Cash Converters faces $17 million Queensland class action lawsuit

Cash Converters has been accused of charging effective interest rates of up to 420 per cent against vulnerable borrowers in a class action filed in the Federal Court in Brisbane on Wednesday.

Maurice Blackburn Lawyers special counsel Miranda Nagy said the $17 million class action would seek to obtain refunds of all brokerage fees paid by about 23,000 Queenslanders between July 30, 2009, and June 30, 2013.

Cash Converters has been accused of charging an effective interest rate of 420 per cent.Credit: Cameron Atfield

Maurice Blackburn will allege that, when Queensland lending laws changed in 2008, Cash Converters contrived to avoid an interest rate cap by introducing brokerage fees.

"The practice was deliberate and systemic," Ms Nagy said.

Gold Coast carer Kim McKenzie is leading a $17 million class action against Cash Converters.

"It resulted in vulnerable people incurring massive additional fees and interest, in contravention of the very laws that were designed to bring down the cost of credit.

"Short-term loans are meant to be just that, short-term.

"But the reality is that excessive fees and interest can force borrowers to borrow again and again, and their debt can easily spiral out of control."

Cash Converters released a statement on Wednesday in which it said the action would be "vigorously defended".

"Since July 1, 2013, all Cash Converters lending has been undertaken in accordance with the national regulatory regime introduced by the federal fovernment.

"These proceedings attack the brokerage fee system used for customers between April 28, 2010, and June 30, 2013. The brokerage fee system has not been used since 30 June 2013."

The Queensland class action followed on from a successful class action case in New South Wales last year, which saw Cash Converters pay $23 million to settle two class actions brought by 35,700 customers.

Ms Nagy said, despite Queensland law capping interest rates at 48 per cent, Cash Converters employed a business model that charged cash-advance borrowers hefty brokerage fees to access the loans.

She said Cash Converters offered loans in other Australian states without charging brokerage fees.

"The fees amounted to over a third of the principal sought, or $35 on a $100 loan," Ms Nagy said.

"Our calculations indicate that for cash advances the effective interest rate was upwards of 420 per cent per annum."

The class action was being led by Gold Coast carer and disability pensioner Kim McKenzie, who described the loans as a "financial debt trap being set".

"I was too proud to go and ask family to help – I didn't want to let them know I needed assistance, so as a short-term solution I sought out these loans," she said.

"As it turns out, it was a terrible decision. I didn't realise what Cash Converters were doing to structure the loans in such a way that would make repayments so expensive.

"I wanted help, but instead I got trapped in a debt spiral, and now that it appears to have been done illegally, I want to hold the company to account and ensure it doesn't happen again."

Ms McKenzie, who was charged about $700 in brokerage fees across 15 loans, said such loans should be a short-term solution to help customers get out of trouble and "not set up in such a way that they almost ensure you're stuck in more trouble for longer".

"I'm always trying to do the right thing by people around me and help them out, and I think that others should also take that general approach to life," she said.

"I don't think that's occurred in relation to how these loans have been structured by Cash Converters, and that's why I think it's important to stand up and take this action, and that's largely why I've decided to represent thousands of vulnerable Queensland borrowers that find themselves in a similar position to me, via this class action.

"I am not a rich person. Every dollar counts to me and my family.

"When things have been really tight, I've needed to resort to some of these cash advance loans just to purchase everyday items to keep the household ticking over – things like getting my car fixed when it broke down, groceries, bills and the like."

Ms Nagy said there was no way individuals, such as Ms McKenzie, would be able to take on ASX-listed Cash Converters on their own, hence the Maurice Blackburn class action.

"It's an important safety net," she said.

"The class actions regime gives people an equality of arms through strength in numbers, meaning that big companies can't just win by attrition, which is something to be grateful for in cases like this."