The Bradford-based lender, which also lends under brands Accord Mortgages, Barnsley Building Society and Chelsea Building Society, is to hand out around £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 Yorkshire Building Society’s procedures for charging customers in arrears.
The mutual said the “fairest approach” was to refund all arrears admin fees since January 2009, with interest on top.
Yorkshire - the UK’s second biggest building society behind Nationwide - 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 Yorkshire 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.
Yorkshire 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.”
A spokesman for the FCA said: “We have worked closely with Yorkshire Building Society to get to the heart of this issue.”
The spokesman said the FCA had been encouraged by the fact that the Yorkshire was putting its customers first by paying redress to all customers affected by arrears admin fees, and not just those who were overcharged.