In a recent development, the Consumer Financial Protection Bureau (CFPB) has brought a lawsuit against an installment lender, Heights Finance Holding Company, formerly known as Southern Management Corporation, and several of its subsidiaries, collectively referred to as “Southern Management”. The lawsuit has been filed on account of alleged violations of the Consumer Financial Protection Act. Details surrounding this lawsuit are still unfolding, and a formal statement from the defendants is yet to be released.
The CFPB’s lawsuit accuses Southern Management of engaging in activities such as “loan-churning” and “fee-harvesting”. These practices, often criticized by consumer advocacy groups, involve making new loans to borrowers who are unable to repay their existing loans, and loading these new loans with excessive fees.
To further elucidate, ‘loan-churning’ refers to the practice of repeatedly refinancing loans, often leading to increased interest rates and loan terms for the borrower. By using this method, lenders receive greater profit in the form of processing fees collected during refinancing. On the other hand, ‘fee-harvesting’ is a practice where the lender imposes a significant number of fees on the borrower, often surpassing the loan’s principal amount.
The CFPB’s allegations indicate that such practices could possibly be prevalent within Southern Management. These concerns become more palpable as larger issues of ethical borrowing and lending practices within the corporate sector. It is crucial to watch how this legal development unfolds, and what implications it holds for similar corporations vis-à-vis compliance with the Consumer Financial Protection Act.
For further insight into the lawsuit and a more detailed understanding of the allegations brought forth by the CFPB, you can refer to this article.