Ulster Bank is to refund more than €4 million to approximately 25,000 customers who were overcharged on payment protection policies taken out with loans from the bank.
In a statement the bank said the error was uncovered during an internal review and concerned customers who had repaid a loan during a period in 2005.
The bank said all customers affected will receive a refund with compound interest and that the average amount to be repaid would be around €170 per customer. The bank said it has kept the Financial Regulator fully informed of this issue.
Payment protection policies repay a loan if the customer's ability to pay off the loan is affected by redundancy, permanent disability or death.
A bank helpLine at 1 800 251 010 has been set up for any queries customers may have. A bank spokeswoman insisted everybody affected would receive a refund along with compound interest.
"Following an internal review, Ulster Bank can confirm that we have been contacting a number of customers regarding an error that occurred when personal loans were repaid early," she said. "At the time of the early repayment a number of customers did not receive a full refund of Loan Protector Insurance for the remaining term of the loan."
She added: "All of the necessary steps have been taken to prevent a recurrence of this error." It is understood management meeting at the bank were preparing to uncover the scale of the mistake.
The Consumers' Association criticised Ulster Bank for allowing the overcharging to happen and for failing to disclose its magnitude.
Dermott Jewell, chief executive of the Consumers' Association, said the recent history of banking scandals in the country should have left no more room for mistakes.
"It's a damning indictment of Ulster Bank that they have a system that failed at this level," he said. The customers affected were wrongly charged for payment protection insurance (PPI) on loans that they had already paid off."
In 2005 it emerged that Bank of Ireland had mistakenly overcharged 65,000 customers on payment protection insurance since 1989 leading the bank to have to repay €18 million in charges and interest.
