Payday Loan Proceeds & Third-Party Accounts: What You Need to Know

Although the terms under which payday loans -- loans that must be paid back quickly at a high rate of interest -- are issued vary greatly, most payday loan companies follow similar procedures. Generally, a person can only borrow money for himself and cannot have money drawn from a payday loan deposited directly into another person's account. However, once he receives the loan proceeds, he can place the money in someone else's account.

Payday Loans

When a person takes out a payday loan, he is responsible for the debt. A person cannot, under U.S. law, take out a loan and shift responsibility for the loan to another party without that person's permission. However, there are no laws that prevent a person from giving the money from a payday loan to another party. However, he is still responsible for repaying the debt.

Payment

When a payday loan company issues a loan, it typically requires that the borrower provide either a checking account number or a postdated check. In some cases, if the person provides a checking account number, the payday loan company deposits the money into that checking account, as a means of verifying its existence. When the loan comes due, it extracts the amount owed from this same account.

Checking Account Rules

While a person can legally authorize a payday lender to deposit money into a checking account that he does not control, he cannot legally authorize the lender to withdraw money for repayment of the debt from an account that is not his. Some payday lenders require that the person use the same account to both receive the money and pay it back. In such a case, the borrower can't have a payday loan deposited into another person's account.

Exceptions

Some payday loan companies, however, allow separate accounts to be used to receive payment and pay back the loan. In such a case, the money could be deposited into someone else's account. In other cases, some loan companies provide the loan in the form of cash or a check. If so, the borrower can do whatever he wants with these funds, including give them to someone else by depositing the money in that person's account. The bottom line is that once the borrower has the funds, he can do whatever he wants with them.