The issue of payday lending has come back under the spotlight. Max Chalmers reports.
Tens of thousands of people could be eligible to cash in on a $23 million payout after Cash Converters settled a major class action accusing the company of dodging restrictions on payday loans, a style of lending advocates say is being used to gouge vulnerable people lacking other options.
In its case against Cash Converters legal firm Maurice Blackburn had alleged some clients were charged up to 633 per cent interest on short-term loans, despite laws restricting interest to rates on payday loans to under 50 per cent.
The Federal Court this week approved a settlement over the action, which the firm says will put 35,000 people who borrowed from Cash Converters in NSW in line for part of the payout.
“The money that will be returned to our clients as a result of this case will make an extraordinary difference to their lives and wellbeing, so it’s extremely satisfying to be able to have that positive impact on people,” said Miranda Nagy, Special Counsel at Maurice Blackburn.
Kat Lane, Principal Solicitor at the Financial Rights Legal Centre, said it was common to see payday loans granted to people clearly unable to pay them back, and that it was only the most desperate consumers who turned to the high-interest loans.
She said as a caseworker, it was rare to find clients able to pay the loans back, indicating companies were not engaging in responsible lending practices and profiting off vulnerable people.
“There is so much harm, detriment, and cost with payday loans that you need special laws to protect people from them,” Lane said.
In spite of the fact the country now has national laws regulating the notorious loans, Lane said companies continue to try to find loopholes and ways around regulation.
To end the “regulatory whack-a-mole”, the Australian Securities and Investment Commission needs greater resources to investigate the industry, she said.
A recent report by the Commission found companies were targeting people on Centrelink with grossly expensive ‘consumer leases’, a financial product companies can use to skirt restrictions on payday loans.
A spokesperson for Cash Converters said the company was pleased to bring the litigation to a close without any admission of liability.
“The settlement prevents further legal costs in the litigation, avoids the application of further executive and employee resources to the case and brings an end to the uncertainty surrounding this matter,” they said.
“The lending system was used only in New South Wales during the relevant period which ended on 30 June, 2013. Since then, all Cash Converters lending has been done under the new consolidated nationwide Federal consumer lending regime established by the National Consumer Credit Protection Act.”
Unfortunately for the company it is still facing a similar action in Queensland, again being pursued by Maurice Blackburn.
The Federal government is currently running a review of small credit loans including consumer leases and payday loans, due to report by the end of the year.
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