The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Heights Finance Holding, formerly known as Southern Management, and several of its subsidiaries, charging they have engaged in illegal loan-churning practices.
The CFPB alleged that the company and its subsidiaries (collectively known as Southern) target struggling borrowers and pushes them into refinancing their loans multiple times, resulting in substantial costs and fees, the agency said in a Tuesday (Aug. 22) press release.
Southern, a nonbank, high-cost installment lender, operates under various trade names such as Covington Credit, Southern Finance and Quick Credit, according to the release. The company is a wholly owned subsidiary of CURO Group Holdings.
Responding to the CFPB press release and complaint, CURO said in a Tuesday press release that it denies the allegations and will “vigorously defend its business practices.”
“The complaint relates to certain small loans originated by Heights Finance’s subsidiaries prior to its acquisition in 2021,” the company said in the release. “CURO has previously disclosed the underlying civil investigative demand and our related indemnification rights in public filings with the Securities and Exchange Commission.”
The company added that small loans represent less than 15% of its direct lending portfolio, as of June 30, and that it provides its customers with “compliant and valuable access to credit.”
Southern has more than 250 brick-and-mortar storefronts in states including Texas, Oklahoma, Alabama, Georgia, Tennessee and South Carolina, according to the CFPB press release. It primarily caters to borrowers with low or fixed incomes and impaired credit, with many earning less than $25,000 annually.
The CFPB’s lawsuit accused Southern of engaging in loan-churning practices, wherein the company identifies borrowers struggling to repay their existing loans and aggressively pushes them to refinance, the release said. This scheme traps borrowers in a cycle of debt, forcing them to refinance multiple times. The CFPB argued that Southern’s actions harm consumers by increasing their total borrowing costs and prolonging their financial distress.
The lawsuit highlights several coercive tactics employed by Southern, per the release. The company coerces distressed borrowers into fee-laden refinancing cycles, decreasing the amount of money borrowers can access and increasing their overall borrowing costs with each successive refinance.
Southern incentivizes its employees to push refinances, rewarding those who successfully drive payment-stressed borrowers into refinancing and penalizing those who do not. Additionally, the company targets borrowers with a history of multiple refinances, even if they cannot afford to service their debt without refinancing. Southern also falsely markets refinances as fresh starts and solutions for struggling borrowers.
With its lawsuit, the CFPB seeks to end Southern’s loan-churning practices, provide redress to harmed consumers and impose a civil money penalty on the company, according to the release.
This lawsuit comes on the heels of several other actions taken by the CFPB. These include penalizing Freedom Mortgage for engaging in illegal activities related to mortgage loan referrals, launching a crackdown on “data brokers” who collect and sell people’s personal information, and filing a lawsuit against auto-loan servicer USASF Servicing.