Easy finance, fast-money lenders are often condemned as "loan sharks", targeting society's most vulnerable, charging interest of up to 400 per cent, and trapping people in cycles of debt.
But defenders say they provide a valuable and necessary service, lending credit to those deemed too high risk for the banks.
"Third-tier lenders" include finance companies, pawn brokers and mobile lending trucks that provide consumer credit.
To obtain a loan, consumers need to provide very little: a bank statement, sometimes a $20 deposit, and a few details.
Some are available online, or even via text, and loans are usually approved within a matter of hours - sometimes minutes - with money received within the day.
Third-tier lenders say that to offset the high-risk nature of these borrowers and transactions, they charge higher interest rates - ranging from 30 to 400 per cent - and significant fees for payments missed.
The latest legislation, designed to contain exploitative lenders, does not include a cap on interest rates.
New Zealand is one of the last western countries not to implement an interest-rate cap, with Australia, the United States and Britain all implementing caps of 48 per cent or lower within the last year.
‘A NO-WIN GAME'
Poea Rangi is a single mother, supporting five children aged 7 to 18.
She works fulltime for minimum wage, as a head teacher of te reo Maori at kohanga reo.
Rangi believes she has been a victim of loan sharks - targeted by door-knocking lenders who set her up with loans she had little hope of repaying.
With a combined weekly income of $600 from her wage and Working for Families, she spends $200 each week trying to pay off her debts - which pays interest, but barely dents the loan.
After rent and debt payments, she is left with $140 to pay a power bill, feed her kids, and buy petrol. All too often, she says, it's not enough - and on weeks with unexpected costs, she'll find herself looking again at a loan to make ends meet.
Despite her inability to make good on her existing debts, she is still approached by lenders, and offered further loans or credit.
Today, she's furious with the lenders who she says target poor neighbourhoods, beneficiaries, and single mothers.
"Some can't read, some can't see the small print, some just don't understand. They target the hood side, where it's mostly beneficiaries, and say, ‘You want a 50-inch TV? I can give it to you. You want a new iPad, new iPod?'
"They will give it to you there and then. They make it sound so good. They turn around and say, ‘Look, you can just pay $20 a week, what's $20 a week?' And we're easy targets."
Living in low socio-economic neighbourhoods in Henderson, Auckland, and Aranui, Christchurch, Rangi says she and her neighbours are constantly approached by vendors looking to lend money.
"There is never a day when someone doesn't knock on your door."
Now, Rangi is determined to pay off all her loans, and leave her children debt free. But even armed with a strict budget, she's worried that she'll never get out of the lending cycle.
"I want to give them their money, but if they keep stinging me with fees, I never can. I took a loan for $500, paid back $200, missed two payments, and found I still owed them $450. It's a no-win game."
COUNTING THE COST
Budget services say some door-to-door lenders are targeting the vulnerable and elderly, who may not have capacity to say no to a sales pitch, and incur enormous debts for items they cannot use.
Lyttleton Catholic Diocese pastoral care told the story of Sally (not her real name), a woman with significant developmental delays, and the intellectual capacity of a 9-year-old.
She was sold a vacuum cleaner on credit by a door-to-door lender for $1500 plus interest.
It sat in its packaging, unused, for a year. Neither Sally nor her partner knew how to use a vacuum cleaner.
When Sally was taken to hospital and later died, carers discovered that sums of money were being withdrawn from her account weekly to pay for the debt and its steadily accrued interest.
Furious, they approached the lender and "threatened blue murder" unless the payments were cancelled.
The unused vacuum cleaner was returned, and the agency agreed that payments could stop.
Budgeting agencies say these stories are not uncommon. Vulnerable clients, often on benefits or pensions, who lack capacity to understand the terms of their agreement, are talked into buying items for several times their market value.
A Families Commission report on problem debt included the case of a man who borrowed $9000 for a car, thinking he would repay a total of $11,000 with interest and fees, who found that his total bill was $21,000. In a second case, a man bought a car for $10,000, but faced total repayments of $25,000. Christchurch City Missioner Michael Gorman said it appeared companies were deliberately preying on the vulnerable.
The agency had experienced back-of-truck loan shops sitting outside the City Mission facilities, lending to clients.
"There are people in the community who are really suffering, and because they aren't very financially literate they are sucked into an arrangement that they don't really understand. It has implications for all of us. Not only are we allowing this to happen in our communities, but we are poorer for it because we then have to pick up the pieces," Gorman said.
He called for tougher government regulation, including a cap on interest rates.
"Somebody has to do something to bring this into line, and it is a legislative problem. There are people in our communities that need to be protected from people who don't appear to have any scruples about charging exorbitant interest rates," he said.
"Until you have enough courage to cap interest rates I don't think we're going to get anywhere."
The Credit Contracts and Financial Services Law Reform Bill passed its first reading in September with cross-party support.
The bill puts the onus on lenders to disclose full details of interest or fees and ensure borrowers can meet their repayment requirements.
Critics say, however, that the reforms don't go nearly far enough.
Without an interest rate cap the bill is "toothless".
Associate Professor Louise Signal headed up a study on third tier lenders for Otago University.
Without proper regulation, she says, "they don't have a legitimate role to play in communities".
"They're a menace," Signal says. "Without the regulation, they exploit the communities. They exploit the poorest of our people."
She said the new bill was a step in the right direction.
"But it's been frequently delayed and dropped down the priority list, when it needs to be urgently attended to".
"While the legislation would be an improvement it must have a cap on interest rates.
"It's absolutely outrageous to think people would be paying over 400 per cent a year.
"Without that cap, the current legislation is not strong enough to protect the community."
Instant Finance chief executive Richard de Lautour said the company's interest rates were all "miles below" the 48 per cent interest cap suggested by advocates.
He said the company would have no problem with a cap
He said tightening regulation would primarily impact "payday lenders", who lend short-term, low-value loans, and were more likely to charge sky-high interest rates.