Payday loans -- loans paid back in a short period of time, usually several days to a month -- command a very high rate of interest. If a person fails to pay back a loan by the date set by the lender, he will usually be assessed additional fees, too. In Texas, a person who maliciously passes a bad check is guilty of a felony. However, if a payday borrower bounces a check, it is not considered a crime.
Payday Loans
Many payday loans are set up so that the borrower will in fact give the lender a postdated check at same time as he borrows the money. This check will be for the amount of the loan, plus any interest or additional fees. The lender will then agree to not cash the check until a set date. The borrower will agree to place enough money in his account that the check will clear when cashed.
Bouncing Checks
Sometimes, for various reasons, the check that a borrower has provided the lender will bounce. When a check "bounces," this means that the account the check is linked to does not have sufficient funds to pay the person cashing the check. Instead of providing the individual cashing the check with partial payment, the bank will simply return the check. When a payday loan check bounces, the lender will usually assess the borrower additional fees.
Hot Check Laws
Like several other states, Texas has a law restricting the passing of "hot checks." A hot check is one that the person issuing it knows is not valid, either because the account to which the check is linked has no money or because he is not authorized to write the check. Issuing a hot check is considered a form of financial fraud, as it allows a person to pay for products or services without compensation. In Texas, hot check fraud is felony.
Considerations
Texas does not consider the hot check law to be applicable to checks issued for the payment of payday loans, even if the checks bounce. As of January 2010, Texas has never prosecuted a person for bouncing a payday loan check. This is for two reasons. First, payday loan checks are postdated, meaning the issuer cannot know for certain if the check will bounce; second, it is nearly impossible to prove that a failure to pay back a payday loan was done maliciously.
