RANDOLPH AIR FORCE BASE, Texas –
The federal income tax deadline is rapidly approaching, and for many that means a tax refund check will be on the way.
But financial consultants at the Airman and Family Readiness Center advise servicemembers and civilian personnel to resist the urge for a quick payoff in the form of so-called refund anticipation loans, because many of them take a big bite out of that IRS check.
Many of these refund anticipation loans are part of a practice called "predatory lending," characterized by large fees, often-exorbitant interest rates and a general cycle of dependency for the consumer. Payday loans can be the most insidious example of predatory lending practices as they can adversely affect an Airman's life and the Air Force mission.
"The problem with payday loans is that they create a cycle of dependency, especially if you can't pay the first one back," said Astrid Lutter, a Military Health Network intern at the A&FRC.
She said predatory lending businesses focus on military members, particularly those on the lower end of the pay scale.
"First, they target lower-income people in general," Ms. Lutter said. "Young Airmen are vulnerable because they don't have a lot of credit and may be in a financial bind, but they have guaranteed income."
Predatory loans are even worse for the non-military, she said, because they can spiral from 50 percent to triple- or even quadruple-digit percentages.
"That makes it nearly impossible to pay it back," Ms. Lutter said. "In Texas, for the non-military, 309 percent is the cap, but some states have outlawed them (predatory loans) completely."
A law that went into effect in October 2007, the Military Lending Act, gives servicemembers more protection against predatory lending practices, capping the percentage rate at 36 percent.
"But that still isn't a good deal when there are other alternatives out there," Ms. Lutter said, to include loans from banks and credit unions and even lower-interest credit cards.
Wendy Warner, Airman and Family Readiness Flight community readiness consultant, said another option for Airmen is the Air Force Aid Society's Falcon Loan, which became available in March 2008.
"You can borrow up to $500 for specific things, such as emergency situations," she said. "It's an interest-free loan."
Ms. Warner said Airmen may also apply for other no-interest loans through the AFAS for emergencies such as vehicle repairs.
She said that even a 36 percent loan can spell trouble for servicemembers. A loan for $500 at 36 percent interest will add up to nearly $700 in two weeks and to more than $900 in four weeks and just keeps adding up, making it a matter of concern to the Air Force.
"The Air Force has put a lot of emphasis on finances," Ms. Warner said. "It's really important because you can lose your security clearance. It hurts the mission and affects everyone."
Ms. Lutter said refund anticipation loans are problematic because they adversely affect the amount of the refund.
"Places that offer these loans often overestimate what you will get back," she said. "They give you more, so you will owe them more. They also charge fees, usually $10 for each $100 you get back."
According to the Better Business Bureau, the National Consumer Law Center found that the effective annualized rate for a refund anticipation loan can range from about 50 percent to nearly 500 percent. Some companies also add administrative fees.
Ms. Warner said the bottom line is to avoid predatory loans. She encourages servicemembers and civilians to visit the A&FRC and develop a budget that will allow them to save money for emergency situations.
Planning for the future and saving money ahead of when it's needed can take much of the stress out of an already stressful situation.