Legislation Could Provide Interest on Back Pay for Federal Employees and Defend Against Payday Loan Debt Traps

Inside Subprime: Feb 15, 2019

By Ben Moore

U.S. Reps. Terri Sewell, D-Selma, and Dutch Ruppersberger, D-Maryland have introduced legislation that would require interest on back pay to federal workers affected by the partial government shutdown.

While the longest government shutdown in U.S. history may have come to an end, some federal workers are still recovering from the financial damage of missed payments, late charges, and interest accrued on loans. While some furloughed employees were helped by special bank programs or crowdfunding, many federal workers turned to payday loans and pawn shops during the shutdown, which offered quick cash when few alternatives were available. But payday loans carry APRs of almost 400 percent on average, making them difficult for workers to pay back while covering their expenses, even with back pay.

“The Trump shutdown created significant financial insecurity for federal employees,” Sewell said. “Not only should the government pay back lost wages, it should work to reverse the real economic pain that will extend well into the future. When taxpayers owe the federal government, interest accrues on late payments. There should be no difference when the federal government owes its hardworking employees.”

Ruppersberger added that he hopes the legislation would prevent another shutdown from putting workers in financial distress. “My hope is that this bill will serve as a deterrent for future shutdowns: never again should our hardworking civil servants be used as political pawns,” Ruppersberger said. “But in the unfortunate event that we experience another government shutdown, this legislation will ensure employees will be able to recover from the painful – and long-lasting – impacts.”

The bill, known as the Back Pay Fairness Act (H.R. 1051), would mandate that federal agencies pay interest on back pay equal in rate to the Treasury Prompt Payment policy, which applies to payments made to vendors and contractors. Not only would the bill protect workers in the event of a future shutdown, but it would also retroactively apply to shutdowns starting December 22, 2018.

The legislation was first introduced in the Senate by U.S. Sen. Doug Jones (D-Alabama), who also asked that his paycheck be withheld until workers impacted by the shutdown get their back pay. “If the federal government can charge you interest for being late on your taxes, then it should be paying interest on late paychecks,” he said. “The more than 5,500 federal workers in Alabama didn’t ask for a shutdown and shouldn’t be punished for it. It’s only fair that the government pays them back with interest for putting them out of work indefinitely or forcing them to work without pay.”

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