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 Geithner who, as treasury secretary in the Obama administration, condemned predatory lenders. The firm's co-chief executives, Charles Kaye and Joseph 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 Washington 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 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 they offered only a partial view of the company.
The "Mariner Finance LLC" documents show a net profit before income taxes of $34 million; retained earnings, which include those of past years, of $145 million; and assets totaling $561 million. Two independent accountants who reviewed the documents said the figures suggest a strong financial performance.
"They are not hurting at least in terms of their profits," said Kurt Schulzke, a professor of accounting and business law at Kennesaw State University, who reviewed the documents. "They've probably been doing pretty well."
As treasury secretary, Geithner excoriated predatory lenders and their role in the Wall Street meltdown of 2007. Bonds based on subprime mortgages, he noted at the time, had 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."
In November 2013, it was announced that Geithner would join Warburg Pincus as president. Months earlier, one of the firm's funds had purchased Mariner Finance for $234 million.
Under the management of Warburg Pincus, Mariner Finance has expanded briskly.
When it was purchased, the company operated 57 branches in seven states. It has since acquired competitors and opened dozens of branches. It now operates more than 450 branches in 22 states, according to company filings.
Twice last year, Mariner Finance raised more money by issuing bonds based on its loans to "subprime" borrowers - that is, people with imperfect credit.
To get a better idea of business practices at this private company, The Post reviewed documents filed for state licensing, insurance company documents, scores of court cases, and analyses of Mariner bond issues by Kroll Bond Rating Agency and S&P Global Ratings; obtained the income statement and balance sheet covering most of last year from a state regulator; and interviewed customers and a dozen people who have worked for the company in its branch locations.
Mariner Finance has about 500,000 active customers, who borrow money to cover medical bills, car and home repairs, as well as vacations. Their average income is about $50,000. As a group, Mariner's target customers are risky: They generally rank in the "fair" range of credit scores. About 8 percent of Mariner loans were written off last year, according to a report by S&P Global Ratings, with losses on the mailed loans even higher. By comparison, commercial banks typically have suffered losses of between 1 and 3 percent on consumer loans.
Despite the risks, however, Mariner Finance is eager to gain new customers. The company declined to say how many unsolicited checks it mails out, but because only about 1 percent of recipients cash them, the number is probably in the millions. The "loans-by-mail" program accounted for 28 percent of Mariner's loans issued in the third quarter of 2017, according to Kroll. Mariner's two largest competitors, by contrast, rarely use the tactic.
Mariner generally targets people who have imperfect credit scores, according to the bond rating agencies. 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.
"Our customer satisfaction rates with this product are exceptional," wrote Morton, the company's general counsel. He said that only about .02 percent of the mailed loan accounts lead to complaints.
Ten of the 12 former employees whom The Post contacted, however, expressed qualms about the company's sales practices, describing an environment where meeting monthly goals seemed at times to rely on customer ignorance or distress. Those interviewed worked in branches across five states where Mariner is especially active: Virginia, Maryland, Tennessee, Pennsylvania and Florida.
"I didn't like the idea of dragging people down into debt - they really make it a big deal to call and collect and not take no for an answer," said Asha Kabirou, 28, a former customer service representative in two Maryland locations in 2014. "If someone started to fall behind on their payments - which happened a lot - they would say, 'Why don't we offer you another $200?' But they wouldn't have the money the next month, either."
"Were there a few loans that actually helped people? Yes. Were 80 percent of them predatory? Probably," said one former branch manager who was at the company in 2016. He spoke on the condition of anonymity, saying he did not want to antagonize his former employer. "I'm still embarrassed by some of things I did there."
"The company is here to make money - I understand that," said Mauricio Posso, 28, who worked at a northern Virginia location in 2016 and said he viewed it as valuable work experience. "At the same time, it's taking advantage of customers. Most customers do not read what they get in the mail. It's just little tiny type. They just see the $1,200 for you. . . . It can be a win-win. In some situations, it was just a win for us."
While Mariner and industry advocates note that consumers can simply decline a loan if the terms are onerous, at least some of them may lack the time, English skills or other knowledge to shop around. Some are acutely in need of cash.
"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 court judgment against her in April for $3,852, including $632 in fees for Mariner's attorney.
The other pool of Mariner Finance revenue comes from selling insurance polices.
Mariner pitches the insurance policies to customers as a way of paying off a loan in case of mishaps: There is a life insurance policy that promises to make the loan payments if you die, an unemployment policy that makes the payments if you lose your job, and an accident and disability policy in case of those possibilities.
Mariner also sells a car club membership that covers the cost of repairs.
These can add several hundred dollars to a loan.
The insurance policies provide "tangible benefits" for customers whose financial arrangements are vulnerable to life's interruptions, the company said.
Customers are supposed to be informed that the insurance policies are optional. Several former employees alleged that some salesmen tacked on these products and waited for customers to object. They likened it to the add-ons that pad the bill when buying a car.
"If you sold a car club membership, you were like a god," said a former assistant branch manager in Pennsylvania.
When Mariner salesmen were closing a loan and "went to print out the loan contract, they would just automatically add the insurance on there - every time," Kabirou, the customer service representative said. "Clients would say, 'Do I really need it?' And the person would say, 'Yes, you need to be covered.' "
In response, the company said steps are taken to make sure that customers understand that the insurance is optional.
The company has "numerous safeguards in place to make sure that all of our products are sold in a responsible manner. . . . Our audit teams regularly visit branch locations and monitor loan closings to ensure that our employees are explaining all products correctly. And we call a randomly selected subset of new customers every day to make sure they understand the terms of the loans."
Mariner makes money from the insurance sales in two ways.
First, Mariner gets a commission from the insurance companies for selling the policies.
Mariner sells insurance policies issued by Lyndon Southern and Life of the South, and these two companies often give sales commissions of as much as 50 percent of the premium price, according to statistics filed with the National Association of Insurance Commissioners.
Mariner Finance officials declined to say how much of a commission Mariner receives on insurance policies it sells.
The second way that Mariner profits from the insurance sales is through its insurance company registered in Turks and Caicos. That company, too, earns money on policies issued by Life of the South and Lyndon Southern.
Essentially, it works like this: Mariner sells the insurance policies written by the two companies. Those two insurance companies, in turn, buy reinsurance from Mariner's offshore affiliate, called MFI Insurance. Last year, those two insurance companies ceded $20 million in premiums back to MFI, according to documents filed in Delaware, where Lyndon Southern is based, and from Georgia, where Life of the South is.
Mariner declined to discuss its offshore insurance company. According to a Turks and Caicos financial regulator, it is the ease of doing business there - not laxity of regulation - that attracts companies to set up shop there.
"We have a risk-appropriate regulatory framework," said Niguel Streete, managing director of the Turks and Caicos Islands Financial Services Commission.
But numerous business experts have advised U.S. insurers to set up shop in Turks and Caicos to avoid regulation.
"Much of the appeal of an offshore reinsurer is the modest regulatory climate," according to a guidebook published by an insurance consulting agency known as CreditRe. Many such reinsurers "were developed as a legal mechanism to generate potential total income in excess of the [state-mandated] commission caps."
The trouble with the insurance policies like the ones that Mariner sells to borrowers is that they devote so little money to covering claims, said Birny Birnbaum, executive director of the consumer advocacy organization Center for Economic Justice, which has issued reports on the credit insurance industry. He formerly served as the Texas Department of Insurance's chief economist.
"At the end of the day, these lenders take far more in profit from the insurance premium than the amount paid in benefits for the consumer," Birnbaum said.
Some regulators call for insurers to allocate at least 60 percent of premiums collected for covering customer claims; by contrast, some of policies from Life of the South return as little as 20 percent to consumers; the policies from Lyndon Southern offer as little as 9 percent on average, according to the NAIC statistics.
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Take, for example, the unemployment policy that Huggins bought from Lyndon Southern. The insurance cost Huggins a total of $172.
The average Lyndon Southern unemployment policy gives half of the premium back to the seller as a commission, according to the NAIC statistics. Less than 9 percent of premiums goes to covering customer claims, an extraordinarily low number, insurance experts said.
Life of the South and Lyndon Southern did not respond to requests for comment. Neither did the parent company of the insurers, known as Fortegra.
So far, Huggins' unemployment policy hasn't done him much good. He thought he was covered when he became unemployed last year and informed Mariner Finance. Instead, Mariner Finance summoned him to court.
Huggins said he's worried about how disruptive the court case may be. He's lost a day or two from work. More ominously, while he had hoped to raise his credit score enough to buy a house, a legal judgment against him could undo those plans. He and his stepkids are renting a place from a friend for now.
"Who sends someone $1,200 in the mail that they don't know nothing about except maybe their credit score?" he said. "It was postdated, good for a month. I guess they give you a month to sit around and look at it and everything else until you just convince yourself you really need that money. . . .
"You think they're helping you out - and what they're doing is they're sinking you further down," he said. "They're actually digging the hole deeper and pushing you further down."