Customers Lose Millions in Loan Churning Scheme
Consumer Bureau fines installment lending conglomerate
While a short-term, installment loan can be a financial lifeline for people with challenged credit who need a cashflow bridge, these types of loans can also come with risks.
Yes, an installment loan at an interest rate in the low double digits is better than a payday loan. But some lenders in this space take advantage of borrowers they know are likely to have trouble repaying their debt.
One lending conglomerate, operating under names like Covington Credit, Southern Finance, and Quick Credit, was caught illegally churning loans (repeatedly refinancing) in order to capture more fees and keep their customers in a cycle of debt.
“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 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.
10,000 customers were in a debt trap that lasted seven years.
Back in the Saddle: Wells Fargo Fined for Malfeasance - AGAIN!
Just another day at the office for Wells Fargo. The giant is one of America’s five largest banks. It’s also frequently on the wrong side of settlements and fines for wrongdoing.
Now, the company is paying a $35 million settlement for illegally charging fees to clients.
The SEC said it charged Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC for overcharging more than 10,900 investment advisory accounts more than $26.8 million in advisory fees.
