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 federal settlement, the Consumer Financial Protection Bureau announced Tuesday. In addition, LendUp will refund California customers $1.62 million as part of a separate settlement 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.

The San Francisco-based lender is part of a wave of tech companies that promote a less toxic form of payday loans.

Traditional payday loans don’t require credit checks, but do carry triple-digit interest rates and are due in a lump sum on the borrower’s next payday. Borrowers can renew them at the same high rate by paying the interest. Payday lenders don’t report on-time payments to credit bureaus, but delinquent payments can be a black mark on borrowers’ 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 “LendUp Ladder.”

But LendUp didn’t 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’s cheaper loan products weren’t available to all borrowers, and LendUp didn’t clearly disclose some fees in its APR, the bureau said.

In a statement, LendUp said the bureau’s review “addresses 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’t have a fully built-out compliance department. We should have.”

LendUp will contact customers about their refunds in the coming months, according to the bureau. The lender’s website was inoperable at least part of Tuesday, but it offered contact information for affected customers. Borrowers with questions about the settlement can call 1-855-2LENDUP or email 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’t gotten refunds yet 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.

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, according to CFPB data.

Even lenders with good intentions, including LendUp, charge high APRs — usually 100% or more.

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.

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

If you’re considering any kind of payday loan, look into other alternatives first:

Longer term, start building your emergency fund. Even $500 is enough to deal with most financial surprises, says NerdWallet personal finance columnist Liz Weston.

A previous version of the story misstated the APRs charged by some of LendUp’s competitors. The incorrect information has been deleted.

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

The article Payday Alternative LendUp Owes $6.3 Million for Misleading Borrowers originally appeared on NerdWallet.