Some States Are Tightening Payday Loan Rules. What It Means for Borrowers

Rhode Island's ban on payday loans priced above 36% APR takes effect on January 1, 2027, under a law the governor signed in July 2025. Federal oversight is moving the other way: the Consumer Financial Protection Bureau (CFPB) said in March 2025 it would not prioritize enforcing its payday rule, and has listed the rule for reconsideration. For borrowers, the rules have not tightened nationwide. Your protection depends mainly on your state, on whether you are in the military, and on what kind of lender you use.

Key takeaways

Rhode Island will be the latest state to cap payday loans at 36% APR, from January 1, 2027. Lenders there could charge about 260% APR before the change.
The federal payday rule's underwriting (ability-to-repay) requirements were revoked in 2020. Its limit on repeated failed withdrawals took effect on March 30, 2025, but the CFPB said it would not prioritize enforcement.
"36% cap" means different things in different states. Illinois voids loans above 36%, Minnesota allows up to 50% if the lender checks ability to pay, and Florida's fee rules work out to roughly 293% APR on a two-week $400 loan.
Active-duty servicemembers and their covered dependents have a federal 36% cap under the Military Lending Act, wherever they live.
Illustrative example: a $400 loan at $15 per $100, rolled over four times, costs $300 in fees over 10 weeks, and the $400 is still owed.

What it means for you

You live in a state with a 36% cap (such as Illinois or Colorado): triple-digit storefront payday loans should not be legally offered to you, though online and bank-partner lenders may still advertise. Check the license first.
You live in Rhode Island: the current rules, including APRs around 260%, apply until December 31, 2026. The 36% cap starts January 1, 2027.
You live in a state that allows payday loans (such as Florida): state fee limits and repayment rules are the main protection. In Florida, if you tell the lender by the due date that you cannot repay, it must extend the loan by 60 days at no extra charge, as long as you book an appointment with a credit counseling agency within 7 days and complete the counseling. The rollover example below shows what repeat borrowing costs where rollovers are allowed.
You are on active duty, or a covered dependent: the Military Lending Act caps the all-in cost at 36% and bars payday-type lenders from rolling over your loan.
You borrow online: a lender's website does not decide which state's law applies. Some states, including Illinois, apply their caps to loans made to residents over the internet.
You are stuck in rollovers or repeated bank debits: you can revoke automatic payments and place a stop-payment order. The steps are in the section on stopping withdrawals.

What tightened and what loosened

Since 2020, federal changes have mostly favored lenders, while a handful of states have moved the other way.

Date	Change	Direction for borrowers
July 2020	The CFPB revoked the 2017 rule's requirement that lenders check a borrower's ability to repay before making payday and vehicle title loans.	Looser
June 30, 2021	Congress disapproved the federal "true lender" rule, which would have treated a national bank as the lender whenever it was named on the loan or funded it, even if a nonbank partner ran the program.	Tighter
May 16, 2024	The Supreme Court upheld the CFPB's funding structure in a case brought by payday lender trade groups, clearing the way for the rule's remaining provisions.	Tighter
March 30, 2025	The rule's payment provisions took effect, but two days earlier the CFPB said it would not prioritize enforcement or supervision over penalties under them.	Mixed
July 2025	Rhode Island repealed the exception that let payday lenders operate above the state's small-loan limits, effective January 1, 2027.	Tighter (from 2027)
2025–2026	Colorado's attempt to apply its rate caps to out-of-state state-chartered banks lending to Colorado residents is before the full Tenth Circuit. A November 2025 panel ruling in Colorado's favor was vacated when the full court agreed to rehear the case, and no ruling from the full court had been reported as of early October 2026. The federal bank regulator OCC filed a brief in June 2026 opposing Colorado's reading.	Unsettled
2026	The CFPB's regulatory agenda lists a proposed rule to reconsider the remaining provisions, marked deregulatory, with a July 2026 target. No proposal had appeared in the Federal Register as of early October 2026.	Possibly looser

What the federal payday rule still requires

The surviving part of the rule targets repeated bank debits. Once a lender has made two consecutive attempts to withdraw a payment that fail for insufficient funds, it may not try again from that account without a new and specific authorization from the borrower. The limit covers debits by ACH, debit card, remotely created checks and signature checks.

It applies to loans repayable within 45 days, to balloon-payment loans, and to longer loans costing more than 36% a year where the lender can pull payments from the borrower's account. The regulation text has not been substantively amended since 2020. The CFPB's step back does not cancel it, and federal law lets state attorneys general enforce CFPB rules in court.

Where your state draws the line

Payday lending is mainly regulated by states, and a "36% cap" is not one standard. Some caps include all fees, some allow higher rates with conditions, and some states have no percentage cap at all. These five states show the range.

State	Rule on payday-type loans	Since
Illinois	All-in 36% APR cap on most consumer loans from nonbank lenders, including online loans. A covered loan above 36% is void, according to the state regulator. Banks and credit unions are exempt.	March 23, 2021
Colorado	Voters approved Proposition 111, which limits payday loan charges to 36% APR. Whether the state can apply its caps to some out-of-state banks is the court fight noted above.	November 2018 vote
Minnesota	Short-term lenders may charge up to 50% APR, with no other charges allowed; any loan above 36% requires an ability-to-pay analysis based on documented income and debts. The changes apply to loans made on or after January 1, 2024.	January 1, 2024
Rhode Island	36% APR cap replaces the payday-lender exception that allowed about 260% APR.	January 1, 2027
Florida	No 36% cap. On single-payment loans of up to $500 for 7 to 31 days, fees are capped at 10% of the amount plus a verification fee, which the law limits to $5. Installment versions of up to $1,000 over 60 to 90 days are also allowed. Rollovers are banned, a new loan must wait 24 hours after the last one ends, and a borrower who cannot repay by the due date gets a 60-day grace period at no extra charge if they book credit counseling within 7 days.	Current law

Florida's fee limits look small, but on a short term they translate into a high annual rate:

APR = (fee / amount borrowed) × (365 / days) × 100

fee           = 10% of $400 + $5 verification fee (maximum) = $45
amount        = $400
days          = 14
APR           = (45 / 400) × (365 / 14) × 100 ≈ 293%

The same formula explains the CFPB's own benchmark: a $15 fee per $100 on a two-week loan works out to about 391% APR. At a true 36% APR, the two-week charge on $400 would be about $5.52, against $45 under Florida's maximum fees and $60 at $15 per $100.

The Center for Responsible Lending, an advocacy group, counts Rhode Island as the 21st state, plus the District of Columbia, to bar triple-digit rates. Counts vary by how a cap is defined.

Servicemembers and their families

The Military Lending Act covers active-duty servicemembers, including those on active Guard or Reserve duty, and their covered dependents. It caps the Military Annual Percentage Rate at 36%, counting finance charges, credit insurance, add-on products and most fees. Payday-type lenders also may not roll over or refinance a covered borrower's loan with new credit of their own, require arbitration, or require a military allotment.

What a rollover really costs

A rollover means paying only the fee when the loan comes due and carrying the full balance into a new term. The CFPB found that four out of five payday loans are rolled over or renewed within 14 days, counting a new loan taken soon after repaying the last one. So a ban on formal rollovers, like Florida's, does not by itself stop repeat borrowing.

Illustrative example: a $400 loan with a $15 fee per $100, due every two weeks, in a state that allows rollovers.

Point in time	Fees paid so far	Still owed
Week 2: first fee paid, rollover 1	$60	$400
Week 4: rollover 2	$120	$400
Week 6: rollover 3	$180	$400
Week 8: rollover 4	$240	$400
Week 10: fifth fee due with the $400	$300	$400

Four rollovers mean five two-week terms. By week 10 the borrower has paid five $60 fees, or $300, and repaying the loan takes another $400, for $700 in total. The fees alone equal 75% of the amount borrowed, and none of them reduced the balance.

How a credit union alternative compares

Federal credit unions can offer payday alternative loans (PALs) at up to 28% APR, a ceiling the NCUA confirmed in February 2026, after its board extended the general 18% loan rate ceiling through September 10, 2027. The regulation sets the terms:

PAL I: $200 to $1,000, repaid over one to six months; you must have been a member for at least one month.
PAL II: up to $2,000, repaid over one to 12 months, with no waiting period after joining. The credit union may not charge overdraft or insufficient-funds fees on your account in connection with the loan.
Both: fully amortizing, an application fee of no more than $20, no rollovers, one PAL at a time and no more than three PALs of either type in any rolling six months.

Illustrative example: $400 as a PAL at 28% over three months means three payments of about $139.60. Interest totals about $18.81, or about $38.81 with a maximum $20 application fee, against $300 in fees for the rollover chain above. The credit union decides whether to approve you, and not every credit union offers PALs.

Stopping withdrawals and pressure

Many payday loans are repaid by automatic debit, and repeated debits can trigger overdraft or returned-payment fees at your bank. The CFPB describes these steps:

Tell the lender, in writing, that you are revoking authorization for automatic payments.
Tell your bank or credit union that you have revoked it.
Place a stop-payment order with your bank. Under Regulation E, you can stop a recurring electronic payment by notifying the bank, orally or in writing, at least three business days before it is scheduled. The bank can require written confirmation within 14 days, and banks commonly charge a fee.
Report any debit taken after you revoked authorization to your bank right away.

Stopping the debits does not cancel the debt; you still owe the balance. It does let you decide when to pay.

Collection calls follow different rules depending on who is calling. The federal Fair Debt Collection Practices Act and Regulation F mainly cover third-party collectors and debt buyers; a lender's own employees collecting in its name are generally excluded. A covered collector who calls more than seven times within seven days about one debt is presumed to be harassing you. State collection laws may also apply to lenders.

Frequently asked questions

Is a loan that broke a state rate cap still owed?

It depends on the state. In Illinois, the regulator says a covered loan made after March 23, 2021 above 36% APR is void, and the lender may not collect principal, fees or interest. Other states set different remedies, so ask your state regulator or a legal aid office before you stop paying.

Can a lender require automatic payments as a condition of the loan?

Regulation E says no lender may condition credit on repayment by recurring electronic transfers, with narrow exceptions such as overdraft credit lines. Payday lenders often ask for a postdated check or a one-time debit authorization instead. Read what you are signing and keep a copy.

Does the payday rule matter if the CFPB isn't enforcing it?

The two-failed-withdrawals limit is still in the regulation, and state attorneys general can bring federal court cases to enforce CFPB rules. Whether the CFPB narrows the rule depends on a proposal that had not been published as of early October 2026.

Does the Military Lending Act cover a servicemember's spouse?

Yes. The MLA rule defines covered dependents by reference to the military health care law, whose definition of dependent starts with the spouse, so the spouse of an active-duty member is covered when taking out the loan. The CFPB suggests contacting a military legal assistance (JAG) office with questions about a specific loan.

Can a new credit union member get a payday alternative loan?

Only a PAL II. The PAL I version requires at least one month of membership, while PAL II has no waiting period. Both are offered only by federal credit unions that choose to run the program, so ask before joining.

Before you borrow: a checklist

Confirm the lender's license with your state regulator or through NMLS Consumer Access, which many states use for nonbank lender licenses.
Find the APR on the disclosure before signing and run the formula above on the fee you are quoted.
Ask a federal credit union about a PAL, and check whether your state requires an extended payment plan.
If you are on active duty, tell the lender, and get the JAG office's view on any loan above 36% MAPR.
Keep a written copy of any payment authorization, and know you can revoke it.
If a lender keeps debiting your account or charges more than your state allows, complain to your state regulator or attorney general and to the CFPB complaint portal.

This article is for general education and is not legal or financial advice; payday loan laws differ by state and change, so check your state's current rules before borrowing.