People surviving on benefits and other very low incomes are still being preyed on by lenders giving them unaffordable loans, despite the existence of responsible lending laws, a report to be presented in Parliament on Thursday morning says.

The Voices report from budget umbrella group Fincap follows similar claims made by financial mentors in select committee hearings last week, but it also calls on MPs to follow the UK and Australia in passing laws to regulate debt collectors, which even some debt collectors have been lobbying for.

“Every day, financial mentors see real struggles made worse by loans that were unaffordable from the start,” Fincap chief executive Fleur Howard said in the Voices report.

She said financial mentors regularly saw people who were being harassed and coerced by debt collectors at work, at home, and on social media, calling the lack of regulation a “wild west situation”.

“This can endanger people’s employment and embarrass them in front of their communities. These tactics force people to agree to repay debts they may not be legally responsible for, and repayment plans they can’t afford,” she said.

In order to meet repayments some debtors were skipping meals, doctor’s visits or not heating their homes in winter.

Fincap also used the Voices report to call for a temporary pause on lenders being able to go to court to get attachment orders against benefits to repay loans of up to 40% of benefits, until the issue was fully investigated.

The use of attachment orders has been described as converting Work and Income systems into a “conveyor belt for private debt collection”, undermining benefits’ role in keeping vulnerable families fed, healthy and housed.

It was an issue the last government may have been inching towards acting on before losing power.

There have been mounting concerns from advocacy groups that people living on benefits are being granted loans by private lenders, despite benefits being insufficient to live on, even if people have no debts.

The 2024 Ka Mākona Income Inadequacy report from Kore Hiakai showed beneficiaries could, under average circumstances, expect a consistent weekly deficit between $93.93 and $162.04, depending on the make up of their whānau and which income support they were receiving.

At select committee hearings earlier this month, Financial coach Shula Newland told MPs that when private lenders make loans to people on benefits, it was clear evidence that responsible lending laws were not working.

“Nobody on a benefit should be able to access a loan, and yet they still are. This shows legislation is not working,” she said.

Newland said non-bank lenders’ affordability assessments often did not include basic things like money for health or car maintenance.

And, she said: “They just assume people stop all non-essential spending to afford the repayments for their loan. That is not how real life works. People working full time should not have to live like they are on benefits just to afford their loan.”

MPs were told that weak enforcement of lending laws allowed irresponsible lending to continue.

“Stronger enforcement is really required,” Newland said, and called for large fines to be imposed.

“The lenders are not going to stop causing harm until it hurts their bottom line,” she told MPs.

The Voices report said car loans were one of the chief sources of misery for families seeking help from financial mentors, but a large number also had car repair debts because the cars they had been sold were unreliable.

MPs are currently considering lending law reforms, in part designed to make it easier for people to get loans.

In the Voices report Fincap pointed to “loopholes” in lending laws that allowed telecoms companies, and buy now, pay later lenders to make loans without full affordability assessments, calling for those lenders to be brought under responsible lending laws.

It isn’t only financial mentors who believe the current laws are not being adequately enforced.

Lyn McMorran, from the Financial Services Federation, a lobby group for lenders, said the enforcement of lending laws was too slow, giving the example, of how long it had taken the Commerce Commission to take action against Go Car Finance, a car finance company no longer making new loans.

She did not blame the commission, saying it had not had the tools it needed to effectively enforce lending laws.

The commission is losing its role as regulator of lending, with the Financial Markets Authority Te Mana Tātai Hokohoko taking over with greater powers, including potentially a right to search lenders’ business premises without warning or warrant.

“The move to the FMA is the magic bullet because it has more tools in its tool kit to investigate more quickly and effectively,” McMorran said.