Payday and online loans, answered plainly.
Why most payday loans are illegal in Arkansas, what New Mexico's rate cap means, how bankruptcy treats payday and online loans, and how to get off the rollover treadmill. Answered by a licensed attorney.
Fees are published: see the Chapter 7 and Chapter 13 fees, what is included, and what costs extra.
Are payday loans legal in Arkansas?
No. The Arkansas Constitution caps consumer interest at 17% per year, and after the Arkansas Supreme Court struck down the law payday lenders relied on, the storefronts left the state. A triple-digit-APR payday loan made to an Arkansas resident today, almost always online, generally violates the constitutional usury cap, and Arkansas law treats a usurious consumer loan as void as to principal and interest. Many Arkansans are making payments on loans that may not be legally collectible at all.
Are payday loans legal in New Mexico?
Traditional payday lending is effectively over in New Mexico: since 2023, state law caps small-loan interest at 36% APR, which ended the classic two-week triple-digit payday product. Licensed lenders can still make installment loans at or under the cap. Loans made over that rate, or by unlicensed online lenders, raise the same enforceability problems as in Arkansas, and older loans from the pre-cap era are generally dischargeable in bankruptcy.
Do I have to repay an illegal online payday loan?
A lender operating illegally in your state may have no right to collect principal or interest, and usually will not risk a lawsuit. But “don't pay” is advice to take carefully. Some lenders sell the debt to aggressive collectors, and if court papers ever do arrive you must respond. When payday loans are part of a bigger debt problem, a Chapter 7 can often discharge them along with everything else, and the free consultation looks at whether filing makes sense.
A payday lender is threatening to have me arrested for a bad check. Can they?
No. Owing a debt is a civil matter. There are no debtors' prisons, and giving a lender a post-dated check that later bounces is generally not treated as check fraud, because the lender knew there were no funds when it took the check. A threat of arrest over an ordinary consumer debt is a pressure tactic.
Can bankruptcy discharge payday loans?
Payday loans are generally dischargeable. Payday loans, online installment loans, and their rollovers are ordinary unsecured debt, and a Chapter 7 discharge treats them like credit card balances no matter how the contract is worded. A lender can object to the discharge of a loan taken shortly before filing on the theory that you never intended to repay it; that exception is narrow, the lender has to prove it, and it is rarely pursued for small payday balances. If payday debt is one piece of a bigger pile, bankruptcy often addresses the whole picture at once.
The lender keeps debiting my bank account and I can't make it stop. What do I do?
You have the legal right to revoke an ACH auto-debit authorization: tell the lender in writing, and tell your bank to stop payment on further debits from that company. The bank must honor a stop-payment order, and if debits continue anyway, the bank should reverse them as unauthorized. Some people also move to a new account, but do it deliberately, with direct deposits redirected first. Runaway debits are usually the moment to look at the whole debt picture.
The loan is from a tribal lender that says state law doesn't apply. Is that true?
Mostly bluster. “Tribal” and offshore lenders claim sovereign immunity from state rate caps, but courts have repeatedly rejected the model where the tribe is just a front for an outside operator, and regulators have forced major tribal lenders to cancel loans. Immunity, even where it exists, mainly protects the lender from being sued; it does not make an illegal loan collectible against you in court. Do not assume the fine print is right.
What interest rate is actually legal on a consumer loan?
In Arkansas, the constitutional cap is 17% per year for most consumer credit, one of the strictest in the country (federally regulated banks are a separate matter, which is why out-of-state credit cards run higher). In New Mexico, small consumer loans are capped at 36% APR. A typical payday product runs 300–600% APR when annualized, which is why those loans cannot be made legally in either state today.
I have several payday or online loans and I'm rolling them over every payday. How do I get out?
The rollover treadmill is the product working as designed: fees keep coming while the principal never shrinks, and most borrowers cannot earn their way off it. Stop the auto-debits, stop taking new loans to cover old ones, and look at whether a Chapter 7 that can discharge all of them at once makes sense. People are routinely paying hundreds a month on loans that may not even be legally collectible.
Will a payday lender actually sue me?
Illegal and unlicensed lenders rarely sue, because walking into an Arkansas or New Mexico courtroom would put their own loan on trial. What they do instead is harass, threaten, and sell the account to debt buyers, who occasionally do file suit. If a lawsuit ever arrives, do not ignore it; default judgments are how bad loans become real judgments. Filing bankruptcy generally creates an automatic stay that pauses many collection lawsuits, wage garnishments and collection efforts. Exceptions and repeat-filing rules apply; we review what protection is available in your situation.
What should I do first if payday loans are drowning me?
Stop the bleeding before sorting the pile: halt any auto-debits that are emptying your account, and do not take a new loan to service an old one. Then make a simple list (each lender, amount borrowed, total paid so far, and what they claim you owe) and bring it to a free consultation. Asa will look at whether a Chapter 7 or Chapter 13 fits your whole situation; if filing is not the right tool, he will say so. Either way, you decide from facts.
Start with a free consultation.
Every case starts with a free 20-minute consultation by phone or video. Asa reviews your whole situation and tells you which path he would recommend, including not filing.
This page is general legal information for Arkansas and New Mexico, not legal advice about your specific situation. Laws, court fees, and exemption amounts change. For advice you can rely on, speak with a licensed attorney. Attorney advertising. Asa King, Attorney at Law, Trumann, Arkansas, is responsible for this content. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.