Payday Loans: Understanding Laws and Regulations

Payday loans are a type of short-term, high-cost credit product. Due to their nature, they are heavily regulated at both the state and federal levels to protect consumers from predatory lending practices. The legal status and specific regulations for payday loans vary significantly from state to state, so it’s critical to understand the rules in your area before applying.

Federal vs. State Regulations

While there is no single federal law that outright bans payday loans, federal agencies like the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) enforce rules to ensure fairness and transparency. These rules focus on things like disclosure of fees and interest rates, as well as protecting consumers from unfair debt collection practices.

However, the most impactful regulations come from state laws. Each state has its own set of statutes that dictate whether payday loans are legal, and if so, what the limits are on interest rates, loan amounts, and repayment terms. This patchwork of state laws creates a complex landscape for both lenders and borrowers.

Key Regulatory Factors

When reviewing payday loan laws, these are the most important factors to consider:

  • Legal Status: Many states have either banned payday loans outright or imposed strict interest rate caps (typically 36% APR or less) that make them economically unviable for lenders.
  • Loan Amount Limits: Most states that allow payday loans set a maximum amount you can borrow, ranging from $300 to $1,000.
  • Loan Term: Regulations specify the minimum and maximum repayment periods. A typical payday loan term is around 14 days, but some states allow for longer installment plans.
  • Finance Charges: This includes all fees and interest. States often regulate the maximum fee that can be charged for every $100 borrowed.
  • Rollovers and Repayments: Many states prohibit or strictly limit rollovers, which is when a borrower pays only the fee and extends the loan. This is designed to prevent a cycle of debt.

Comprehensive State-by-State Payday Loan Laws and Regulations

Disclaimer: This information is for educational purposes and is based on a summary of state statutes. Regulations are subject to change. Always consult your state’s financial regulator for the most current information.

StateStatusMax Loan AmountMax Loan TermMax APR (approx.)Key Details & Regulations
AlabamaLegal$50010-31 days456%Max finance charge: 17.5% of the amount advanced.
AlaskaLegal$50014 days431%Max fee: $15 for every $100 borrowed.
ArizonaProhibitedN/AN/AN/ALaws allowing payday loans expired in 2010.
ArkansasProhibitedN/AN/AN/AState constitution limits interest to 17% APR.
CaliforniaLegal$300Up to 31 days460%Max fee: 15% of the face value of the check ($45 on a $300 loan).
ColoradoLegal$5006 months36% + feesStrict regulations. Loans are structured as installment loans.
ConnecticutProhibitedN/AN/AN/AState usury laws cap interest rates at 12%.
DelawareLegal$1,00060 days521%Rollovers are not allowed. Max loan amount can be higher for installment loans.
FloridaLegal$5007-31 days391%State requires a 24-hour “cooling-off” period.
GeorgiaProhibitedN/AN/AN/AIllegal under state law.
HawaiiProhibitedN/AN/AN/APayday lending is illegal. There are small loan alternatives with a 36% APR cap.
IdahoLegal$1,0001-365 days400%+No cap on the number of loans.
IllinoisLegal$1,0001-120 days36%Strict APR cap under the Predatory Loan Prevention Act.
IndianaLegal$55014 days – 1 year391%Max loan amount cannot exceed 20% of borrower’s gross monthly income.
IowaLegal$50031 days400%+Max finance charge: $15 per $100 up to $100, then $10 per $100 after that.
KansasLegal$5007-30 days391%Max finance charge: 15% for the first $500.
KentuckyLegal$50014-60 days36%Very restrictive.
LouisianaLegal$35060 days391%Max fee: 16.75% of the loan amount.
MaineLegal$2,000Not specified30%Very strict regulations make traditional payday loans unviable.
MarylandProhibitedN/AN/AN/ASmall loan interest rate cap of 33% per year.
MassachusettsProhibitedN/AN/AN/AState usury laws cap interest rates at 23%.
MichiganLegal$600Up to 31 days340%Regulated by the Deferred Presentment Service Transactions Act.
MinnesotaLegal$35030 days270%Max fee is tiered. Limited to 8 loans per year.
MississippiLegal$5007-30 days521%Max fee: 18% of the cash advance.
MissouriLegal$50014-31 days500%+No limit on rollovers.
MontanaProhibitedN/AN/AN/AAPR cap of 36% was established by ballot initiative in 2010.
NebraskaLegal$500Up to 34 days36%Voters approved a 36% APR cap in 2020.
NevadaLegal25% of gross monthly incomeUp to 35 days500%+No cap on APR.
New HampshireLegal$5007-30 days36%Payday loans are legal but with a strict APR cap.
New JerseyProhibitedN/AN/AN/AState usury laws cap interest rates at 30%.
New MexicoLegal$500120-180 days175%Strict regulations passed in 2017.
New YorkProhibitedN/AN/AN/AState banking laws cap interest rates at 16%.
North CarolinaProhibitedN/AN/AN/APayday loans are illegal under state law.
North DakotaLegal$50060 days391%Max fee: 20% on the first $300, 15% on the rest.
OhioLegal$1,000Up to 1 year28% + feesStrict reforms in 2018 made traditional payday loans obsolete.
OklahomaLegal$50012-45 days391%Max fee: 15% on the first $300, 10% on the rest.
OregonLegal$50,000Up to 60 days36%Strict regulations.
PennsylvaniaProhibitedN/AN/AN/AIllegal under state usury laws.
Rhode IslandLegal$50013 days260%Max fee: $3.25 for every $100 borrowed.
South CarolinaLegal$550Up to 31 days400%+Max fee: 15% of the amount borrowed.
South DakotaProhibitedN/AN/AN/AVoters approved a 36% APR cap in 2016.
TennesseeLegal$500Up to 31 days460%Max fee: 15% of the amount borrowed.
TexasLegalVariesVaries400%+No cap on APR. Regulated as “Credit Access Businesses”.
UtahLegalNo limitNo limitNo limitOne of the most permissive states for payday lending.
VermontProhibitedN/AN/AN/AState usury laws cap interest at 24% for small loans.
VirginiaLegal$2,5004-24 months36%Strict regulations.
WashingtonLegal$70045 days391%Max fee: 15% on first $500, 10% on remaining.
West VirginiaProhibitedN/AN/AN/AIllegal under state usury laws.
WisconsinLegal$1,50090 days574%Regulated by the Wisconsin Consumer Act.
WyomingLegalNo limitNo limitNo limitNo cap on APR or loan amount.

How to Protect Yourself

  • Check a Lender’s License: Always verify that a lender is licensed to operate in your state. You can usually do this on your state’s Department of Financial Protection or similar regulatory agency website.
  • Understand the Full Cost: Use an online loan calculator to understand the total cost of the loan, including all fees and the APR.
  • Know Your Rights: Familiarize yourself with your state’s laws regarding rollovers, loan limits, and repayment terms to ensure you are not being taken advantage of.

If you believe a lender has violated the law, you can file a complaint with your state’s financial regulator or the CFPB.