Cash Converters pays $23m to settle class action

Payday lender Cash Converters has agreed to pay $23 million to settle two class actions brought by 37,500 customers who argued they were overcharged when the ASX-listed company circumvented interest rate caps.

"I am very happy with the outcome," said a former client of Cash Converters, Julie Gray, a pensioner from Cambridge Park who served as lead plaintiff in the case. She spun into a debt spiral after taking out a series of $600 loans from Cash Converters several years ago.

Cash Converters plans to expand its store network in Australia.

Ms Gray argued Cash Converters forced her into a shorter loan repayment period of seven months after she signed an early repayment election she did not understand, and that Cash Converters also introduced a "deferred establishment fee" which fell outside the statutory interest rate cap at the time of 48 per cent.

The fee pushed the annual interest rate to 633 per cent on one-month cash advance loans and 145 per cent on seven-month loans.

Pensioner Julie Gray was the lead plaintiff in the action against Cash Converters.

The case was due to go to court next month. Cash Converters confirmed the settlement, which is without admission of liability and includes $3 million of legal fees, in a statement to the Australian Securities Exchange on Thursday.

Maurice Blackburn said clients who had loans from Cash Converters between June 2010 and July 2013 can now get refunds of the full amount of their deferred establishment fees plus interest.

Cash Converters now operates under a new national, legislative regime introduced in 2013 which tightened caps.

The government is due to review the payday lending legislation later this year and, in March, the Australian Securities and Investments Commission highlighted widespread non-compliance with the law. The share prices of Cash Converters and Money3, the two largest payday lenders in the country, have fallen sharply since then.

Ben Slade, NSW managing principal at Maurice Blackburn, said: "There is a lot of disquiet about payday lenders. There should be disquiet. There are a number of strategies being used by payday lenders to profit in spite of constraints in consumer protection legislation and the government should take a careful look about what the payday lending sector is doing."

However, he added law firm had no evidence of Cash Converters behaving in an improper manner at present.

A spokesman for Cash Converters told Fairfax Media: "We are really diligent with how we operate within the legislation and always have been. We fully support the government review and working within the legislative framework. We feel we have dotted all the i s and crossed all the t s ."

She added the company was not aware of any major changes being proposed by the review.

She also said the company no longer charges "deferred establishment fees".

Cash Converters shares resumed trading on Thursday morning and were trading up 4.4 per cent at 71¢ at 1:20pm AEST.

Ms Gray said that, based on her experience, borrowers who continue to use payday lenders "are very silly, and I would advise them not to do it. It can get very depressing, I know I felt depressed and ashamed.There are other avenues you can take that I wasn't aware of but I am now and that is the reason I would never go back".