Allied Irish Banks is to refund more than €4 million to an estimated 40,000 account holders who were incorrectly charged.
The bank said the error arose in relation to the classification of some customers’ accounts, and the average refund is expected to be €100.
In a statement today, AIB said part of its account classification process had been found to be "vulnerable" in some cases, resulting in accounts being mistakenly entered into the wrong category.
This meant that some personal accounts had been classified as business and some business accounts as personal.
AIB admitted the problem may have arisen over a number of years, and could have resulted in incorrect fees, charges and interest payments being applied to customer accounts.
The bank informed the Financial Regulator in November 2008 when the issue was first identified but has only recently begun writing to affected customers to inform of the overcharging.
It said today a process is underway to identify the accounts which had been affected and to ensure that account holders are fully reimbursed where appropriate by March 31st next year.
The bank said it will have contacted all impacted customers by the end of the year to make them aware of the issue and to apologise.
It also said that any customer who has been overcharged as a result of being wrongly classified will be fully reimbursed, including compensatory interest.
The bank said several system changes had been initiated to prevent a reoccurrence of the problem. But until the process is complete, the bank said it was not possible to fully estimate the exact number of accounts affected or the potential refunds.
The Financial Regulator confirmed today it is continuing to engage with the bank on the matter.
"AIB has commenced the process of communicating with customers on a phased basis
advising them of the issue and setting out what is being done to rectify the matter," it said.
After it was notified of the issue, the regulator requested AIB bring in a third party to oversee the refunding process. "This work is currently being undertaken by KPMG," the regulator said.
In a separate statement, the head of financial regulation, Matthew Elderfield, said today the watchdog was conducting a review of its approach to how overcharging is dealt with under the Consumer Protection Code.
“It is clear from recent cases that change is needed in how firms handle charging and pricing issues,” Mr Elderfield said.
The regulator is concerned that financial institutions continue to experience “control failures” that result in customers being overcharged.
“While the complexity of cases vary, it is nevertheless disappointing for consumers that resolving errors and providing restitution can be so drawn out at times,” he said.
