SB 39-LOANS UNDER $25,000; PAYDAY LOANS  1:32:06 PM CHAIR BJORKMAN announced the consideration of SB 39 SENATE BILL NO. 39 "An Act relating to loans in an amount of $25,000 or less; relating to the Nationwide Multistate Licensing System and Registry; relating to deferred deposit advances; and providing for an effective date." CHAIR BJORKMAN announced that the committee adopted Amendment 1 on February 19, 2025. SB 39, as amended, was before the committee. 1:32:46 PM RACHEL LEVY, Staff, Senator Forrest Dunbar, Alaska State Legislature, Juneau, Alaska, provided the sectional analysis for SB 39 as follows: [Original punctuation provided.] SECTIONAL ANALYSIS  SB 39: LOANS UNDER $25,000; PAYDAY LOANS Version A 2.12.2025 "An Act relating to loans in an amount of $25,000 or less; relating to the Nationwide Multistate Licensing System and Registry; relating to deferred deposit advances; and providing for an effective date." Section 1 Amends AS 06.01.020(a) to remove payday lenders from the list of financial institutions exempt from federal financing limitations. Section 2 Amends AS 06.01.050(3) to remove payday lenders from the definition of "financial institution" under state law. Section 3 Adds new sections to AS 06.20.010: (c) Expands the definition of a lender to close loopholes and prevent businesses from evading small loan regulations. (d) Clarifies that a loan is considered to originate in Alaska if the borrower resides in the state and completes the transaction while physically present. 1:33:35 PM MS. LEVY continued the sectional analysis of SB 39. Section 4 Amends AS 06.20 to allow the Department of Commerce, Community and Economic Development to utilize the Nationwide Multistate Licensing System and Registry, manage the registration process, and adopt regulations for implementation. Section 5 Amends AS 06.20.030(a) to enable applicants to pay investigation expenses through the registry. Section 6 Amends AS 06.20.030(b) to enable applicants to pay licensing expenses through the registry. Makes a licensing change that requires applicants to pay $500 per branch, website, or mobile app location, instead of a single office license, and $2000 for a company license instead of a multiple office license. Section 7 Repeals and Reenacts AS 06.20.090 to (a) require applicants to submit separate applications for each business location and (b) allow the department to set application requirements, procedures, and licensing periods. Section 8 Amends AS 06.20.170 to have the department conduct period examinations as needed instead of every 18 months. 1 Session: Alaska State Senate Interim: Senator Forrest Dunbar Alaska State Capitol Juneau, Alaska 99801 (907) 465-6944 Proudly Serving Senate District J 1500 W. Benson Blvd. Anchorage, Alaska 99503 (907) 269-0246 Mountain View | Airport Heights | Russian Jack | U-Med | Campbell Park Section 9 Amends AS 06.20.230 to simplify the previous tiered interest rate structure for (a) loans under $25,000 and (b) open-ended loans, creating a uniform rate of 3 percent per month. Adds language that requires interest rate calculations on payday loans to consider only the relevant charged fees, costs, and premiums as detailed in AS 06.20.260(a)(1)- (5). 1:35:24 PM MS. LEVY continued the sectional analysis of SB 39. Section 10 Amends AS 06.20.310 to render payday loans with interest rates greater than 3 percent per month invalid. Section 11 Amends AS 06.20 to add section 06.20.325 to prohibit payday lenders from threatening to prosecute borrowers in the event of defaults. Section 12 - Amends AS 06.20.900 to define "registry" as the Nationwide Multistate Licensing System and Registry. Section 13 Amends AS 08.76.500 to subject payday lenders to the same regulations as small loan companies. Section 14 Amends AS 45.45.020 to mandate interest calculations include all service charges paid by the borrower to ensure transparency in interest calculations. "Service charge" is defined as fees charged by the lender but doesn't include fees related to delinquency. Section 15 - Repeals AS 06.20.330 to eliminate the exemption that allows pawnbrokers and loan shops where separate and individual loans do not exceed $750 and $500 respectively to charge interest rates exceeding the maximum rate established by AS 06.20.230, and repeals regulations applying to lenders which have operated under that exemption. Section 16 - provides for an effective date of July 1, 2025. MS. LEVY stated that the sponsor proposed an amended version [Amendment 1, adopted February 19, 2025] of SB 39 that passed through the House Finance Committee last session and addresses the concerns of financial institutions. 1:37:47 PM CHAIR BJORKMAN opened public testimony on SB 39. 1:38:41 PM PATRICK BRENNER, President, Southwest Public Policy Institute, Rio Rancho, New Mexico, testified in opposition to SB 39 and he warned the committee that rate caps like New Mexico's 36 percent limit have failed and SB 39 will do the same in Alaska. After New Mexico's cap, banks and credit unions didn't fill the void, causing more people to lose credit and turn to costly alternatives. He said that he tested 15 credit unions and several banks, finding 86 percent denied loans or added burdensome conditions, with only one approval from a credit union due to prior membership. This system doesn't help the unbanked or underbanked most affected by such caps. Alaska needs balanced regulations that protect consumers while preserving credit access and responsible lending. 1:41:55 PM EDWARD D'ALESSIO, Executive Director, INFiN, Financial Services Alliance, Washington, D.C., testified in opposition to SB 39 and stated that SB 39 would eliminate access to regulated short-term small-dollar loans from licensed Alaska lenders. These loans are transparent, legal, and offer essential liquidity with strong consumer protections like $500 loan limits, renewal caps, and extended payment plans. He said borrowers report high satisfaction and few complaints under current laws. SB 39's arbitrary rate cap would force lenders to exit, removing a vital credit option. Similar laws in other states led to lender shutdowns, with banks and credit unions failing to fill the gap, leaving borrowers to risky, unregulated alternatives. 1:44:27 PM SENATOR MERRICK asked how many of the INFiN members are physically located in Alaska. 1:44:34 PM MR. D'ALESSIO answered that the INFiN members operating in Alaska are operating online. 1:44:58 PM CORT WALKER, Vice President, Product and Risk, Check City, Provo, Utah, testified in opposition to SB 39 and stated SB 39 claims to lower costs but would effectively ban short-term loans in Alaska. History shows bans don't work because licensed lenders leave, and unregulated offshore lenders take over, creating more risk. He said Check City loans are already regulated, capped at $500, short-term, and based on ability to repay. If borrowers default, they take the loss, so they're motivated to help borrowers succeed. He said in 2024, the Consumer Financial Protection Bureau (CFPB) received just one complaint about an Alaska licensed lender. This shows the system works. He said Alaska's laws have been effective for 20 plus years. He stated that SB 39 wasn't data driven and didn't include all stakeholders. He said reform should strengthen protections without eliminating access. 1:48:24 PM ERIN DAY, Economic Justice Organizer, Alaska Public Interest Research Group, Anchorage, Alaska, testified in support of SB 39 and stated that she helped lead House Bill 145 to cap payday loan rates in Alaska at 36 percent, calling it a fair limit backed by credit union alternatives. She said with average APRs of 435 percent; payday loans are predatory and unsustainable. She stated that Alaska's Division of Banking reports payday lending drains $20 million annually from vulnerable residents. Pay day lending use has declined in the last 5 years but remains a problem with 70 percent of loans online, affecting both rural and urban areas. She stated that statewide the relief project showed borrowers are trapped by high-interest online loans. She said lenders claiming to help often just roll over debt with more fees. This widespread issue needs real reform, not defense of harmful lending. 1:51:43 PM JOSEPH RUBIN, Vice President, Opportunity Financial, Chicago, Illinois, testified with concerns on SB 39 and stated that consumers need access to short-term loans, and SB 39 would cut off this vital support. He said about 60 million Americans lack credit and savings. According to the federal reserve nearly half of the loans were denied in 2024, especially those with low scores. He stated that in Alaska, Opportunity Financial facilitated 2,000 loans annually in 2023 and 2024, mostly for credit union members, but fewer than 1 percent were approved when routed to banks at 36 percent. Alternatives like working extra hours or borrowing from family aren't practical during emergencies, and SB 39 even raises pawn shop rates, making options more costly. He said while protecting consumers is important, a 36 percent cap would leave many without credit when they need it most. 1:55:13 PM DANIELLE ARLOWE, Senior Vice President, American Financial Services Association, Washington, D.C., testified with concerns on SB 39 and stated that SB 39 creates confusion, disrupts commercial lending, and risks cutting off access to credit for those who need it most. 1:58:41 PM ANDREW DUKE, CEO, Online Lenders Alliance (OLA), Arlington, Virginia, testified in opposition to SB 39 and stated that OLA supports expanding credit access and choice, especially in Alaska where one-third of residents are credit constrained and carry the nation's highest credit card debt. He said SB 39 assumes lenders can offer small loans at very low rates, but that's not feasible; lenders won't cover costs, so credit options will vanish. In Illinois, similar laws led to reduced credit access and more financial hardship. He said banks and credit unions aren't meeting demand, so many rely on the loans SB 39 would eliminate. SB 39 would only limit credit for those who need it most. 2:02:32 PM NOWEL LOWE, Owner, Alaska Fast Cash, Wasilla, Alaska, testified in opposition to SB 39 and stated that his company is no longer involved with payday loans and wanted to correct some inaccurate claims made earlier. He said these loans don't charge $80 per month for a year, and borrowers can only extend a loan twice before they must pay it off in full. If eligible, they can apply for a new loan after repayment. He stated that Alaska law requires lenders to offer a six-month, interest-free repayment plan if the borrower can't pay, and interest stops accumulating at default. This protection isn't offered by banks or most online lenders. He said the high fees reflect the high default risk, making this an unprofitable business for small lenders like him. He stated that he left the market because state audits cost more than the earnings and auditors review every transaction, and if an error was made, the lender must refund the borrower. He said rural Alaskans now turn to online lenders, often draining borrowers' accounts completely. 2:05:55 PM CHAIR BJORKMAN closed public testimony on SB 39. 2:06:03 PM SENATOR DUNBAR stated that the amendment first came from the House Finance Committee at Global Credit Union's request. He said both Global Credit Unit and Wells Fargo already offer short-term loans at 36 percent APR, suggesting Alaska's market may differ from states like New Mexico. He said a South Dakota study shows credit unions do meet consumer needs, and the bill includes a non-evasion clause to help regulators address online predatory lenders. Similar policies exist in 19 other states without major issues. He said that concerns about definitions are new to his office, but he is open to working on language changes in future committees if needed. 2:09:05 PM CHAIR BJORKMAN solicited the will of the committee. 2:09:08 PM SENATOR MERRICK moved to report SB 39, work order 34-LS0357\A as amended, from committee with individual recommendations and attached fiscal note(s). 2:09:23 PM CHAIR BJORKMAN found no objection and CSSB 39(L&C) was reported from the Senate Labor and Commerce Standing Committee.