Fort Myer, Va. (Army News Service, Aug. 21, 2007) - Everyone's heard the familiar radio spots cajoling people to take out a payday loan, which is paid back when your paycheck arrives. It sounds easy enough.

In reality, these loans are dangerous and damaging, requiring sky-high interest rates and often sending people into a downward financial spiral.

The Defense Department considers payday lending one of the top 10 key issues impacting the quality of life of Soldiers, and a Pentagon report summary posted on the Center for Responsible Learning's Web site estimates that about 17 percent of servicemembers use payday loans.

President George W. Bush signed the 2007 National Defense Authorization Act in October 2006, which takes effect this October. The law caps interest rates for military personnel at 36 percent and prohibits the use of a personal check or other method to access a borrower's bank account.

The law won't stop Soldiers from using payday loans, said Leonard Toyer, a financial counselor with Army Community Service, but it will lessen the amount of debt servicemembers carry as a result.

Payday loan requirements are simple: a bank account and steady source of income. The loan recipient writes a post-dated check to the lender for cash. Interest rates are extremely high, usually around 300 percent or more. Repayment is usually required within two weeks.

If the recipient cannot pay the loan off when it's due, he or she must deal with late and bounced check fees and possible legal action. To avoid default, the borrower must roll the debt into a new loan with the same high rates.

"Unfortunately, 75 to 90 percent of people can't pay it back in the prescribed time," said Mr. Toyer. "They're constantly rolling over two or three times trying to get out of the hole. Generally, unless they come into some kind of windfall where they can plunk a good chunk of money down, they're stuck.

"When everything shakes out, you're talking about people paying anywhere from 400 to 600 percent in interest for those loans, and that's ridiculous."

According to Mr. Toyer, the reasons Soldiers use these loans, or even how many are using them, are hard to pin down.

"Since finances are so tied to careers nowadays, a lot of Soldiers are reluctant to come forward and say they used a payday loan," said Mr. Toyer. "They know a lot of times, units don't look favorably on that and might consider it irresponsible."

The director of the Financial Readiness Program here, Mr. Toyer helps teach Soldiers how to handle their money, and the Army offers alternatives to payday lending to help Soldiers in financial need.

According to Trina Reliford, the Army Emergency Relief officer for ACS, Soldiers can fill out an application for an interest-free loan and receive a check the same day with a commander's approval under the Commanders Referral program. Soldiers may receive up to $2,000 a year in two loans and the first loan must be repaid before seeking Commanders Referral again.

The timeline for paying back the funds is prorated depending on budget and current finances, Ms. Reliford said. Either way, the terms are much more flexible than those of a payday lender.

She hasn't seen many Soldiers come in seeking the assistance, but encourages it. "We try to get Soldiers educated and tell them to come to us first and stay away from payday lending."

The Army also offers an emergency food program that helps Soldiers buy food when funds are tight.

"If it's a choice between paying your bills or buying food, pay your bills and then come to us," Mr. Toyer said. "We'll help you with that rather than you going to a payday lender and ending up deeper in debt."

Many of these businesses stay "just under the wire of being legal," he said.

(Tamika Matthews writes for the "Pentagram.")