The Consumer Financial Protection Bureau recently initiated a lawsuit against Heights Finance Holding Company, previously known as Southern Management Corporation, along with a number of its affiliated subsidiaries collectively known as Southern. The lawsuit alleges Southern engaged in unlawful loan-churning tactics that yielded hundreds of millions in fees and loan costs, according to a CFPB news release.
“The CFPB is suing the Southern lending conglomerate for illegally churning loans and harvesting fees from their customers,” CFPB Director Rohit Chopra said in the release. “What Southern sold as a financial lifeline was, in reality, pushing customers into financial quicksand.”
Operating under various trade names such as Covington Credit, Southern Finance and Quick Credit, the company allegedly identifies borrowers grappling with existing loan repayments and employs aggressive tactics to push them into multiple refinancing instances, ensnaring borrowers within a cycle of refinancing, the release reported.
Chopra said the agency seeks to terminate these illicit practices, seek compensation for affected consumers and impose a civil penalty on Southern, according to the release.
Southern, headquartered in Greenville, S.C., operates as a nonbank, high-cost installment lender. It operates through CURO Group Holdings Corporation and possesses a network of more than 250 brick-and-mortar storefronts across states like Texas, Oklahoma, Alabama, Georgia, Tennessee and South Carolina, the release said.
The lawsuit contends that the borrowers served by Southern often have modest or fixed incomes and impaired credit, with many earning less than $25,000 annually, including older individuals on fixed incomes and single-parent wage earners, the release reported.
CURO Group Holdings, which operates in the U.S. and Canada, reported total revenue of $209.2 million by the second quarter of 2023 and has expanded its market presence through acquisitions since its establishment in 1997, including its acquisition of Heights Finance (formerly Southern Management Corporation) in 2021, according to the release.
The core of Southern’s loan origination primarily comprises refinanced loans. More than 70% of Southern's yearly loan volume, roughly amounting to $250 million, consists of refinanced loans, the release said.
The lawsuit highlights that between 2013 and 2020, nearly 10,000 customers remained in perpetual debt cycles with Southern despite mostly obtaining loans with short durations of only a few months. The lawsuit alleges Southern’s practices aim to maximize profits by targeting customers who must repeatedly refinance to evade delinquency and default, the release noted.
About 10% of Southern’s borrowers engage in refinancing a dozen times or more, and while this segment constitutes less than 10% of the overall borrower population, their refinancing activities contribute to 40% of the company’s net revenue, according to the release.
