Furloughed workers forced to take out loans at nearly 9% interest

Furloughed government workers affected by the shutdown yell during a protest against the ongoing partial government shutdown on Capitol Hill in Washington. Photo / AP

The Department of Commerce federal credit union is charging furloughed employees almost 9 per cent interest on emergency loans to cover their missing paychecks, despite Commerce Secretary Wilbur Ross saying Thursday that financial institutions were offering "very, very low interest rate loans to bridge people over the gap."

"During the Government Shutdown we're here to help our members and non-member employees of the Department of Commerce & NOAA and its affiliates, the Executive Office of the President and the White House Management and Administration Offices," the credit union website says.

Emergency loans of up to US$5,000 ($7,398) are available for furloughed employees with repayment terms of up to two years, the site says. Two loan officers reached at the credit union telephone number confirmed the terms, which include interest rates "as low as 8.99 per cent."

In an interview with CNBC earlier Thursday, Ross made waves by saying he doesn't understand why federal workers are visiting food banks during the partial government shutdown. He urged them to seek loans from banks and credit unions to supplement their lost wages.

"I know they are, and I don't really quite understand why," Ross said when asked about federal workers going to food banks. Ross is a billionaire and a longtime friend of President Trump.

His comment drew criticism from Democrats, including House Speaker Nancy Pelosi, D-Calif. "Is this the 'let them eat cake' kind of attitude?" she said. "Or call your father for money?"

Ross leads one of the agencies that is directly affected by the shutdown that began December 22, and more than 20,000 of his employees haven't been paid for weeks. The Commerce Department did not immediately reply to a request for comment.

The White House is working to quell a growing anger among the 800,000 federal workers who are scheduled to miss their second paychecks this week, as many have begun calling in sick or refusing to show up for work.

The Trump administration has scrambled to try to deflect the shutdown's effect on the economy, but they've done this in part by requiring thousands of unpaid federal employees to continue doing their jobs.

Many of those workers are beginning to revolt, either calling in sick or saying they can't afford gasoline.

"It's kind of disappointing that the air traffic controllers are calling in sick in pretty large number," Ross said in his television interview.

Ross also repeatedly stressed that federal workers should simply take out loans to cover their expenses while the government was shut down. He acknowledged they would have to likely pay some interest, but he said it should help them cover costs.

"The idea that it's paycheck or zero is not a really valid idea," he said. "There's no reason why some institution wouldn't be willing to lend."

He described such loans as "totally safe" for the lender. Since Congress has promised to pay employees for their time away from work, the loans effectively carry "a 100 per cent government guarantee," Ross said.

Several private financial institutions offer personal loans at annual percentage rates below the credit union figure. Lending Tree, an online lending exchange, quotes rates as low as 3.75 per cent for short-term loans.

But longer maturity emergency loans run to 35.99 per cent, according to an online listing.

All of those rates are well above inflation, which is running at 1.9 per cent, according to the Federal Reserve's preferred gauge.

"The banks and credit unions should be making credit available to them," Ross said on CNBC.

"When you think about it, these are basically government-guaranteed loans because the government has committed these folks will get back pay once this whole thing gets settled down. So there really is not a good excuse why there should be a liquidity crisis."