Released: September 10, 2006

On payday, many GIs pay back

Source: By Annys Shin, Washington Post (Free Registration)

Six months ago, John Elliott, a sailor based at Norfolk Naval Station, was having trouble keeping up with his bills, so he went looking for a quick source of cash to tide him over. He took out what’s known as a payday loan, borrowing against future paychecks in exchange for money on the spot.

Elliott borrowed a total of $1,600 from four lenders, but the high fees he was charged each time he took out or renewed his loans made them hard to pay off. In another six months, his debt could balloon to as much as $4,480.

“I thought I would pay it off in a couple of months,” he said. “It’s taken longer than I thought.”

Elliott’s experience of a short-term loan turning into a long-term liability is a familiar scenario to payday customers, many of whom live from paycheck to paycheck and have little access to other forms of credit. A Defense Department study published last month found that members of the military use payday loans three times as often as civilians.

To get a payday loan, all a borrower needs is a checking account and a pay stub. There is no credit check. The borrower simply hands over a post-dated check for the amount of the loan plus fees or gives the lender authorization to automatically withdraw money from a bank account.

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