The national consumer watchdog has launched an investigation into Telstra's sales practices, amid mounting reports vulnerable Indigenous Australians are being hit with "skyrocketing" bills.

Key points: Excess data charges are leading to bills escalating to thousands of dollars within months

Excess data charges are leading to bills escalating to thousands of dollars within months Young mother Caitlyn Roe was afraid she would go to jail over a $2,118 debt

Young mother Caitlyn Roe was afraid she would go to jail over a $2,118 debt Telstra admits its processes do not always work to protect vulnerable people

In a rare move, the Australian Competition and Consumer Commission (ACCC) confirmed it was looking into whether Telstra breached consumer law — something that carries fines and penalties in the millions of dollars.

Financial counsellors say the mis-selling of phone contracts is "rife" and want the telco to be forced to run the same credit checks as banks.

The ABC has learned of dozens of examples across Australia of Telstra customers on Centrelink benefits being sold contracts costing as much as $250 a month.

On top of that, many of those customers are being hit with excess data charges and are running up bills worth thousands of dollars.

Broome financial counsellor Alan Gray said he 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 said.

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

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Young mum 'thought she was going to jail'

Caitlyn Roe, a 21-year-old mother, knows first-hand just how debilitating a Telstra debt can be.

Ms Roe dropped out of school in year nine, battled to overcome addiction and has never had ongoing work.

Caitlyn Roe was struggling to care for her two-year-old daughter Kylani, when Telstra came after her to pay off her phone. ( ABC News: Amy Bainbridge )

For years, she had a Telstra pre-paid phone. That changed when Telstra called her to say she was entitled to a "free" phone if she took out a contract.

She went into her local Telstra store in Broome and signed up to a plan, but she said no-one explained excess data charges.

"When I first started, I could pay it off. It was pretty easy," Ms Roe said.

"But using all that data — it skyrocketed. Some of the people who supported me spoke to Telstra to try and lower the price, but they said no.

"That was pretty difficult at the time because I was struggling with other stuff as well, like trying to feed my daughter."

Her bill escalated to nearly $2,200, before it was sold to a debt collection agency, which threatened to take her to court.

"I was a bit shocked you know, and I was stressing out to a point where I thought I was going to go to jail because I couldn't pay that amount," she said.

"I was struggling to pay the rent, get food for my daughter, plus with them stalking me, ringing me up every week, especially on days [that] I was pretty tense.

"I was not in the mood to talk to them and I'd tell them I'd come in and put $100 on the bill .... I wasn't able to pay the amount they wanted."

Caitlyn Roe received a letter from lawyers demanding she pay her Telstra debt in seven days. ( ABC News: Amy Bainbridge )

Telstra consumer and business executive Michael Ackland apologised "unreservedly" to Ms Roe and said there were some "process break-downs" in her case.

"Certainly the way that she was dealt with in terms of the steps that were gone through is not the intent of our process," he said.

"In fact, there was a specific error made by us when a debt waiver had been approved already internally, that was not processed correctly and therefore the debt ended up resulting in that letter and the collections outcome."

He said 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.

On Tuesday, the company released details of a new generation of "simplified" plans, which it said would remove excess data charges in Australia.

Telstra said its customers would also have the flexibility to change their plans once a month.

Telstra bills are a 'huge' problem

The ABC has spoken to other customers who were too ashamed of their Telstra debt to go public.

Telstra is being investigated for selling unaffordable contracts to people in remote communities like Ardyaloon. ( ABC News: Andrew Seabourne )

One woman who lives on welfare in the community of Ardyaloon, 200 kilometres north of Broome, showed the ABC her Telstra bill worth more than $7,800.

"It was so stressful trying to get that bill sorted, thinking I had to pay that money," she said.

The ABC has been shown an outstanding bill of $6,582 for another Telstra customer. Both debts were waived when financial counsellors intervened.

Ardyaloon elder Irene Davey said people should be able to change their contract if they could not afford it, as community members were getting caught out because data was not being "properly explained".

"If I go and buy a pair of shoes and it doesn't fit, I should be able to bring it back and say I want to change [it]," she said.

"Anything you should be able to go back and say 'this doesn't work for me'. That's the flexible thing that should happen."

Jody Wiggan said a number of her friends and family had been upsold Telstra contracts they could not afford. ( ABC News: Andrew Seabourne )

Mother Jody Wiggan from the nearby community of Djarindjin said Telstra was a "huge" problem there too.

"Lots of my sister's kids, they've done that — bought iPhones and whatnot — and my first cousins," she said.

"It's just an everlasting payment, an ongoing payment, and they don't know when it's going to stop."

What is Telstra up to?

Financial counsellors working in remote and disadvantaged areas are fed up with Telstra.

The ABC has 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.

"They wander into the Telstra store, they want a simple flip phone or their phone repaired, the sales staff upsell them or pressure them into these big two-year contracts of $200 a month.

"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 $2,000 or $3,000, or even $4,000 of excess data."

One woman from Ardyaloon, 200 kilometres north of Broome, had a bill escalate to $7,874.04. ( ABC News: Amy Bainbridge )

In many cases the debt is then onsold to a debt collection agency, which threatens legal action.

One consumer advocate has told the ABC there is a "tonne of mis-selling around Australia" of phone plans by Telstra and describes the problem as "systemic".

Last year Mr Gray managed to get Telstra to waive 26 customers' debt, worth more than $100,000 to the company, after lodging a joint complaint.

"Since we had that massive debt waiver, we've had lots of negotiations with Telstra executives, lots of discussions," he said.

"I thought that once they saw the impact they were having on some of the most disadvantaged people in our community, I naively thought they would change their practices.

"But what they did was, the senior executives blamed the sales staff, but have refused to reform their policies."

He said no proper checks were made on the customer's capacity to pay the contract, and in many cases they defaulted and became liable for the entire cost of the contract.

"What's happening time and time again is that my clients don't have it explained to them that on top of the monthly contract fee, this is how excess data works," Mr Gray said.

"Nobody turns on the tablet and says if you watch movie after movie, you'll break your budget."

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

"We see customers in all different stages of vulnerability, whether that's disability, language, where they live and remoteness … as well as financial and other things," he said.

"We do our absolute best to put processes in place to make sure that we treat them fairly, but it doesn't always work. We don't pick up every case.

"Sometimes things do go wrong, but we've done a lot of work and put in a lot of processes to make sure that we're dealing as fairly as we possibly can with all kinds of vulnerability."

Counsellors want Telstra treated like a credit provider

While the banking royal commission revealed high-pressure sales tactics in the insurance industry, the telecommunications industry escaped scrutiny.

Alan Gray says customers from remote areas are not shown how the equipment they are sold works. ( ABC News: Andrew Seabourne )

In February, a telco industry watchdog investigation found poor sales practices and a culture of putting profits ahead of consumers was driving up consumer debt, leaving people struggling to pay their bills.

The Telecommunications Industry Ombudsman's (TIO) report found staff were more focused on achieving sales than assessing whether a product was suitable for consumers.

Mr Gray said if Telstra was treated as a credit provider, it would be required to conduct more thorough checks and balances when customers were taking out a contract.

"Our view is Telstra should commit to the responsible lending obligations of the National Consumer Credit Protection Act and they can do that by committing to that in the telco code of practice," he said.

Telstra has acknowledged an issue with people in remote communities who are not used to getting coverage going over their data limits. ( ABC News: Andrew Seabourne )

Mr Ackland said Telstra was "open" to suggestions and was working with industry groups.

"We're very open to looking at all ways in which we can improve our processes, but something that's right for the circumstances and making sure that people aren't restricted from getting access to things that are effectively an essential service like connectivity," he said.

ACCC investigation

Details of the ACCC's investigation are tightly held by the regulator, but a spokeswoman released a statement:

"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."

Mr Ackland 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.