Payday lender Moola which charges interest rates of over 500 per cent per annum is facing legal action over its lending practices.

The Commerce Commission is taking Fintech Limited which trades as Moola to the High Court and has alleged the company breached responsible lending practices under the Credit Contracts and Consumer Finance Act 2003.

Moola offers short term loans of up to $5000 via its websites moola.co.nz and needcashtoday.co.nz.

The proceedings relate to the lender's conduct between June 2015 and November 2017 - a time during which Moola offered short-term loans with rates between 182.5 per cent and 547.5 per cent.

The commission alleges Moola failed to exercise the care, diligence and skill of a responsible lender as it failed to make inquiries to be satisfied with the borrowers' requirements and objectives, didn't find out if borrowers had the ability to repay the money without substantial hardship and didn't exercise care and diligence in text and email advertising.

It also alleges the company failed to treat borrowers reasonably and ethically when breaches of loan arrangements occurred, failed to ensure loan agreements were not oppressive, including interest rates, and failed to ensure it did not induce borrowers to enter into agreements by oppressive means.

The commission's investigation was prompted by a referral from a Christchurch budgeting advice service.

The commission is seeking borrowing cost refunds to 50 people and declarations that Moola's conduct breached the Act as well as a provision to stop Moola from new lending without taking steps to ensure it has met legal obligations.

The commission would not make further comments as it was now before the court.

The law changed in 2015 which meant lenders were required to comply with responsible lending principles.

These principles specify that lenders must make reasonable inquiries, before entering the agreement, to be satisfied it is likely the borrower will make repayments without suffering substantial hardship.

A responsible lending code was also set up by the industry to help provide guidance on how lending and comply with the principles.

The code is not legally binding but if lenders comply with it that will be treated as evidence they complied with the principles.

Companies office records show Moola.co.nz Ltd is jointly owned by Taurus Investments and EJ Recordon Holdings and its directors are Steve Brooks and Edward Recordon.

Brooks garnered public attention earlier this year for taking out a newspaper advertisement trumpeting outgoing Air New Zealand chief executive as the next leader of the National Party.

The Herald has requested comment from Moola.