Bills Logo

Avoid Paying Payday Loan?

Avoid Paying Payday Loan?

Get rid of your debt faster with debt relief

Choose your debt amount

See if you qualify

Or speak to a debt consultant  844-731-0836

Mark Cappel
UpdatedMay 10, 2024
  • clock icon
    4 min read

You May Avoid Paying an Illegal Payday or Online Loan

You may not need to repay your payday or online loan.

14 states outlaw payday loans. All states regulate online lending, or ban it it altogether. Some payday and online lenders say state lending laws do not apply to them because they are headquartered outside of the US or on tribal land. State attorney generals, however, disagree and contend anyone lending money to residents in their state must comply with state laws.

You may have a lot of questions if you think your loan is illegal. Here are common questions receives from readers about potentially illegal payday and online loans:

  • How can you tell if your loan is illegal?
  • Do you need to repay an illegal loan?
  • Can you get into legal trouble if your loan is illegal?
  • What should you do if a lender tries to collect an illegal loan?
  • What should you do if a lender sues you to collect an illegal loan?

How Can I Tell If My Loan Is Illegal?

States Outlawing Payday Loans
Arizona Arkansas Connecticut District of Columbia Georgia Kentucky Maryland Massachusetts New Jersey New York North Carolina Pennsylvania Vermont West Virginia


Start by learning your state’s basic laws for payday and high-interest loans. The resource Payday Loan Laws, Limits & Repayment Plans By State is a great place to find what your state permits. If you live in one of the 14 states that outlaw payday loans and received a payday or similar high-interest loan, then chances are your loan is illegal.

If your state is one of the 14, contact your state attorney general’s office and ask if your particular loan is legal for residents like you.

Do I Need to Repay an Illegal Loan?

In some states, you are not obligated to repay any part of an illegal loan. In other states, you must repay only the amount you borrowed. In others, you must repay what you borrowed plus the maximum interest rate your state allows. This is called your state’s usury rate.

If your loan is illegal, your state attorney general’s office will tell you how much, if anything, you need to repay on your illegal loan. Make notes of what you learn from your state attorney general’s office. If you speak to someone on the telephone, note the date and time, including the name of the person you spoke to. Ask if the person you’re speaking to is a staff attorney. You may need to refer to this conversation later, so write down your notes completely and keep them in a safe place.

Can I Get Into Legal Trouble if My Loan is Illegal?

You as a borrower of an illegal loan cannot be fined, jailed, or otherwise cited for accepting an illegal loan. That is not how lending laws work. Instead, the laws are aimed at regulating lender behavior. Lenders of illegal loans can be fined or charged with a crime for violating state or federal lending laws.

What Should I Do If a Lender Tries to Collect an Illegal Loan From Me?

Inform the lender or its collection agent of what you learned from your state attorney general’s office. If you were advised to not repay any part of the loan, then explain you do not intend to repay the loan. If you were advised to repay exactly what you borrowed, then tell the collector that is what you intend to do. If you were advised to repay what you borrowed plus a certain amount of interest, then explain you expect the lender to comply with your state’s laws.

If the lender or its collection agent becomes abusive or starts harassing you illegally, then file a complaint with your state attorney general and the CFPB. offers more information on the payday loan collections advice page, and answered reader questions about payday loans in California, FloridaIllinoisMassachusettsMissouriNew YorkTexas, and Virginia.

What Should I Do if a Lender Sues Me to Collect an Illegal Loan?

Never ignore a lawsuit in hopes it will go away.

First, consult with a lawyer in your state who has consumer law experience. If you cannot afford a lawyer, contact your county bar association and ask for the names of organizations near you that provide no-cost legal services.

Second, file complaints with your state attorney general, and your state banking authority that regulates consumer lenders. Both should have online forms to help you file a complaint properly. Stick to the facts, and include the information you learned in your earlier fact-finding with the state attorney general’s office.

Be sure to keep in contact with your lawyer, and keep a note of any upcoming deadlines for submitting information to the court, or appearing in court.

Bills Action Plan

You may not need to repay a loan your state considers illegal.

  1. Contact your state attorney general if you suspect your loan is illegal.
  2. Learn how much of the loan your state requires you to repay.
  3. Consult with a lawyer if the lender harasses you, or files a lawsuit against you.

Dealing with debt

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2023 was $17.503 trillion. Student loan debt was $1.601 trillion and credit card debt was $1.129 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

Each state has its rate of delinquency and share of debts in collections. For example, in Ohio credit card delinquency rate was 4%, and the median credit card debt was $412.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.