Laws vary from state to state. In some states, vaping is prohibited. In New Hampshire, it’s illegal to collect seaweed at night. And in Alaska, it’s illegal for a person to get drunk at a bar and remain on the premises.
If you’re looking to take out a payday loan, there are various state laws in place. In fact, some states outlaw them altogether. So if you’re thinking about a payday loan, make sure your lender meets your state’s requirements.
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Payday lending is outlawed in the following states
Payday loans are illegal in:
Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New Mexico (as of Jan. 1, 2023), New York, North Carolina, Pennsylvania, South Dakota, Vermont, West Virginia and the District of Columbia.
Stuck in payday debt?
DebtHammer may be able to help.
Payday loans and the Military Lending Act
Regardless of the laws in your state, if you’re a service member, payday lenders must meet specific requirements for those on active duty or their dependents as stipulated by federal law under the Military Lending Act (or MLA). For example, the APR charged can’t exceed 36% for payday loans. For this reason, some payday lenders will not offer loans to service members.
Pro tip: If you notice in the fine print that military service members and their families are not eligible to borrow, it means they don’t want to meet the terms of the MLA. These are usually lenders to avoid, as they’re also most likely to try to sidestep state protections.
Other state laws and payday loan interest rate caps
Here is a roundup of states’ laws:
Alabama
- Legal: Yes
- Rate cap: 456.25%
- Maximum loan amount: $500
- Term: 10-31 days
Alaska
- Legal: Yes
- Rate cap: 520%
- Maximum loan amount: $500
- Term: Minimum 14 days
California
- Legal: Yes, but heavily regulated
- Rate cap: 36%
- Maximum loan amount: $300
- Term: Max. 31 days
Delaware
- Legal: Yes
- Rate cap: No limit
- Maximum loan amount: $500 per loan, $1,000 max per borrower at one time
- Term: Maximum 60 days
Florida
- Legal: Yes
- Rate cap: 391% on a 14-day loan of $100
- Maximum loan amount: $500
- Term: 7-31 days
Hawaii
- Legal: Yes, but heavily regulated
- Rate cap: 459%
- Maximum loan amount: $600
- Term: N/A
Idaho
- Legal: Yes
- Rate cap: No limit
- Maximum loan amount: $1,000
- Term: N/A
Illinois
- Legal: Yes, but heavily regulated
- Rate cap: 36%
- Maximum loan amount: Lesser of $1,000 or 25% gross monthly income
- Term: 13 to 45 days
Indiana
- Legal: Yes, but heavily regulated
- Rate cap: 391%
- Maximum loan amount: $550 or 20% of gross monthly income
- Term: Minimum 14 days
Iowa
- Legal: Yes, but heavily regulated
- Rate cap: 433%
- Maximum loan amount: $500
- Term: Maximum 31 days
Kansas
- Legal: Yes, but heavily regulated
- Rate cap: 390%
- Maximum loan amount: $500
- Term: 7 to 30 days
Kentucky
- Legal: Yes, but heavily regulated
- Rate cap: 782% (on a 7-day loan)
- Maximum loan amount: $500
- Term: 7 to 30 days
Louisiana
- Legal: Yes, but heavily regulated
- Rate cap: 697.41% on a 14-day loan of $100
- Maximum loan amount: $350
- Term: Maximum 30 days
Maine
- Legal: Yes, but heavily regulated
- Rate cap: 217%
- Maximum loan amount: $2,000
- Term: N/A
Michigan
- Legal: Yes, but heavily regulated
- Rate cap: 407% APR on a 14-day $100 loan
- Maximum loan amount: $600
- Term: Maximum 31 days
**Note: On June 1, the campaign Michiganders for Fair Lending submitted signatures for a ballot initiative to regulate payday lending, but the petition apparently fell short of the required number of signatures.
Minnesota
- Legal: Yes, but heavily regulated
- Rate cap: 390%
- Maximum loan amount: $350
- Term: Maximum 30 days
Mississippi
- Legal: Yes, but heavily regulated
- Rate cap: 241% and 521%, based on the loan term
- Maximum loan amount: $500
- Term: Maximum of 30 days
Missouri
- Legal: Yes
- Rate cap: 1955% on a 14-day loan
- Maximum loan amount: $500
- Term: Maximum 31 days
Montana
- Legal: Yes, but heavily regulated
- Rate cap: 36%
- Maximum loan amount: $300
- Term: Maximum 31 days
Nevada
- Legal: Yes
- Rate cap: N/A
- Maximum loan amount: 25% of expected gross monthly income
- Term: Maximum 35 days
North Dakota
- Legal: Yes
- Rate cap: 520%
- Maximum loan amount: $500
- Term: Maximum 60 days
Ohio
- Legal: Yes, but heavily regulated
- Rate cap: 28%
- Maximum loan amount: $1,000
- Term: Maximum 12 months
Oklahoma
- Legal: Yes, but heavily regulated
- Rate cap: 204%
- Maximum loan amount: $1,500
- Term: Maximum 12 months
Oregon
- Legal: Yes
- Rate cap: 36% per year
- Maximum loan amount: $50,000
- Term: Maximum 60 days
Rhode Island
- Legal: Yes
- Rate cap: 260%
- Maximum loan amount: $500
- Term: Minimum 13 days
South Carolina
- Legal: Yes
- Rate cap: 391% on a 14-day loan
- Maximum loan amount: $550
- Term: Maximum 31 days
Tennessee
- Legal: Yes
- Rate cap: 460% on a 14-day loan
- Maximum loan amount: $500
- Term: Maximum 31 days
Texas
- Legal: Yes, weakly regulated
- Rate cap: N/A, due to a loophole
- Maximum loan amount: N/A
- Term: Minimum seven days, maximum 180 days
Utah
- Legal: Yes
- Rate cap: None; 652% APR on average
- Maximum loan amount: No limit
- Term: May not exceed 10 weeks
Virginia
- Legal: Yes, but heavily regulated
- Rate cap: 36%
- Maximum loan amount: $2,500
- Term: Maximum 24 months
Washington
- Legal: Yes, but heavily regulated
- Rate cap: 391% on a 14-day loan
- Maximum loan amount: The lesser of $700 or 30% of gross monthly income
- Term: Maximum 45 days
Wisconsin
- Legal: Yes
- Rate cap: No limit
- Maximum loan amount: Lesser of either $1,500 including fees or 35% gross monthly income
- Term: 90 days or less
Wyoming
- Legal: Yes
- Rate cap: 780%
- Maximum loan amount: Not specified
- Term: One calendar month
What you need to know about payday loans
A payday loan is considered a short-term loan with high interest rates that must be repaid on the next payday. If payday loans are legal in your state, there will be any number of storefronts where you can get an in-person loan. Even if they aren’t legal in your state, you may still be able to get a loan by searching online because some lenders try to skirt state laws. Borrowing is easy, and all that is needed is a checking account, ID, and proof of income. However, repayment can be difficult, as there are debt traps to watch out for.
Also, the annual percentage rates can be more than 600% in some states. Many borrowers must turn to rollovers to complete paying back the amount owed. Payday lenders target borrowers with poor credit because credit scores don’t matter to payday lenders.
READ MORE: Struggling with payday loan debt? Learn more about payday loan relief
How tribal payday lenders skirt state laws
Tribal payday loans are largely the same in practice. The only true difference between the two is the identity of the lender. Tribal payday loans are held by payday lenders who claim to operate out of Native American reservations, though they’re almost always entirely online.
Tribal lenders argue that they fall outside the jurisdiction of both state and federal laws due to “tribal sovereign immunity.” Because of this, APRs are high, often more than 800%. Tribal lenders also offer larger loan amounts and longer repayment terms, meaning more time for that interest to accrue.
Pro tip: Before committing to any short-term loan, research the lender to ensure your lender is following your state’s laws. The lender’s Better Business Bureau (BBB) page can be a good starting point.
Want to know more about the problems with payday loans? Check out this video:
Payday loan alternatives
If you need a payday loan, the best advice we can offer is to be sure to exhaust every other alternative first. Here are a few better options.
Cash advance apps
Cash advance apps let you deposit money you’ve already earned into your checking account before payday. Typically, these apps are free or charge a nominal fee, but they don’t charge interest on the loans
Credit card balance transfer or cash advance
A balance transfer lets you move existing credit card debt to a new credit card account to garner a lower interest rate, save money, and pay off amounts owed faster. Some credit cards will offer an introductory period where you pay no interest at all on balance transfers.
A cash advance is when you use your credit card to withdraw cash from an ATM or your bank branch, write checks, or transfer money into a bank account.
Essentially, it is an advance against your card’s credit limit and is a short-term loan you get from the credit card company. You’ll pay back what you borrow with interest.
Cash advances are separate from purchases or balance transfers; a different APR can apply to each.
READ MORE: 10 best cash advance apps for instant money
Payday alternative loans
Payday alternative loans are similar to payday loans in structure and mechanics, but there’s one major difference — PALs are given out through federal credit unions, making them much more affordable.
Unlike payday loans that must be paid in full by your next payday, PALs are installment loans where you’ll have a payment plan. You might make payments every month or every other week over a specific loan term. There are no rollovers allowed and loans are repaid over about one to six months.
If you’re stuck in the payday loan debt trap
Getting out of debt isn’t easy, but DebtHammer offers a program that works. We have easy-to-understand plans for our services with no hidden fees or gotchas. Schedule a free consultation today.
The bottom line
A payday loan may sound like the answer to your troubles, but it seldom is. They lead to a cycle of debt and regret. More than 90% of payday loan borrowers end up regretting their original payday loan. However, if a payday loan is your only option, make sure they’re legal in your state and read the terms carefully to ensure you aren’t dealing with an unregulated tribal lender.
FAQs
The Truth in Lending Act helps you understand where your money will go throughout your debt repayment. You can take full advantage of the Truth in Lending Act by reading all disclosures carefully and comparing terms among multiple loans or credit cards.
The Consumer Financial Protection Bureau (CFPB) helps consumers by providing educational materials and accepting complaints. It supervises banks, lenders, and large non-bank entities, such as credit reporting agencies and debt collection companies. It also works to make credit card, mortgage, and other loan disclosures clearer, so consumers can understand their rights and responsibilities.
Usury laws cap the interest rates charged on a line of credit or loan. More than half of U.S. states have usury laws, and each dictates its maximum legal limit. However, they don’t affect most credit cards because of the effective deregulation that began in the 1970s.
No. Payday lenders can only take you to a civil court, not a criminal one. However, you could go to jail for ignoring a court order, so be sure to pay attention to any court summons you might receive.
