Australia’s largest ‘pay day loan’ company has caved on the first day of a class action lawsuit, coughing up a $16.4 million settlement to settle one part of a case brought by nearly 30,000 Queenslanders, some of whom were illegally charged interest rates that topped 600 per cent per annum.
The maximum annual interest chargeable under Queensland law is 48 per cent per annum.
It’s the third time in as many years Maurice Blackburn Lawyers has led a class action against Cash Converters. The ASX-listed company – worth almost $200 million with more than 700 franchises around the world – was successfully sued for $23 million in two separate suits on behalf of 37,000 NSW customers in 2015.
Maurice Blackburn is alleging that, once again, Cash Converters acted “unconscionably and unlawfully” in imposing astronomical interest rates on short term loans on Queensland borrowers.
Queensland Cash Converters customers who took out one-month loans – sometimes known as ‘pay day’ or ‘cash advance’ loans – were also charged a ‘brokerage fee’, a move which effectively pushed the interest rate to more than 600 per cent per annum.
This morning, in the Federal Court in front of Justice Jacqueline Gleeson, John Sheahan QC representing Cash Converters told the court part of the trial need not proceed after his clients successfully negotiated the $16.4 million settlement.
The payout is “without admission of liability” by Cash Converters.
But Cash Converters is far from out of the woods. The ‘brokerage fee’ is also central to the remaining part of Maurice Blackburn’s lawsuit, which alleges that Cash Converters’ brokerage fees on Personal Loans (longer term, higher value loans) also breached Queensland credit laws by effectively charging borrowers interest rates of more than 175 per cent per annum.
Personal loans brokered by Cash Converters were significantly larger than cash advance loans, with sums of between $600 and $2,000 borrowed for a loan term of six months.
Legislation introduced in Queensland in 2008 capped the maximum interest chargeable to a borrower at 48 per cent per annum, inclusive of credit fees and charges. The case to be put on behalf of Queensland borrowers is that Cash Converters’ “brokerage” fee, which was introduced to coincide with the new laws, was merely a mechanism to beat the new laws.
Principal Lawyer at Maurice Blackburn, Miranda Nagy, who also ran the two previous class actions against Cash Converters for similar breaches in NSW, said the case was the perfect illustration of how the ‘class action framework’ was able to provide the most disadvantaged people in the community access to justice.
“Class actions such as this give a voice to the voiceless, they help enforce lending laws which are intended to protect consumers and they help everyday people hold big business to account,” Ms Nagy said.
“This is a large group of people, who borrowed very small amounts of money, for very short periods, at high interest rates.
“None of them could hope to have run this case to see justice served, without an effective class actions regime.
“We are really pleased with this result, but are focused on winning the rest of our case and obtaining justice for an even bigger group of people who took out Cash Converters’ Personal Loans.”
The trial before Justice Gleeson continues, and is scheduled to run for three weeks.
In the meantime, here’s a graph showing Cash Converter’s performance on the Australian Stock Exchange.
That massive dive in market value you can see in February 2015 coincides with the 2015 settlement of the last class action, and a government inquiry into pay day loans.
The Perth-based company has never recovered from the crash, despite reporting profits in 2017 of more than $20 million.
Last week, the federal Senate also announced a new inquiry into ‘pay day loan’ companies, resulting in another 12 per cent overnight drop in Cash Converters’ share price.