Last Updated Jul 10, 2018 3:04 PM EDT
When he was Treasury Secretary, Timothy Geithner excoriated payday lenders. But five years since leaving his Cabinet post, Geithner heads a firm that makes millions from lending money at sky-high interest to cash-strapped Americans, according to a Washington Post investigation.
Mariner Finance, a division of Warbug Pincus, "enables some of the nation's wealthiest investors and investment funds to make money offering high-interest loans to cash-strapped Americans," according to a Washington Post investigation. Mariner is a division of Warburg Pincus, a private equity firm where Geithner is president.
Mariner is not the only big money firm in the short-term lending space. But it uses a novel method to snag customers that its competitors rarely do. It often sends targets a live check for up to $3,000, Peter Whoriskey, the Washington Post reporter on the story, told CBSN. All the person has to do is sign the check to accept it. Once they do that, they're on the hook for interest rates up to 36 percent, as well as additional fees if they don't pay.
One of Mariner's clients, a 56-year-old heavy-equipment operator in Nashville, received an unsolicited check for $1,200 last year. It immediately aroused his suspicions, he told he Post.
"I just figured it was a predatory lender, because who just mails people checks in the mail for $1,200?" said Stephen Huggins. The following week, however, Huggins was short on cash to pay for needed repairs to his truck—so he cashed the check, signing up for 33 percent interest. The next year, he found himself in court, after Mariner sued him for $3,221.27. That's the $1,200, plus an additional $800 Huggins borrowed later, plus processing fees, insurance, interest and $536.88 for Mariner's lawyer.
Mariner has about 500,000 clients, the Post reported, most of whom have credit scores in the "fair" range. That means they might have a harder time qualifying for a bank loan, making them attractive targets for nontraditional lenders.
"They go through credit reports, they find people who don't have perfect credit, so they maybe have trouble getting a loan, but who have jobs or there are other signs they can pay the money back," Whoriskey told CBSN.
And it's not illegal, he added. "Mariner, as far as I can tell, works within the rules."
Mariner defended its practices in a statement to the Post, saying it "delivers a valuable service to hundreds of thousands of Americans who have limited access to consumer credit."
"Mariner's products are transparent with clear disclosure and Mariner proactively educates its customers in every step of the process," the statement said.
"The Consumer Financial Protection Bureau (CFPB) has recognized that traditional installment lenders like Mariner ... are not payday or title lenders," the company also noted in its statement. "In October 2017, under then-Director Richard Cordray, the CFPB finalized rules for that industry after several years of in-depth research. Those rules do not apply to traditional installment lenders like Mariner Finance —a reflection of the differences between our business and those covered by the rule."
Even though Mariner sometimes loses money—about 8 percent of its loans are written off, compared with 1 percent to 3 percent for commercial banks—its high interest rates mean the operation can be hugely profitable, the Post reported.
"Basically, Mariner borrows the money at 4-to-5 percent [interest], they lose maybe 8 percent of [the total loans to customers], and they are making 36 percent [interest]" on the rest, said Whoriskey. "In between those two things they're making a lot of money."
Editor's note: Mariner Finance disputed elements of a July 9, 2018, CBSN segment featuring Washington Post business reporter Peter Whoriskey discussing his article about the company's lending practices. Click here to read the company's statement.