Why aren’t the payday loan companies getting rich off the shutdown?

There is turmoil in our land:

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%!

Related:

  • 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.”

2 thoughts on “Why aren’t the payday loan companies getting rich off the shutdown?

  1. The real money in payday loans is the high fees for high risk and chaining multiple loans. There is very little value in loaning money to good credits at low rates that will be easily repaid. You can tell these are good/fair products because of the low (0%) rates. To a certain extent, this sort of goodwill is aligned with customer acquisition cost, as possibly some of the debtors might choose that financial institution in the future.

  2. Unsecured personal debt to good credits seems to yield around 6-7% and that sounds about right compared to interest rates on sort term US treasuries. 12% sounds way to high for short term loans to government workers.

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