Seattle-based Washington Federal is offering loans to furloughed federal workers for the equivalent of up to six missed paychecks.
As hundreds of thousands of federal workers prepare for yet another week without a paycheck, those in Washington and seven other states may get some short-term relief.
On Wednesday, Seattle-based bank Washington Federal will begin offering interest-free, 90-day loans to furloughed federal workers for the equivalent of up to six missed paychecks.
The program, which appears to be the first of its kind, is open to any affected resident in Washington state and the seven other states where Washington Federal operates. Those are Oregon, Idaho, Utah, Nevada, Arizona, Texas and New Mexico.
That region has roughly 85,000 furloughed federal workers, including just over 11,000 in Washington state who are impacted by the 24-day shutdown, according to Governing.com. Seattle-Tacoma International Airport alone has around 2000 affected workers.
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Brent Beardall, Washington Federal president and CEO, says the program is meant to share some of the bank’s recent good fortune, including hot regional growth and the effects of last year’s federal tax cut.
“We are the beneficiaries of one of the strongest, most robust economies in the United States of America,” said Beardall in an interview, pointing to “record” quarterly earnings of $52.9 million and extensive share buybacks. “Why not take this opportunity to give a little back?”
Beardall said the interest-free program will be available to both customers and noncustomers, though the latter would need to open a checking account in order to receive the loan. The loaned amount can be up to the equivalent of six paychecks, and will carry an interest rate of zero for the first 90 days.
After 90 days, the interest rate increases to 5 percent through the end of 2019 and to 10 percent thereafter. That compares to interest rates of 18 percent or more for standard short-term loans, Beardall said. The entire balance must be paid by June 2022.
Since the shutdown began Dec. 22, many banks and credit unions, such as Boeing Employees Credit Union, have announced programs to help existing customers by modifying payments for existing loans or extending credit with deferred payments. Utilities and other businesses are offering other forms of assistance, as are community groups and nonprofits such as St. Vincent de Paul.
“But there really is no replacement for a paycheck,” said Beardall, adding that, to his knowledge, only one other financial institution, Virginia-based Navy Federal Credit Union, is offering an interest-free loan to furloughed workers, but that program offers loans only up to $6,000.
Beardall acknowledges an upside for the bank. Currently, federal employees make up less than 5 percent of the bank’s 500,000-plus customers, so the program could potentially attract thousands of new account holders.
But he also pointed to the extra risks that the program will bring for the bank. Although historically federal workers receive back pay after shutdowns end, there is no guarantee that will happen this time, which could affect borrowers’ ability to repay the loans. And, in an effort to speed up the loan process, borrowers won’t be subject to a full-length loan process, Beardall said.
“We’re calling it a quick loan,” Beardall said. “If they show us their pay stub that they’re … federal government employees and that they’ve been furloughed we will underwrite them for up to six of their paychecks.”
On the other hand, Beardall says that when the bank has done similar programs in the past — modifying 3,000 mortgages during the Great Recession, for example — 96 percent of those borrowers are now back to making full payments. “Our experience has been that when you take a risk on someone, they do their best to fulfill their commitment.”
Read more about the federal shutdown here »