How Well Does Your State Protect Payday Loan Borrowers?

How much a typical consumer pays to borrow small amounts of money—and whether that person is likely to be able to afford to repay that loan within the designated time—differs widely across states. This variation is largely the result of whether state regulations limit the costs of small loans and require that loans be repayable over time in affordable installments.

To better understand how effectively each state protects payday loan consumers, The Pew Charitable Trusts conducted an analysis of the payday lending marketplace and regulatory regimes in all 50 states and Washington, D.C. The findings, captured in this interactive table, show the level of consumer safeguards in place, the most common payday loan product type, average annual percentage rate charged, and average cost to borrow $500 for four months.

The research organized states into four groups based on their payday lending laws: few safeguards, some safeguards, reformed, and restrictive. States with few safeguards have lending without meaningful protections to ensure affordable payments; APRs above 250%; and single-payment loans. Those states with some safeguards require lower-than-average prices and provide limited protections against high costs or borrowing repeatedly because payments are unaffordable. Reformed states have enacted comprehensive legislation, which lowers the cost of payday loans, requires that loans be repayable in affordable installments, and preserves consumers’ access to credit.

The 18 states and Washington, D.C., that fall into the restrictive category have strong laws that prohibit payday loans or set low interest rate limits. Payday lenders do not operate in these jurisdictions. The states are Arizona, Arkansas, Connecticut, Georgia, Illinois, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia. They and Washington, D.C., are omitted from this interactive table.

Pew also published an issue brief providing further detail on payday loan costs and regulations in the 32 states where payday lenders operate.

Methodology

The primary data sources include state regulatory reports, state laws, and advertised product pricing from the six largest payday loan chains in the U.S. Researchers from Pew reviewed available state regulatory reports on loans issued by payday lenders to determine the most common type of payday loan in each state. For states that have not published relevant data in the past three years, Pew compared advertised product options and pricing information from the six largest payday loan chains in the U.S. and used that information to calculate dollar costs and APRs.

In states that effectively limit loans to less than $500, dollar costs were based on the average maximum loan size offered. And for calculations of single-payment payday loan APRs, Pew researchers used the 14-day term such that the costs to borrow for four months equal eight pay cycles, or 112 days. For payday installment loans, monthly payments were calculated based on a four-month loan term.