Alaska residents hit hard by predatory lending
Inside Subprime: May 2, 2018
By Kerry Reid
The phrase “Wild West” is often used to describe the world of payday loans, where regulations can vary, well, wildly depending upon the state or city. But a guest editorial last month in Alaska’s Juneau Empire took aim at how the industry affects low-income residents of America’s “Last Frontier.”
Goriune Dudukgian, a consumer advocate and attorney who co-founded the Northern Justice Project, wrote the April 5 editorial in support of the federal Consumer Financial Protection Bureau’s “payday loan rule,” which several members of Congress have taken aim at in recent months.
This rule, finalized last October by then-CFPB director Richard Cordray (who was appointed by President Barack Obama), emphasizes that lenders must determine that borrowers can pay back all or almost all of the short-term, high-interest loans without rolling over the original debt into yet more loans and ending up in a payday loan “trap.” The rule applies to payday loans (short-term loans frequently made through commercial storefront operations); auto-title loans (where a borrower puts up the title of a car as collateral); deposit advance products (short-term loans available through a traditional bank for consumers who have direct-deposit accounts at the bank); and longer-term loans with balloon payments, or a larger-than-usual one-time payment at the end of the loan period.
In his editorial, Dudukgian cited a 2017 report from the Center for Responsible Lending that indicated payday lenders in Alaska make nearly $6 million annually from fees and interests on the loans – in his words, “money that could otherwise circulate throughout our communities and be spent to help make ends meet.” He also cited CFPB figures that 80 percent of payday loan borrowers in the United States either roll their initial loan over into a new one or take a second loan within 14 days.
So what is current state law regarding payday loans in Alaska? The Alaska Department of Law Consumer Protection Unit publishes an extensive explanation of the current statutes. The first laws regulating the industry passed in 2004 and were updated in 2010.
Key points in the law are that the loan agreement must provide “a statement of the total amount of fees that may be charged … as a condition of making the advance, expressed both as a dollar amount and as an annual percentage rate.” Advances may not exceed $500 at a time, and the minimum duration of the loan is 14 days. A lender may also not renew an advance more than two consecutive times.
We we noted on our Alaska state page, there are only 26 licensed “deferred deposit advance lenders” (as they are called in Alaska) in the entire state. They are regulated by the state’s Division of Banking and Securities. But 45 percent of payday borrowers in the state go through online vendors, which can be difficult for state agencies to regulate in the same way as the brick-and-mortar operations.
Alaska’s state laws are more stringent than other states, though the annual percentage rate, or APR, on a 14-day loan averages 520 percent. But with 17,000 borrowers out of a total state population of under 750,000, and with one in five of those borrowers defaulting, it adds up to a lot of people who can find themselves trapped in a cycle of debt.
In the view of Dudukgian, the current Congressional threats to overturn federal CFPB rules could leave more Alaskans vulnerable to predatory loans.
However, he notes in the editorial that the federal Congressional delegation from Alaska – Sens. Lisa Murkowski and Dan Sullivan and the state’s sole member of the House of Representatives, Don Young – have not taken contributions from the payday lending industry during their most recent election cycles. Nor have any of the three signed on as co-sponsors of the resolutions put forth by their colleagues in their respective chambers to overturn the CFPB payday loan rules.
What further actions may be taken up by Alaska’s state legislature in the event that the CFPB rules are overturned remains to be seen.
Read more about payday lending in the U.S., check out these related pages and articles from OppLoans: