Honor Finance Founder James Collins will face off in a hearing this week against private equity firm CIVC Partners, which sued the now-defunct lender for $25 million for alleged fraud, according to a complaint filed in Cook County Circuit Court.
Chicago-based CIVC, which acquired Honor Finance in October 2011, claims that the lender misrepresented the state of its loan portfolio. CIVC also sued Collins, who stepped down as chief executive in December 2017, eight months before the lender’s collapse. A hearing in the case against Collins is scheduled for July 25.
Honor Finance appeared to be performing well until ballooning losses sparked downgrade warnings for Honor Finance’s 2016 securitization. Kroll Bond Rating Agency downgraded the securitization in July 2018, then again this past May. The securitization was paid in full last month.
As a result of the losses, there were no buyers when CIVC attempted to sell Honor Finance, according to a May 10 court filing. When the lender officially collapsed in 2018, CIVC owned 99% of the business and had shelled out $25 million in equity investments, according to the complaint. As of August 2018, all accounts with Honor Finance were transferred to Westlake Portfolio Management.
Collins owned a used-car dealership called Chicago Auto Exchange and allegedly leveraged the dealership to sell cars financed by Honor Finance to borrowers that couldn’t afford to purchase the vehicles, according to the lawsuit. Borrowers who purchased vehicles from Collins’ dealership had “unusually and atypically large and frequent losses,” the complaint noted.
A hearing in the Honor Finance lawsuit is scheduled for Aug. 5.