• Payday loans are legalised in 37 states and illegal in 13 states
  • The biggest states for payday lending are California, Texas and Nevada
  • Four states have set caps on payday loan interest rates – Colorado, Montana, New Hampshire, and South Dakota

Payday loans are a way for Americans to get extra cash fast when needed before payday. They can be incredibly helpful in a financial emergency, but lenders have come under scrutiny for being unjust to borrowers. In some states, payday loans and similar types of loans are completely illegal. We’ve broken down some of the payday loan legislation in the USA.

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 guide.

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.

 

legality-aoyday-loans-state

The legality of Payday Loans in the United States

 

 

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.

 

If payday loans are prohibited in your state but you see a loan advertised, it could be a scam

Seeing payday loans advertised in states where they’re illegal should be an immediate warning. 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.

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