Can the Government Help with Payday Loans?

Posted on November 14, 2022 in Debt

Unfortunately, the government can’t help you with payday loans, but thankfully there are other debt relief programs that can provide assistance.

If you are overwhelmed by financial stress, a payday loan can sometimes seem like the only option. Unpaid bills and a loss of income can take a toll on your mind and body, leading to sleepless nights and a lot of tension. The payday loan industry has ballooned to a whopping $9 billion, and the COVID-19 pandemic and resulting unemployment only made purse strings tighter for many Americans. But if you have taken out a payday loan and cannot pay it back, where can you turn for help and relief from payday loans? We will answer that question and more in this blog post, so let’s get started.

Government Help With Payday Loans

While the federal government relaxed some rules regarding paying back loans during the COVID-19 pandemic, such as the moratorium on student loans, payday loans and cash advances were not included. And since only 14% of the 12 million Americans who take out payday loans can afford to pay them back as scheduled, many people are wondering if the government will help them pay off their loans through a grant.

The answer is no, the federal government will not help you pay off your payday loan through a grant. But they are looking for ways to limit payday lenders, in order to end the debilitating debt cycle. This can be achieved by curtailing interest rates and protecting borrowers from predatory lending practices. As far as how much you can be helped through these means, it generally depends on your state.

For example, some states cap payday loan amounts or interest rates, or limit the number of payday loans a person can take out. In some states, payday loans are totally illegal. Bear in mind, though, that state laws will not help you if your loan is through a tribal lender. Indian reservations are sovereign nations and companies within them are subject only to tribal and federal laws, which are typically weaker in this area.

How a Payday Loan Works

The government will help protect you from lender and third-party collections harassment under the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Bureau (CFPB). If you find yourself being harassed or think your rights have been violated, be sure to document it and send it to the Federal Trade Commission (FTC), the CFPB, and your state attorney general’s office.

Is There Payday Loan Forgiveness Tied To COVID-19?

No, there is no government payday loan forgiveness due to the Covid-19 pandemic. While the CFPB has stated that they are trying to address payday lending problems, there are no payday loan forgiveness programs tied to any COVID-19 legislation or relief packages. This is a problem since many Americans who take out a payday loan ultimately wind up regretting it, since it only gets them further into debt. Thankfully, there are several alternatives to payday loans that we will discuss in a bit.

Can the CFPB Help With Payday Loans?

While the CFPB has been trying to crack down on payday lenders in order to protect consumers, they have met strong partisan resistance. Despite this, in June 2021 a law that previously allowed payday lenders to skirt interest rate state caps was overturned. This predatory lending practice was known as a “rent-a-bank” scheme. It was a loophole in which the payday lender partnered with a commercial bank chartered by the U.S. Treasury when making high-cost installment loans. Because a national bank is not based in one state, it is not subject to individual state laws.

Will My State Laws Help Me With Payday Loans?

While your state government will not pay your payday loan back for you, some states have policies that can limit the damage. Payday loans are banned in several states and Washington D.C., and other states limit the annual percentage rates and additional fees tied to payday loans. It is a good idea to check the laws in your state to see if your payday loan is legal. If your loan does not comply with state laws, you may not have to pay it back. Be sure to contact your state’s attorney general’s office if you believe this to be the case.

Is There Other Government Help Available For Payday Loans?

The FTC provides detailed information on its fair debt collection page that is even available in Spanish. If you need more help, try a nonprofit credit counseling service. These credit counselors offer advice on managing money, adjusting financial habits, creating a budget, dealing with creditors, and making a plan to get out of debt. Here is some information about other protections against predatory lending practices:

  • The Fair Debt Collections Practices Act:

This 1977 law is an amendment to the Consumer Credit Protection Act. It established legal protection for consumers from abusive debt collection practices and limited the actions of third-party debt collectors attempting to collect the debt while using false, deceptive, or misleading representation.

  • The Truth in Lending Act:

The Truth in Lending Act from 1968 is implemented by the Federal Reserve Board. TILA requires the lender to disclose the loan costs associated with extending credit, such as the annual percentage rate (APR), loan terms, and total cost to the borrower. This gives consumers the ability to shop around for different credit options. This law protects consumers from lenders and creditors and helps consumers make well-informed decisions and terminate unfavorable contracts.

  • Federal Trade Commission Bureau of Consumer Protection:

This regulatory body stops unfair, deceptive, and fraudulent business practices. They accomplish this by collecting reports from consumers and conducting investigations, suing companies and people that break the law, developing rules to maintain a fair marketplace, and educating consumers and businesses about their rights and responsibilities.

Why Are Payday Loans Predatory?

Payday loans are predatory and designed to trap you in a debt cycle. This debt cycle is almost impossible to escape once you are in it, because payday lenders charge ridiculously high interest rates for a short-term loan that you must pay back with your next paycheck. This results in many payday loan borrowers rolling over their loans or requesting payday loan extended payment plans.

Will I Go To Jail If I Don’t Repay My Payday Loan?

Your payday loan lender can take you to court but cannot have you put in jail for lack of payment. If you find yourself threatened with this by the lender or a third-party collections agency, make sure to let them know that you know your rights, and that you cannot go to jail for unpaid payday loans. File a complaint with your state’s attorney general’s office and the Consumer Financial Protection Bureau.

Will It Hurt My Credit Score If I Don’t Repay My Payday Loan?

Yes. If your payday loan remains unpaid and goes to collections, your credit score can be damaged up to 100 points. That blemish stays on your report for up to seven years, which means you can potentially have a hard time securing a loan in the future. Learn how to stop payday loans today.

What Are Some Alternatives to Payday Loans?

Avoid taking out a payday loan at all costs. Here are some other options to consider instead:

  • Credit union Payday Alternative Loans (PALs):

These are small value loans offered explicitly through a credit union. In order to get one, you must join a credit union in advance or already be a member, because most credit unions require you to be a member for at least a month, and loan amounts can range from $200-$1000. You can repay the loan between one month and six months. Interest rates are capped at 28%, and the application fee is limited to $20. It is still a bit on the high side compared to most standard personal loans but well below the 600% interest rate that some charge. You can take out three of these loans over a six-month period, but you cannot roll one into another like you can with a payday loan.

  • Cash advance apps:

Most cash advance apps, such as apps like Albert, Possible Finance, and Cleo allow you to take out at least $100 from your next paycheck, as long as you meet some requirements. These requirements can vary, but generally there is some kind of income verification involved, along with a good history of deposits and transactions. Dave is one cash advance app that covers up to a $200 advance for a Dave direct deposit. Most cash advance apps do not charge interest or any other fees.

  • Credit counseling:

This type of counseling is used to help individuals get out of debt through settlement, education, and budgeting. The goal is to reduce and ultimately eliminate debt. Credit counseling agencies advocate on your behalf to negotiate with creditors to resolve debt that is beyond your ability to pay. Some nonprofit agencies charge minimal fees, while others can be for-profit and include high costs. It is important to read and understand the provided agreement thoroughly before signing on the dotted line.

  • Credit card cash advance:

This is a service provided by most credit card companies. The cash amount on your credit card is cash borrowed against your credit limit, and you withdraw the money through an ATM. Basically it is a cash advance granted to you by your credit card with an interest fee.


This website accepts Social Security as a source of income and allows you to borrow $500 to $35,000. You can repay the loan over 3 to 72 months, and interest can range from 5.99% to 35.99%. This is a much better alternative to a 400% APR by payday loan companies.

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