AIB COULD yet face action from the financial regulator in response to its efforts to recoup interest arrears from 500 mortgage customers following an internal blunder.

The bank last week sent a letter to customers with discount tracking mortgages informing them of its failure to increase their repayments during a 12-month period to March 2007.

The lender said it had failed to pass on rises in the European Central Bank’s official interest rate during the period despite the ECB increasing rates five times.

Borrowers will now repay 1.5 per cent monthly, rather than the 0.25 per cent rise announced by the ECB last week.

Furthermore, the customers were informed that they must make up the shortfall between interest paid and that which they should have been charged either by paying the bank a lump sum by the end of this month or by spreading the liability over the term of their loan.

However, a spokeswoman for the financial regulator said the watchdog had yet to determine if the bank’s requirement that customers potentially make up the shortfall in the next three weeks was consistent with the Consumer Protection Code.

“In instances where an institution is seeking to recoup money as a result of the failure of its own internal systems we would expect it to be flexible in terms of the arrangements it comes to with consumers,” she said.

A spokesman for AIB said the bank had informed the financial regulator of the error, and had undertaken to “update them as necessary” .