Payday loans are legalised in 37 states and illegal in 13 states. Among the states where payday loans are legal, the biggest markets for payday lending are California, Texas, and Nevada.
However, in some states, there are restrictions on the interest rates and fees that payday lenders can charge. Four states, namely Colorado, Montana, New Hampshire, and South Dakota, have set caps on payday loan interest rates to protect consumers from high costs and predatory lending practices. These caps vary by state and may be based on the loan amount or the length of the loan term.
It’s important for borrowers to be aware of the laws and regulations regarding payday loans in their state and to consider all options for borrowing money before turning to payday lending.
Are Payday Loans Permitted in My State?
Every state has different laws and statutes surrounding payday lending. This is because it depends on how each consumer protection office handles high-risk borrowing.
If you’re unsure whether your state allows payday loans, you should find information about payday lending regulations in your state in this table:
State |
Legal |
| Alabama | Yes |
| Alaska | Yes |
| Arizona | No |
| Arkansas | No |
| California | Yes |
| Colorado | Yes |
| Connecticut | No |
| Delaware | Yes |
| Florida | Yes |
| Georgia | No |
| Hawaii | Yes |
| Idaho | Yes |
| Illinois | Yes |
| Indiana | Yes |
| Iowa | Yes |
| Kansas | Yes |
| Kentucky | Yes |
| Louisiana | Yes |
| Maine | Yes |
| Maryland | No |
| Massachusetts | No |
| Michigan | Yes |
| Minnesota | Yes |
| Mississippi | Yes |
| Missouri | Yes |
| Montana | Yes |
| Nebraska | Yes |
| Nevada | Yes |
| New Hampshire | Yes |
| New Jersey | No |
| New Mexico | No |
| New York | No |
| North Carolina | No |
| North Dakota | Yes |
| Ohio | Yes |
| Oklahoma | Yes |
| Oregon | Yes |
| Pennsylvania | No |
| Rhode Island | Yes |
| South Carolina | Yes |
| South Dakota | Yes |
| Tennessee | Yes |
| Texas | Yes |
| Utah | Yes |
| Vermont | No |
| Virginia | Yes |
| Washington | Yes |
| West Virginia | No |
| Wisconsin | Yes |
| Wyoming | Yes |
| Washington DC | No |
In Which States Are Payday Loans Legal?
Legal
Thirty-seven states authorize payday lending through specific statutes including Alabama, Colorado, California, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Ohio, Tennessee, Texas.
Illegal
The states that currently prohibit payday lending are Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, West Virginia, and the District of Columbia.
High-cost payday lending is permitted by state laws or regulations in thirty-two states. Borrowers have protections from high-cost payday lending with reasonable small loan rate caps or other prohibitions in fifteen states. In three states, there are lower rate caps or longer duration terms for less expensive loans. Online payday lenders are usually subject to the state licensing laws and rate caps of the state in which the borrower receives the loan. Find out more here from NCSL.org website.
Which States Have Payday Loan Caps?
Four states have set caps on payday loan interest rates. Colorado, Montana, New Hampshire, and South Dakota have an annual interest rate limit of 36% and ban any additional fees.
Federal law also dictates that fees are capped at 36% for payday loans for all members of the military.
Recently more and more states have taken action to pass legislation or increase restrictions surrounding payday lending. There are twenty-one states which have pending legislation surrounding payday lending and payday lending alternatives as of the 2020 legislative session. Puerto Rico also has new payday loan laws pending. At the begging of November, Nebraskan citizens voted to enact a new cap on payday loan costs. In Utah, the legislation enacted dealt with registration requirements, reporting requirements, and operational requirements.
Virginia is one of the states passing tighter payday loan legislation. The Virginian enactment replaced references to payday loans with the term “short-term loans.” The action also capped the interest and fees for a short-term loan to an annual rate of 36%, plus a maintenance fee. It also increased the maximum value of these loans from $500 to $2,500 and set a minimum duration of four months, subject to exceptions, and a maximum of 24 months.
How Can I Tell if a Payday Lender Is Legally Licensed in My State?
You can check if the lender has a state-issued license. It should be visible, either as a physical copy at the storefront, or as an image on the payday loan website. If you cannot see the license, ask the lender and they should be able to show you.
If you are still unsure, you can verify the license with your state attorney general or financial regulations office.
How Can I Tell if a Payday Lender Is a Scammer?
Seeing payday loans advertised in states where they’re illegal should be an immediate warning. If payday loans are prohibited in your state but you see a loan advertised, it could be a scam.
There are still predatory lenders out there who work around legislation to offer illegal and unlicensed payday loan. They often trap the borrowers in a cycle of debt by demanding interest rates and fees far higher than the legal limit.
If you think you may have been victim to a payday loan scam, contact the police and your state attorney general for information on how to go forward.