Private Equity Firm Run by Tim Geithner Makes Money Offering Loans to Cash-Strapped Americans
NEW YORK, NY – July 8, 2018
After a long career bailing out big banks, Obama treasury secretary Tim Geithner is now running a predatory firm that exploits the poor for profit. In November 2013, it was announced that Mr. Geithner would join Warburg Pincus as president. The firm’s co-chief executives, Charles R. Kaye and Joseph P. Landy, are established figures in New York’s financial world.
Months earlier, a $11.2 billion private equity fund controlled by Warburg Pincus had purchased Mariner Finance for $234 million.
Mariner Finance has expanded briskly under the management of Warburg Pincus. When it was first purchased, the company operated 57 branches in seven states. It has since acquired competitors and opened dozens of new branches. And now Mariner Finance operates more than 450 branches in 22 states, according to company filings. It is especially active in Virginia, Maryland, Tennessee, Pennsylvania and Florida.
Mass-mailing checks to strangers might seem like a risky business, but Mariner Finance occupies a fertile niche in the U.S. economy. With the minimum investment in the fund being approximately $20 million, the company enables some of the nation’s wealthiest investors and investment funds to make money by offering high-interest loans to cash-strapped Americans.
As treasury secretary, Geithner excoriated predatory lenders about their role in the Wall Street meltdown of 2007. Bonds based on subprime mortgages, he noted at the time, had played a role in precipitating the panic.
“The financial crisis exposed our system of consumer protection as a dysfunctional mess, leaving ordinary Americans way too vulnerable to fraud and other malfeasance,” Geithner wrote in his memoir, “Stress Test.” “Many borrowers, especially in subprime markets, bit off more than they could chew because they didn’t understand the absurdly complex and opaque terms of their financial arrangements, or were actively channeled into the riskiest deals.”
Twice last year, Mariner Finance raised more money by issuing bonds based on its loans to “subprime” borrowers — that is, people with imperfect credit.
After a mailed check is cashed by a recipient, a Mariner rep follows up and solicits more information about the borrower — this helps in collections — and sometimes proposes additional lending. About half of the loans that begin with an unsolicited check are later converted into conventional loans.
“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. “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.
"This industry is a pipeline to transfer money from the poor to the ultra-rich," Ben Wikler, Washington director of MoveOn.org, wrote in response to the Post's report on Sunday. "Obama's treasury secretary Tim Geithner is president of one of the private equity firms making a killing from it. Your economy rigged to redistribute wealth to the top."
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 Washington Post reports.
“I wanted to go to my mother’s funeral — I needed to go to Laos,” Keo Thepmany, a 67-year-old from Laos who is a housekeeper in Northern Virginia, said through an interpreter. To cover costs, she took out a loan from Mariner Finance and then refinanced and took out an additional $1,000. The new loan was at a rate of 33 percent and cost her $390 for insurance and processing fees.
She fell behind, and Mariner filed suit against her last year for $4,200, including $703 for attorney fees. The company also sought a court order to take out money from her wages.
Barbara Williams, 72, a retired school custodian from Prince William County, in Northern Virginia, said she cashed a Mariner loan check for $2,539 because “I wanted to get my teeth fixed. And I wanted to pay my hospital bills.”
She’d been in the hospital with three mini-strokes and pneumonia, she said. Within a few months, Mariner suggested she borrow another $500, and she did. She paid more than $350 for fees and insurance on the loan, according to the loan documents. The interest rate was 30 percent.
“It was kind of like I was in a trance,” she said of her decision to borrow from Mariner. She paid back some of the money but then fell behind, and Mariner sued. The company won a court judgment against her in April for $3,852, including $632 in fees for Mariner’s attorney.