Tennessee Payday Loan Laws: What Happens If You Can't Repay?

The payday loan industry is heavily regulated in Tennessee. However, these laws are relatively liberal, allowing payday lenders to charges upwards of 400 percent APR on a single loan. In addition, Tennessee has a number of laws that relate to defaulting on a payday loan. This includes laws covering the fees that a lender can charge on a late payment, and the collection actions that a creditor can undertake to try to get his money back.

Fees

In Tennessee, borrowers pay back payday loans by providing lenders with post-dated checks for the amount due. If the check fails to clear, the lender is legally allowed to charge the person a late fee. According to Tennessee law, the payday lender can charge $15 per returned check or $17.65 for every $100 he loaned to the borrower. A person can only borrow up to $500 at one time and cannot be charged more than one late fee per check.

Limits on Penalties

In addition to being able to charge only one late fee per returned check, lenders are not allowed to "roll over" an unpaid debt -- meaning that the debt, plus late fees, is automatically reissued in the form of a new loan, making it susceptible to late fees. The lender can work out a payment plan with a delinquent borrower; this payment plan, however, cannot include higher rates of interest or additional charges related to delinquent payment.

Charges for Bad Checks

Tennessee, like many states, has a so-called "hot check" law. If an individual pays for a purchase with a check, but knows that the check will not go through, he may be charged with a crime. In Tennessee, passing a worthless check is a misdemeanor or a felony, depending on the size of the check. However, unless a prosecutor can show that a payday borrower gave the lender a check that he knew to be worthless, the lender can only charge the borrower $30 per returned check, in addition to a late fee on the debt.

Collection Actions

While lenders can only charge the limits prescribed by the state of Tennessee on late payments and returned checks, the lender can attempt to collect payment of the loan in court. If a judge finds that the borrower indeed owes the lender money, the borrower may have to pay the lender's court costs in addition to the money already owed.