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Are High-Interest Payday Loans Legal?

Payday loans are often thought of as predatory and unfair, but the fact is that high-interest payday loans are legal. At least in 33 states.

Consumer protection groups have succeeded in limiting payday loan interest rates in 17 states and the District of Columbia. But only Georgia outlaws payday loans altogether.

The other 33 states have exempted payday loans from "small loan" rate caps. This has led to annual interest rates (APR) well into the triple digits.

As of this writing, the following jurisdictions have placed double-digit interest rate caps on payday loans:

Arizona, Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont, West Virginia and the District of Columbia.

States not listed may still prohibit some types of high-interest payday loans. In particular, price gouging laws may limit interest rates during national or state emergencies. Usury laws may also cap rates to prevent super-high-interest payday loans.

Regardless of legality, such a loan might not be the best option. Between fees and payment plans, a borrower can end up paying a significant amount of money. Some borrowers also end up further in debt.

Instead, the Federal Trade Commission suggests that you consider credit union or small bank loans; seek help from emergency hardship programs; adjust your tax withholding; use a credit card cash advance; or purchase overdraft protection.

It might also be time to create a budget and speak with a local credit counseling agency.

High-interest payday loans are legal, but "legal" does not necessarily equal "good."

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