The Consumer Financial Protection Bureau Tuesday sued a subsidiary of fintech lender Curo Group Holdings Corp. on Tuesday for allegedly pushing its struggling customers to refinance in a scheme to gather millions in costs and fees.
The lawsuit filed in the U.S. district court of South Carolina, Greenville division, alleges that Heights Finance Holding Company, formerly known as Southern Management Corporation, violated laws against unfair lending practices by identifying borrowers who are struggling to repay their loans and subject them to repeated refinancing, thereby entangling them in a continuous debt cycle.
“The CFPB is suing the Southern lending conglomerate for illegally churning loans and harvesting fees from their customers,” CFPB Director Rohit Chopra said in a statement. “What Southern sold as a financial lifeline was, in reality, pushing customers into financial quicksand.”
Between 2013 and 2020, Heights had roughly 10,000 consumers in continuous and uninterrupted debt, the agency said.
More than 70% of the roughly $250 million in loans that Heights makes annually are refinanced loans with the company. The nonbank lender’s approximately 10% of borrowers refinance their loans with the company at least a dozen times, according to the bureau. Though these borrowers comprise just below 10% of Height’s total borrower population, their refinances help to generate 40% of the company’s net revenue.
The CFPB requested the court to issue an order barring the company from violating the law, award relief to the consumers as the court finds necessary, and impose a civil money penalty against the defendants.
Meanwhile, Curo issued a statement Tuesday, claiming that the CFPB complaint refers to certain small loans that originated by Heights Finance’s subsidiaries before 2021.
“The Company provides its customers with compliant and valuable access to credit. CURO denies the allegations and will vigorously defend its business practices,” the company said.
Curo added that small loans represented less than 15% of the company’s direct lending portfolio as of June 30, 2023.
Heights, a nonbank “high-cost” installment lender operating primarily in Greenville, is wholly owned by Curo Group Holdings Corp. It manages over 250 brick-and-mortar storefronts in Texas, Oklahoma, Alabama, Georgia, Tennessee, and South Carolina, according to the agency.
Curo, which operates in the U.S. and Canada, reported a total revenue of $209.2 million at the end of the second quarter 2023. It acquired Heights in late 2021 for $360 million from private equity firm Milestone Partners, according to Reuters.
Heights’ customers are either older Americans living on fixed incomes or single-parent wage earners with low or fixed incomes. The bureau noted that the company’s borrower typically earns less than $25,000 annually.
The CFPB alleged that Curo harms consumers by coercive tactics “to drive delinquent borrowers into fee-laden refinancing cycles.” It also decreases the amount borrowers can cash out while increasing their total borrowing with each successive refinance.
“Southern markets refinances as solutions, fresh starts, and best options for customers struggling to repay. However, for many of these customers, refinancing serves only to prolong indebtedness, to increase total borrowing costs, and to offer no long-term solution to financial distress,” the CFPB also highlighted.
Using excerpts from the emails of supervisors, the bureau highlighted that the company gave only two options to the delinquent borrowers — refinance or pay past due balances immediately.
“Team look at the accounts that are begging for help. They are past due and are screaming they don’t have the money to pay you so get to work selling them the benefits, if they don’t want to refi then ask for your money don’t give an extra week or two don’t let it be their option!” according to one such email from a supervisor as quoted in the complaint.