On January 10, the Alaska Legislature introduced Senate Bill 39 that aims to amend the state’s Small Loan Act. This proposed legislation seeks to implement significant changes, including the introduction of a predominant economic interest test, the repeal of Alaska’s payday loan law, and amending the maximum interest rate that can be charged on loans up to $25,000.
Key Provisions of the Bill
- Predominant Economic Interest Test. The bill introduces a new criterion to determine whether a person is considered a lender under the Small Loan Act. Much like similar provisions in states like Connecticut and Washington, these amendments are targeted at bank model lending programs that enable banks to partner with service providers to expand the bank’s lending activities. Specifically, the bill would apply to a person if:
- the person directly or indirectly holds, acquires, or maintains the predominant economic interest in a loan in the amount of $25,000 or less;
- the person offers, markets, brokers, arranges, facilitates, or services a loan in the amount of $25,000 or less and holds the right, requirement, or first right of refusal to purchase the loan, a receivable in the loan, or interest in the loan;
- the person makes a loan disguised as a personal property sale or leaseback transaction; or
- the totality of the circumstances indicate that the person is a lender in a loan in the amount of $25,000 or less and the transaction is structured to evade the requirements of the Act.
- Clarified Territorial Scope. The bill states that for purposes of the Small Loan Act a transaction takes place in Alaska if the borrower is a resident and completes the transaction in person — or electronically — while physically present in Alaska.
- Repeal of Payday Loan Law. One of the most notable changes is the repeal of Alaska’s payday loan law. This move appears aimed at eliminating high-cost, short-term lending, as no similar authority is added in the bill.
- Maximum Interest Rates. The bill amends the maximum interest rates that can be charged on loans to 3% per month on loans of $25,000 or less, removing the current tiered rates.
- The interest rate calculation must include certain charges authorized under the Small Loan Act.
- Criminal Threats Prohibition. The bill explicitly prohibits licensees from threatening borrowers with criminal prosecution due to default on a loan.
The bill would also require use of the Nationwide Multistate Licensing System and Registry (NMLS) for licensing and increase the regulator’s examination authority.