Some lenders in Northern Ireland are charging around 1,700% interest on payday loans, it has been revealed.
Other paramilitary and criminal creditors have threatened violence against people struggling to meet extortionate repayment demands and the Stormont Executive faced calls on Tuesday to do more to tackle the illegal money market.
Hard-pressed parents have taken the money to pay for essentials like utility bills and school uniforms, one voluntary group said.
Northern Ireland Council for Voluntary Action (NICVA) chief executive Seamus McAleavey said: "Our review found paramilitary involvement in illegal money lending, mostly in working class communities. Our politicians and police need to take a much more open and robust approach to dealing with this criminal activity."
A payday loan is a short-term advance to tide people over financially until they are paid. The typical charge is around £25 per month for every £100 borrowed, according to Which? magazine. It said advertised interest rates (APRs) for legal companies are normally around 1,750%.
One legal short-term loan company, Wonga.com, advertised 4,214% representative APR on its website. The firm said: "We only provide loans of up to a month, whereas APR was designed to standardise the interest rates charged for loans of several years, or ongoing credit card balances."
According to NICVA, payday loan borrowers took out an average of 3.5 loans a year. The average amount was estimated at £294 and around two-thirds of borrowers had a household income of less than £25,000.
Mr McAleavey added: "Our review found that it is too easy for people to get into debt with a number of lenders. We saw many cases where a relatively small initial loan spiralled into a debt of thousands of pounds. Ironically it seems that many people's financial situation actually worsens as a result of using payday loans."
He said loans were being taken out by working people on low incomes as well as the unemployed. They are using the money to make ends meet and pay for essential items such as utility bills and school uniforms, he added. "We need to look at the multi-agency approach used in Great Britain where police and trading standards work together to remove illegal lenders from the communities they are preying on and to support victims of illegal lending in accessing debt advice and rebuilding their finances," he said.
NICVA's review found those struggling with problem debt experienced trauma and stress, sometimes leading to depression and suicidal thoughts. Within families the greatest concern was debt's impact on children.