The number of payday loans issued each year is on the rise, with many people turning to them to help pay unforeseen expenses and emergency costs.
While they are not legal in every single US state, the majority do have some form of short term loan available.
Each state regulates payday loans slightly differently, capping the amount of interest that can be charged, limiting the total amount that can be loaned in one go, and various other loan terms.
In some states these regulations are so tight that lenders no longer offer payday loans, whereas other states have such lax rules that lenders can essentially loan what they want and charge what they want.
Here’s an overview of payday loan legality in the United States:
States With Little Payday Loan Regulation
A the time of writing 32 states permit payday loans outright with very little regulation.
This means there is a lot of choice, but you will have to do your research to make sure you’re getting the best interest rates and there are no hidden traps. These are:
Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.
Lenders in these states essentially charge as much interest as the market will allow, and will generally accept all applicants so long as they meet basic requirements such as having a bank account, and a regular source of income.
States With Tougher Payday Loan Regulations
5 states have reigned in what they consider high cost loans and have put in various protections that limit the amount that can be borrowed, the amount that can be charged, what happens if a borrower misses repayment, and whether multiple loans are allowed. These are all to protect the borrower from being exploited and getting stuck in a debt cycle.
Maine: The average interest rate paid in Maine as of 2014 in 2017% APR, with the upper limit 261%.
New Hampshire: Caps interest rates at 36 percent APR.
Oregon: Legit payday lenders in Oregon are not allowed to offer a duration less than 30 days and have capped interest rates at 36 percent APR.
Montana: Also prevents interest rates of over 36%
Ohio: Most of Ohio’s payday lenders are internet based because the cap is the lowest at 28% APR, meaning maintaining a storefront is not profitable.
While the District of Columbia officially limits interest rates at 24 percent, they also require a license which they essentially refuse.
This makes payday loans from lenders based in the district itself virtually impossible, though citizens can apply to lenders based elsewhere who do not require a license.
States With No Payday Lending
12 states have either outlawed payday loans altogether or have prohibited them through unprofitable caps and rules. Some of these states will offer loans that are similar, but for longer terms (such as 3 months). The 12 states are:
Arizona, Georgia, Arkansas, North Carolina, New York, New Jersey, West Virginia, Maryland, Pennsylvania, Connecticut, Vermont, and Massachusetts.
Some lenders are always looking for loopholes to get around tight payday loan regulations.
In the past, this has included opening up shop as a mortgage company, meaning payday loan laws don’t apply to them.
Other tactics include issuing multiple loans at once, so the pool of loans mimic that of a payday loan. This gets around interest and lending amount caps.
In some cases lenders have even turned to Indian land to run their business so the state laws no longer apply, a bit like how casinos are often operated by Native Americans.
Ultimately it is on the borrower to do their research and ensure that they are doing business with a reputable company that is adhering to the legislation of the state, and aren’t know for shady practices.
It is a good idea to Google the lender before applying to see if there are any horror stories about them. You should also reject any offer from a company that doesn’t seem to be adhering to interest caps and other rules.