Where are Payday Loans Legal? An Expert's Guide

Payday loans are small loans subject to state regulation with traditionally limited interest rates of 24-48%. Thirty-seven states authorize payday loans through specific statutes.

Where are Payday Loans Legal? An Expert's Guide

Payday loans are small loans subject to state regulation, with traditionally limited interest rates of 24 to 48 percent annually. Thirty-seven states authorize payday loans through specific statutes, including Alabama, Colorado, California, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Ohio, Tennessee and Texas. In addition to these regulations, many states also have criminal usury laws in place to protect consumers. When it comes to payday loans, lenders tend to consider your ability to repay the loan rather than your credit score.

This makes it easy to get approved for a loan, but it is riskier than traditional lenders. Payday loans are heavily regulated in Iowa and other states. If you are considering taking out a payday loan, it is important to ask the competent authority if you are receiving a legal interest rate. Payday loans have an excellent interest rate and can be a great option for those who need cash quickly.

However, some payday loan transactions have used deception and other illegal behaviors to take advantage of financially distressed consumers who seek these loans. In the United States, rates on these loans were previously restricted in most states by the Uniform Small Loan Laws (USLL), with an APR of 360% to 400% generally the norm. When interest rates on payday loans were capped at 150% in Oregon, there was a negative effect with bank overdrafts, late bills and employment. The FTC has also filed recent actions against fraudsters who contact consumers in an attempt to collect false debts from “phantom payday loans” that consumers don't owe. In most states where payday loans are legal, there are certain restrictions in place. For example, no payday loan may be granted if it would result in the consumer becoming indebted to one or more payday lenders for a period exceeding 45 consecutive days.

The minimum loan duration is 91 days and the maximum loan duration is one year. Additionally, if a payday loan is paid in full at any time during a month, no monthly maintenance fee will be charged for that month. The states of Connecticut, Maryland, Massachusetts, Pennsylvania, Vermont and West Virginia never authorized payday loans. If you live in North Carolina and need access to short-term emergency loans, there are several options available. Collection limits detail the charges that lenders may charge if the loan is not repaid and if the lender can use or threaten to pursue criminal proceedings if a borrower is unable to pay the check used to obtain a loan. Lawmakers in states with payday loans that want to preserve access to small loans should enact comprehensive reforms such as those in Colorado, Hawaii, Ohio and Virginia.

Each page shows the maximum number of loans a consumer can have, limits on loan renewals and requirements for extended repayment plans.