There is turmoil in our land:
- “The Chart That Shows the Financial Peril Facing Federal Workers: Just like many Americans, many government workers don’t have much emergency money set aside.” (nytimes, 7 days ago)
- CNBC says “Friday will mark the second paycheck missed by affected federal workers, whose household budgets have been completely upended.”
Where there is turmoil, however, there is often opportunity. Neither article includes the word “loan”. Yet the U.S. is packed with payday loan companies. Federal workers have been guaranteed to receive back pay, even for weeks or months in which they did no work, as soon as the government reopens (“Trump signs law guaranteeing back pay for federal workers”).
How much credit risk could there be in lending money to someone whose paycheck is guaranteed by an entity with a printing press for dollars?
Readers: What do you think? Shouldn’t it be possible to lend money to furloughed or working-but-not-yet-paid workers at a 1% per month interest rate (12%/year) and make a substantial profit? One-month LIBOR is roughly 0.2% (2.5%/year). That’s a slightly thinner profit margin than a bank gets on a typical credit card, I think, but federal workers should be a better-than-average risk, no?
Is the problem competition from existing credit unions to which federal workers belong? This credit union offers 0% interest for 60 days to furloughed workers. Tough to compete with 0%!
- NASA employee credit union: “Our special Furlough Relief Loan will allow you to access up to $10,000 for up to a 60-month term – interest free and payment free for 60 days.”