The lender admitted it had failed to reimburse around 25,000 customers in Ireland up until 2005 on the policy if they repaid their personal loan early.
The bank has promised customers a full refund plus compound interest on the amount, with the average payout around 170 euro (£115).
A statement from the lender said: “Following an internal review, Ulster Bank can confirm that we are in the process of contacting a number of customers regarding an error that occurred when personal loans were repaid early. At the time of the early repayment, a number of customers did not receive a full refund of loan protector insurance for the remaining term of the loan. We apologise for the inconvenience caused.”
With the Financial Services Authority (FSA) keeping a close eye on PPI sales in the UK, there could be potential for further payouts from lenders who overcharged or misled consumers.
Simon Burgess, managing director of British Insurance, said: “This is the first of many and I would not be surprised if the FSA is looking at this case closely. I expect more lenders to be pulled up by the regulator in the future when it comes to PPI.”
However, a spokesperson for the Association of British Insurers, said: “The industry has agreed a policy of refunds with the FSA and it is working closely with the regulator to improve the way PPI is sold and to make it more transparent.”
