Don't EVER take out a payday loan without having enough money in the bank to cover the amount of the loan. The payday loan business is built on the solvency of the borrower's account, and the ability to collect from it when the time comes.

If you ever do find yourself in the position of not being able to make a payment, talk to your banker IMMEDIATELY. At the very least you can discuss ways to avoid Non-Sufficient Funds charges stemming from attempts by the lender to collect on the loan.

We can't stress it enough: contact your banker before collection attempts cause your account to be overdrawn. Should your account be closed for repeated overdrafts, you could be placed on a "blacklist" that would practically prevent you from opening another checking account for five years. Your banker can set up a stop payment that would block your account and keep it from becoming overdrawn. (Always follow up any oral request with a written notice, as the oral agreement expires after 14 days.) Provide the following information: the number of the check, the date it was written, the payee's name, and the exact dollar amount.

The stop payment order typically lasts only six months. The check used to secure the loan can then be represented to the bank -- meaning if you want to stop payment you will incur another fee. Be sure to examine your bank statement for checks that are "stale dated," or over six months old.

Check your state's laws regarding the legal risk of borrowers if they stop payment on the check used to secure the loan.

For example:

--Alabama and Alaska allow payday lenders to take criminal action for failure to make good on the check used to secure the loan if the check was returned due to a closed bank account.

--Both Colorado and Wyoming look unkindly upon consumers who close their bank accounts before their loans are due. Likewise, consumers who have closed their account at the time their loans were due are in trouble in North Dakota.

--Hawaii and Missouri expose borrowers to criminal sanctions if the check was returned due to a closed account or stop-payment by the consumer.

--Mississippi permits lenders to use criminal action if the check used to get the loan bounces when deposited.

--In Arkansas, it is a crime to both stop payment on a check and close the account.

--Utah's payday loan law permits lenders to sue for treble damages if borrowers can't make good on the check used to get the loan. Utah lenders are not permitted to threaten criminal prosecution.

Keep in mind: in some states (check your state's directory) your are liable under bad-check laws if the loan is not repaid. In most states, however, you're not subject to criminal penalties.

REMEMBER, STOPPING PAYMENT ON THE CHECK USED TO SECURE THE LOAN DOES NOT CANCEL THE CONTRACT TO REPAY.
(Sorry for the shouting, but we can't stress this fact enough.)

Watch Out: Electronic Payments Can Bounce, Too

A missed payment can result in the same kinds of fees bouncing checks create. Each time the check is returned, the bank charges you a fee, usually ranging from from $20 to $35. Worse, you'll get charged on both ends, as the payday lender will also charge an additional fee if the check is returned unpaid.

However, even in states that allow multiple collection attempts on the same missed electronic payment, the limit is usually set at three. If you see more than three total attempts to collect, contact your bank and file a complaint.

Payday Lending and the Risks of the Internet

The internet has added special risks to the net, particularly when it comes to borrowing. Consumers can now "sign" electronically, with no physical signature required. The ease of applying online can be all too tempting for the consumer to click on that "OK" button -- and immediately be plunged into an expensive loan agreement.

Besides high-interest repayment terms charged by electronic lenders, there are security risks too. Consumers send their most sensitive personal data such as Social Security number and bank account number to the lender, sometimes over unsecured web links. Identity theft and fraud are real risks when consumers disclose such information. Note: check your online lender's page for signs of SSL (Secure Socket Layer Technology) and other "Hacker Safe" ways of protecting your data.

Before "signing" your name to any loan, make sure you find out if the lender has an automatic renewal stipulation in the contract. Many online lenders do, which subjects the borrower to additional loans automatically -- along with the accompanying fees and finance charges. Consumers who want to close out their loan for good may have to take extra steps to notify those companies of their intentions.