CFPB Sues Installment Lending Conglomerate for Illegally Churning Loans to Harvest Hundreds of Millions in Loan Costs and Fees
Today, the Consumer Financial Protection Bureau (CFPB) sued Heights Finance Holding Company, formerly known as Southern Management Corporation, a high-cost installment lender, as well as several of Heights’s subsidiaries (collectively, Southern), for 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 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.
“The CFPB is suing the Southern lending conglomerate for illegally churning loans and harvesting fees from their customers,” said CFPB Director Rohit Chopra. “What Southern sold as a financial lifeline was, in reality, pushing customers into financial quicksand.”
Southern is a nonbank, high-cost installment lender with its principal place of business in Greenville, South Carolina. It is a wholly owned subsidiary of CURO Group Holdings Corporation (NYSE:CURO), and operates more than 250 brick-and-mortar storefronts in the states of Texas, Oklahoma, Alabama, Georgia, Tennessee, and South Carolina. Southern’s borrowers typically have low or fixed incomes and impaired credit. The company’s typical borrower earns less than $25,000 annually. Many of its borrowers are either older Americans living on fixed incomes or are single-parent wage earners.
CURO Group Holdings operates in the United States and Canada. The company reported total revenue of $209.2 million at the end of the second quarter for 2023. The company has steadily increased its market presence since its founding in 1997 through a series of acquisitions. It acquired Heights Finance, formerly known as Southern Management Corporation, in 2021. Southern exercised complete control over all the subsidiaries identified in the CFPB’s complaint and directed all activities, including lending activities.
Refinanced loans comprise the bulk of Southern’s loan origination volume every year. More than 70 percent 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.
Southern strives to maximize its profits from customers who must refinance to avoid delinquency and default. Nearly 10 percent of Southern’s borrowers refinance their loans with the company a dozen times or more. While these borrowers make up just under 10 percent of Southern’s total borrower population, their refinances generate 40 percent of the company’s net revenue.
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.
Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices. The CFPB alleges that Southern’s steering practices are unfair and abusive, and is taking action to address its wrongful practices.