Companies involved include Covington Credit, Southern Finance, and Quick Credit
An installment lending conglomerate operating under the umbrella of Southern Management Corporation is being sued by the Consumer Financial Protection Bureau (CFPB) for an illegal loan churning scheme that netted the company hundreds of millions of dollars of revenue while keep thousands of customers in an endless debt cycle.
“The CFPB is suing the Southern lending conglomerate for illegally churning loans and harvesting fees from their customers,” said CFPB Director Rohit Chopra. “What Southern sold as a financial lifeline was, in reality, pushing customers into financial quicksand.”
The CFPB alleges that the company – which operates under a variety of trade names, including Covington Credit, Southern Finance, and Quick Credit – identifies borrowers who are struggling to repay their existing loans, and then aggressively pushes them to refinance. Borrowers become trapped in the loan churning scheme and often are forced to refinance multiple times.
The scope of the loan churning is noted in the significant amount of revenue the conglomerate generates through refinancing. Refinanced loans comprise the bulk of Southern’s loan origination volume every year. More than 70 percent of the roughly $250 million in loans that Southern makes each year are refinanced loans with the company. In fact, 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.
More specifically, Southern has built a healthy profit center on the backs of borrowers trapped in a seemingly endless debt cycle. The CFPB notes:
"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 CFPB is seeking a civil money penalty that would include payment to consumers trapped in illegal loans.