the borrower a payment follow up email, SMS and phone call to you or your employer
2. No interest is charged for 24-48 hours to give you a chance to repay
3. Once your loan enters areas, the credit reference agencies like Experian and Equifax will be alerted causing your credit score to fall and this information will be available to future creditors
4. A default charge of a maximum £15 will apply and daily interest of a maximum of 0.8% will be added each day that the loan is in arrears
5. The lender will continue to try collect from the borrower’s account through continuous payment authority, usually once per day or every few days
6. Regular phone calls and letters will be sent out to the borrower requesting payment
7. The debt could be sold to a debt collection agency
8. The lender could send a bailiff to try collect from your residence
9. The lender could take legal action and submit a court to recover debt

Why Would a Payday Lender Not Always Take You To Court?

Payday loans are typically for small amounts such as £300 or £500 loans and the cost of the loan can never be double that amount according to FCA regulation.

In practice, it does not make sense for a payday lender to be pursuing hundreds or thousands of customers in court because the legal fees and administration costs are too high.

However, for some larger loans or customers that are in long-term debt, it might make sense to issue them with a court order so that they can put an end to the loan agreement. This could encourage the borrower in arrears to make some kind of payment if they have not responded to anything and contributed zero sums so far.

What Happens if a Payday Lender Takes You To Court?

If a payday lender takes you to court over unresolved debt, they will submit a court order and present this to you in writing via a letter. 

The borrower will legally be required to appear in court and missing this appearance could be a criminal offence. The court date is set usually several months in advance, it is rarely in the near future.

A county court judgment (CCJ) will likely be issued in court to the borrower which is a legal procedure to confirm that the borrower missed repayments. A CCJ will significantly damage the borrower’s credit score and remain on their credit report for up to 8 years, making it harder to access mainstream credit from other lenders and credit providers. See also CCJ loans.

When Are You More Likely To Be Taken To Court Over Unpaid Debts?

There are some financial products or events where missing payments is likely to result in court action, including:

• Larger debt amounts e.g thousands, tens of thousands or millions
• Failure to pay business loans, expenses, commissions or invoices 
• Failure to pay child support, criminal fines, parking tickets, injury compensation, utility bills, council tax or personal tax

Could You Go To Jail For Missing Payday Loan Repayments?

No, you will not go to jail or prison for missing payday loan repayments. Failing to repay a payday loan is not against the law and may be as a result of financial difficulty or personal circumstances. 

Therefore, you will not be sent to jail or prison if you fall behind on payday loan repayments.

What Should I Do If I Cannot Repay My Payday Loan?

The best thing you can do if you are struggling to repay your payday loan is speak with the lender. Telling the lender about your situation and informing them why you can or cannot pay and when you might be able to contribute something is hugely important. If you avoid any correspondence or do not respond to their emails or letters, you are potentially attracting more severe collection measures such as bailiffs or being taken to court.

By FCA regulation, payday lenders are required to offer you some forbearance if you are having financial difficulty – and this might include offering an ‘arrangement’ which offers smaller repayment amounts over a longer period of time. 

Rather than owing £200 at the end of the month, this could be reduced to £50 per month for 4 months – which freezes the interest and any late fees.

Speaking to the lender and making your situation clear could also reduce or avoid any late fees or default fees being added to your account.

You can always speak to family and friends for financial assistance or to a free debt professional if you need financial help, such as speaking with Citizen’s Advice Bureau or debt-charity, StepChange.