Why Alaska’s Senate Bill 39 Should Be Rejected: Lessons from New Mexico’s Failed Rate Cap

Alaska’s Senate Bill 39 (SB 39) proposes a 36% APR cap on consumer loans up to $25,000. The bill aims to regulate financial services, prevent “predatory” lending, and bring state laws in line with federal consumer protection measures. However, while the bill’s intentions may seem noble, its real-world consequences will devastate Alaskan consumers—especially those with limited credit options.

The Southwest Public Policy Institute (SPPI) has studied the impact of similar regulations, particularly in New Mexico, where an interest rate cap was imposed in 2023. Our empirical research and consumer emulation studies—detailed in our reports No Loan For You! and No Loan For You, Too!—expose a harsh reality: rate caps reduce access to credit, eliminate legal loan options, and drive consumers toward more expensive, unregulated alternatives.

Banks and Credit Unions Will Not Fill the Void

Proponents of SB 39 argue that traditional financial institutions will provide small-dollar loans to replace those eliminated by rate caps. New Mexico proves this does not happen.

SPPI tested this assumption by applying for small-dollar loans at:
✅ Wells Fargo
✅ US Bank
✅ Bank of America
✅ 15 credit unions

🔴 Result: Every bank rejected our application, and 86% of credit unions denied access or had such restrictive criteria that loans were effectively unavailable.

Wells Fargo’s Flex Loan is a case study in failure.

• Applicants must first open a checking account, which requires an upfront deposit—a barrier for those already facing financial distress.
• A one-year waiting period is imposed before loan eligibility is even considered.
• The bank closes accounts without warning, leading to the loss of funds and leaving customers stranded.

Credit unions, which are touted as the solution, require:

• Membership approvals that can take weeks.
• Hard credit checks, which lower credit scores and increase future borrowing costs.
• Arbitrary eligibility rules, making access to emergency credit nearly impossible.

Consumers Will Be Forced into Worse Financial Situations

SB 39 does not eliminate demand for small-dollar loans—it just eliminates regulated options. Consumers still need emergency credit, but instead of obtaining it from licensed lenders, they will turn to:

• Unlicensed lenders, which charge far higher effective interest rates.
• Overdraft fees, which can amount to a 1,000% APR on small-dollar shortfalls.

New Mexico’s experience confirms this. After its 36% rate cap went into effect:

• The number of small-dollar lenders dropped significantly.
• Borrowers were left with fewer options, making emergency financial situations even worse.

The Bill Undermines Financial Innovation and Flexibility

SB 39’s restrictions disincentivize innovation in financial services. Instead of fostering new lending models, it locks out lenders who serve high-risk consumers who may not qualify for traditional credit.

Rather than a rigid rate cap, Alaska should encourage a competitive lending environment where borrowers can choose among:

• Responsible installment lending models
• Flexible credit tailored to individual risk profiles

States like Utah and Missouri, which allow flexible lending options, have greater financial inclusion and better consumer outcomes than New Mexico and Illinois, which have imposed rate caps.

SB 39 is a Step Backward for Alaska

If Alaska enacts SB 39, it will replicate New Mexico’s and Illinois’s mistakes, where rate caps have led to fewer choices, higher costs, and more significant financial hardship for consumers.

Rather than restricting credit access, policymakers should:

• Encourage competition among lenders to offer fair and transparent loan products.
• Promote financial education so consumers can make informed borrowing decisions.
• Support responsible lending practices instead of banning access to credit.

The reality is apparent: Rate caps don’t protect consumers—they push them into worse financial situations. Alaska policymakers should reject SB 39 in favor of balanced, consumer-friendly financial reforms.