A $40 million class action has been launched against lender Cash Converters over short-term loans to thousands of customers.
Law firm Maurice Blackburn lodged the paperwork for two law-suits against Cash Converters in the Federal Court today.
Maurice Blackburn says the actions relate to short-term loans provided by Cash Converters for sums between $200 and $2,000 with interest repayments as high as 633 per cent.
The firm says the high rates were charged despite laws passed in New South Wales to put a cap on interest at 48 per cent.
Maurice Blackburn lawyer Mirana Nagi says there are about 50,000 NSW customers who have been hit by the exorbitant rates.
"People who need a little bit to get by to the next pay cheque," Ms Nagi said.
"Our lead applicant Julie Gray is a disability pensioner and a grandmother from western Sydney. She had 21 of these short-term, one month loans in a two year period. She got herself really stuck in a cycle of debt."
Ms Gray says she was caught in a debt trap until she sought help.
"It's just really hard and I didn't realise a lot of stuff until I saw the financial counsellor," she said.
Ms Nagi says Cash Converters tried to avoid the NSW interest rate cap by having borrowers sign a separate document that committed them to repaying their loans early and incurring huge additional fees.
Maurice Blackburn is seeking to have those charges repaid to customers.
Cash Converters operates about 150 stores in Australia, but the class action only relates the customers of its 19 outlets in NSW.
The company was founded in Perth in 1984, but now boasts on its website of more than 700 stores in 21 countries around the world, including the United Kingdom, France, the United States and South Africa.
Maurice Blackburn says that any NSW customers of Cash Converters who held a short-term loan between July 2010 and July this year will be automatically included in the class action.
Cash Converters says it will defend itself against the allegations vigorously.