Borrowers had to choose from a finite list of options when giving the reason for the loan and if they chose "other" there was no ability to provide additional information.
Moola did not request additional information either, which meant the company did not consider the purpose of the loan when deciding whether to approve it.
Some borrowers who sought to top up their loan were not required to state the purpose for it at all.
The commission also found Moola relied on income ratios to assess affordability rather than assessments of borrower's actual expenses against their income. Borrowers were not asked to specify actual expenditure and additional checks were not carried out.
On top of that Moola admitted that it failed to exercise the care, diligence, and skill of a responsible lender in advertisements for high-cost loans when it engaged in direct advertising offering additional loans, and that its methods of contacting defaulting borrowers breached its obligations to treat borrowers reasonably and in an ethical manner.
Commerce Commission chair Anna Rawlings said Moola failed in its responsibilities to help ensure that loans met borrowers' needs and could be repaid without substantial hardship.
"These are important borrower protections and Moola has undertaken to implement systems, processes, policies and training to help it to meet its responsible lending obligations in future."
The Herald has sought comment from Moola's parent company NZ Fintech Group Holdings. NZ FIntech is also in the process of raising up to $30 million to expand into vehicle financing through the Zooma brand.
It is the second settlement agreement Moola has reached with the Commerce Commission this year.
In March Moola agreed to refund approximately $2.8m to current and former borrowers after a Commerce Commission investigation into credit and default fees.
Moola agreed to the settlement with the commission, acknowledging the watchdog's view that it had charged unreasonable credit and default fees between February 2016 and July 2017.
From December new regulations will require lenders to make additional, specific inquiries about borrowers' needs and objectives, as well as their income and expenses to help ensure that loans are suitable and affordable.
Rawlings said it urged all lenders to familiarise themselves with those requirements and ensure that they had processes in place to assist them to comply.