If a government shutdown looked like this, then a bodega cat may be walking around the Rotunda looking for snacks (via Pixabay).
Opinion,  United States

PayPal’s 0% cash advance for furlough workers is honorable, necessary—and bad.

Is Dan Schulman being held captive by the Coast Guard?

On Friday, PayPal President and CEO Dan Schulman announced that PayPal would be offering 0 percent interest cash advances to all federal government employees during the shutdown. With a total fund of $25 million,  this is a generous offer from a private company, but will it be enough or even helpful?

“We understand that the current U.S. federal government shutdown is impacting many of our fellow citizens,” PayPal said in a statement. “To assist during this time of uncertainty, we are offering an interest-free one-time cash advance, up to your available credit line for a maximum of $500 (with a minimum amount of $250) to existing or new PayPal Credit customers who are U.S. federal government employees impacted by the shutdown.”

In the unlisted video uploaded to YouTube on Thursday, Schulman looks visibly uncomfortable (are unpaid Coast Guard employees holding him hostage?) as he lilts through a script.

Of course this isn’t a handout or a gift. If anything, it is a deal dictated by PayPal’s terms to get more users to sign up for PayPal Credit. This isn’t just to fill the tank with gas while you wait for good news. PayPal will only offer loans starting at $250.

How do you qualify for the assistance? “You’ll need to be a U.S. federal government employee with a PayPal and PayPal Credit account in good standing to qualify for the assistance.” Note that is different from a regular PayPal account. And “PayPal Credit is subject to credit approval.” So if you are behind on your other bills (maybe because you didn’t get your paycheck this month?) you won’t be eligible for the credit.

If you are already a PayPal Credit customer then, “[y]ou may be asked to provide proof of federal government employment.”

It isn’t an instant solution, either. “The cash advance will be deposited into your PayPal account balance, which will take 1 to 3 business days from the date we verify your employment. Once the amount is in your PayPal account balance, you can use it to make purchases, send money or transfer it to a bank account.” The transfer to your bank may take several more days.

After that it becomes like a small credit card debt. “You will need to make minimum monthly payments, and the cash advance balance will be included in your minimum monthly payment due calculation consistent with the Terms of your PayPal Credit account.” You will owe no interest but you will have to make minimum payments each month.

PayPal did not stipulate what will happen if the government shutdown lasts for another month. Normally, people with minimum monthly payments will have to start making them once their loan goes through. This could put their users in the unenviable position of needing to take out another PayPal cash advance just to make payments to their PayPal Credit account. And if they have hit their $500 limit by then, they will have to pay it off at whatever interest rate PayPal sets for that user.

“PayPal is committed to funding a total of $25 million in interest-free cash advances for this program. The program will end when (1) the government reopens and federal government employees receive their first paycheck or (2) the program funds have been fully utilized, whichever is sooner.”

While this is great and admirable, it does reach the limits of private sector credit. What if you recently had an eBay dispute and your Paypal account is not “in good standing”? Are you any less deserving of a loan that is touted as a lifeline for all Federal employees?

We discussed this problem previously this month. Under Venmo’s new “user agreement” they can take money out of your Venmo account if you owe money to their parent company PayPal. One is supposed to be used to payback a friend and the other to deal with trusted vendors. So what are Federal workers supposed to do if the shutdown caused them to lose a paycheck? What if that paycheck was supposed to bring your PayPal account up to date? If so, they are out of luck.

So if PayPal is the only company offering these loans and you can’t get one you are really screwed.

PayPal was founded by libertarian Peter Thiel. Libertarians love to talk about how the private sector will come through and fix the problems that the government would mess up. But what is the private sector solution to this government problem with a private sector problem that could easily happen to any eBay user who has one problem transaction?

Elected representatives making six-figure salaries are playing career-chicken with the American worker. That’s wrong to begin with. But the real problem with PayPal’s program is that it’s a salve for government negotiators, not the affected employees.

Libertarians love to say that the free market will fix problems if government would just get out of the way. But this is an example how government could fix this problem if the free market would just STFU. Government workers are already being used as pawns; do they really need to be used to goose a billion dollar company’s daily active user count?

The Government shutdown will reach a breaking point. Without PayPal stepping in, something will happen. It might be that the TSA workers can’t afford to put gas in their cars the country will grind to a halt. Maybe the FDA food inspectors won’t be able to keep us from poisoning our Super Bowl party guests. Something worse could happen if we don’t take care of the Coast Guard.

But for now it just means that workers who are living paycheck to paycheck will come out of this with a smaller paycheck of their reduced hours, which they can use to start digging their way out of new debts.

All Americans owe a debt to workers who do public service—whether you get FDA cleared lettuce or take a walk on a Coast Guard patrolled beach or fly through TSA. And it’s cruel to repay that debt with more debt.

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Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives. Disclosure: he owns cryptocurrencies. Follow him on Twitter.