Debt collectors will no longer be used to recover welfare overpayments, which will instead be handled in-house by the relevant government department.
Contracts with debt collection agents ARL Collect, Milton Graham and Probe Operations expire at the end of the financial year and will not be renewed.
The nearly 11,000 welfare recipients currently on a debt plan with a third-party collector will be transitioned to in-house agents in July.
Government Services Minister Bill Shorten said getting rid of outsourced collection methods would be the first step in ensuring the robodebt debacle was never repeated.
The illegal scheme ran from 2015 to 2019 and used annual tax office data to calculate average fortnightly earnings and automatically issue debt notices.
Collection agencies pursued welfare recipients for debts they did not owe, and a royal commission into the scheme heard accounts of "pushy" practices designed to get robodebt victims to pay up.
Mr Shorten said the change signalled to people needing the safety net of welfare that if an overpayment occurred, debts would be raised lawfully and humanely.
"If there is a debt or if there is an overpayment, the process for recovering the money is done where people are treated with humanity, dignity and respect, not treated as criminals," he told reporters in Melbourne.
"We're going to bring this function in-house and make sure that Australians who have a debt ... are not treated as crooks and they are not treated as people who are guilty until proven innocent."
The Australian Council of Social Services welcomed the change as an indication of the government putting people at the centre of Services Australia.
The welfare advocacy organisation said robodebt hit people when they were going through the hardest of times, and the government must eliminate any possibility of it happening again.
"No one must ever experience robodebt again (and) we look forward to working with the government to ensure the protections of people on social security and that they're treated in a more humane way," president Hang Vo said.
Mr Shorten said while there would be "opportunistic behaviour" from people trying to scam government payments, Services Australia was capable of recovering debts.
He said in-house collection agents would help people owing money through a transition process.
"Government should never start from the position that the existence of an alleged debt means the citizen is guilty until proven innocent," Mr Shorten said.
"Flexible repayment options, short-term counselling, information and referrals to support systems may be provided."
The robodebt royal commission is due to hand down its report by the end of June.
