The Federal Government says it will overhaul regulations for the payday lending sector.

The Albanese government has committed to implement recommendations from a 2016 review that the former government ignored.

Changes include capping a borrower's repayments at 10 per cent of their income, prohibiting lenders from making unsolicited offers and referring customers to unregulated credit providers, and the introduction of anti-avoidance measures to stop dodgy operators from restructuring and reopening businesses.

Financial Services Minister Stephen Jones says the government is keen to make the changes.

“It's about ensuring that, where a small amount of credit is offered, often referred to as payday lending, it's done in a safe environment, and vulnerable consumers aren't exploited,” he said. 

“This is long-overdue reform. The previous government conducted a review back in 2016, which recommended the reforms that we've introduced into parliament.”

The Senate economics committee is due to hear from financial counsellors, consumer advocates and the complaints authority on the proposed changes.

Consumer Action Law Centre policy director Tania Clarke says the reforms are overdue.

“Really, they are seven years overdue, because the independent Treasury review of small amount credit contracts took place back in 2016,” Ms Clarke said. 

“We've really been waiting a long time for it.”