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LendUp, an online lender that promised friendlier alternatives to high-cost payday loans, will pay $6.33 million in refunds and fines for violating consumer finance laws.

LendUp, which operates in 24 states, will refund $1.83 million to more than 50,000 borrowers as part of the聽, the Consumer Financial Protection Bureau announced Tuesday. In addition, LendUp will refund California customers $1.62 million as part of a separate聽聽with the California Department of Business Oversight.

The company will also pay $1.8 million and $1.06 million to the federal bureau and California department, respectively, to cover penalties and other costs.

What LendUp promised

The San Francisco-based lender is part of a wave of tech companies that promote a聽

罢谤补诲颈迟颈辞苍补濒听聽don鈥檛 require credit checks, but do carry triple-digit interest rates and are due in a lump sum on the borrower鈥檚 next payday. Borrowers can renew them at the same high rate by paying the interest. Payday lenders don鈥檛 report on-time payments to credit bureaus, but delinquent payments can be a black mark on borrowers鈥� credit reports.

LendUp promised its customers they could build credit or improve their credit scores using its small-dollar loans, which carry annual percentage rates of more than 100%. Borrowers who finished education courses and improved their scores could move on to less expensive loans, climbing what LendUp called the 鈥淟endUp Ladder.鈥�

But LendUp didn鈥檛 properly report payments to credit bureaus for at least two years after it began issuing loans, preventing borrowers from improving credit, according to the bureau.

Though widely advertised, the company鈥檚 cheaper loan products weren鈥檛 available to all borrowers, and LendUp didn鈥檛 clearly disclose some fees in its APR, the bureau said.

In a statement, LendUp said the bureau鈥檚 review 鈥渁ddresses legacy issues that mostly date back to 2012 and 2013, when we were a seed-stage startup with limited resources and as few as five employees. In those days we didn鈥檛 have a fully built-out compliance department. We should have.鈥�

What customers can expect

LendUp will contact customers about their refunds in the coming months, according to the bureau. The lender鈥檚 website was inoperable at least part of Tuesday, but it offered contact information for affected customers.聽Borrowers with questions about the settlement can call 1-855-2LENDUP or email聽questions@lendup.com.

California residents have already received $1.08 million of the $1.62 million LendUp owes, the California Department of Business Oversight said. Those who haven鈥檛 gotten refunds聽yet聽will receive an email and must respond with bank account information or a home address within 20 days to receive their money.

In California, the company is required to maintain evidence that customers were notified about and received their refunds.

Nationally, LendUp will make changes to its fee and rate disclosures and discontinue some products and advertisements.

Alternatives to payday loans

Payday loans are useful when you have poor credit and need cash quickly, but they come at a heavy price. Seventy percent of borrowers take out a second loan and more than a third of borrowers end up defaulting,聽.

Even lenders with good intentions, including LendUp, charge high APRs. Fig Loans and other payday alternative lenders all charge rates of more than 100%.

Consumer advocates warn customers to be cautious about new lenders and avoid loans that carry rates of more than 36%, widely considered the upper limit of affordability.

鈥淭he LendUp case makes clear why a 36% rate cap is the only solid protection against high-cost lending,鈥� says Lauren Saunders, associate director at the National Consumer Law Center, a nonprofit advocacy organization.

If you鈥檙e considering any kind of payday loan, look into other alternatives first:

• 聽from credit unions, which have interest rates of 28% or less.
• 聽from lenders and agencies in your community.
• , such as pawn shop loans and day labor.

Longer term,聽. Even $500 is enough to deal with most financial surprises, says NerdWallet personal finance columnist Liz Weston.

Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email:ajayakumar@nerdwallet.com. Twitter:聽.

The article聽聽originally appeared on聽.