Payday lender Cash Converters has confirmed that it received a letters from law firm Maurice Blackburn this week, outlining a claim that a fee it charged on a loan was unlawful. The company said it would defend its position.The claim asserted that a deferred establishment fee charged on loans made by the Cash Converters chain in New South Wales was not lawful.In a media release issued yesterday, Maurice Blackburn said that despite an interest rate cap of 48 per cent on consumer credit in New South Wales, Cash Converters' customers paid interest of as much as 633 per cent.In its statement yesterday, Cash Converters said the fee was charged until June 30 this year and no longer applies under a legislative regime that commenced on July 1.Under the new rules, payday lenders must limit their interest rates and charges, with a cap applying to finance contracts worth up to $2000 that run for less than two years. There is a limit of 20 per cent on any upfront charge and a limit of four per cent on monthly charges.

Lenders will not be allowed to refinance small-amount contracts. The aim is to stop debt rolling over and compounding.

For larger loans, a credit provider is prohibited from entering into a contract where the annual "cost rate" exceeds 48 per cent.Cash Converters said: "The company is confident that the fees have been properly levied and are completely lawful, In fact, included in the new legislation was a provision specifically addressing deferred establishment fees, which provision would not have been necessary if they were already unlawful under the receding legislation."In the opinion of the company the action is based on a flawed proposition and will be defended."