Gov. Mike Dunleavy has vetoed a bill that would have limited high interest rates and fees for payday loans of $25,000 or less, which advocates said would have protected Alaskans against predatory lending.

The legislation, Senate Bill 39, passed both the Alaska House and Senate this session, and would have removed payday lenders from a state exemption in lending laws, and placed a cap on interest rates and fees at an annual percentage rate of 36% for customers paying back these loans.

Payday loans are short-term, high-cost loans often for small amounts that are meant to be repaid on the borrower’s next payday.

In a short memo issued with the veto on June 25, Dunleavy cited access to credit and compliance requirements, issues argued by opponents of the measure.

“These changes would reduce short-term credit options — particularly for those without access to traditional banking services — while creating enforcement challenges for the state,” Dunleavy wrote.

“I’m very disappointed in the veto. This was a bipartisan bill,” Anchorage Rep. Ted Eischeid, who introduced the bill in the House, said on June 27.

“It’s easy to get these payday lending loans. But the problem is, people get the loans. They have two weeks to pay them off. They’re charged fees plus interest rates, and oftentimes they can’t pay those,” he said. “They create debt traps.”

Interest rates and fees in Alaska can range from 194% to 521%, according to research by the Alaska Public Interest Research Group. Eischeid noted 18 other states have enacted a cap on interest rates and fees at 36% annual percentage rate.

In 2023, there were 7,085 Alaskans who took out payday loans totaling $17.4 million, according to the state’s Division of Banking and Securities, with loans averaging $440 and each borrower taking out an average of 5.5 loans.

Eischeid said Alaskans are also targeted by lenders, who can garnish their Permanent Fund dividend checks. “And so when Alaskans can’t pay these debt trap loans, the payday lenders simply go to small claims court and garnish their PFDs,” he said. “It’s a cash cow for payday lenders.”

From 2017 to 2023, payday lenders garnished over $3.7 million from Alaskan’s PFDs, according to court data compiled by Eischeid’s office.

The Online Lenders Alliance, a national trade organization for financial technology groups that offer online banking services, applauded Dunleavy’s veto. “Governor Dunleavy made the right choice for Alaska consumers by vetoing this flawed legislation,” said the group’s CEO Andrew Duke in an emailed statement.

The Alaska Public Interest Research Group criticized the veto, saying it’s a failure to protect Alaskans from predatory lending. “This bill is a commonsense, multipartisan effort to end a debt trap that has harmed our communities for over 20 years,” said Claire Estelle Lubke, AKPIRG economic justice lead, in an email. “Instead of siding with Alaskans, the governor chose to protect an industry that profits from financial insecurity. Payday loans are not an acceptable form of credit for our communities.”

The Alaska Beacon is an independent, donor-funded news organization. Alaskabeacon.com.