Permanent TSB is to repay an average of €400 each to approximately 1,500 mortgage customers.

The bank made the decision to repay the money after an internal audit found that customers who had been delayed in drawing down agreed mortgages sometimes ended up paying more interest than they otherwise would have.

A spokesman said the bank was not obliged to repay the money but had nonetheless decided to.

The customers lost out when the interest rate that would have been charged on their mortgage was reduced between the time they had signed their contracts and had drawn down the money.

The spokesman said the bank had charged the interest rate agreed in the contracts signed between the two sides, but nevertheless the bank had opted to repay the money. The customers involved were both variable and fixed interest rate paying customers. The bank's systems have been changed to prevent a repeat of the error.

A facility within the bank's systems that allowed rates below or above the normal rate to be set for particular customers has now been altered so that the system will automatically apply the general rates at draw-down time.

The customers affected go back three years. The problem was identified during the summer and the Irish Financial Services Regulatory Authority (IFSRA) was immediately alerted.

The payments to be made to the affected customers will include a compensation payment that has been agreed with IFSRA. The total cost to be bank will be in the region of €600,000.

An IFSRA spokesman said the AIB report published last week noted that where mistakes concerning charges arise as a result of human error, it expects to be notified through the normal compliance channels.

The report said it would insist that all financial institutions address issues with customers in a timely and transparent manner. Earlier this year and arising out of the AIB scandal, IFSRA asked all banks to review all charges being imposed on customers.