Alaska Senate votes to curb high interest rates and fees for payday loan lenders

The Alaska Senate passed legislation on Thursday 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, or APR, 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, and borrowers take out an average of $440. The interest rates ranged from 194% to 521% APR, which is the total of interest and fees. 

Researchers found borrowers take out an average of 5.4 loans, “often one to pay off the other,” said Sen. Forrest Dunbar, D-Anchorage, who sponsored the legislation. “And it trapped people, particularly people who were desperate, in these cycles of debt.” 

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. 

Similar legislation to cap interest rates for small loans was introduced in the Alaska House by then-Rep. Stanley Wright, R-Anchorage, in 2023, but it failed to advance in the Senate. 

In 2023, over 7,000 Alaskans received payday loans totaling over $17 million, according 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. “And so we decided to take up the bill.”

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 APR 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.”

Alaska’s 13 payday loan companies pay the state a combined $39,000 per year in license fees, according to the Division of Banking and Securities. Reclassifying those companies would cost the state about $26,000 in lost revenue because they will be licensed under a different section of law with lower fees. The division expects to be able to absorb those costs and isn’t requesting additional funding from the Legislature.

The bill passed the Senate by a vote of 14 to 6, and now advances to the House Finance Committee. Sen. James Kaufman, R-Anchorage, was the only minority-caucus member to vote for the bill, while Sen. Bert Stedman, R-Sitka, was the only majority member to vote against it.

A companion bill, House Bill 132, sponsored by Rep. Ted Eischeid, D-Anchorage, is currently being heard in the House Finance Committee.