Moola is sending a clear message to Government about the harms of payday lenders, a financial expert says.
The Commerce Commission is taking loan provider Moola to the High Court following accusations that it's failing to treat borrowers responsibly and ethically.
The breaches occurred between 2015 and 2017 – allegations which Moola denies.
FinCap chief executive Tim Barnett said the charity is "really pleased" with the Commerce Commission’s decision.
"I think the fact it's taken four years from the initial complaint until it actually reaches this stage shows how the system's not working like it should, but really happy that the move's been taken,” he told TVNZ1's Breakfast.
"What the Commerce Commission is doing, we feel, is to really test law which has really needed testing for a long time which obliges these companies to check on affordability; to ask why people are borrowing the money in the first place and making a decision on that basis; and clearly, they're saying in the case of Moola is that they failed on a whole range of counts.
"It's a pretty astonishing range of charges, including that Moola failed to make inquiries to be satisfied with the borrowers' ability to repay without substantial hardship.
"When you’re borrowing something at hundreds of per cent, it's pretty likely that something will go wrong, and we feel the whole model of these companies is based on that happening."
The company charges interest rates as high as almost 550 per cent.
Mr Barnett said FinCap "certainly respect" the changes being proposed by the Government under the Credit Contracts and Consumer Finance Amendment Bill, which is currently being tabled by minister Kris Faafoi.
"We certainly respect what's already being proposed by Government, which is that you won't have to repay more than 100 per cent of what you borrow, so you borrow $500, you won't have to repay more than $1000 and that's good."
However, he added that the Government isn't proposing a cap on interest rates, which he called "problematic".
"Unless there is a cap – which is absolutely enforceable, which by its nature, an interest cap would be – then that's problematic."
He said loan companies with high-interest loans are offering a "massively harmful product" which is sending borrowers deeper into debt.
"If you have an interest cap of 50 per cent, which leaves most of the loan companies and the banks and others untouched, then it actually deals with this massively harmful product where people are paying 200, 500, 600 per cent to borrow money.
"[They] are regularly getting into trouble, are re-borrowing, and at the end of the day, more often than not, end up with a debt collector, which ends up in a whole lot of new problems for them and we think the product is so dangerous that it’s better to actually set a cap and move off in a different direction and create new products which are safer for people.
"We're pretty clear – we've got that mandate from the people who know it on the ground to get the kind of interest rate cap which is needed and we hope Parliament's going to be brave enough in the next few weeks to make that decision."
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