Irish Nationwide Building Society has dropped proceedings against financial services ombudsman Joe Meade following a dispute over the society's charges for early repayment of fixed interest loans.

The development is likely to trigger applications for refunds from Irish Nationwide customers who have been charged early repayment penalties in the past six years.

Irish Nationwide agreed at the High Court yesterday that its termination charges in cases where consumers redeemed fixed interest loans early would in future be "a genuine pre-estimate" of the losses it incurred.

Following the announcement of the settlement to the court, Mr Justice Frank Clarke awarded costs in favour of Mr Meade.

The society had challenged a decision by the ombudsman requiring it to refund €30,000 of a €74,000 early loan redemption charge, which it had imposed on a commercial borrower after he paid off his loans before the term had expired.

The ombudsman had ruled that the charge of six months interest was an "unlawful penalty clause" and directed the society to change its rules.

In light of the lender's undertaking yesterday, Mr Meade has now agreed that it is not necessary for the society to remove the six months interest rule from its rule book.

The outcome of the case was also welcomed as "great news" by consumer campaigner and dissident Irish Nationwide member Brendan Burgess, who called on the lender to identify cases where borrowers have been charged six months interest, and make refunds.

Any customer of Irish Nationwide who paid a penalty on early redemption of a mortgage should apply for an immediate refund and if they are refused, they should appeal, he said.