diff --git a/changelogs/user-read-passwd-when-local.yaml b/changelogs/user-read-passwd-when-local.yaml
new file mode 100644
index 0000000000..829cf7ac6a
--- /dev/null
+++ b/changelogs/user-read-passwd-when-local.yaml
@@ -0,0 +1,2 @@
+bugfixes:
+  - user - fix a bug when checking if a local user account exists on a system using directory authentication (https://github.com/ansible/ansible/issues/50947, https://github.com/ansible/ansible/issues/38206)
diff --git a/lib/ansible/modules/system/user.py b/lib/ansible/modules/system/user.py
index d54ad2827c..7ed5764632 100644
--- a/lib/ansible/modules/system/user.py
+++ b/lib/ansible/modules/system/user.py
@@ -206,7 +206,9 @@ options:
             - Forces the use of "local" command alternatives on platforms that implement it.
             - This is useful in environments that use centralized authentification when you want to manipulate the local users
               (i.e. it uses C(luseradd) instead of C(useradd)).
-            - This requires that these commands exist on the targeted host, otherwise it will be a fatal error.
+            - This will check C(/etc/passwd) for an existing account before invoking commands. If the local account database
+              exists somewhere other than C(/etc/passwd), this setting will not work properly.
+            - This requires that the above commands as well as C(/etc/passwd) must exist on the target host, otherwise it will be a fatal error.
         type: bool
         default: no
         version_added: "2.4"
@@ -446,6 +448,7 @@ class User(object):
 
     platform = 'Generic'
     distribution = None
+    PASSWORDFILE = '/etc/passwd'
     SHADOWFILE = '/etc/shadow'
     SHADOWFILE_EXPIRE_INDEX = 7
     LOGIN_DEFS = '/etc/login.defs'
@@ -840,11 +843,35 @@ class User(object):
         return groups
 
     def user_exists(self):
-        try:
-            if pwd.getpwnam(self.name):
-                return True
-        except KeyError:
-            return False
+        # The pwd module does not distinguish between local and directory accounts.
+        # It's output cannot be used to determine whether or not an account exists locally.
+        # It returns True if the account exists locally or in the directory, so instead
+        # look in the local PASSWORD file for an existing account.
+        if self.local:
+            if not os.path.exists(self.PASSWORDFILE):
+                self.module.fail_json(msg="'local: true' specified but unable to find local account file {0} to parse.".format(self.PASSWORDFILE))
+
+            exists = False
+            name_test = '{0}:'.format(self.name)
+            with open(self.PASSWORDFILE, 'rb') as f:
+                reversed_lines = f.readlines()[::-1]
+                for line in reversed_lines:
+                    if line.startswith(to_bytes(name_test)):
+                        exists = True
+                        break
+
+            self.module.warn(
+                "'local: true' specified and user was not found in {file}. "
+                "The local user account may already exist if the local account database exists somewhere other than {file}.".format(file=self.PASSWORDFILE))
+
+            return exists
+
+        else:
+            try:
+                if pwd.getpwnam(self.name):
+                    return True
+            except KeyError:
+                return False
 
     def get_pwd_info(self):
         if not self.user_exists():
diff --git a/test/integration/targets/user/tasks/main.yml b/test/integration/targets/user/tasks/main.yml
index bc268e2d51..3923c0d79c 100644
--- a/test/integration/targets/user/tasks/main.yml
+++ b/test/integration/targets/user/tasks/main.yml
@@ -255,7 +255,7 @@
         mode = oct(0o777 & ~umask)
         print(str(mode).replace('o', ''))
       args:
-        executable: python
+        executable: "{{ ansible_facts.python.executable }}"
       register: user_login_defs_umask
 
     - name: validate that user home dir is created
@@ -775,3 +775,85 @@
         password_lock: no
 
   when: ansible_facts['system'] in ['FreeBSD', 'OpenBSD', 'Linux']
+
+
+  ## Check local mode
+  # Even if we don't have a system that is bound to a directory, it's useful
+  # to run with local: true to exercise the code path that reads through the local
+  # user database file.
+  # https://github.com/ansible/ansible/issues/50947
+
+- name: Create /etc/gshadow
+  file:
+    path: /etc/gshadow
+    state: touch
+  when: ansible_facts.os_family == 'Suse'
+  tags:
+    - user_test_local_mode
+
+- name: Create /etc/libuser.conf
+  file:
+    path: /etc/libuser.conf
+    state: touch
+  when:
+    - ansible_facts.distribution == 'Ubuntu'
+    - ansible_facts.distribution_major_version is version_compare('16', '==')
+  tags:
+    - user_test_local_mode
+
+- name: Ensure luseradd is present
+  action: "{{ ansible_facts.pkg_mgr }}"
+  args:
+    name: libuser
+    state: present
+  when: ansible_facts.system in ['Linux']
+  tags:
+    - user_test_local_mode
+
+- name: Create local_ansibulluser
+  user:
+    name: local_ansibulluser
+    state: present
+    local: yes
+  register: local_user_test_1
+  tags:
+    - user_test_local_mode
+
+- name: Create local_ansibulluser again
+  user:
+    name: local_ansibulluser
+    state: present
+    local: yes
+  register: local_user_test_2
+  tags:
+    - user_test_local_mode
+
+- name: Remove local_ansibulluser
+  user:
+    name: local_ansibulluser
+    state: absent
+    remove: yes
+    local: yes
+  register: local_user_test_3
+  tags:
+    - user_test_local_mode
+
+- name: Remove local_ansibulluser again
+  user:
+    name: local_ansibulluser
+    state: absent
+    remove: yes
+    local: yes
+  register: local_user_test_4
+  tags:
+    - user_test_local_mode
+
+- name: Ensure local user accounts were created
+  assert:
+    that:
+      - local_user_test_1 is changed
+      - local_user_test_2 is not changed
+      - local_user_test_3 is changed
+      - local_user_test_4 is not changed
+  tags:
+    - user_test_local_mode