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CFPB sues Greenville-based installment lender over alleged 'loan-churning' practices

The Consumer Finance Protection Bureau (CFPB) has filed a lawsuit against Greenville-based Heights Finance Holding Co. and several of its subsidiaries, alleging that illegal lending practices have held thousands of customers in 11 states in revolving debt.

CFPB filed the suit in federal District Court in Greenville Tuesday. The bureau accuses the company, also and formerly known as Southern Management Corp., of rampant loan-churning. Loan-churning is a practice by which a lender makes loans it knows a customer cannot pay back and then offers additional loans with additional fees as a method to pay down the debt.

“Southern makes high-cost installment loans to borrowers in persistent financial distress,” the suit states. “Southern’s borrowers typically have low incomes, impaired credit, and few, if any, alternative loan options. And when they turn to Southern for a short-term loan, Southern frequently snares them in a multi-year cycle of debt from which they have no reasonable escape.”

CFPB claims that roughly 70% of the company’s $250 million annual lending is generated through repeated refinancing with the company.

“Between 2013 and 2020, Southern held nearly 10,000 consumers in continuous, uninterrupted debt, despite predominantly offering loans of just a few months in length,” the bureau wrote in a press statement. “Nearly 10 percent of Southern’s borrowers refinance their loans with the company a dozen times or more. While these borrowers make up just under 10 percent of Southern’s total borrower population, their refinances generate 40 percent of the company’s net revenue.”

The bureau also accuses Southern/Heights of employing “an array of coercive practices to drive delinquent borrowers into fee-laden refinancing cycles,” of incentivizing employees to push refinancing, targeting customers most likely to refinance already burdensome loans, and falsely marketing refinances as fresh starts.

“What Southern sold as a financial lifeline,” said CFPB Director Rohit Chopra in a statement, “was, in reality, pushing customers into financial quicksand.”

Representatives from Heights Finance did not immediately return calls for comment. This story will be update if the company responds.

Scott Morgan is the Upstate multimedia reporter for South Carolina Public Radio, based in Rock Hill. He cut his teeth as a newspaper reporter and editor in New Jersey before finding a home in public radio in Texas. Scott joined South Carolina Public Radio in March of 2019. His work has appeared in numerous national and regional publications as well as on NPR and MSNBC. He's won numerous state, regional, and national awards for his work including a national Edward R. Murrow.