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While payday loans are legal in many states others do not allow them or have placed caps on the lender’s interest rates. So, Which US States Have Legalised Payday Loans? In this guide, we’ll help answer your questions about the availability of payday loans in your state and what you can do to make sure they are legal.


Key Factors: 

  • There is a mix of states that allow payday loans, others that have made payday loans illegal, and others that have instituted regulations to control payday loans
  • Americans use payday loans to get extra cash when needed to cover a financial emergency before their next paycheck arrives
  • Payday lenders who are online usually must follow the rate caps and licensing laws of the state where the borrower receives the loan
  • While some payday loan interest rates can soar in unregulated states, some states have instituted a 36% price cap
  • If you’re not sure whether a payday lender is licensed or not there are several things you can do


Where are payday loans legal?

Seven states have legalized payday loans with Native American Tribe lenders as well. They are illegal in 13 states. The three states that are the biggest for payday lending are California, Texas, and Nevada. Four states have caps set on interest rates for payday loans which are Colorado, Montana. New Hampshire, and South Dakota. 


Why are payday loans so popular?

Americans use payday loans to get extra cash when needed before their next paycheck. This type of loan can be very helpful if a financial emergency arises. Same day loans are particularly popular. But some lenders are being criticized for being unfair to borrowers but some lenders have payday loans and loans that are similar in type have been made completely illegal. 

Below we’ve explained some of the payday loan legislation in the United States 

Which States Have Legalized Payday Loans?

Every state’s laws differ and so do the statutes pertaining to payday lending. This is the case because each state has a different consumer protection office and they handle their high-risk borrowing differently. 

If you don’t know whether your state has payday loans you can find out in this guide. We’ll tell you which states offer payday loans that are legal. There are 37 legal states that allow payday lending and have specific statutes pertaining to payday lending. These include Alabama, Colorado, California, Illinois, Indiana, Iowa, Kentucky, Louisiana, Nevada, Ohio, Tennessee, and Texas. 


In which US states is payday lending illegal?

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

In 32 states high cost payday lending is allowed by their state laws and regulations. In 15 states borrowers who take advantage of the high cost payday lending have protection in the form of reasonable small loan rate caps. Three states have lower rate caps and/or longer duration payback schedules for less expensive loans.


How are online lenders regulated?

Payday lenders who are online usually must follow the licensing laws of the state and the rate caps of that state in which their borrower receives the loan. You can find out more information from the website.


Where are their payday loan caps? 

The four states that have set caps on payday loan interest rates are Colorado, Montana, New Hampshire, and South Dakota. Their cap on the annual interest rate is set at 36%. And they also ban any fees that are add ons. 

All members of the military, when taking out payday loans, are overseen by a federal law that restricts their annual fees to 36% for payday loans. More and more states have begun to take action with legislation that increases restrictions around payday loans. Legislation around payday loans and payday lending alternatives are pending in 21 states and Puerto Rico. 

In 2020, Nebraska citizens voted to enact a new cap on the costs of payday loans, and similar restrictions were instigated in Utah. Virginia has changed the verbiage from payday loans to short term loans and capped the interest and fees for short term loans to 36% APR plus a maintenance fee. A new maximum value for these loans moved it from $500 to $2500, with a minimum duration of four months and a maximum of 24 months. 


Where can I find out if a payday lender is licensed? 

The lender must have their state-issued license visible. It can be a physical copy, in their store or an image on their logo, or their payday loan website. If you can’t see the license, ask the lender to show it to you and they must be able to present you with the license. 


What to do if you think a payday lender may not be licensed?

If you’re still not sure about the payday lender that you’re currently communicating with, contact your state attorney general or financial regulations office to verify their license. If you know that payday loans are not allowed in your state but see them advertised this could be a scam. Payday loan advertising in states where they’re not legal should be a warning sign. There are predatory lenders who work around the legislation and they end up offering illegal and unlicensed payday loans. These predatory lenders trap the borrowers in a cycle of debt. They do this when they demand interest rates and fees that are much higher than the legal limit. 


Contact the police and your state attorney general if you feel that you’ve been a victim of a payday loan scam, they can tell you what action to take and how to move forward

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