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What US States Have Legalized Payday Loans?

Robert Cressy by Robert Cressy
29.11.2022
Reading Time: 4 mins read
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What US States Have Legalized Payday Loans

What US States Have Legalized Payday Loans

  • Payday loans are legal in 37 states.
  • However, they’re not legislated in 13 states.
  • Texas, California, and Nevada are the largest states that offer payday loans.
  • Montana, South Dakota, Colorado, and New Hampshire have set limits on the interest rates that come with payday advances.

Payday loans can be a convenient way for people to get a few extra bucks in case of an emergency. Though they’re a great solution for unexpected financial problems, many lenders scam their clients. Hence, some US states haven’t even legalized these financial advances. Scroll down to learn all about the USA’s legislation and regulations surrounding payday loans.

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Is Payday Lending Legal in My State?

All US states have various laws regarding payday loans. The reason is simple. It varies on how well the consumer protection offices handle high-risk loan products.

Now, if you don’t know if payday loans are legal in your state, the answer is our guide. We broke down the essential payday loan regulations you must know.

How Do I Know Whether Payday Loans Are Legal Where I Live?

States Where Payday Loans Are Legal

Currently, payday lending is found legal in 37 different states. The list includes Alabama, California, Illinois, Colorado, Indiana, Maryland, Kentucky, Louisiana, Tennessee, Iowa, Ohio, and Texas.

Payday Loans Are Illegal In Some States

There are over a dozen states that don’t allow payday loans. These include Arizona, the District of Columbia, New Jersey, Maryland, Connecticut, West Virginia, Massachusetts, New York, Pennsylvania, Arkansas, Vermont, North Carolina, and Georgia.

Note that high-interest payday loans are allowed by state regulations in 32 states. Borrowers get protection from high-interest loans with reasonable rate limits on small advances or other regulations in 15 states. Three US states provide lower rate limits or longer repayment terms for cheaper loans. Online lenders must follow the state’s regulations where the client gets the loan. If you want to learn more about loan regulations, check out the NCSL website.

What US States Have Limits On Payday Loans?

New Hampshire, South Dakota, Montana, and Colorado have set limits on the interest rates that come with payday loans. Their annual interest rate is capped at 36%, and the regulations forbid any extra charges. Additionally, federal regulations also limit interest fees at 36% for military members.

More US countries have passed legislation and restrictions for payday loans in recent years. As of the 2020 legislative session, there are 21 states with pending legislation for payday loans and payday loan alternatives. In Utah, the payday lending legislation passed new registration, reporting, and operational requirements. Similarly, at the beginning of November 2020, the citizens of Nebraska voted for a new limit on payday credit costs.

What US States Have Legalized Payday Loans
Courtesy of Depositphotos

Moreover, Virginia is among the states with stricter payday loan regulations. The state passed an act where payday loans are now referred to as “short-term loans.” It also capped APRs and extra fees surrounding short-term loans to an annual 36%. Yet, there’s also a maintenance charge that borrowers will need to cover. Virginia also changed the loan limits, so now they range between $500 and $2,500. The minimum term is four months, while the maximum is set at two years.

How To Check If A Lending Provider Is Licensed?

There are a few ways you can make sure that your lending provider is licensed. If you’re going to their office space, the license should be displayed somewhere in their store. Online payday lenders, however, usually have their license on their websites. If you can’t find the license, feel free to ask your lending provider, who should have no trouble showing you.

If you’re unsure about the license, you can easily verify it with the state attorney general. You can also reach out to your state’s financial regulations office. However, if the lender refuses to show their license, that’s a red flag, and you should take your payday lending needs elsewhere.

Don’t Trust Payday Loan Ads For States Where They Are Banned

If you live in a state where payday loans are considered illegal but see an advertisement, this is an immediate red flag. Unfortunately, plenty of lenders prey on uninformed customers and offer unlicensed loan products. They manage to trap borrowers in a debt cycle with unreasonable interest rates and charges that exceed the legal cap.

If you believe a payday lender has scammed you, you can reach out to your state attorney general or your police. They’ll provide you with all the information you need on what to do moving forward.

Robert Cressy

Robert Cressy

Robert Cressy, Professor of Finance, specializing in entrepreneurship, finance, governance, and ethics. More than 20+ years of experience in the field. Wrote more than 50 publications and co-authored more than 400 research papers

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