An investigation by the Australian Communications and Media Authority revealed the telco took actions such as suspending or disconnecting services to 70 customers who were on hardship arrangements.
Under the telecommunications code, telcos must suspend credit management when hardship arrangements are in place.
The investigation found 70 customers were affected between August 2019 and April this year.
Of those, 22 had services restricted, four had their service suspended while five were disconnected.
It was revealed two of Telstra's legacy IT systems were to blame for the action taken by the telco, with the statuses of affected customers not being updated.
The authority's acting chair Cerina Chapman said Telstra and other telcos had a responsibility to customers on hardship arrangements.
"With the pressures caused by rising costs of living and the COVID-19 pandemic, it's more important than ever for telcos to support their customers, particularly those in difficult circumstances," she said.
"Telco services like phone and internet are now essential to daily life ... so even briefly suspending or disconnecting customers can cause a real disruption to their lives."
While issues were resolved for 61 of the affected customers in 24 hours, the authority said there had been a range of issues at Telstra sparked by legacy IT systems.
Ms Chapman said the authority had formally directed Telstra to comply with the communications code.
Telstra could be slapped with fines of up to $250,000 should there be further breaches of the code.
"Telstra must continue to address these longstanding issues as a matter of urgency so that its systems can deliver on customer safeguards," Ms Chapman said.
"Protecting telco customers experiencing financial hardship is an ACMA compliance priority and all telcos can expect greater scrutiny of their dealings in these matters."
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