What Are the Laws Regarding Check Cashing and Payday Advances?
In any event, some stores will still give cash to those that pay with a check. They may also allow this even without an additional purchase, but usually charge a nominal service fee. Because of the way in which checks are handled, this can sometimes allow one to obtain cash even when their checking account would not have sufficient funds at that moment, which is why some like to use this method for a quick, small loan.
However, this is technically writing a bad check. The drafter has made out a check for an amount he or she knows is not in the bank at that moment. If the store uses one of the systems that checks your account balance at that moment, it may show that there are insufficient funds and refuse to give you any money. Even if the store does honor the check and gives you the funds, you will be responsible for ensuring the money is in the bank to cover that check before it clears. Otherwise, you may be charged with returned check fees by both your bank and the store at which you cashed the check. You may also be subject to both civil and criminal penalties for writing the bad check (sometimes called “check kiting”). Many states even impose some form of punitive damages, allowing those who receive your bad check to claim as much as three times the face value of the check in damages, and those are in addition to actual damages in the form of returned check fees.
Thus, cashing a check at a store when you know you do not have the funds on hand to cover the check can be a very risky means of obtaining fast cash.
A much more legal, but possibly equally risky form of short term loan is the payday advance. Sometimes also referred to as “check cashing,” these services allow borrowers to take a short term loan at an exceptionally high interest rate. To secure the loan, the borrower provides the lender with a check (or in the modern digital age, access to online banking). The borrower agrees to pay back the loan amount plus a set fee (usually equivalent to 5% to 15% of the value of the loan) within 14 to 30 days. The repayment date is usually set as the borrower’s usual payday, hence the name payday advance.
These loans are appealing to borrowers in need of quick cash who do not have access to other forms of lending, like signature loans or credit cards, often because of bad credit or high spending. Due to the often desperate circumstances of those to whom these loans appeal, they tend to be more heavily regulated than other forms of financing. Still, many can fall into a trap of constantly relying on payday loans to cover their regular expenses, and this can be quite problematic.
Fortunately for borrowers, government regulations of payday loans tend to protect those who would otherwise be at a disadvantage. Many states prohibit payday lenders from pursuing civil or criminal claims for bad check writing because the lender knew at the time the check was written that the borrower lacked the funds to cover the check. Even in states that do not, such charges and claims are rare (but not impossible)
If you find yourself in desperate financial straits, it may be wise to assess your overall circumstances. While it may be necessary to avail yourself of check cashing or payday advance services for a short term fix, understanding why this was necessary, and taking steps to avoid it may lead to a better overall outcome. There are many free credit counseling services across the United States, as well as other organizations that can help you to talk to lenders and arrange for repayment terms that will be more affordable and manageable. Attorneys can also help with some of this negotiation, as well as protect you in the event of charges for check kiting or suits related to failing to repay a payday loan. Bankruptcy may be another option to wipe out some of these obligations and get your financial life back on track. To find an attorney that can help you with one or more of these services, visit HG.org and search for a lawyer by practice area and geographical location.