The Alaska Legislature passed Senate Bill 39, which caps interest rates on payday loans at 36% APR, the same rate applied to other consumer loans in Alaska. The legislation, sponsored by Senator Forrest Dunbar, D-Anchorage, in the Senate and Representative Ted Eischeid, D-Anchorage, in the House, closes a special exemption in state law that allowed payday lenders to charge annual percentage rates between 194% and 500%, trapping thousands of Alaskans in high-cost debt.
Roughly 15,000 Alaskans take out payday loans each year, with borrowers in 2023 alone taking on more than $17 million in high-interest debt. Unlike local credit unions and banks, the 13 payday lending companies licensed in Alaska are all based out of state, sending millions of dollars in loan repayments out of Alaska’s economy every year.
“Payday loans are bad for families, bad for borrowers, and bad for Alaska’s economy,” said Rep. Eischeid, who carried the House version of the bill. “Senator Dunbar’s Senate Bill 39 helps protect Alaskan families at a point in time when there are many safer options for Alaskan consumers than payday loans.”
Because the loans carry high interest rates and short repayment windows, many borrowers are forced to take out new loans to pay off the old ones, racking up additional fees and interest with each cycle. This can turn a few hundred dollars in emergency borrowing into thousands of dollars in debt. By capping the loans at 36% APR, borrowers will have better opportunities to pay off the loans without accruing an unreasonable amount of debt and being locked in a costly cycle.
Veterans are among those hit hardest by these lending practices. Although the federal Military Lending Act protects active-duty service members and their families, those protections do not extend to veterans.
A 2017 study in Texas found that 45% of veterans had used a payday loan, compared to just 7% of the general population, highlighting a severe disparity. SB 39 helps close that gap by extending the same interest rate protections to those who have retired from service.
“This bill closes a harmful special exemption that has allowed lenders to charge outrageous interest rates on small loans,” said Sen. Dunbar. “With this change, Alaskans will have the same consumer protections that apply to other loans, reducing the risk of debt traps and keeping more money in our communities.”
The legislation applies to all loans of $25,000 or less, ensuring that no lender operating in Alaska can bypass the state’s consumer protection standards.
*Photo Courtesy: Gavel Alaska
