It varies significantly from state to state how much the average consumer spends to borrow modest sums of money and whether they can afford to pay it back within the agreed-upon time frame. This variance mostly depends on whether state laws restrict small loan interest rates and mandate that loans be repaid over time in manageable installments. Various regulations and ordinances in each state govern payday lending. This is because it is dependent upon how each consumer protection office handles high-risk borrowing.

If you’re wondering whether payday loans are permitted in your state, you may learn about the laws governing them in this guide. You will also get to know about how Money view can help you with the same. Keep reading to gather all this information that might help you to know In Which States Are Payday Loans Legal.

What does “Payday Loan” mean?

A customer borrows money for a fee in a brief, high-cost transaction in a payday loan. The borrower gives the lender a personal check for the total amount borrowed plus the service charge. Before presenting the check to the customer’s bank for payment, the lender delivers the lent sum and keeps the check (often until the borrower’s following payday). These may be advertised as payday loans, cash advances, or check advance loans.

This type of loan is known by the legal designation “deferred presentment service transaction” in Michigan because the customer’s check is held for a while (deferred) before it is cashed.

Which States Permit Payday Loans?

Legal Payday lending is legal in 37 states, including Alabama, Colorado, California, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Ohio, Tennessee, and Texas, thanks to specific laws.


Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, West Virginia, and the District of Columbia are the states that currently forbid payday lending.

In thirty-two states, laws or regulations permit high-cost payday lending. With good small loan rate caps or other prohibitions, fifteen states provide borrowers with protection from expensive payday lending. Three states have lower rate caps or longer term lengths for cheaper loans. In most cases, online payday lenders must abide by the state’s rate caps and licensing requirements to operate legally.

Which States Have Caps on Payday Loans?

Payday loan interest rates are capped in four states. There is a 36% annual interest rate cap and no additional fees in Colorado, Montana, New Hampshire, and South Dakota.

Federal law mandates that fees for payday loans for all military personnel must be regulated at 36%.

Recently, an increasing number of states have taken measures to enact legislation or tighten limits on payday lending. As of the 2020 legislative session, twenty-one states have pending legislation relating to payday lending and alternatives to payday lending. New payday lending regulations are also forthcoming in Puerto Rico. Nebraskans voted at the start of November to enact a new cap on payday loan costs.

The legislation that was passed in Utah dealt with operational requirements, reporting requirements, and registration requirements.

One of the states passing stricter regulations on payday loans in Virginia. The term “short-term loans” was introduced in Virginia in place of references to payday loans. Additionally, the measure set a cap on short-term loan interest and costs at a 36% annual rate plus a maintenance fee. A minimum term of four months, with some exclusions, and a maximum term of 24 months were also established, increasing the maximum value of these loans from $500 to $2,500.

How can I determine if a payday lender is authorized to operate in my state?

You can find out if the state licenses the lender. It should be accessible, either in the form of a printed copy at the storefront or an image on the website for the payday loan. If the license is not visible, ask the lender, and they ought to be able to show it to you.

If you are still unsure, you can check the license with your state’s office of financial regulations or the attorney general.

If a loan is advertised even though payday loans are forbidden in your state, it might be a scam.

Payday loan advertisements in states that are not permitted should raise a red flag. Some predatory lenders still offer illegal and unlicensed payday loans by finding ways to get around the law. By requesting interest rates and fees well above the legal maximum, they frequently trap borrowers in a cycle of debt.

Contacting the police and your state attorney general will guide you on what to do if you believe you may have fallen victim to a payday loan scam.

How do payday loan companies determine if borrowers still owe money on their loans?

Payday lenders must check a state-maintained electronic database before making a new loan. The payday lender cannot extend another loan to a client with two unpaid payday loans.

If the electronic database is unavailable, the customer must sign a declaration stating that they do not have any outstanding payday loans with their current payday lender and that they do not have any outstanding payday loans with any other payday lenders in the State.

Do payday loans have any alternatives?

Alternatives to payday loans that are more reasonably priced include:

  • Asking for an advance payment from your employee
  • Obtaining a small loan from a friend or family member 
  • Requesting a more extended payment deadline from the creditor.

Wrapping Up

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