Real Finance is to pay out $1.36 million to 515 customers it overcharged after reaching a settlement agreement with the Commerce Commission.

The commission opened an investigation into the Wellington-based consumer lender in 2018 after receiving a request from the District Court to intervene in an application by Real Finance for a summary judgment against a borrower.

The commission then filed civil proceedings against Real Finance in 2019 alleging it had charged borrowers unreasonable fees.

In a statement today the commission said Real Finance had admitted to entering into consumer credit contracts with borrowers between April 2013 and March 2020 that breached the Credit Contracts and Consumer Finance Act (CCCFA) because the fees charged exceeded reasonable costs incurred by the company.

Commission chairwoman Anna Rawlings said when people borrowed money to buy goods on credit, the credit and default fees they were charged were not intended to be used to cover general business expenses or to make a profit.

"This case will help lenders to set fees in a way that is consistent with their obligations under credit law. It also shows that regularly reviewing your fees is not sufficient on its own. Lenders also need to act on the findings of any review."

While Real Finance did undertake annual fee reviews it did not take any action to stop the profits being generated by the fees, Rawlings said.

"If lenders find their fees are unreasonable, then the fees must be reduced. If borrowers are overcharged, the commission's expectation is that a lender will provide a refund to affected borrowers."

The commission hired KPMG to calculate reasonable costs and found the base establishment, administration and default fees charged by Real Finance included expenditure that did not closely relate to the matter for which the fees were charged.

In April 2022, the High Court granted declarations sought by the commission, unopposed by Real Finance, that Real Finance had contravened its obligations under the CCCFA by charging unreasonable fees.

The commission said Real Finance would be contacting affected borrowers as part of the settlement and had agreed to set up a page on its website with information on the refunds owed to affected borrowers.

In a statement on its website, Real Finance said it had updated its fee-setting practices to ensure that future fees were reasonable.

"Real Finance sincerely apologises for the inconvenience arising as a result of your loan account receiving partially unreasonable fee charges."

Real Finance is owned by David Ure and Rodney Varga, according to Companies Office records.

The Herald has contacted the company's managing director for comment.