Professional charity collectors have to disclose how much money they keep for themselves under a bill that passed its first reading in Parliament today.
The member's bill was drafted by National MP Amy Adams and applies only to companies who collect for charities.
Ms Adams told Parliament there were more than 23,000 registered charities and last year the sector's estimated income was about $10.4 billion.
Of that, $2.4 billion came from donations.
"Increasingly, New Zealanders have begun to show concerns about how much of the money they give gets to those it is intended for," she said during the first reading debate.
"Reports have said it isn't uncommon for professional telemarketing and street collecting firms to retain 75 per cent of what they collect, and even up to 90 per cent."
Ms Adams' Fair Trading (Soliciting on Behalf of Charities) Amendment Bill requires professional collectors to disclose to potential donors the portion of the donation they will retain.
It applies if the proportion retained is more than 20 per cent.
If the proportion retained is between 20 per cent and 50 per cent of the donation, the collector must simply disclose that a portion is being withheld but does not have to disclose the actual amount.
If the proportion retained is more than 50 per cent, the collector must disclose the percentage being retained.
Ms Adams said collecting companies made significant profits when they passed on only a tiny portion of donations.
"Companies, of course, can make a charge, but it's my view their activities must be carried out ethically so that people are not misled," she said.
"I'm particularly seeking to target professional telemarketing firms and the so-called `chuggers' or charity muggers who approach and sometimes hassle passers-by to donate to a charity."
The bill does not affect charities which collect money themselves through their own volunteers.
Consumer Affairs Minister Heather Roy said most people who donated money believed most of it went to the charity concerned.
"While the use of third party collectors or agencies to solicit donations is neither illegal nor dishonest, it can be misleading," she said.
"Amy Adams' bill attempts to improve the transparency of these transactions and ensure that people are aware of what happens to their donation. Ms Adams should be congratulated for this."
Ms Roy said she was working on legislation to enhance the Fair Trading Act and the bill could be absorbed into it.
Labour's consumer affairs spokeswoman, Carol Beaumont, supported the bill and said "charity cowboys" should not be allowed to exploit people.
The bill passed its first reading on a unanimous vote and was sent to a select committee for public submissions.
Who do you think won Key v Cunliffe's second debate?Related story: Leaders debate reveals more even contest