Internet-based lender Rapid Loans NZ will refund $1.4 million in unreasonable fees it charged borrowers, in a settlement with the Commerce Commission.

An investigation by the watchdog found that Rapid Loans had charged unreasonable establishment, monthly administration or default fees on more than 6000 loans between July 2013 and June 2015.

The company will now either credit existing loans of affected borrowers or refund those who have already paid their loans off, with the total amount to be paid including an added 5 per cent to reflect the borrowers' lost opportunity to use the money.

"Lenders need to make sure that their credit fees are reasonable as required by the Credit Contracts and Consumer Finance Act," commissioner Anna Rawlings said.


"Credit fees should only cover costs that are closely related to the particular loan transaction, as was reinforced in the Supreme Court last year," she said.

"The fees were more than Rapid Loans actual reasonable costs in setting up a loan, administering it or in dealing with a borrowers' default."

The commisson's investigation was triggered by a complaint from a budget advisor concerned about the high fees being applied, Rawlings said.

While that complaint was only related to one loan contract, the company's conduct affected a large number of borrowers who would not have been in a position to take their own action, she said.