Cash Converters facing new class action over payday loans in Queensland
Tony Moore -Jul 30, 2015
Maurice Blackburn lawyers are alleging Cash Converters forced vulnerable clients in Queensland to pay brokerage fees on top of loan repayments.
Australia's largest payday lender Cash Converters is facing a new class action in Queensland, a month after the company settled similar claims with a $23 million payment .
The latest class action is trying to recover around $30 million in broker fees paid on 30,000 payday loans of around $600 to clients in Queensland.
Maurice Blackburn Lawyers in Brisbane have on Thursday filed papers against Cash Converters, alleging the company forced vulnerable clients to pay brokerage fees on top of their loan repayments.
The firm will allege some borrowers were forced into paying interest rates of 160 per cent on short-term loans, against Queensland government legislation.
Maurice Blackburn's special counsel Miranda Nagy said that under Queensland law, interest rates are capped at 48 per cent on payday loans.
Payday loans range from $600 to $2000 and are usually taken out over four weeks to six months
Ms Nagy told journalists the class action will allege that Cash Converters locked borrowers into paying brokerage fees that meant borrowers paid effective interest rates of 160 per cent on their loans.
"Many of them that we have spoken to have told us that they ended up in a debt spiral," Ms Nagy said.
"They needed to get loan after loan after loan to repay the previous ones."
She said Cash Converters introduced a new business model after Queensland legislation in 2008 capped interest on short-term loans at 48 per cent.
"In response to these legislative changes, Cash Converters introduced a new business model by which - in order to get access to credit - Queensland borrowers were forced to appoint a broker and were forced to pay quite substantial brokerage charges," Ms Nagy said.
"For example on a $600 loan, the brokerage charge would be $210."
The brokerage charge was always 35 per cent of the sum borrowed, she said.
"The effect of these fees was that
the real interest rate on these loans was over 160 per per annum," she said.
Ms Nagy said brokers that borrowers were forced to use were always "a Cash Converters franchisee, or a Cash Converters-related company."
"We say - in the class action - that the brokerage service was essentially illusory," she said.
"But even if it was real, the brokerage fee did need to be taken into account in calculating the real interest rate."
The class action covers all Cash Converters loans from July 30, 2009 until June 30, 2013 and includes loans taken out online.
'I was left with huge fees'
Sean Lynch, a disability pensioner from Durack, borrowed $600 on three occasions from two Cash Converters stores at Goodna and Inala between 2010 and 2012.
"I went to Cash Converters because like a lot of others doing it tough, I needed some help," Mr Lynch told reporters.
"Instead of finding help, I found I was left with huge fees that I couldn't recover," he said.
"That meant I ended up having to borrow a lot more just to cover my fees."
Mr Lynch said he began the class action to help others "in the same boat."
"I also hope that Cash Converters starts treating vulnerable people like me a lot better."
Blackburn Lawyers have taken similar action in New South Wales.
The new claim comes a month after the company agreed to pay $23 million to settle two class actions brought by 37,500 customers who also argued they were overcharged when the company circumvented interest rate caps.'
Clients who had loans from Cash Converters between June 2010 and July 2013 had secured refunds of the full amount of their deferred establishment fees plus interest.
Comment on the class action is being sought from Cash Converters, which placed its shares into a trading halt.
In March, the Australian Securities and Investment Commission warned payday lenders Cash Converters and Money3 to lift their game.
In a 44-page report, ASIC found "the record keeping with lenders in the review was inconsistent and incomplete."Source: m.smh.com.au
Category: Payday loans