The check arrived out of the blue, issued in his name for $1,200, a mailing from a consumer finance company. Stephen Huggins eyed it carefully.
A loan, it said. Smaller type said the interest rate would be 33 percent.
Way too high, Huggins thought. He put it aside.
A week later, though, his 2005 Chevy pickup was in the shop, and he didn’t have enough to pay for the repairs. He needed the truck to get to work, to get the kids to school. So Huggins, a 56-year-old heavy equipment operator in Nashville, fished the check out that day in April 2017 and cashed it.
Within a year, the company, Mariner Finance, sued Huggins for $3,221.27. That included the original $1,200, plus an additional $800 a company representative later persuaded him to take, plus hundreds of dollars in processing fees, insurance and other items, plus interest. It didn’t matter that he’d made a few payments already.
“It would have been cheaper for me to go out and borrow money from the mob,” Huggins said before his first court hearing in April.
Most galling, Huggins couldn’t afford a lawyer but was obliged by the loan contract to pay for the company’s. That had added 20 percent — $536.88 — to the size of his bill.
“They really got me,” Huggins said.
Mass-mailing checks to strangers might seem like risky business, but Mariner Finance occupies a fertile niche in the U.S. economy. The company enables some of the nation’s wealthiest investors and investment funds to make money offering high-interest loans to cash-strapped Americans.
Mariner Finance is owned and managed by a $11.2 billion private equity fund controlled by Warburg Pincus, a storied New York firm. The president of Warburg Pincus is Timothy F. Geithner, who, as treasury secretary in the Obama administration, condemned predatory lenders. The firm’s co-chief executives, Charles R. Kaye and Joseph P. Landy, are established figures in New York’s financial world. The minimum investment in the fund is $20 million.
Dozens of other investment firms bought Mariner bonds last year, allowing the company to raise an additional $550 million. That allowed the lender to make more loans to people like Huggins.
“It’s basically a way of monetizing poor people,” said John Lafferty, who was a manager trainee at a Mariner Finance branch for four months in 2015 in Nashville. His misgivings about the business echoed those of other former employees contacted by The Washington Post. “Maybe at the beginning, people thought these loans could help people pay their electric bill. But it has become a cash cow.”
The market for “consumer installment loans,” which Mariner and its competitors serve, has grown rapidly in recent years, particularly as new federal regulations have curtailed payday lending, according to the Center for Financial Services Innovation, a nonprofit research group. Private equity firms, with billions to invest, have taken significant stakes in the growing field.
Among its rivals, Mariner stands out for the frequent use of mass-mailed checks, which allows customers to accept a high-interest loan on an impulse — just sign the check. It has become a key marketing method.
The company’s other tactics include borrowing money for as little as 4 or 5 percent — thanks to the bond market — and lending at rates as high as 36 percent, a rate that some states consider usurious; making millions of dollars by charging borrowers for insurance policies of questionable value; operating an insurance company in the Turks and Caicos, where regulations are notably lax, to profit further from the insurance policies; and aggressive collection practices that include calling delinquent customers once a day and embarrassing them by calling their friends and relatives, customers said.
Finally, Mariner enforces its collections with a busy legal operation, funded in part by the customers themselves: The fine print in the loan contracts obliges customers to pay as much as an extra 20 percent of the amount owed to cover Mariner’s attorney fees, and this has helped fund legal proceedings that are both voluminous and swift. Last year, in Baltimore alone, Mariner filed nearly 300 lawsuits. In some cases, Mariner has sued customers within five months of the check being cashed.
The company’s pace of growth is brisk — the number of Mariner branches has risen eightfold since 2013. A financial statement obtained by The Post for a portion of the loan portfolio indicated substantial returns.
Mariner Finance officials declined to grant interview requests or provide financial statements, but they offered written responses to questions.
Company representatives described Mariner as a business that yields reasonable profits while fulfilling an important social need. In states where usury laws cap interest rates, the company lowers its highest rate — 36 percent — to comply.
“The installment lending industry provides an important service to tens of millions of Americans who might otherwise not have safe, responsible access to credit,” John C. Morton, the company’s general counsel, wrote. “We operate in a competitive environment on narrow margins, and are driven by that competition to offer exceptional service to our customers. . . . A responsible story on our industry would focus on this reality.”
Regarding the money that borrowers pay for Mariner’s attorneys, the company representatives noted that those payments go only toward the attorneys it hires, not to Mariner itself.
The company declined to discuss the affiliated offshore company that handles insurance, citing competitive reasons. Mariner sells insurance policies that are supposed to cover a borrower’s loan payments in case of various mishaps — death, accident, unemployment and the like.
“It is not our duty to explain to reporters . . . why companies make decisions to locate entities in different jurisdictions,” Morton wrote.
Through a Warburg Pincus spokesman, Geithner, the company president, declined to comment. So did other Warburg Pincus officials. Instead, through spokeswoman Mary Armstrong, the firm issued a statement:
“Mariner Finance delivers a valuable service to hundreds of thousands of Americans who have limited access to consumer credit,” it says. “Mariner is licensed, regulated, and in good standing, in all states in which it operates and its operations are subject to frequent examination by state regulators. Mariner’s products are transparent with clear disclosure and Mariner proactively educates its customers in every step of the process.”
Over the past decade or so, private equity firms, which pool money from investment funds and wealthy individuals to buy up and manage companies for eventual resale, have taken stakes in companies that offer loans to people who lack access to banks and traditional credit cards.
Some private equity firms have bought up payday lenders. Today, prominent brands in that field, such as Money Mart, Speedy Cash, ACE Cash Express and the Check Cashing Store, are owned by private equity funds.
Other private equity firms have taken stakes in “consumer installment” lenders, such as Mariner, and these offer slightly larger loans — from about $1,000 to more than $25,000 — for longer periods of time.
Today, three of the largest companies in consumer installment lending are owned to a significant extent by private equity funds — Mariner is owned by Warburg Pincus; Lendmark Financial Services is held by the Blackstone Group, which is led by billionaire Stephen Schwarzman; and a portion of OneMain Financial is slated to be purchased by Apollo Global, led by billionaire Leon Black, and Varde Partners.
These lending companies have undergone significant growth in recent years. To raise more money to lend, they have sold bonds on Wall Street.
“Some of the largest private equity firms today are supercharging the payday and subprime lending industries,” said Jim Baker of the Private Equity Stakeholder Project, a nonprofit organization that has criticized the industry. In some cases, “you’ve got billionaires extracting wealth from working people.”
Exactly how much Mariner Finance and Warburg Pincus are making is difficult to know.
Mariner Finance said that the company earns a 2.6 percent rate of “return on assets,” a performance measure commonly used for lenders that measures profits as a percentage of total assets. Officials declined to share financial statements that would provide context for that number, however. Banks typically earn about a 1 percent return on assets, but other consumer installment lenders have earned more.
The financial statements obtained by The Post for “Mariner Finance LLC” indicate ample profits. Those financial statements have limitations: “Mariner Finance LLC” is one of several Mariner entities; the statements cover only the first nine months of 2017; and they don’t include the Mariner insurance affiliate in Turks and Caicos. Mariner Finance objected to The Post citing the figures, saying…