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 repay that loan within the specified time frame — differs significantly from state to state. This variation largely results from whether or not state regulations limit the costs of small loans and require loans to be repaid over time in affordable installments.

To better understand how effectively each state is protecting payday loan consumers, The Pew Charitable Trusts conducted an analysis of the payday loan market and regulatory regimes in all 50 states and Washington, D.C. The results, captured in this interactive chart, shows the level of consumer protections in place, the most common type of payday loan, the average annual rate charged and the average cost to borrow $500 for four months.

The research organized states into four groups based on their payday loan laws: few guarantees, some guarantees, reformed and restrictive. States with few guarantees have loans without meaningful protections to ensure affordable payments; APR greater than 250%; and single repayment loans. States with certain guarantees charge lower than average prices and offer limited protections against high costs or repeated borrowing because payments are unaffordable. Reformed states have enacted comprehensive legislation that lowers the cost of payday loans, requires loans to be repaid in affordable installments, and preserves consumers’ access to credit.

The 18 states and Washington, DC that fall into the restrictive category have strict 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, La North Carolina, Pennsylvania, South Dakota, Vermont and West Virginia. They and Washington, DC are omitted from this interactive chart.

Pew also released a briefing note providing more details on payday loan costs and regulations in the 32 states where payday lenders operate.

Methodology

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

In states that do limit loans to less than $500, dollar costs were based on the average maximum loan size offered. And for the one-time payday loan APR calculations, the Pew researchers used the 14-day term so that borrowing costs for four months equaled eight pay cycles, or 112 days. For payday loans, monthly payments were calculated based on a loan term of four months.

Milton S. Rodgers