Consumer advocates are dismayed by a Federal Court judgement allowing a notorious funeral insurance company to access the Government's Centrepay system.

Aboriginal Community Benefit Fund (ACBF) is a Gold Coast-based private business that provides funeral insurance almost exclusively to Aboriginals.

The ABC reported last year that thousands of Aboriginal children and babies were being signed up to insurance schemes through ACBF that could cost up to $100,000 over a lifetime for a funeral.

The Federal Government banned ACBF and other funeral insurance companies from accessing the Centrepay system from July 1, 2016.

ACBF challenged the ban on Centrepay access in the Federal Court and won.

Justice John Logan described the Centrepay ban as "paternalistic" and unlawful.

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"They offer a reminder that, in the view of Ministers of the Crown and officers of their departments, there is still a place today for a form of such paternalism," Justice Logan said in his judgement.

"We were really disappointed by the decision," Phillipa Heir from the Consumer Action Law Centre said.

"It [the ban] was an important first step in trying to ensure that vulnerable communities are no longer ripped off by these funeral insurance products.

"There's a history of really questionable sales conduct including door-to-door sales and signing up babies and children."

Centrepay is supposed to help low income earners pay for bills and rent, but it also allows private companies direct access to customers' bank accounts.

The Department of Human Services said on its website that it was considering its options.

ACBF said on its website: "We are very happy on behalf of our customers that the Federal Court agreed that the Department's decision was wrong."