In the United States, payday loans are legal in most states but there are regulations in place to help protect borrowers from getting into large debt or being preyed upon by unscrupulous lenders. Unfortunately, there are a lot of lenders which blatantly disregard the various state laws and will charge more than the state maximum. Because so many payday loans are given via the internet, it is often very difficult to regulate these companies and ensure they are following legal practices. It is important to have a basic understand of your state’s payday loan laws before you sign up to any loan to make sure you are not paying more than you should be.
States where payday loans are illegal: Arizona, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, Washington DC, West Virginia
Note that these states will still permit small loans and these loans will have their own specific regulations and procedures. However, borrowers will not be able to take out loans on their paychecks.
States where payday loans are legal
In states where payday loans are legal, there are almost always strict regulations which the lenders must follow. These regulations will cover:
- maximum amount that a loan can be
- minimum and maximum duration of the loan
- maximum rate and fee amount
- maximum APR
- number of rollovers permitted (if any)
- number of outstanding loans allowed at once
- collection limits
- whether criminal action is permitted for outstanding loans
- How long individuals must wait until they can take out another payday loan
You will have to contact your state’s financial institution regulator in order to find out the specific payday loan laws. In general, you can expect these standards in almost every state:
- Maximum loan amount of $350 to $500; some states also put limits by percentage of monthly income (usually 20-25% of gross monthly income)
- Loan duration for at least 7 days and up to 40 days
- Finance and fee amount is usually set as a percentage (typically about 15%) or a percentage plus a maximum fee amount
- APR typically ranges from 390% to 650%
- Usually 1 rollover is permitted
- 1-3 outstanding debts allowed at once
If you find out that your payday lender has been charging you more than your state law allows, then you will not be responsible for paying any amount above the limit. If payday loans are illegal in your state, then you will likely only be responsible for the capital amount and no interest fees or other fees. However, trying to sort out these legalities after the fact can be very complicated and onerous. Instead, it is best that you inquire into your state’s specific payday loan laws in advance to avoid any potential complications.