Federal Workers Still Recovering from Financial Impact of Government Shutdown

Inside Subprime: Feb 12, 2019

By Lindsay Frankel

The financial desperation imposed by the longest shutdown in U.S. history has caused lasting damage for many federal workers.

Vicki Ibarra, a federal employee in Fresno, California, wasn’t sure how she would make it back to work when the 35-day shutdown came to an end; the bank had repossessed her only reliable vehicle just days before, and she had less than ten dollars left in her checking and savings accounts.

Ibarra, a 45 year-old single mother, had always managed to take care of her family and make ends meet. Living on a $35,000 annual salary, Ibarra frequently worked overtime, but still lived paycheck to paycheck, like 78 percent of U.S. workers. It was a challenge to cover her expenses on her modest salary, but she was able to stay on top of her finances due to the dependability of her government job at the IRS.

When news arrived that the shutdown came to an end, Ibarra was anything but in the clear. She would receive back pay, but late charges for overdue payments had piled up, and she now had about twice as much debt as she would receive in back pay. She only had nine days to pay $3,200 for her car, since repossession charges, late penalties, and interest had accumulated while she missed her paychecks.

Ibarra tried asking friends and family for help, but when that failed, she applied for a loan at a bank. But her credit score had dropped to just 540, thanks to unpaid bills resulting from her lack of income. She explained to the banker that her score used to be in the 700s, but her plea would do nothing to impact her chances of getting approved for a loan. The banker informed her that she wasn’t likely to qualify, and directed her to one of the storefront payday lenders down the street.

Though the shutdown had ended, Ibarra was desperate. The payday lender she visited advertised annual interest rates of 200 percent, and Ibarra recognized that the loan would be unaffordable for her to pay back, especially with the looming possibility of another government shutdown. But she had run out of options.

Payday loans in California cost borrowers an average of 411 percent interest annually, according to data from Pew Charitable Trusts. But these risky loans remained one of the few options for many federal workers, like Ibarra, who went without pay. In fact, payday lenders saw their stock rise during the shutdown, as many furloughed employees with poor credit turned to payday loans to make ends meet.

Though the partial government shutdown has come to an end, financial damage remains for federal workers, and back pay won’t stretch far enough for many to cover their debts.

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