AUSTRALIA'S consumer watchdog is investigating reports Telstra has been selling expensive contracts to people that cannot afford them in disadvantaged indigenous communities.

The Australian Competition and Consumer Commission (ACCC) has confirmed it is investigating whether the telco has breached consumer law, the ABC reports.

"The ACCC is investigating allegations involving Telstra Corporation Ltd regarding its selling practices associated with the supply of mobile phones, plans and ancillary goods and services to some vulnerable indigenous Australian people," the statement said.

"The assessment of the alleged conduct is ongoing, including as to any implications under the Australian Consumer Law.

"Conduct impacting indigenous Australians is an enduring priority for the ACCC."

The media outlet reports dozens of Telstra customers on the dole across Australia have been sold contracts costing as much as $250 a month.

The same customers are being slugged with excess data charges - pushing their bills to thousands of dollars.

People on the dole are being sold contracts costing up to $250 a month. Picture: Mark Calleja
People on the dole are being sold contracts costing up to $250 a month. Picture: Mark Calleja

Alan Gray, a financial counsellor in Broome, blamed Telstra's head office.

"The problem is that Telstra have decided to instruct their sales staff to sign up poor people to unaffordable contracts that leave them with massive excess data bills," he told the ABC.

"Telstra don't seem to listen when people say 'I can't afford this'."

One dole recipient in Ardyaloon, 200km north of Broome, showed the ABC her Telstra bill worth more than $7800. Another Telstra customer had an outstanding bill of $6582.

Both charges were waived only after financial counsellors stepped in.

In some cases the debt is passed to a debt collection agency, which threatens legal action.

The ABC reports they have been told there are clusters of customers being mis-sold products in SA, WA, NT, Queensland, NSW and Victoria.

"What started as a dribble of one or two clients has turned into a flood of people coming in with the same story every month," Mr Gray said.

"My client walks out of the store thinking the $200 will pay for everything but to their horror a month or two later, they get a bill in the mail for $2000 or $3000, or even $4000 of excess data."

Telstra consumer and business executive Michael Ackland told the ABC products the company sold now "largely do not have excess data charges".

"That is something we've taken out of the market because that was a particular concern," he said.

Mr Ackland said the company had been working hard to improve the way it dealt with vulnerable customers.

He said Telstra would be an "open book" in relation to any investigation.

"Any request or any investigation will be met with us just looking to learn and improve," he said.

The company can be fined or penalised up to millions of dollars if found in breach by the ACCC.