Yorkshire Building Society is expected to payback all administration fees for mortgage arrears since January 2009, totalling an expected £8.4m in compensation.
The decision, made voluntarily by YBS, follows concerns raised by the Financial Conduct Authority that some customers had been charged incorrectly due to procedural failings by the building society.
Approximately 33,900 current and former customers will receive an average of £247 in refunded fees.
Clive Adamson, director of supervision at the FCA, said: “We have been encouraged that they are now putting customers first by paying redress to everybody in arrears, not just those who were overcharged.
“But this is nonetheless a very important reminder that firms must take responsibility for any wrongdoing and make sure their customers get a fair deal.”
In a statement, YBS said: “To ensure customers do not face lengthy delays and uncertainty whilst we review all individual files, we have decided the fairest approach for our customers is to refund all arrears administration fees charged since January 2009, plus interest on those fees.
“This means some borrowers who were correctly charged will also receive a refund of arrears administration fees.”
The building society will begin sending letters to clients notifying them of the refund on 25 February.