But the lending industry is warning the mooted rules will send it out of business and could lead to a rise in crime.

Good Shepherd Youth and Family Services in St Albans hosted a meeting between financial counsellors, Assistant Treasurer Bill Shorten and Calwell MP Maria Vamvakinou last week to discuss problems with the loans and ways to help people avoid debt traps.

Good Shepherd's Caught Short report into the negative effects of pay day lending shows almost 80 per cent of borrowers receive welfare.

Many borrow money at a high cost when lower-cost alternatives are available.

Good Shepherd social policy researcher Tanya Corrie said imposing higher costs on people who had fewer options and were least able to afford it was exploitive.

She said taking out loans to pay off existing loans also led to further financial stress.

"Financial counsellors and Good Shepherd micro-finance workers regularly see firsthand the negative impact of exploitive lending practices on vulnerable consumers."

Most borrowers take out their first loan to meet regular expenses such as bills and food.

Almost half take out loans as soon as the previous loan is paid off and one in four refinance to start a new loan or take out extra loans.

Borrowers pay up to 1200 per cent in annual interest charges.

Mr Shorten has introduced a bill that proposes a cap on charges and ensures loans can't be refinanced so borrowers don't end up sinking further into debt.

This included mandatory disclosure of the availability of options such as Centrelink advances and no- or

low-interest loans through community organisations.

"One statistic I found truly shocking was that people on disability support payments made up the biggest single category of borrowers in the survey sample - a remarkable fact given that people with a disability make up just 18 per cent of the general population," Mr Shorten said.

But Paul Baril, director of lender Cash Stop, said the bill would unfairly impact on the thousands of people who used such loans.

He said the industry had been unfairly targeted and received far fewer complaints than telephone or utility providers.

The high charges for loans reflected the costs of preparing and administering new contracts and were not simply a grab for cash, he said.

Mr Baril said people unable to access loans may resort to other methods to find money such as crime.