The American Financial Services Association (AFSA) has urged Alaska Governor Mike Dunleavy to veto Senate Bill 39, which proposes a cap on the Annual Percentage Rate (APR) for loans up to $25,000. The association argues that the bill would significantly restrict access to credit for many Alaskans, particularly those with imperfect credit histories.
According to AFSA, the proposed legislation would effectively eliminate traditional installment loans, a critical source of credit for families without access to banks or credit unions. These loans are often used for emergencies, bridging financial gaps, and building credit histories.
A point of contention raised by AFSA is the bill's inclusion of an "All-In" APR. This calculation incorporates unrelated costs like credit insurance into the APR, which AFSA claims inflates rates and makes legitimate loans unviable. The federal Truth in Lending Act (TILA) does not include these add-ons because it considers APR as a timing metric rather than a full-cost measure.
AFSA highlighted negative outcomes from similar legislation enacted in Illinois in 2021. The organization reported that nearly 370,000 residents lost access to credit following the law's implementation. Additionally, the number of licensed lenders was halved, and qualifying borrowers were pushed towards larger and longer-term loans. Instead of reducing risk, AFSA contends that such policies have increased it.
"S.B. 39 would harm, not help, the very people it aims to protect," AFSA stated. They argue that while intended to make loans cheaper, the bill would instead make them disappear altogether, leaving vulnerable Alaskans with fewer and riskier options.
Further details on this letter and others from AFSA’s State Government Affairs team can be found on their website under direct advocacy.