Yes, but only under specific circumstances like a court order. A payday lender with a court order resulting from a lawsuit against you can garnish your bank account or wages.
Payday loans are short-term loans taken out by a borrower to be repaid by their next payday. However, if the borrower fails to repay their debt when it's due, the creditor may file a lawsuit against them.
The court enters a judgment against the borrower if the lender wins or the borrower fails to dispute the lawsuit. The court's judgment states how much the borrower owes and may grant the payday lender a garnishment order against the borrower.
What Is a Wage Garnishment?
A wage garnishment allows an employer to withhold a part of their employee's earnings and send it to a lender to settle, in part or full, a debt they owe. A bank or credit union may also withhold some money for the creditor (bank garnishment).
Each state has its unique list of procedures, processes and garnishment exemptions that apply to wage and bank garnishments. Some states, though, do not permit wage garnishment for debt collection.
It's always advisable to appear for court hearings, if invited, to avoid a default judgment (the court ruling in favor of the lender). Attending the court hearing gives you a fair chance to present your case. The judge may, in fact, prefer that you and the lender work out a new repayment plan over wage garnishment.
How to Deal With an Illegal Wage Garnishment?
Some payday lenders threaten wage or bank garnishment to get borrowers to pay even without a court order or judgment. This is illegal, and you may want to seek legal advice if this happens to you. You may also contact your state's regulator, attorney general, or private attorney for more information.
Also, there's a limit to how much a payday lender can withhold from your earnings by wage garnishment. A lender takes whichever is lesser, between 25% of your disposable income and your monthly income minus 30 times the federal minimum wage.
The Consumer Financial Protection Bureau (CFPB) is committed to helping borrowers who may be victims of threats and abuse from creditors. You can submit a complaint to the CFPB online or call (855)-411-2372.