As of 2022, payday loans are currently illegal in these thirteen states: Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, West Virginia, and the District of Columbia. Only thirty-seven states legalize payday loans.
Payday loans are often considered predatory due to unfair and deceiving loan terms that trap borrowers in debt. For this reason, many states prohibit payday loans or permit them only under specific laws and regulations. Of the thirty-seven states that allow payday loans, only Colorado, Montana, New Hampshire, and South Dakota have set a 36% cap on annual interest rates. In addition, federal law prohibits payday loan lenders from charging more than 36% to members of the military.
Eleven states that legally allow payday loans do not have specific statutory provisions or require lenders to comply with interest rate caps. These states include Connecticut, Guam, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Puerto Rico, Vermont, the Virgin Islands, and West Virginia.
More states are considering taking legal action to prohibit or restrict payday loan lending. Since the 2020 legislative session, twenty-one states have pending legislation on payday loans. For example, Utah legislation set restrictions on registration, reporting, and operational requirements. However, some states have taken action to repeal pre-existing statutes to permit consumers to access high-cost payday lending. For example, in 2017, New Mexico repealed its payday lending statutes.
The states with the most payday loans are California, Texas, and Nevada. If your state allows payday loans and you want to apply for one, ensure the lender has a state-issued license. Lenders should clearly display this state license at storefronts and on the website. You can ask the lender to show you the license if you visit a brick-and-mortar location. Or you can always check with your state attorney general or financial regulations office.
If payday loans are illegal in your state, but you find a lender that offers them, it could be a scam. Scammers often pose as lenders and steal money by charging application fees. While some lenders do have application fees, they are state licensed. If you need emergency cash quickly, consider applying for a personal loan instead.