States Where Payday Loans are Illegal

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 a variety of different state laws as well. 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.

States where payday lending is outlawed

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. 

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.

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 is a payday loan?

A payday loan is considered a short-term loan that carries with it 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 still may 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: Considering a Payday Loan? Pros and Cons of Payday Loans You Should Know

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.

Before committing to any short-term loan, be sure to research the lender to ensure your lender is following your state’s laws.

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

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’ll put together an easy-to-understand plan 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

What is the Truth in Lending Act? 

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.

What are usury laws?

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.

Can I go to jail for defaulting on my payday loan?

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.

Scroll to Top