Did you know that payday loans are legal in 37 states and illegal in 13 states? If you happen to live in California, Texas, or Nevada, these states have the largest markets for payday lending.

Although payday loans are legal in some states, there are restrictions on the interest rates and fees that lenders can charge. Certain states like Colorado, Montana, New Hampshire, and South Dakota have put caps on payday loan interest rates to protect consumers from excessive costs and predatory lending practices. These caps differ depending on the state and may be based on the loan amount or length of the loan term.

It’s really important for borrowers to be aware of the laws and regulations regarding payday loans in their state. Before considering payday lending, it’s a good idea to explore all possible options for borrowing money.

Are Payday Loans Allowed in Your State?

Each state has its own set of laws and regulations regarding payday lending. The rules vary because they are based on how the consumer protection offices in each state handle high-risk borrowing.

If you’re unsure about whether payday loans are permitted in your state, you can refer to the table below for information on payday lending regulations:

Which States Allow Payday Loans?

Legal

Payday loans are legal in thirty-seven states, including Alabama, Colorado, California, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Ohio, Tennessee, and Texas.

Illegal

Payday loans are currently prohibited in 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 allowed by state laws or regulations in thirty-two states. In fifteen states, borrowers have protections against high-cost payday lending through reasonable small loan rate caps or other restrictions. Additionally, three states have lower rate caps or longer duration terms for more affordable loans.

If you want to learn more about payday lending regulations, you can visit the NCSL.org website for detailed information.

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States with Payday Loan Caps

Good news! Four states have established limits on payday loan interest rates. If you’re in Colorado, Montana, New Hampshire, or South Dakota, you’ll benefit from an annual interest rate cap of 36% and zero extra fees.

It’s also essential to note that federal law mandates all military members have fees capped at 36% for payday loans.

In recent times, more and more states have been taking action to pass legislation or increase restrictions on payday lending. Currently, there are twenty-one states with pending legislation or alternatives regarding payday lending as of the 2020 legislative session. Even Puerto Rico has new payday loan laws pending. Just at the beginning of November, Nebraska citizens voted to enact a new cap on payday loan costs. In Utah, the enacted legislation focused on registration requirements, reporting requirements, and operational standards.

Virginia is also among the states leading the way with tighter payday loan legislation. Their actions replaced the term “payday loans” with “short-term loans.” They have capped the interest and fees for these loans at an annual rate of 36%, plus a maintenance fee. Additionally, the maximum loan value has been increased from $500 to $2,500 with a minimum duration of four months (with a few exceptions) and a maximum duration of 24 months.

How can I check if a payday lender is legally licensed in my state?

To ensure the legitimacy of a payday lender, you can look for their state-issued license. This license should be clearly displayed, either as a physical copy at the lender’s storefront or as an image on their website. In case you cannot find the license, simply ask the lender and they should be able to provide it to you.

If you still have doubts or are uncertain, it is always a good idea to verify the license with your state attorney general or financial regulations office. They will be able to provide you with the necessary information and ensure that the lender is operating within the legal boundaries.

How Can I Identify if a Payday Lender Is a Scammer?

If you come across advertisements for payday loans in states where they are not legal, it should raise a red flag and serve as an immediate warning. If payday loans are prohibited in your state, but you come across an enticing loan offer, there is a chance that it is a scam.

Unfortunately, some lenders operate illegally and unlicensed, bypassing the laws put in place to protect borrowers. These predatory lenders often take advantage of individuals by imposing exorbitant interest rates and fees that far exceed the legal limits.

If you suspect that you have fallen victim to a payday loan scam, we recommend reaching out to the police and your state attorney general. They can provide you with the necessary guidance and information on how to proceed.