Payday lenders will not be able to charge more than 0.8 per cent interest a day under changes planned by the Government.

It has revealed new rules around high-cost, short-term lending, which are designed to protect consumers.

"We know that many consumers are trapped in a cycle of debt, causing extreme hardship – and often, intergenerational poverty – for them and their families. This is an unacceptable situation and the Government is taking action to address it," said Minister of Commerce and Consumer Affairs Kris Faafoi.

"The Credit Contracts Legislation Amendment Bill currently going through Parliament contains new measures that will ensure people taking out high-cost loans never have to pay back more than twice the amount they originally borrowed.

It had already planned to limit what borrowers could be required to pay back to twice the initial amount borrowed but Faafoi said it was responding to public feedback by implementing an interest rate cap, too. Interest will be limited to 0.8 per cent a day or 292 per cent a year.

Initially there were concerns that a cap would become a target that lenders would aim for.

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"At the moment, high-cost credit is too easy for people in hardship to access. While this type of credit can be an immediate solution to financial problems, we know that high-cost, easy credit leads to worse problems in the long run," Kris Faafoi said.

Another change the Government is making is to regulate mobile traders, such as truck shops, who often sell goods on credit at inflated prices, especially in low-income areas.

"While most mobile traders are already subject to some regulation, some are not. We believe all mobile traders who sell goods on credit should be subject to the same levels of disclosure and responsible lending requirements – including affordability checks - before credit is given," Faafoi said.

Public feedback also called for lenders to provide clients who fall behind on their loan repayments with information about financial support services.

"I know that some lenders are already referring customers who are struggling with repayments to financial mentoring services and this is good to see because it ensures that those struggling with debt can access the advice they need to get back on their feet. I encourage other lenders to follow this example. We are changing the law so that this can become a requirement in future, if needed."

Christians Against Poverty chief executive Aimee Mai said change would only be possible with commitment from money lenders.

She said, even with the cap, a $500 loan would cost $28 a week in interest alone. "For many of our clients, that's the difference between being able to afford school uniforms or having to take out another loan."

She said the proposed review in three years would be needed to evaluate the impact of the limit and see whether it went far enough.

Mai said money lenders needed to follow the spirit behind the law. "In New Zealand, as a society we care for our most vulnerable. It's just not right to profit off people's hardship and suffering."