Payday Lender Legislation Veto: 7 Stark Realities Behind Alaska’s Controversial Decision

On June 28, 2025, Alaska Governor Mike Dunleavy vetoed Senate Bill 39, a landmark piece of legislation that sought to cap payday loan interest rates at 36% APR. This Payday Lender Legislation Veto has unleashed a wave of criticism and concern across the state, particularly from consumer advocates and lawmakers who argue that it leaves vulnerable Alaskans exposed to high predatory rates that often exceed 500% APR. The veto is now at the center of a heated debate: consumer protection versus credit access in underserved areas.

The Vetoed Bill at a Glance

Senate Bill 39 (SB 39), co-sponsored by Democratic Senator Forrest Dunbar and Representative Ted Eischeid, aimed to end a decades-long exemption that allowed payday lenders to operate outside Alaska’s general lending laws.

Key Provisions of SB 39:

Why It Mattered: Payday lenders in Alaska currently operate under rules that allow APR rates between 194% and 521%, far exceeding those in most U.S. states. The proposed legislation would have aligned Alaska’s policies with federal lending protections for military families and 18+ other states that have adopted 36% caps.

Governor Dunleavy’s Veto – Just Two Sentences

Governor Dunleavy’s veto message was notably brief; just two sentences long, but carried significant weight.

His Main Reasons:

• Reduced Credit Access: Dunleavy argued that the cap would limit short-term lending in rural Alaska, where traditional banks and credit unions are often absent.
• Regulatory Challenges: He claimed the Division of Banking and Securities lacked resources to enforce the new cap efficiently.

This minimal explanation has triggered criticism for lack of transparency and failure to engage in dialogue with the Legislature, which had passed the bill with a strong 38-22 majority, just two votes shy of a veto-proof margin.

The Reality of High Predatory Rates in Alaska

The real-world implications of payday lending in Alaska paint a stark picture:

• Average Loan Amount: $440
• Average APR: Over 400%, peaking at 521%
• Average Loans Per Borrower: 5.4 annually
• PFD Garnishment (2017–2023): Over $3.7 million

How the Debt Trap Works:

Borrowers take out small, high-interest loans for emergency expenses. With such high APRs, they struggle to repay in full. The result? Rollover after rollover, trapping them in a cycle of compounding interest and perpetual debt.

Example:

A borrower takes a $440 payday loan. At 521% APR, they could pay over $1,200 in interest alone if the loan is not repaid within the initial term.

Proponents of SB 39: Who Wanted Reform and Why?

Consumer Advocates and Lawmakers:

• Alaska Public Interest Research Group (AKPIRG)
  – Called payday loans a “model of financial exploitation.”
  – Pointed to examples from Colorado, Nebraska, and Illinois, where interest rate caps successfully reduced debt traps.
• Sen. Forrest Dunbar
  – Emphasized that payday lenders, mostly out-of-state corporations, were “extracting wealth” from local communities.
  – Highlighted that the industry depends on repeat borrowing for profits—not responsible lending.
• Rep. Ted Eischeid
  – Argued the Division of Banking already had the tools to enforce the cap, dismissing enforcement concerns.

Opposition to the Payday Lender Legislation Veto

Despite strong support, the legislation faced organized resistance.

Key Opponents:

• Online Lenders Alliance (OLA)
  – Claimed the cap would lead to market exit, cutting off financial lifelines to low-credit borrowers.
  – Spent $73,000 lobbying in Alaska in 2025 alone.
• Independent Women’s Network (IWN)
  – Warned the bill would harm female-led households and small businesses, often excluded from traditional credit systems.
• Sen. Mike Cronk (R-Tok)
  – Argued the cap would eliminate payday lending options in vast stretches of rural Alaska.

Their Core Argument:

Access to some credit, even at a high cost, is better than no credit at all.

How Other States Handle Payday Loans

Alaska is an outlier. Many states, across the political spectrum, have already moved to restrict payday loan APRs.

Federal Military Lending Act caps payday loans at 36% APR for active-duty military, a model cited by reformers.

What Happens Next? Will There Be a Veto Override?

Legislative Landscape:

• SB 39 passed with 38 out of 60 votes, two short of the 40 needed to override a veto.
• A veto override could still be attempted when the Legislature reconvenes in January 2026.

What Reformers Are Considering:

• Ballot Initiative: Following models in Nebraska and South Dakota, consumer groups may take the issue directly to voters.
• Tribal Lending Alternatives: Some Alaska Native organizations are considering community-based low-interest lending options.
• Federal Intervention: Consumer advocates have petitioned the Consumer Financial Protection Bureau (CFPB) to impose broader limits.

FAQs on the Payday Lender Legislation Veto in Alaska

Q1. What exactly was Senate Bill 39 trying to change?

A: SB 39 aimed to cap all consumer loans under $25,000 at a maximum of 36% APR, including payday loans, which currently reach up to 521% APR. It would have eliminated the legal exemption that allows payday lenders in Alaska to operate outside the state’s standard lending rules.

Q2. Why was the bill vetoed despite bipartisan support?

A: Governor Dunleavy argued that the cap would limit access to short-term credit, particularly in rural areas lacking banking infrastructure. He also cited regulatory enforcement concerns, although critics dispute these claims.

Q3. How many Alaskans use payday loans?

A: According to Alaska Public Media and AKPIRG, about 15,000 Alaskans use payday loans each year, taking out an average of five loans annually.

Q4. What happens if a person can’t repay a payday loan in Alaska?

A: The loan often rolls over into a new loan with additional fees. Many borrowers have their Permanent Fund Dividend (PFD) payments garnished, more than $3.7 million was seized between 2017 and 2023 by payday lenders through court actions.

Q5. Is a veto override possible?

A: The Legislature needs 40 votes to override the veto. SB 39 passed with 38, so the override is currently uncertain but still possible in January 2026.

Expert Insights and Semantic Context

Why 36% APR Matters — According to Economists

• Michael Calhoun, President, Center for Responsible Lending: “A 36% APR cap strikes a critical balance; low enough to prevent predatory abuse, but high enough to allow for some forms of emergency credit to remain viable.”
• Harvard Kennedy School Study (2022): Found that in states that adopted 36% caps, borrowers shifted toward credit union alternatives and earned wage access programs, with no significant rise in bankruptcy filings.

Policy Alternatives & Solutions

Instead of relying on payday lenders with high predatory rates, here are alternative policy ideas:

Conclusion: Alaska at a Crossroads

The Payday Lender Legislation Veto is more than a policy decision; it is a test of Alaska’s economic values and political will. At stake is whether the state chooses to:

• Continue allowing unregulated interest rates that exploit low-income and rural borrowers
  OR
• Establish a modern, ethical lending ecosystem that protects financial dignity and promotes credit fairness.

Governor Dunleavy’s veto preserves the status quo. But with rising consumer awareness, legislative pressure, and possible 2026 override efforts, this may not be the final chapter. The legislative outcome will shape Alaska’s financial landscape for years to come, and influence national conversations on loan ethics, rural access, and fiscal justice.