THE federal government has ordered an independent review of a bill-paying service for welfare recipients after some companies were found to be targeting indigenous communities with predatory loans for whitegoods and electronics.
Last week, the Department of Human Services deregistered a rental company from its Centrepay scheme, which allows approved providers to make direct debits from customers' government benefits.
It was set up in 1998 as a voluntary bill-paying service to help Centrelink recipients budget for essentials such as rent and utilities.
However, in recent years, the DHS, which oversees the program, has attracted criticism amid claims it is giving some organisations, including rental companies, ''inappropriate access'' to consumers' Centrelink payments.
In a damning report, Financial Counselling Australia claims the program has ''lost its way'' and is being used by businesses that ''sell overpriced or unsafe products and in some cases exploit customers''.
The report, which was sent to federal Minister for Human Services Kim Carr on Friday, also accuses the government of putting revenue generation ahead of the financial wellbeing of consumers.
Last financial year, 21 million Centrepay deductions worth $1.76 billion were made. The department said it received more than $13.3 million in deduction fees in 2011-12 but said it ''does not seek to make a profit'' from the scheme.
FCA executive director Fiona Guthrie, who wrote the report, disagrees. ''It is being run as a business unit and I think commercial objectives may have got in the way of social objectives,'' she said.
Ms Guthrie said the case of Zaam Rentals, a registered Centrepay company which is under investigation by the Australian Securities and Investments Commission, was an example of the scheme facilitating unscrupulous lending practices and was just the tip of the iceberg.
The DHS last week confirmed it was ''in the process of terminating the Centrepay contract with Zaam Rentals'' which had been door-knocking homes in indigenous communities, including in the Mallee in north-west Victoria, offering to loan goods such as laptops with repayment fees up to eight times the retail price.
The DHS confirmed it had terminated more than 1700 Centrepay contracts since 2010.
''Not only has Zaam been exploiting vulnerable consumers, it has been facilitated by access to the Centrepay system,'' Ms Guthrie said.
''This is an example of why these rental companies should never have been given access to the service in the first place. They're essentially credit providers … and the government is facilitating, in some cases, quite poor lending practices.''
Other credit providers such as banks and debt collectors are not eligible for Centrepay, which is used by more than 500,000 Australians.
''It is incongruous that one form of credit is banned, but another is not,'' the report states.
More than 300 of the 13,400 companies registered for Centrepay are rental companies.
Senator Carr said he had called for an independent review of the scheme to take place early next year after ''considering the effectiveness of the Centrepay arrangements'' for some time.
''The review will examine the appropriateness of controls and administrative processes that are currently in place to protect peoples' entitlements,'' he said.
He said it would also consider whether participants were being treated on a ''fair and reasonable basis'' and provide advice on how Centrepay ''can build financial literacy while assisting people in managing their money''.
Senator Carr wants the review completed in time to consider changes for the 2013-14 financial year.
Ms Guthrie on Saturday welcomed news of the review.
''We hope that through this process they can go back to basics and understand how Centrepay can most effectively help people on Centrelink and ensure that only companies who are actually going to provide benefits to consumers are given access to the system,'' she said.