Nearly 40,000 borrowers who used the Harmoney online lending platform over the past seven years are in for refunds.
The Commerce Commission and the company have struck a $7 million deal over unreasonable fees charged.
Harmoney started operating in 2014 and brought together willing lenders and borrowers online.
It charged an establishment fee which started as a percentage of the loan with a maximum of $1,500 and then was capped at a fixed rate of $500.
The Commission claimed the fee was covered by the Credit Contracts and Consumer Finance Act (CCCFA), and started legal action in 2016 to get a ruling on the issue.
"Following the Court of Appeal's confirmation in 2020 that Harmoney's loans are consumer credit contracts that are subject to the CCCFA, Harmoney has now admitted that the platform fees it charged were unreasonable and it will provide compensation for borrowers who took out relevant loans," Commission chair Anna Rawlings said.
She said the Commission would now seek a court ruling that Harmoney breached the consumer law, which the company has agreed not to contest.
An estimated 37,000 borrowers were overcharged on loans taken out between 26 August 2014 and 25 August 2021, and they will be contacted about refunds, which could take up to two years to complete.
Harmoney chief executive David Stevens said its business model has changed and it now lends directly to consumers using bank finance.
"Our business has now evolved and we are pleased to reach an outcome that allows us to put this matter behind us."
"The company will use its best endeavours to contact all eligible borrowers and provide details on how they may access their establishment fee rebate."
Harmoney will take a $3m charge in its financial results to be reported next week, and another $4m charge in next year's statements.
As part of the settlement it has agreed to charge no more than $165 to establish a consumer loan for the next five years.