Furloughed Employees in Missouri Turning to Payday Loans

Inside Subprime: Jan 24, 2019

By Lindsay Frankel

In Springfield, Missouri, there are more than 3,000 federal workers, many of whom are feeling the devastating financial effects of the government shutdown. And as they face calls from creditors and bill collectors, some are seeking out small-dollar loans to make ends meet.

Karrie Wright, who works as a nurse at the United States Medical Center for Federal Prisoners in Springfield, said she and her co-workers are caught in financial turmoil, since each of them missed their second paycheck on Friday. “Staff are going to the food bank here in Springfield,” said Wright, president of the American Federation of Government Employees Local 1612. “They’re calling their mortgage companies, they’re calling their electric companies and phone companies to see what they can do. We’ve had repo trucks try to come into the parking lots where we work. That’s what’s happening to my coworkers.”

Amid the financial uncertainty, Secretary of Commerce Wilbur Ross told CNBC that furloughed employees could take out loans as a way to get by until they receive back pay. After receiving criticism for his comments, Ross said he only intended to raise awareness about the availability of loans for federal employees. But the suggestion has worried experts who understand the predatory nature of most small-dollar loans.

Since the Consumer Financial Protection Bureau has moved towards deregulation of the payday lending industry, including rolling back protections introduced during the Obama administration, payday loan firms have run rampant in many states, charging exorbitantly high interest rates. According to a study by the Federal Reserve Bank of St. Louis, payday loans in Missouri carry average annual percentage rates of more than 400 percent, making them unaffordable for many borrowers.

“Low income borrowers are very vulnerable to payday loans,” said Deborah Goldstein, the executive vice president of the Center for Responsible Lending. “They may think they don’t have other options and the payday lenders make it sound like a cheap loan and low barrier to entry when it is very expensive. Their business model is based on people having to take out more loans because of the high expense.” Indeed, borrowers who take out repeated loans (more than five in a year) account for 91 percent of all issued payday loans.

There are alternatives to predatory payday loans in Missouri, since some financial institutions are offering interest-free loans to employees impacted by the shutdown. Multipli Credit Union is working in conjunction with The Community Foundation of the Ozarks in Springfield to provide loans of up to $1,500 with no interest. Judy Hadsall, president and CEO of the credit union, said she hopes furloughed workers come to the credit union before considering a payday loan.

Experts are especially concerned about rural areas that have plenty of payday loan storefronts but lack other financial resources. Jim King, CEO and president of Fahe, an Appalachia financial advocacy organization, said payday loans will have a negative, long-term impact on federal workers across the country.

“What it looks like on the surface is that the government is shutdown and these people will get back pay, but that’s not the case if you had to go out and borrow money and pay a premium for it,” he said. “You’re worse off than you were, and every community in this country is going to have its own saga of woe that it went through when this is over.”

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including MissouriColumbiaIndependenceJefferson CityJoplinKansas City , Springfield, and St. Louis.

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