Advocates for beneficiaries are raising concerns that the Ministry of Social Development (MSD) is referring people to loan sharks when some ask for extra assistance.
Community Law and Auckland Action Against Poverty (AAAP) both say it is a consistent problem.
It comes as the Government is trying to crack down on loan sharks.
An Auckland woman who did not want to be named needed help from MSD to buy a new washing machine.
She said she went into Work and Income and was asked if she had exhausted every other avenue prior to that appointment.
"They said, 'Well, have you been to Cash Converters to get a quote from them or to see if you can get finance from them, or instant finance?'
"To me, it was any other loan shark, prior to going to Work and Income."
This event was not a one-off, says Community Law CEO Sue Moroney.
"Frequently, when people go to MSD for that temporary assistance, instead they end up at the mercy of a loan shark because they are getting advice to go into that territory first," she said.
"It's fundamentally wrong, we shouldn't have Government departments pushing people in the direction of loan sharks."
Ricardo Menendez of AAAP said it was a "common place practice for MSD staffers to suggest exhausting all other options, including ones that aren't actually stable".
Tom Harris of Waitemata Community Law said the types of loans could prove problematic.
"At one point or another they end up at these very high interest rates... then the problems starts from there."
MSD Deputy Chief Executive Viv Rickard said if staff were advising clients to get high interest loans, he would make sure it would be investigated.
"I'm also going to ensure our people are clear of the guidelines," he said. "I'm not aware of anyone being sent to loan sharks. I don't want them to be and if that's the case I'll put a stop to it.
"We've paid out 270,000 special needs grants this year - that's a 45 per cent increase."
It comes as the Government pushes to crack down on loan sharks, with legislation currently going through Parliament.