UPDATE 1-Dollar Financial to pay C$27.5 mln to settle lawsuit

* Co expects to settle lawsuit with NMMC customers

* Says will pay C$27.5 mln over next two years

June 9 (Reuters) - Payday lender Dollar Financial Corp (DLLR.O) said it will pay C$27.5 million ($24.75 million) to certain customers of its Canadian unit over the next two years as part of an expected settlement of a class action lawsuit.

The lawsuit claimed that the business model used by National Money Mart Co (NMMC), the company's Canadian unit, resulted in collection of fees in excess of the statutory limit for the payday loans made since 1997 to a group of NMMC's customers.

"While we admit no wrong doing... this settlement will allow us to avoid the continuing substantial litigation expense that would be expected, as well as the significant drain on management resources being devoted in defense of this claim," Chief Executive Jeff Weiss said in a statement.

The government of Ontario is expected to implement balanced regulation in 2009, the company said.

As part of the expected settlement, NMMC will release about C$43 million of defaulted indebtedness of class members that has built up since 1997, and which is still outstanding as of the date the settlement is approved by the court, the company said.

Shares of the Berwyn, Pennsylvania-based company closed at $12.94 Tuesday on Nasdaq.

($1=1.111 Canadian Dollar) (Reporting by Sweta Singh in Bangalore; Editing by Deepak Kannan)