Low-income people find it easier to get a loan from a payday lender's welcoming customer service team than to front up and ask for government assistance, a researcher says.

High-interest lending has been in the spotlight since Commerce Minister Kris Faafoi and Prime Minister Jacinda Ardern announced higher fines for those who do not comply with responsible lending requirements – and a cap on interest rates and fees.

As part of the announcement, Ardern said she wanted the first port-of-call for low-income earners to be government channels or low-interest microfinance operators.

But Jess Berentson-Shaw, of thinktank The Workshop, said her research had shown that people went to loan sharks because their relationship with them was better than with Work and Income.

READ MORE:

* Government targets loan sharks and truck shops

* 'Easy money to get, very expensive to pay back': loan victim speaks out

* Predatory lenders pay $1.2 million in fines, but still target the poor

* $40,000 spent trying to get away from $900 loan

"People talk about the shaming hoops they have to jump through to get an emergency benefit or loan."

By contrast, a lender that wanted to make money out of people would be kind and welcoming – and the call centres were sometimes staffed with people from the community.

Auckland Action against Poverty said the Ministry of Social Development's loan practises via Work and Income were "crippling".

Prime Minister Jacinda Ardern said low-income borrowers should be able to access government options.

Half a million people are in debt to the Ministry of Social Development, owning a total $1.5 billion.

Most of the debt came from overpayments and a smaller portion from recoverable advances for clothing, furniture and petrol.

Weekly repayments are set by the ministry, with some low-income people expected to pay up to $80 a week from their benefits.

"The Ministry of Social Development's loan practices are responsible for forcing people into extreme hardship and pushing them to loan sharks because they simply can't afford food and other weekly expenses", said Ricardo Menendez March, Auckland Action Against Poverty co-ordinator.

"The Government's review of loan shark's interest and fees caps will fail to protect people from crushing debt if they don't address their own loan practises. Low-benefit levels and wages, coupled with high costs of living and debt repayment rates to MSD, leaves people vulnerable to predatory lenders."

He said debt to the ministry should be wiped and all assistance given by Work and Income should be non-recoverable.

Social Development Minister Carmel Sepuloni said she had made it clear to the ministry that it must be fair and respectful when dealing with those who needed its support.

"Clients have the right to apply for recoverable grants when they need extra help. The grants are interest-free and and repayable, if they meet MSD criteria."

She said people who were struggling to repay their loans should contact the ministry.

"The Ministry is bound by legislation to recover debt. The only way it can wipe debt is if it is solely responsible for the debt being incurred."

She said the Welfare Advisory Group was looking at the issue of debt and would report back in February.