credit & debt

Should Lenders Mail Unsolicited Checks to Potential Borrowers?

When it comes to preying on weak credit risks, it looks like Wall Street is at it again.

Q. My brother, who has a history of credit problems, recently got an un­requested check in the mail for $1,200. He was invited to cash it, as a loan from a company called Mariner Finance. He cashed it and signed a loan agreement at 36% interest plus processing fees. He later met with a Mariner salesman who gave him an additional loan and also sold him credit insurance. What do you think about this?

A. I consider this practice—which is apparently legal—to be predatory lending. Sending an unsolicited check to a bad credit risk is like offering a shot of whiskey to a recovering alcoholic. Sadly, the “consumer installment credit” industry—such as payday lending and auto title loans—is booming, preying on people who have few other sources of credit and charging them the maximum rate allowed by usury laws in each state.

In the mid 2000s, Wall Street money fueled the most-egregious predatory lending of the era, backing dishonest mortgage brokers who lured homeowners with shaky credit to over-borrow against their home equity. The subprime mortgages were bundled into securities that were peddled all over the world, spreading financial chaos when foreclosures soared. Timothy Geithner, President Obama’s Treasury secretary during the Great Recession, was a leading critic of predatory lending. Today, Wall Street is channeling private equity capital—from investors such as rich individuals, pensions and endowments—into subprime, unsecured consumer loans because the interest rates and potential returns are much higher than with mortgages. Your brother’s aggressive lender, Mariner Finance, is owned by a private equity fund created by the prominent Wall Street firm of Warburg Pincus, whose president is none other than Timothy Geithner. According to a July 1 exposé by Peter Whoriskey in the Washington Post, Wall Street private equity funds now control several of the largest companies in the field of high-interest payday and consumer installment lending.

Have a money-and-ethics question you’d like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.

Most Popular

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs

People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021…
May 4, 2021
How the Social Security Earnings Test May Affect Your Retirement
social security

How the Social Security Earnings Test May Affect Your Retirement

If you start taking Social Security benefits before your full retirement age and decide to continue working, you need to understand how the earnings t…
May 11, 2021
Refunds for $10,200 Unemployment Tax Break to Begin This Month
Coronavirus and Your Money

Refunds for $10,200 Unemployment Tax Break to Begin This Month

The IRS will start issuing automatic refunds sometime in May to people eligible for the unemployment benefit tax exemption.
May 10, 2021

Recommended

Is an Annuity a Good Choice for You? Questions to Ask
annuities

Is an Annuity a Good Choice for You? Questions to Ask

Find out if you’re a good candidate for an annuity, and if so, which kind you might want to consider.
May 10, 2021
Annuities: How They Could Work for You
Financial Planning

Annuities: How They Could Work for You

No doubt, investing in annuities can be a tough call for the active investor. But there comes a time when relinquishing some control fin exchange for …
May 6, 2021
Estate-Planning Your Stuff with T. Eric Reich
Empty Nesters

Estate-Planning Your Stuff with T. Eric Reich

What to do with the house, the vacation house and the china? We talk with a financial adviser who's got some wise counsel. Also, who makes up the so-c…
May 2, 2021
4 Ways to Use Mobile Wallets
Smart Buying

4 Ways to Use Mobile Wallets

Beyond contactless payments, mobile wallets let you send money to a friend, get cash-back rewards and more.
April 28, 2021