Debt and credit repair services target Australians at risk of financial troubles and can often exacerbate their hardship.

Australian Banking Association chief executive Anna Bligh wants much stronger regulation of the sector.

"Banks are encouraging the government to ensure customers are adequately protected from unscrupulous operators," she said on Tuesday.

Banks have been working with the Consumer Action Law Centre to ensure the proposed changes are effective.

"Debt management firms promise a life free from debt but instead charge large fees, often for poor advice, which can leave people in even worse financial strife," centre spokesman Gerard Brody said.

"Licensing debt management firms is a good first step."

However, Mr Brody said even licensed firms were not without fault, and the rules should be strengthened to ensure people receive quality advice they can trust.

The ABA believes the proposed licensing regime would be strengthened by giving the Australian Securities and Investments Commission regulatory oversight of the debt management industry.

This would help prevent unscrupulous operators from charging large upfront fees or placing caveats on people's property for minor services rendered.

Australian Associated Press