The Consumer Financial Protection Bureau (CFPB) initiated legal proceedings against Heights Finance Holding Company, previously identified as Southern Management Corporation, a high-cost installment lender, and a number of its subsidiaries (collectively referred to as Southern). The lawsuit alleges unlawful loan-churning practices that resulted in the extraction of hundreds of millions in loan expenses and charges.
“The CFPB is suing the Southern lending conglomerate for illegally churning loans and harvesting fees from their customers,” CFPB Director Rohit Chopra said in an Aug. 22 news release. “What Southern sold as a financial lifeline was, in reality, pushing customers into financial quicksand.”
This action is in response to alleged illegal practices involving the churning of loans, leading to the accumulation of substantial loan costs and fees, according to the release. The CFPB contends Southern employs various trade names such as Covington Credit, Southern Finance and Quick Credit, and targets borrowers facing loan repayment challenges, coercively encouraging them to refinance.
This practice ensnares borrowers within a cycle of loan churning, often forcing multiple refinances. The CFPB aims to halt these illicit loan-churning activities, secure reparations for affected consumers and impose a financial penalty on Southern, the release reported.
Southern, operating in Greenville, S.C., as a nonbank, high-cost installment lender, is a wholly owned subsidiary of CURO Group Holdings Corporation. It operates an extensive network of more than 250 physical locations in states like Texas, Oklahoma, Alabama, Georgia, Tennessee and South Carolina, the release said.
Southern's borrowers, typically characterized by modest or fixed incomes and impaired credit, earn less than $25,000 annually on average. A substantial portion of borrowers comprises older Americans on fixed incomes or single-parent wage earners, according to the release.
CURO Group Holdings is operational in the United States and Canada, reporting total revenue of $209.2 million at the close of the second quarter in 2023. Having grown its market presence since its establishment in 1997 through acquisitions, the company acquired Heights Finance (formerly Southern Management Corporation) in 2021. Southern managed and directed all activities of the subsidiaries mentioned in the CFPB's legal complaint, including lending operations, the release said.
Refinanced loans constitute a significant portion of Southern's annual loan origination volume, with more than 70% of the approximately $250 million in loans annually being refinanced with the company. Notably, from 2013 to 2020, Southern held nearly 10,000 consumers in continuous debt despite predominantly offering short-term loans, the release reported.
Southern's approach revolves around maximizing profits by compelling customers to refinance in order to avert delinquency and default. Almost 10% of Southern's borrowers engage in refinancing their loans with the company a dozen times or more. Although these borrowers represent less than 10% of Southern's total borrower population, their repeated refinancing activities generate 40% of the company's net revenue, the release said.
