The Alaska Senate passed legislation on April 17 that would significantly cap the interest rates and fees payday lenders can charge for loans of $25,000 or less.
Senate Bill 39 would remove payday lenders from an exemption in the state’s lending laws, and require payday loan companies to cap interest rates and fees at an annual percentage rate of 36% for loans of $25,000 or less.
An estimated 15,000 Alaskans take out a payday loan each year, according to research by the Alaska Public Interest Research Group, a nonprofit consumer advocacy group. Borrowers take out an average of $440. The interest rates ranged from 194% to 521%, reflecting the total of interest and fees.
Payday loans are short-term, high-cost loans often for small amounts that are meant to be repaid on the borrower’s next payday. Typically, there’s no credit check or verification of ability to repay the loan. The terms may vary, but lenders often are authorized to withdraw funds directly from the borrower’s bank account on payday.
Researchers found borrowers take out an average of 5.4 loans, “often one to pay off the other,” said Anchorage Sen. Forrest Dunbar, who sponsored the legislation. “And it trapped people, particularly people who were desperate, in these cycles of debt.”
Similar legislation to cap interest rates for small loans was introduced in the Alaska House in 2023, but it failed to advance in the Senate.
In 2023, over 7,000 Alaskans received payday loans totaling over $17 million, according to Dunbar, in a sponsor statement filed with the bill.
“Studies showed that the people who end up taking out these loans end up worse off than they otherwise would be, and actually have an increased rate of bankruptcy,” Dunbar said.
Opposition has come from banking and “fintech” or financial technology groups that provide digital banking services, like mobile banking and online lending services. They argued the legislation and the interest cap would dissuade lenders and limit access to credit for borrowers, who are in need of payday loans.
Dunbar said under the new legislation, lenders are still welcome to do business in the state, just with the limit on interest rates and fees. He also pointed to a 36% cap already in place for U.S. military personnel.
“There’s already federal law that says this can’t be offered to service members,” he said. “If it’s good enough to protect our soldiers and airmen, then it’s probably good enough to protect all Alaskans.”
There are 13 payday loan companies operating in Alaska, according to the state Division of Banking and Securities.
The bill passed the Senate by a vote of 14-6. The measure now advances to the House Finance Committee.
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