It is difficult to offer a answer to your question based upon the information you have provided, however, I am uncertain why fraud would be an issue in this matter.
Most Pay Day lenders take a post dated check in exchange for lending you money. Obviously the lender knew that you did not have the money to cover the check when he took it, so I don't understand how he could allege that you somehow fraudulently induced him to take your check.
Now on a more practical matter, there is no reason why he cannot file a suit against you, or more likely bring a claim before a Justice of the Peace Court, to collect on the money he lent to you.
Unless you want to file for bankruptcy, which might be an option depending upon your overall debt picture, you will have to either make arrangements with the lender to repay it/him or let it/him get a judgment against you and start collection proceedings.
However, I would not recommend giving this lender, or anyone the right to make automatic withdrawals from your bank account.
If you took out the loan, they can sue you but not for fraud, that is most likely an empty threat as explained above. Whether you want to settle with them or not, you may not want to give them access to your bank account. Good luck.