Are Payday Loans Illegal?

There has been a lot of talk about making payday loans illegal, and in some states, the discussion has become a practice. Today, only 13 states have prohibited payday loans entirely, but many more states have imposed stringent limits on the available loans. 

If you are looking for quick money, you will want to familiarize yourself with your state’s payday loan laws. You can find specific regulations for you through your state’s government website, but here is a quick breakdown of payday loans in different places around the U.S.  

Federal Payday Loans Laws

Currently, the federal government doesn’t have laws that directly affect payday loan companies. However, there are many federal laws for lenders and collections that payday loan providers have to follow.

Most of these laws involve disclosure about the loans and criteria to offer the loans. There are laws about how the company can handle a collection of outstanding debt and harassment over the phone to collect the debt.

If you feel that your payday loan company uses any of these practices, you can contact the FTC and let them know.

Where Are Payday Loans Illegal?

13 states and the District of Columbia have made payday loans illegal. Some of these states never had payday loan laws, and some have created specific laws against payday loans. Some states have started enforcing pre-existing laws to stop racketeering or other illegal loan activities.  

You can’t get payday loans in the following states:

  • Arizona 
  • Arkansas 
  • Connecticut 
  • Georgia 
  • Maryland 
  • Massachusetts 
  • New Jersey 
  • New York 
  • New Mexico 
  • North Carolina 
  • Pennsylvania
  • Vermont
  • West Virginia

There are also many U.S. territories where payday loans are not available. These territories include Guam, N. Mariana Islands, Puerto Rico, and the Virgin Islands.

In these locations, you can’t get any payday loans. They don’t offer them, and they have laws in place to stop this kind of loan activity. 

If you need a short-term loan in these states, there may be other options, but they work more like traditional loans. These small loans have lower interest rates and cap fees. They also have limited amounts that the borrower can take. 

You will have to research the small loan processes in your state for specific rules and criteria.  

VIDEO: Where Are Payday Loans Illegal?

Where Are Payday Loans Restricted?

Many more states have restricted payday loans. The loans are still legal, but they have substantial restrictions on what penalties and fees these loans can charge you. These loans can be for various amounts, but they cap interest and penalties. 

The states with payday loan restrictions are: 

  • Colorado
  • Illinois
  • Maine 
  • Montana 
  • New Hampshire 
  • South Dakota 
  • Oregon 

These states still allow payday loans, but they are highly restricted and controlled to make them safer for the customer. 

Some of these states have very few payday loan companies currently operating. Many companies pull out or shut down when they are not allowed to charge higher fees for their service.

Any payday loan company still active in these states must follow the state’s rules and restrictions, so you will know what the max interest rate and penalties will be on the payday loans you take in these states.  

States that Don’t Restrict Payday Loans

There are still 30 states that don’t have strict caps on what payday loans can charge. These loans still have laws, terms, and rules, but they aren’t as heavily restricted in these states. The companies still have to follow federal loan laws, and they still have laws in the state for lenders.

  • Alabama
  • Alaska
  • California
  • Delaware
  • Florida
  • Hawaii
  • Idaho
  • Indiana
  • Iowa
  • Kansas 
  • Kentucky 
  • Louisiana 
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Nebraska
  • Nevada
  • North Dakota
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Carolina
  • Tennessee
  • Texas
  • Utah
  • Virginia
  • Washington
  • Wisconsin
  • Wyoming

Payday loans in these states can still charge higher interest rates and penalties, so you will want to make sure you check out the specific terms of your loans in this state. Each company can vary significantly on what they charge, so you will want to find the best fees and rates. 

These states will likely have more options in payday loan companies, which means that you will have more choices when searching for a loan. However, it can be much easier to get into debt problems because of high-interest rates and penalties. 

Future of Payday Loans

Payday loan laws are constantly changing. More states are adding restrictions or prohibiting the practices every year. You will want to keep an eye on the laws in your state and watch for changes.

Illinois voted to place caps on interest in March of 2021, and more states are considering making reforms to their current laws. These laws can significantly affect the availability and legality of payday lending in your state.

As states change the laws for payday loans, fewer companies offer this type of loan. In states that have already made payday loan laws, the companies have left or changed their business model to better serve the new rules in that location. 

When the laws change, the status, terms, and conditions of your loan may be affected. You will want to stay on top of the changes and learn how they will affect you specifically. 

There are also ways to get help if you find yourself in a loan that you feel is predatory. You can contact government agencies for assistance, and there may be legal recourse you can take in certain situations. 

Bottom Line

As the laws for payday loans change, you will want to keep up with new information in your state. Usually, the changes don’t happen overnight, so you will know when reforms may be coming to your state by listening to the news.

There may be other loans or money lending practices that develop to replace the niche of fast cash advancements. These may include subsidized loans, small-amount loans, or short-term loans.  

Though some states have made payday loans illegal many more have added restrictions to the practice to make it safe for everyone. More rules are likely coming to the 30 states that allow high-interest-rate payday loans, and you can stay up to date with the changes through Bill Warriors.

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