Bradford-based Yorkshire Building Society is having to pay a total of £8.4 million in compensation to about 34,000 of its mortgage borrowers after it admitted wrongly charging customers who had fallen behind with repayments.

The society, which also lends under brands Accord Mortgages, Barnsley Building Society and Chelsea Building Society, is to hand out about £247 on average to each borrower who paid fees for missing repayments since January, 2009 – even those who were not overcharged.

The payout comes after City watchdog the Financial Conduct Authority (FCA) questioned its procedures for charging customers in arrears.

Lenders are allowed to levy fees on a mortgage account when it falls into arrears by two months or more, but Yorkshire was found to have been wrongly applying the charges for some customers in arrears when it conducted a review in light of the FCA’s concerns.

The mutual – the UK’s second biggest building society behind Nationwide – said the “fairest approach” was to refund all arrears admin fees since January 2009, with interest on top.

It will start sending out letters to customers past and present on February 25 explaining the compensation process, with the accounts of existing customers impacted credited on the same day.

The payment will appear as a credit on their next mortgage account statement.

Most former customers who no longer have a mortgage with YBS or one of its subsidiaries will receive a cheque, or if there is still a balance outstanding, the refund will be used to reduce the amount owed.

In a statement, a YBS spokesman said: “Our customers are at the heart of everything we do, which is why we are taking proactive steps to reimburse those who may have been incorrectly charged arrears administration fees.

“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.”