Tuesday, September 13, 2011

FTC Stops Payday Loan Company From Garnishing Wages

The Federal Trade Commission recently reported that it stopped a payday lender, Payday Financial, LLC doing business as Big Sky Cash and Lokota Cash, from garnishing wages without a court order. The company was able to convince employers to garnish wages by disseminating information that should not have been divulged. The employers were convinced to garnish the wages without allowing their employee due process, or any means of disputing the garnishment.

Under federal law, the government in some instances is able to garnish wages without a court order. However, this only applies to certain governmental units. Non-governmental units, or private companies and individuals, must go through the legal process and obtain a court order before being able to garnish wages. The payday loan company has been charged with:

  • misrepresenting their status related to being able to garnish wages to employers (that's a nice way of saying they lied about being able to garnish wages)
  • they lied about communications to employees, wherein they alleged employees were given the opportunity to contest the debt and garnishment action;
  • information was released regarding the debts owed to the payday loan company to the employers without the employee's knowledge;
  • violation of the FTC's Credit Practices Rule, wherein lenders are not permitted to require customers to consent to garnishment in the event of default; and
  • violation of the Electronic Funds Transfer Act, wherein the requiring of customers to authorize direct debit payment for loans is prohibited.

The payday loan company has stopped garnishing customer's wages until the case can be presented to a trier of fact.

So, how does this apply to bankruptcy? Customers that are either having their wages garnished, or about to have them garnished may have the option of filing bankruptcy. A local bankruptcy attorney can advise you further on whether or not you may be able to file, and what the ramifications of filing are, if any. The filing of bankruptcy automatically imposes something called an automatic stay. What this means is, certain things are prevented from commencing, and if already commenced, these things are halted. These include:
  • Wage garnishment.
  • Certain lawsuits, including debt collection suits and foreclosure.
  • Collection efforts, including phone calls and letters.
  • Repossession (in Florida, if the vehicle has not already been repossessed; if already repossessed, seek the advise of an attorney, as this is outside the scope of this article)

The extent bankruptcy may help you regarding garnishment can best be answered by a local bankruptcy attorney. Upon receiving a discharge, normally past due amounts owed to creditors are not collectable. Any effort to collect, including garnishing wages, would be in violation of a court order, and would expose the creditor to having answer to the Court (yep, the Bankruptcy Judge) as to why they are violating the Court's Order.


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