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Guide

Payday Loan Laws by State: The Three Regimes Explained

Dana Whitfield · Financial writer, lead editor
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Reviewed by Marcus Bell

There is no single “US payday loan law.” There are 51 regulatory regimes — one per state plus DC — and they sort into four clean groups: 24 states that allow classic payday lending under fee caps, 13 that cap rates near 36% APR (which phases the classic product out), 1 that licenses brokers instead of capping loans, and 13 that ban the product outright. Where you live decides what you can borrow, at what price, and with which protections — so this page explains how each regime works and what it means in practice.

Regime 1: Fee-Capped States (24 states)

The classic model. The state caps the fee per $100 borrowed and the loan term, licenses lenders through a state financial regulator, and mandates disclosures. Alabama’s rules are the archetype: $500 maximum advance, 17.5% of loan amount in fees ($17.50 per $100), terms of 10–31 days, one rollover permitted, under Ala. Code § 5-18A-1 — supervised by the Alabama State Banking Department.

What the cap controls, and what it doesn’t: the state sets the ceiling — individual lenders may charge less and sometimes do — but it doesn’t make the product cheap in absolute terms. A legal 17.5%-per-$100 fee annualizes to ~456% APR. The cap’s real function is preventing the race to the bottom: without it, the fee is whatever the market bears (see Texas).

Regime 2: The 36%-APR-Cap States (13 states)

These legislatures concluded that a product priced honestly for two weeks cannot coexist with a rate ceiling near 36% APR — so they capped the rate and let the classic product phase out. Ohio’s Short-Term Loan Act (R.C. § 1321.35) is the model: fees capped at 28% APR plus a small monthly maintenance charge, terms measured in months rather than weeks, and affordability checks built into the licensing regime.

The practical result for borrowers: the products on offer are short installment loans — smaller relative fees, payment schedules instead of balloon debits, and stricter approval. Many national lenders simply don’t operate there. If your state is in this group, expect the installment structure, and price it — it’s dramatically cheaper per dollar than legacy payday pricing in allowed states.

Regime 3: The Broker Model — Texas (1 state)

Texas took a different route: instead of capping the loan, it licenses the middleman. Credit Access Businesses (CABs) arrange loans from third-party lenders and charge their own broker fee on top of the lender’s interest, under Tex. Fin. Code Ch. 393 with the Office of Consumer Credit Commissioner doing the licensing. There is no state cap on the loan amount; there are caps on some CAB conduct, and full fee disclosure is mandatory.

For the borrower this means two fees stack — the CAB’s and the lender’s — and the disclosure page matters more in Texas than anywhere else. Our Texas state page shows the worked example.

Regime 4: The Banned States (13 states)

Thirteen states — Arkansas, New York, New Hampshire, Vermont, West Virginia and their neighbors on the disclosure page — prohibit high-cost small-dollar lending entirely. Licensed online lenders decline these residents (which is why this site covers 38 states, not 50). Residents there still see offers from unlicensed and tribal lenders; the legal status of those offers ranges from contested to predatory, and the scam-spotting checklist becomes essential reading.

The Federal Layer — Which Applies Everywhere

On top of state regimes sits a federal floor that no lender escapes: truth-in-lending disclosure (APR, finance charge, total of payments before you sign), CFPB supervision and complaint handling, fair-debt and e-sign rules, and — for tribal-chartered lenders — the federal courts’ requirement that they actually function as arms of a recognized tribe. State caps may not reach tribal lenders; federal disclosure law does.

How to Use This Map

Every state page on this site is a local edition of this explainer: the cap, the fee regime, the statute citation, the regulator with a link, rollover and rescission rules, and a worked cost example. Start at the state directory, or see the whole market at once in the rates and fees table.

Sources

Frequently asked questions

Why are payday loans banned in some states?
Thirteen states have concluded that small two-week loans cannot be priced both profitably and fairly, and capped rates for all lenders at levels classic payday pricing can't meet — effectively banning the product while leaving lower-cost short installment credit legal. State legislatures reach this call by different routes: some cap APR outright, some cap fees so low the product shrinks away.
Who regulates payday lenders?
State financial regulators license and supervise storefront and online lenders in the states that allow the product — every state page on this site names and links the regulator. At the federal layer, the CFPB enforces disclosure and fair-collection rules across all lenders, including tribal and bank-model products.
Can I use an online payday lender from a state where they're banned?
Licensed lenders will decline — they cannot lawfully serve banned states, which is why this site covers 38 jurisdictions and not 50. Unlicensed lenders offering to serve you anyway are operating outside the license-and-cap system entirely; treat that as the risk signal it is.