Cash Converters has settled a class action, launched by 23,000 Queensland borrowers, for $16.4 million and without admitting fault.
The payout includes a maximum of $5.8 million in legal costs, and an estimated $50,000 cost for the “verification of customer data”.
It was alleged that the company effectively charged more than 400 per cent interest (per year) for short-term loans between April 2010 and June 2013.
This was despite the fact that Queensland had changed its laws in 2008, imposing a cap of 48 per cent (annually) for consumer credit loans.
Maurice Blackburn, the lawyers representing the borrowers, claimed that Cash Converters tried to circumvent the law by charging excessive brokerage fees.
The plaintiff law firm commenced the $17 million lawsuit two years ago in the Federal Court on behalf of lead plaintiff Kim McKenzie, a carer and disability pensioner.
“This settlement will be funded from existing resources,” Cash Converters said in a statement on Monday.
“The total cost will be expensed in the current financial year and is deductible for tax purposes.”
The next step to finalise the settlement is for both parties to obtain approval from the court.
Back in 2015, the company settled another class action for $23 million arising out of its questionable lending practices.
In that case, thousands of borrowers from New South Wales alleged they were charged interest rates of up to 633 per cent on loans.
Cash Converters stocks surged 9.4 per cent to 29 cents at 12pm (AEDT), after confirming its latest settlement in a statement today.
But its share price remains near historic lows, having fallen 80 per cent since its record high of $1.45 (in mid-2013).
Second lawsuit to be contested
While Cash Converters has settled yet another case, it has decided to defend another one “vigorously”.
The second case is listed for hearing today in the Federal Court and was also initiated by Maurice Blackburn on behalf of 30,000 Queenslanders including lead plaintiff Sean Lynch, a disability pensioner who took out three loans with the company.
The substance of the second case is similar, relating to breaches of Queensland consumer credit law, hefty brokerage fees and vulnerable borrowers who ended up in “debt spirals”.
Maurice Blackburn estimated that, if its case succeeded, Cash Converters would be up for $30 million in compensation.