Cash Converters faces $40m class action over fees

Short-term lender Cash Converters faces a $40 million class action that it forced customers to pay loan charges that exceed a legal cap on interest rates.

Law firm Maurice Blackburn is set to initiate a class action in the Federal Court alleging thousands of customers were caught out by the high charges.

The firm alleged Cash Converters borrowers paid interest rates to the equivalent of 633 per cent on some loans, despite laws in NSW capping rates at 48 per cent. The cap also applies in Victoria and Queensland.

The company did not comment on the claim, but said its loan products complied with all state laws.

Maurice Blackburn NSW managing principal Ben Slade said the firm would initiate two class actions, seeking about $40 million compensation on behalf of 50,000 customers. The action only applies to NSW customers.

Last month Cash Converters posted a 12 per cent lift in full-year profit to $32.9 million. Earnings from personal loans represent the largest proportion of its business.

"Those doing it toughest, living hand to mouth, have been hung out to dry by Cash Converters," Mr Slade said.

Also known as a short-term lender, financiers such as Cash Converters typically provide loans of between $200 and $2000 that must be repaid within a short period of time, such as by the borrower's next payday.