Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 20, 2011

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Payday loans are often a controversial topic among both consumers and lawmakers. While a good source for fast cash, some suggest that these loans also come with some risks.

As a result, there are many strict laws in states throughout the U.S. that cap the amount a loan can reach, set other limits and restrictions, and even prohibit payday loans within the state. For example, Alabama, Alaska, Virginia and Delaware cap payday loans at $500, California at $300, Louisiana and Minnesota at $350, Hawaii at $600 and Idaho and Illinois at $1,000.

According to the National Conference of State Legislatures, these are among the 41 states that have written law about payday loans. Thirteen states, such as Georgia and New York, either directly prohibit payday loans or do not have specific legislation, which also, in effect, makes the loans not feasible.

One of the ways that payday loan lenders can get around these restrictions, however, is through online lending.  A 2011 study from the Consumer Federation of America revealed that many online payday loan sites do not list an address and only give a toll-free number or email address, so the borrower does not know in which state they are located.

In addition, many of these lenders offer payday loans in states where they are not authorized. Some lenders also claim to be exempt from state law because of tribal sovereign immunity. Because everything is electronic, state borders can often be disregarded by these online lenders.