Fee-harvesting,’ ‘loan-churn scheming’ non-bank firm is sued for unfair, abusive practices

Describing the actions of an installment lender as “fee harvesting” and a “loan-churning scheme,” the federal consumer financial protection action has filed a lawsuit against the firm for unfair and abusive practices, it said Tuesday.

However, the Consumer Financial Protection Bureau (CFPB), in announcing the lawsuit through a release, did not describe the specific relief or action it was seeking against Heights Finance Holding Co. (formerly known as Southern Management Corp.). The complaint, however, asks the court to, among other things, permanently enjoin the firm from committing future violations of the Consumer Financial Protection Act (CFPA) of 2010, award redress to consumers and impose a civil money penalty against the firm.

The bureau asserts that the firm identifies borrowers who are struggling to repay their existing loans, then aggressively pushes them to refinance.

“Borrowers become trapped in the loan churning scheme and often are forced to refinance multiple times,” the agency said. “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.”

According to the agency, Southern, of Greenville, S.C., is a high-cost, non-bank installment lender operating more than 250 brick-and-mortar storefronts in Texas, Oklahoma, Alabama, Georgia, Tennessee, and South Carolina under a variety of trade names, including Covington Credit, Southern Finance, Quick Credit, and Heights Finance.

“The Bureau alleges that Southern employs numerous harmful underwriting, sales, and servicing practices for their refinanced loans that are designed to churn delinquent borrowers into continuous fee-laden debt; these fee-laden refinances erode the borrowers’ available credit and increase their total cost of borrowing with each successive refinance,” the CFPB said.

The agency also alleged that Southern has generated “hundreds of millions in loan costs and fees and that it derives 40% of its net revenue through this process of ‘churning’ borrowers in repeated, fee-laden refinances.”

Additionally, the agency claims that Southern’s loan-churning practices violate the CFPA because the actions are unfair. The CFPB said they are abusive because they take “unreasonable advantage of borrowers’ lack of understanding of the material risks, costs, or conditions of a refinanced Southern loan; and they are abusive because they take unreasonable advantage of payment-stressed borrowers’ inability to protect their interests in the selection or use of a refinanced loan.”

CFPB Sues Installment Lending Conglomerate for Illegally Churning Loans to Harvest Hundreds of Millions in Loan Costs and Fees