JOINT BASE SAN ANTONIO-RANDOLPH, Texas –
For military members, financial preparedness is one of the
pillars of mission readiness, but it can often be undermined by the predatory
lending practices of some financial institutions.
These practices include charging high interest rates on
loans, assessing fees that are higher than normal and selling unnecessary
products.
One of the most insidious forms of predatory lending is the
so-called “payday loan,” a cash advance typically characterized by exorbitant
interest rates and excessive fees.
“Payday loan places
are notorious for predatory practices,” said Bob Williams, Joint Base San
Antonio-Randolph Military & Family Readiness Center community readiness
consultant. “Their interest rates can exceed 700 percent. In many cases, a
person would never be able to pay that off.”
According to the Consumer Financial Protection Bureau, a
payday loan is a short-term loan, generally for $500 or less, that is typically
due on the borrower’s next payday and includes a finance charge ranging from
$10 to $30 for every $100 borrowed.
Young Airmen with limited or no credit history and a modest
income are especially vulnerable because these loans only require personal
identification, a checking account and income from a job or government
benefits, Williams said. The borrower may lack the financial resources to pay
the loan when it is due, resulting in installments paid over a longer period of
time that only satisfy interest requirements and far exceed the loan amount.
A similar loan that is common this time of year is the tax
refund anticipation loan, a short-term cash advance against a borrower’s
expected income tax refund that is offered at high interest rates.
Fortunately, military members are afforded some protection
against predatory loans such as payday loans, tax refund anticipation loans and
car title loans, which also have extremely high annual interest rates that trap
borrowers in a cycle of debt, Williams said.
“Under the Military Lending Act of 2007, military members
can be charged no more than 36 percent interest,” he said, which is far less
than triple-digit interest rates paid by civilian borrowers.
The act also prohibits rollover loans unless the new loan
results in more favorable terms, mandatory waivers of consumer protection laws,
mandatory arbitration and prepayment penalties.
However, there are better ways to secure funds in times of
emergency than a loan with a 36 percent interest rate ceiling, Williams said.
“That’s where the Air Force Aid Society steps in – to assist
military members and their families who face financial crises such as funeral
expenses, illnesses, dental or eye care and vehicle repairs,” he said. “We
encourage people to see us. In many instances, we can help.”
AFAS officers are typically found at installation military
and family readiness centers.
The AFAS’ Falcon Loan is an interest-free loan that provides
borrowers up to $750 for emergency situations, Williams said.
Other no-interest
loans are also available.
Other alternatives include loans from banks and credit
unions, including those that are located on military installations, and
lower-interest credit cards, he said.
Education plays an important role in the Air Force’s efforts
to help service members become financially adept and avoid predatory lending
practices, Williams said.
“We have a First Term Airman Center class for our new
first-duty-station enlisted personnel the second Monday of every month and the
First Duty Officers Financial Class for first-duty-station officers the third
Tuesday of every month,” he said. “These mandatory classes are scheduled every
month and they cover a wide area of financial information to include predatory
lending.”
The armed services also dedicate one full week each year to
a range of financial education topics during Military Saves Week, and military
and family readiness centers offer financial education classes and one-on-one
counseling to Department of Defense ID cardholders throughout the year. During
counseling sessions, military members and their families as well as DOD ID
cardholders learn how to set budgets so they can save money for emergencies.
“There’s a lot we try to give our customers so they can be
mission ready,” Williams said. “Part of that is being financially ready. Our
goal is to provide assurance to our military and family members that they can
be mission ready, no matter what the need.”