AIB has written to about 4,200 customers telling them they were overcharged on their home loans for up to 12 years. The overcharging came to light as part of the bank’s lengthy trawl of customer accounts after last year’s foreign exchange overcharging scandal that will cost AIB €50m.

Aidan Clarke, AIB’s head of home mortgages, wrote to customers earlier this month informing them of the overcharging and that refunds would be credited to their accounts. In closing the letter, Clarke said: “I am sorry that this has happened.”

The overcharging relates to mortgages that were covered by Surplus Builder life-insurance policies issued by Ark Life, AIB’s life and pensions subsidiary. Surplus Builder was designed to cover home loan repayments in the event of death and to build a reservoir of cash that could be used to repay a mortgage early. Under the policy customers were entitled to a 0.35% discount on AIB’s standard variable rate but the discount was not applied. It is believed that many customers were not even aware of the perk. At today’s prices, the correct interest rate for Surplus Builder customers is 2.95% and not the 3.3% standard variable rate charged by AIB.

AIB said the repayments would amount to €3.6m, although it has yet to tell individual customers how much they will get. The Surplus Builder product is no longer offered to customers.

The letters took many of the bank’s mortgage holders by surprise. One irate customer, who asked not to be named, said: “It’s unbelievable. I’d no idea that I was entitled to this discount and I would’ve continued to be none the wiser had it not been for the scandal that broke last year. They never made me aware of this discount when I took out the loan six years ago.”

The good news for customers is that AIB has committed to paying interest on all refunds, which are expected to be made by the middle of July. “This is an extremely difficult refund to calculate,” the bank said. “It has to be done on an individual basis, which takes a long time to do. They have to be done manually.”

AIB said the calculation of refunds and interest payments is being carried out with reference to Ifsra, the financial watchdog. The bank began reviewing its accounts in May last year when it emerged that it had overcharged a number of customers on foreign exchange transactions since 1998.