The building society is now to repay the money to customers on its buy-to-let tracker mortgages after the Court of Appeal overturned an order of the High Court. A group of landlords had challenged West Bromwich's right to increase interest rates on mortgages when there was no change in the Bank of England base rate.
The building society said it is disappointed by the ruling. Its 2013 decision to increase the rate was in line with the terms and conditions of the mortgages, which contained a clause allowing West Bromwich to "change the mortgage interest rate to something more in line with the current market norm", it said.
Savers, who represent the majority of the society's members, "had suffered a dramatic fall in income due to lower interest rates", it said.
"The board of the society therefore acted in accordance with its overarching duties to treat customers fairly and to act in the best interests of members as a whole, savers as well as borrowers," West Bromwich said.
If it were to protect the best interest of members, the building society could not ignore the clause, it said. However, it accepts the Court of Appeal decision that the clause is "inapplicable in these cases".
Any additional interest paid will be repaid to borrowers who were affected, including those not involved in the action, the building society said.
Although the payment will result in a loss for the year to March 2017, chief executive Jonathan Westhoff said the "capital position of the Society remains strong" and money has been allocated to cover the repayment.