On August 22, 2023, the Consumer Financial Protection Bureau (also known as the CFPB or “the Bureau”) announced that it officially sued Heights Finance Holding Company – formerly known as Southern Management Corporation – for its alleged illegal lending practices that have reaped millions in loans and fees from its borrowers.
The CFPB is taking action against all of Height’s subsidiaries – collectively known as “Southern” – including Covington Credit, Southern Finance and Quick Credit. Here’s what affected borrowers need to know about the ongoing civil case.
Southern credit group accused of targeting vulnerable borrowers and deceptive lending tactics
Southern is a national, non-bank installment lender that is a wholly owned subsidiary of CURO Group Holdings Corporation. The majority of borrowers in the South include older Americans living on fixed incomes or single-parent households. According to the CFPB, the average borrower has an annual income of less than $25,000.
Southern was found to have exercised control over all of its subsidiaries and directed them to operate under the deceptive lending practices cited by the CFPB, including aggressively pushing borrowers to refinance and trapping them in a loan churning system.
In his official complaintThe Bureau alleges that Southern’s practices violate the Consumer Financial Protection Act of 2010 due to their unfair and abusive nature. “She [the loan-churning practices] are offensive because they take unreasonable advantage of borrowers’ lack of understanding of the material risks, costs, or terms of a refinanced Southern loan,” the complaint states.
It adds that the lending practices are also abusive because they take unfair advantage of borrowers who are struggling to make their payments and are unable to protect their interests in selecting or using a refinanced loan from Southern.
About 10,000 borrowers are trapped in “continuous, uninterrupted debt”
Between 2013 and 2020, nearly 10,000 Southern borrowers entered the refinancing spiral, despite the fact that most loans offered by the company have terms totaling several months.
Additionally, the Bureau wrote that a majority of those aggressively forced to refinance were borrowers who originally struggled to make their monthly payments. As a result, many of the borrowers had to continue refinancing, leaving them trapped in what the CFPB calls “the credit churning system.”
According to the press release, nearly 10 percent of Southern’s customer base has refinanced their loans with them ten or more times, misleading consumers into believing this was a useful way to manage debt. “What Southern sold as a financial lifeline actually pushed customers into financial quicksand,” CFPB Director Rohit Chopra said in a statement.
Vulnerable borrowers would have turned to refinancing to avoid delinquencies or defaults
“Southern strives to maximize the profits of customers who need to refinance to avoid delinquencies and defaults,” the CFPB press release said. “Refinanced loans make up the majority of Southern loan volume each year. More than 70 percent of the roughly $250 million in loans Southern makes annually are refinanced loans with the company.”
It is alleged that the following tactics were used to extract such a large amount from refinancing alone:
- Using coercive methods to persuade customers with past due balances to arrange a refinance loan.
- Incentivizing employees through compensation programs to use said coercive refinancing-oriented lending tactics.
- Targeting consumers based on their likelihood to refinance again.
- Misrepresenting the role of refinancing as a “fresh start” for customers already struggling to pay off their balances.
CFPB is calling for compensation for those affected and civil penalties
The lawsuit calls on Southern to halt its loan-making methods, seeks compensation for those harmed by the company and, if the civil suit ends in the CFPB’s favor, will require Southern to file a civil pays a fine.
While nothing has been announced in terms of potential remedies, the CFPB states that it is currently taking action to address Southern’s unfair and unlawful steering practices. That said, those who believe they have fallen victim to the South’s illegitimate lending practices should be on the lookout for more information from their lender and can file a complaint about the CFPB website or by calling (855) 411-CFPB(2372).
How to detect abusive lending practices
Unfortunately, there are lenders who use illegal methods to attract consumers, which can cause financial damage in the long term. The best way to protect your finances is to know what the red flags are before it’s too late.
Know your rights as a consumer. Once you notice deceptive or misleading practices, consult the Consumer Credit Protection Act and the Truth In Lending Act to see if the lender’s conduct or loan information falls outside the legal requirements.
Some possible signs of dishonest or abusive behavior include (but are not limited to) the following:
- Loans with interest rates that exceed the statewide legal limit.
- Lenders who do not disclose important information about the loan details or about the company itself.
- Companies that advertise false or blatantly misleading information.
- Feeling pressured to make a quick decision due to aggressive communication tactics with little to no explanation.
- Being threatened by debt collection practices directly through the lender and not through a collection agency.
