Short-Term Loan Rules: Federal and State Regulation

Short-term loans face both federal and state rules. States license and cap lenders, and the CFPB's payday lending rule governs certain payment practices.

Updated: 2026-10-08

Short-term loans are regulated on two levels at once. The Consumer Financial Protection Bureau writes federal rules such as the Payday Lending Rule, while each state licenses lenders and sets its own fee and interest limits. Where a product is allowed at all, and what it can cost, depends on the state where the borrower lives.

The federal rule: 12 CFR Part 1041

The CFPB's rule at 12 CFR Part 1041 is titled Payday, Vehicle Title, and Certain High-Cost Installment Loans. It was adopted in 2017 and most recently amended on October 20, 2020. It covers payday and other short-term loans, certain vehicle title loans, and certain high-cost longer-term installment loans.

As adopted, the rule had two main parts:

• An ability-to-repay, or full-payment, test. For short-term and balloon-payment loans, the CFPB identified it as an unfair and abusive practice to make such a loan without reasonably determining that the consumer could repay it. The rule set out a full-payment test and a principal-payoff option for certain smaller loans.
• Limits on repeated payment attempts. For covered loans that include authorization to access the borrower's checking or prepaid account, the rule created a debit-attempt cutoff. After two consecutive failed attempts, the lender could not debit the account again without a new, specific authorization from the borrower.

What changed in 2020 and 2025

In 2020 the CFPB issued a final rule revoking the mandatory underwriting, or ability-to-repay, provisions, which had not yet taken effect. The payment-related provisions remained in the regulation.

More recently, on March 28, 2025, the CFPB said it would not prioritize enforcement or supervision actions with regard to penalties or fines associated with the Payment Withdrawal provisions and the Payment Disclosure provisions once those became operative on March 30, 2025. In plain terms, those provisions are still on the books, but the agency said it would focus its resources elsewhere.

The state layer: license, cap, or prohibit

Alongside the federal rule, every state sets its own limits on small-dollar lending. A state can license a product, cap its fees or interest, or ban it entirely. Two very different examples:

• New York prohibits payday lending. The New York State Department of Financial Services states that it is a violation of New York law to make payday loans in person, by telephone, or over the internet. New York's civil usury limit is 16 percent a year on most loans, and charging more than 25 percent a year can be criminal usury.
• California allows it with hard caps. Under the California Deferred Deposit Transaction Law, a deferred deposit, or payday, transaction cannot exceed a $300 face amount, the fee cannot exceed 15 percent of the check, and the term cannot exceed 31 days.

States in between may cap rates, limit loan amounts, restrict rollovers, or require a license. Because the rules are local, the page for your state on this site shows that state's actual limits from our verified state-law records. Our payday loan laws by state guide explains how those caps are organized.

Special federal protection for servicemembers

One federal rule cuts across the states. The Military Lending Act, at 10 U.S.C. 987 and 32 CFR Part 232, caps the Military Annual Percentage Rate on most consumer credit extended to covered servicemembers and their dependents at 36 percent. The MAPR is deliberately broader than a standard APR: it includes finance charges, credit insurance premiums, fees for debt cancellation and suspension agreements, fees for credit-related ancillary products, and most application and participation fees. Our guide to the Military Lending Act explains who is covered and which loan terms are banned.

Advertising rules apply too

Federal law also governs how credit is advertised. Regulation Z at 12 CFR 1026.24 provides that if an advertisement states specific credit terms, it may state only terms that actually are or will be offered, and stating certain triggering terms requires additional disclosures such as the annual percentage rate. That is why an honest loan offer shows its costs up front rather than in fine print. Our APR guide explains how to read those numbers, and the rates and fees page shows the estimate bands used on this site.

What this means for you

Because the rules vary so much by state and product, a few habits protect you in any state:

1. Check your state's rules first. Confirm whether the product is allowed where you live and what it can cost.

2. Look for the license. Lenders generally must be licensed or registered where they do business; you can check with your state's banking or financial regulator.

3. Read the APR and total cost, not just the fee. A small fee on a short loan can be an annual rate in the hundreds of percent.

Questions about how a loan's rules apply to you? Call (800) 236-7761 or start your free matching request below.

Frequently Asked Questions

Who regulates short-term loans in the United States?

Both federal and state agencies do. The Consumer Financial Protection Bureau writes and enforces federal rules such as the Payday Lending Rule at 12 CFR Part 1041. States license lenders, set fee and interest caps, and can prohibit a product outright, so the rules depend heavily on where you live.

What is the CFPB Payday Lending Rule?

It is the rule at 12 CFR Part 1041, titled Payday, Vehicle Title, and Certain High-Cost Installment Loans. As adopted in 2017 it required an ability-to-repay, or full-payment test, for certain short-term and balloon-payment loans and limited repeated payment attempts against a borrower's account where a loan includes account access and has an APR over 36 percent.

Did the CFPB change the payday lending rule?

Yes. In 2020 the CFPB revoked the rule's mandatory underwriting, or ability-to-repay, provisions, which had not taken effect. The payment-related provisions remained. On March 28, 2025, the CFPB also said it would not prioritize enforcement or supervision of penalties or fines tied to the Payment Withdrawal and Payment Disclosure provisions once those became operative on March 30, 2025.

Are payday loans legal in every state?

No. States set their own rules. Some, like New York, prohibit payday lending entirely. Others allow it with limits. California, for example, caps a deferred deposit transaction at a $300 face amount, a fee of no more than 15 percent of the check, and a term of up to 31 days. Always check your own state's rules.

What is the Military Lending Act cap?

The Military Lending Act, at 10 U.S.C. 987 and 32 CFR Part 232, caps the Military Annual Percentage Rate on most consumer credit extended to covered servicemembers and their dependents at 36 percent. The MAPR is broader than a standard APR because it includes credit insurance premiums, debt cancellation fees, and most application and participation fees.

Sources

• CFPB: 12 CFR Part 1041 - Payday, Vehicle Title, and Certain High-Cost Installment Loans
• eCFR: 12 CFR Part 1041 - Payday, Vehicle Title, and Certain High-Cost Installment Loans
• CFPB: Payday, Vehicle Title, and Certain High-Cost Installment Loans (final rule summary)
• CFPB: Payday Lending Rule compliance resources (2020 Revocation final rule; March 2025 statement)
• CFPB: Offers Regulatory Relief for Small Loan Providers (March 28, 2025 statement)
• New York State Department of Financial Services: Credit and Debt - Payday Loans in New York
• California Department of Financial Protection and Innovation: Payday Lenders
• eCFR: 32 CFR 232.4 - Terms of consumer credit extended to covered borrowers
• eCFR: 12 CFR 1026.24 - Advertising (Regulation Z)

Disclaimer

Content on this page is for general information and is not financial, legal, or tax advice.

Confirm current rates, terms, and state regulations directly with licensed lenders.