Cash Converters agree to $23 million payout
Australia's largest payday lender, Cash Converters, is to refund A$20 million in interest and fees to thousands of borrowers after agreeing to settle a class action out of court. A further $3 million is to be set aside for legal costs.
Details emerged when the class action firm Maurice Blackburn Lawyers, acting on behalf of around 37,500 New South Wales customers of Cash Converters, announced yesterday it had "secured" a $23 million in-principle settlement.
Central to the court action was the clear mathematical proof that borrowers had been charged an annualised interest rate of up to 633 per cent on short-term loans, far more than the 48 per cent allowed under NSW consumer finance laws in operation at the time.
In more detail, one major allegation was that Cash Converters had created a process to avoid the 48 per cent interest rate cap in NSW by having borrowers sign a separate document that committed them to repaying their loans early, thereby incurring a hefty "deferred establishment fee". This fee was based on a flat 35 per cent of the total amount borrowed, in addition to interest payments.
This fee, when added into the calculation of an annual interest rate, pushed the actual return on loans to Cash Converters from a rate of 48 per cent to as much as 633 per cent for one-month cash advance loans and up to 145 per cent for seven-month loans.
Nevertheless, the ASX-listed Cash Converters has steadfastly refused to admit liability - and normally acceptance of this position would be one of the conditions needed to bring the firm, Australia largest payday lender, to the negotiating table.
Ben Slade, NSW managing principal of Maurice Blackburn Lawyers, conceded that the settlement is subject to approval by the Federal Court and is without admission of liability by Cash Converters, but countered that it was "an excellent outcome for thousands of people who are doing it tough."
"We expect that Cash Converters' borrowers in NSW will receive a full refund of the overpayment, plus interest," he said.
Miranda Nagy, special counsel at Maurice Blackburn, said the case was a prime example of how class actions could help the most vulnerable get real access to justice.
"None of these people, on their own, could have taken on Cash Converters. It is because we have an efficient and effective class actions regime that they are able to join forces and stand up to large organisations to change corporate behaviour for the better," Nagy said.
She added that none of the borrowers who were part of the settlement were told that the original term of their loan was 24 months; nor were they told the effective rate for repaying early was far more than 48 per cent.
This settlement will include everyone in NSW who took out a Cash Converters short-term loan from July 2010 until the consumer lending laws changed in July 2013.
The cases were to go to trial in early July, with Cambridge Park pensioner and grandmother Julie Gray as the lead plaintiff.
No mention of the settlement had been made on the Cash Converters Australian website by the publication deadline for this report, although the companydid make a statement to the ASX, emphasising that it was pleased to reach a settlement without admission of liability, and "avoid the application of further executive and employee resources to the case."