Thousands of Australians who were charged up to 633 per cent interest on loans from Cash Converters will be eligible for partial refunds after two class action lawsuits were settled out of court.
The company, which is Australia’s biggest payday lender, reached an in-principle $23 million settlement with legal firm Maurice Blackburn, which was acting for 37,500 of the company’s past clients.
Maurice Blackburn had argued Cash Converters avoided a 48 per cent interest rate cap for loans in NSW by having borrowers sign a document that imposed hefty “deferred establishment fees” if loans were not repaid early.
“Cash Converters used a method where people were asked to sign a number of documents including an early repayment election,” Maurice Blackburn NSW managing principal Ben Slade said.
“For cash loans it was 633 per cent, and for personal loans 145 per cent.”
Mr Slade said borrowers would be repaid the deferred establishment fees plus interest if the settlement was approved by the Federal Court.
The class action claims were launched in October 2013, and refunds would be made available to anyone who took out a Cash Converters loan from June 2010 to July 2013.
“These class actions have been running now for a number of years,” Mr Slade said.
“They’ve been hard-fought.
“But we’ve finally reached a settlement which will benefit all the group.”
Company ‘preyed on vulnerable people’
One of the complainants, Julie Gray, said she found herself in “spiralling debt” after taking out a series of $600 loans.
She said she believed the company preyed on vulnerable people.
“You go in and you get one loan, and then different things pop up – you might need new tyres for the car or a washing machine, medicines,” she said.
“You go back and you get another one [and] by the time you pay it off, especially being on a disability pension, you’re just chasing nothing.
“It can get very depressing. I know I was depressed. And I felt ashamed.
“I will never, ever go back to any money day lending.”
No admission of liability by Cash Converters
The settlement agreement does not represent an admission of liability by Cash Converters.
Mr Slade said there was no evidence Cash Converters had behaved improperly after the law changed in July 2013.
“There’s a lot of disquiet about payday lenders,” he said.
“There should be disquiet.
“There are a number of strategies used by payday lenders to profit in spite of constraints in consumer protection legislation and the Government should take a very careful look at what the payday lending industry is doing.”
After the announcement, shares in Cash Converters rose 2.2 per cent.
In a statement to the Australian Stock Exchange, the company said it would pay $20 million into a fund for the repayments and legal costs would be capped at $3 million.