"This ruling sends a clear message to other lenders who have acted in a similar manner, and to those who might have been considering following suit."
West Brom won a High Court case in January 2015, with the judge ruling that the lender was within its rights to increase the premium on the rate it charged above the Base Rate.
However the Property 118 Action Group leader was granted leave to appeal, and the decision today will result in 6,000 borrowers getting a refund.
West Brom estimates the one-off cost to be approximately £27.5m, causing the Society to record a loss for the year to March 2017.
The Society first announced in September 2013, that it would be increasing its rates by 2% from 1.49% to 3.49% due to "changing market conditions", despite the Bank of England's base rate remaining at 0.5%.
However Property 118 leader Mark Alexander said that the Society's decision to raise the rate on its tracker mortgages was unlawful.
Today, the judge ruled that West Bromwich Mortgage Company were not legally entitled to vary mortgage interest rates in the absence of a change in the Bank of England base rate, and are not entitled to call in the mortgages unless borrowers are in default.
In a statement on Property 118's website, Alexander said: "This ruling sends a clear message to other lenders who have acted in a similar manner, and to those who might have been considering following suit. There are thought to be in the region of one million tracker buy-to-let mortgages which could have been affected in this case had gone the wrong way."
In a statement, West Brom said: "While we are disappointed, we accept the Court of Appeal’s decision and so will be contacting all affected borrowers, including those who were not part of this action, to advise them of the outcome and that we will be reimbursing them any additional interest charged."
Jonathan Westhoff, Chief Executive of West Bromwich Building Society, added: “Naturally we are disappointed by today’s decision from the Court of Appeal. At all times we acted to ensure we were treating customers fairly and that our approach was in the best interests of the Society and its members as a whole.
“We will now contact all affected borrowers and ensure we process promptly any reimbursement they are due. In line with our prudent approach to managing the Society we had already allocated capital to cover this unexpected outcome and so the Society remains in a strong financial position.”
