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Payday loans are currently legal in 37 US states, but they are illegal or banned in 13 states, to protect consumers from high cost lending.

The states which prohibit lenders from issuing payday loans are Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, West Virginia, and the District of Columbia. If you don’t reside in one of these states, you can quickly and easily secure a payday loan. 


Key Points:


  • Payday loans are expensive to borrow, with an average of 400% APR, which is why many states ban them – to protect borrowers .
  • The individual states who allow payday loans each have independent regulations. For example, California’s maximum loan amount is $300. 
  • Payday loans should be turned to in urgent circumstances, such as if faced with a medical bill you weren’t anticipating. 
  • To check that a lender is regulated, search for them on the OLA website or the SEC register. You could also check their status with the Better Business Bureau.
  • Over 2,100 payday lenders operate in California, which is the state which sees the most amount of payday loans used than any other US state. 


Why Are Payday Loans Banned In 13 States?


Payday loans can be a lifesaver if you find yourself unable to meet pressing and urgent bills. That’s why they are popular – because funds can be accessed immediately and easily. 

However, they’re also a pricey means of borrowing. While many states have capped interest on payday loans, the average remains at a whopping 396%. This means that if you borrow $1,000 and take a year to pay it back, you will owe $4,960 to your lender.

For people that cannot afford them, the interest starts to add up and they can find themselves in a trap if they need to borrow money elsewhere just to repay their original loan.



state regulation on loans

California is one of many states to limit how much borrowers can take out through a payday loan.


Can I Take Out More Than One Loan At Once?


This will depend upon your state. While some states, such as Louisiana and Texas, allow you to take out multiple loans at once, there are some states which don’t allow you to take out more than one. This is to prevent you from accumulating excessive debts that you may struggle to repay. 

States including South Carolina, California, Virginia, Hawaii and Florida rule that borrowers may only have one loan out at once. 

States such as Ohio limit the value of loans a borrower can have at once. There, the state won’t allow citizens to borrow more than $2,500 in the form of payday loans at once. Meanwhile, Delaware limits citizens at five loans at a time, offering some flexibility, but still protecting them. 



What Is A Payday Loan Cap And Which States Have Them?


A payday loan cap is a risk management tool that provides protection against increasing interest rates while maintaining the ability to participate in favorable rate movements.

36% is an interest rate that has taken ground, with 18 states including Colorado, Montana, New Hampshire, and South Dakota using this rate as a cap. Additionally, 36% is the federal cap on loans for military personnel. 

Limiting interest makes borrowing more affordable, and there is a growing move towards limiting interest in various states. As of 2020, there are now 21 states which have pending legislation surrounding payday lending and payday lending alternatives.



How Can I Check That A Payday Lender Is Legit?


For lenders to be legitimate and trustworthy, they need to be regulated by a reputable authority.

You can check online whether your prospective lender is trustworthy by cross-checking their details on the OLA website or SEC register and this will confirm their current status.


trust your lender

It’s important that you ensure the lender you borrow from is legitimate and trustworthy.


Check With The Better Business Bureau


Here, businesses are graded from between A+ (the best) to F (steer clear), indicating how good and reliable others’ experiences with this lender have been. In some cases, you’ll also be able to read customer reviews, which can give you a better idea of what to expect. If you find that the lender wouldn’t be a good fit, you can also use the website to find one that might be a better one.