Thousands of Alaskans get so squeezed on their finances every year that they turn to high-interest payday loans to help cover their bills. That may sound manageable — short-term borrowing with the intent to pay back the debt with the next paycheck — but it digs a deep hole into financial quicksand for many people.
More than 7,000 Alaskans took out payday loans totaling $17.4 million in 2023, according to the state’s Division of Banking and Securities. The loans were small, averaging about $440, but these were not one-time events. Each of those 7,000 borrowers took out an average of 5.5 loans over the year, according to the state’s record keeping.
There are three problems here:
First, people are so desperate for cash to help cover bills or feed their families that they resort to borrowing money that they often cannot afford to repay on time, running up huge interest payments.
Second, the interest rates charged by payday lenders may sound “affordable,” ranging from 15% to 30%, but that’s misleading. There are fees, and that interest is quoted for the one-time life of the short-term loan. If a borrower fails to pay on time, another 15% to 30% interest can get added at every due date. Calculate the interest at an annualized rate, as you would for a car loan, and it can range between 200% and 500%.
The third problem is that while the Alaska Legislature passed a bill to limit the annualized rate to 36%, Gov. Mike Dunleavy vetoed the measure. The 36% annualized cap, though still hefty, was in line with almost 20 other states that want to help consumers but not eliminate the necessary borrowers of last resort.
Dunleavy said he vetoed the legislation because it would have reduced short-term borrowing options for Alaskans, “while creating enforcement challenges for the state.”
Despite the governor’s excuse, the “enforcement challenges” would be no more difficult than what the state already manages for traditional lenders. The legislation would have merely removed payday lenders from a state exemption in lending laws and placed a cap on interest rates and fees.
Industry groups were in full force against the legislation, telling the state’s elected leaders that curtailing payday loan interest rates would stifle “innovation” to serve people with low credit scores. One of the groups even proclaims that in its name: The Innovative Lending Platform Association.
There is nothing innovative about making money off people who have few other options. The governor sided with payday lenders — an out-of-state industry — over Alaskans. He used his veto pen to deposit profits for the lenders at the expense of people struggling to pay their bills.
Larry Persily is a longtime Alaska journalist, with breaks for federal, state and municipal public policy work in Alaska and Washington, D.C. He lives in Anchorage and is publisher of the Wrangell Sentinel weekly newspaper.
