The Money Shop, Britain's second largest pay day lender after Wonga, has agreed to refund £700,000 to customers after a "system error" meant it breached its own lending rules.
The Financial Conduct Authority (FCA) said Dollar, which now trades as The Money Shop, voluntarily agreed to repay £700,000 ($1.2m, €879,160) of interest and default charges to 6,247 customers who were loaned too much money.
The FCA said: "We are pleased Dollar is working with us to put matters right for its customers and to ensure that these practices are a thing of the past.
"The FCA expects all credit providers to carry out proper checks to ensure that borrowers don't take on more than they can afford to pay back."
Dollar has also agreed with the regulator to appoint an independent and independent "skilled person" to review its lending decisions and report back to the FCA.
"The review, which will be paid for by Dollar, will cover its loan products and the entire customer journey from the initial affordability assessment to loan collection. It will also consider whether customers are being treated fairly and are now only being lent sums that they can afford to repay. The skilled person will also ask customers about their borrowing experiences and report these back to the FCA," it said.
Concerns originally arose around Dollar's lending decisions when the Office of Fair Trading reviewed its customer calls in February 2014, discovering that loans were being approved for amounts that exceeded the firm's lending criteria.
"The Money Shop is a business which prides itself on the trust enjoyed between customer and company. Mistakes do happen and, when they do, we can be trusted to put them right, as we have in this instance" said Sanjiv Corepal, Money Shop's managing director.