Telstra has admitted to unconscionable conduct during its sales of mobile phone plans to Indigenous consumers and could face a penalty of up to $50 million.

In what could be the second-highest penalty imposed under Australian consumer law, the competition and consumer watchdog launched legal action against the telecommunications giant on Thursday.

The telco admitted it had breached Australian consumer law and on Thursday the Australian Competition and Consumer Commission announced it was instituting Federal Court proceedings against the company.

The chairman of the ACCC, Rod Sims, said Telstra had targeted “extremely vulnerable consumers”.

“They were sold products they did not understand, they couldn’t afford and often they did not need.”

“These were very low-income consumers. The staff often manipulated the credit assessments, so they would fit within or show any ability to repay the monies owed.

“They were often told the products were for free. They were often sold products they just did not need, for example data allowances when you are travelling overseas.

“So, there was a lot of upselling products that you didn’t need, plans you didn’t need. The average bill was $322 a month, which is an enormous amount to be paying for mobile plans and products, which just shows the extent of misbehavior going on here.”

Mr Sims told the ABC he was shocked by what investigators found out.

“This is huge. This is right off the scale in terms of behaviour we have taken to court in relation to telecommunications,” he said.

Sales staff at five stores across the country signed up 108 Indigenous customers to post-paid mobile contracts between January 2016 and August 2018.

Many spoke English as a second or third language and had difficulties understanding contracts.

“This case exposes extremely serious conduct which exploited social, language, literacy and cultural vulnerabilities of these Indigenous consumers,” Mr Rod Sims said.

Each customer owed, on average, $7400.

One person ended up more than $19,000 in debt, one was concerned about going to jail if they missed payments and another had to access their superannuation savings to foot the bill.

Many of the customers were unemployed or relied on government benefits or pensions as their primary source of income.

Thursday’s announcement comes after an 18-month investigation by the ACCC, after serious concerns were raised by financial counsellors in rural and remote areas.

In 2019, financial counsellors told the ABC consumers were being sold unaffordable phone plans and were then aggressively pursued by debt collectors.

The ACCC said Telstra had agreed to consent orders that would support a penalty totalling $50 million, but ultimately, it will be up to the court to decide how much Telstra should pay.

“Even though Telstra became increasingly aware of elements of the improper practices by sales staff at Telstra licensed stores over time, it failed to act quickly enough to stop it,” Mr Sims said.

“These practices continued and caused further, serious and avoidable financial hardship to Indigenous consumers.”

-with AAP