E.ON, one of the UK’s largest household energy suppliers, is to compensate customers hit with extra bank charges after a billing blunder.

Ofgem, the industry regulator, said that the company took money from 1.6 million Direct Debit customers earlier than agreed.

It said the majority of those affected were due to have paid their bills in January but E.ON “erroneously took payments” on 24 December – Christmas Eve.

The move – which was flagged immediately by E.ON – was blamed on a technical fault following a shake-up of internal systems.

The watchdog said that by taking early payments customers may have experienced out of pocket expenses including unexpected overdraft bank charges and difficulty making payments in the run up to Christmas.

The company was said to have made redress and goodwill payments totalling £55,039 to customers who had contacted the supplier to date to say they had suffered losses as a result.

Ofgem said E.ON had committed to continue to pay further legitimate claims and £627,312 to an industry fund “in recognition of its failure to address underlying system and governance weaknesses”.

Anna Rossington, the regulator’s director of retail, said: “Ofgem expects suppliers to adhere to the terms of contracts they have with customers, in particular the agreed Direct Debit payment dates.

“This failure is a reminder to suppliers that when making changes to their systems, they need to undertake appropriate checks to avoid any unintended consequences for customers.”

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