WASHINGTON — The Consumer Financial Protection Bureau (CFPB) has filed suit against Heights Finance Holding Co.—formerly known as Southern Management Corp., which the Bureau described as a high-cost installment lender—for what it alleged are illegal loan-churning practices that harvested hundreds of millions in loan costs and fees.
The CFPB alleges that the company – which operates under a variety of trade names, including Covington Credit, Southern Finance, and Quick Credit – identifies borrowers who are struggling to repay their existing loans, and “then aggressively pushes them to refinance. Borrowers become trapped in the loan churning scheme and often are forced to refinance multiple times.”
The CFPB said it is seeking to end Southern’s unlawful loan-churning practices, to gain redress for harmed consumers, and to require Southern to pay a civil money penalty.
Greenville, S.C.—based Southern is a wholly owned subsidiary of CURO Group Holdings Corp. and operates more than 250 brick-and-mortar storefronts in the states of Texas, Oklahoma, Alabama, Georgia, Tennessee, and South Carolina.
Low-Income Borrowers
According to the CFPB, Southern’s borrowers typically have low or fixed incomes and impaired credit, with its typical borrower earning less than $25,000 annually. Many of its borrowers are either older Americans living on fixed incomes or are single-parent wage earners, the CFPB added.
CURO Group Holdings operates in the United States and Canada and reported total revenue of $209.2 million at the end of the second quarter for 2023, the CFPT said.
“The company has steadily increased its market presence since its founding in 1997 through a series of acquisitions,” the Bureau said in announcing its suit. “It acquired Heights Finance, formerly known as Southern Management Corp., in 2021. Southern exercised complete control over all the subsidiaries identified in the CFPB’s complaint and directed all activities, including lending activities.”
Refi’s Were Bulk of Biz
According to the CFPB, refinanced loans comprise the bulk of Southern’s loan origination volume every year.
“More than 70% of the roughly $250 million in loans that Southern makes each year are refinanced loans with the company. In fact, between 2013 and 2020, Southern held nearly 10,000 consumers in continuous, uninterrupted debt, despite predominantly offering loans of just a few months in length,” the CFPB said. “Southern strives to maximize its profits from customers who must refinance to avoid delinquency and default. Nearly 10% of Southern’s borrowers refinance their loans with the company a dozen times or more. While these borrowers make up just under 10% of Southern’s total borrower population, their refinances generate 40% of the company’s net revenue.”
The Allegations
The CFPB’s lawsuit alleges that the company harms consumers by:
- Coercing distressed customers into fee-laden cycles of reborrowing. “Southern’s business strategy centers on getting customers to refinance loans as early and as often as possible. The company uses an array of coercive practices to drive delinquent borrowers into fee-laden refinancing cycles. In addition to fees, these loans decrease the amount of money that borrowers can cash out and increases their total cost of borrowing with each successive refinance.”
- Incentivizing employees to push refinances. “Southern’s incentive-compensation programs reinforce its coercive tactics by rewarding employees who are the most successful in driving payment-stressed borrowers into refinancing and punishing those employees who do not. According to Southern’s executive leadership, ‘Our focus when interacting with delinquent customers has not changed,’ and lists refinancing as the top priority when interacting with borrowers. Refinancing is ahead of even collecting the full past-due balances on loans.”
- Targeting customers for their likelihood to refinance. “Southern positively weights past, repeated refinancing in their refinance-approval process. As a result, the company routinely lends to borrowers who have refinanced multiple times even if they clearly cannot afford to service their debt to Southern without refinancing.”
- Falsely marketing refinances as fresh starts. “Southern markets refinances as solutions, fresh starts, and best options for customers who are struggling to repay. However, for many of these customers, refinancing serves only to prolong indebtedness, to increase total borrowing costs, and to offer no long-term solution to financial distress.”
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