The banks have been ordered to carry out independent reviews of the sales of the payment protection insurance to find out the scale of the problem and pay restitution.
Payment protection insurance repays your loan or credit card if you become sick or unemployed.
Since August 2007, more than 300,000 PPI policies were sold in Ireland.
Many of the policies were sold to people who should not have qualified for it and would not be entitled to make a claim under it due to employment status or residency status.
Bank of Ireland, Allied Irish Banks, EBS, Permanent TSB, Ulster Bank and GE Money are all being investigated by the Central Bank.
Customers of those banks are being advised that they do not need to do anything at this point.
The Central Bank said many have been contacted by claims management companies, who may charge fees of up to a quarter of any refund due.
Instead, it is advising people that the banks involved will be writing to them in the coming weeks to outline their approaches to the review and how they intend to compensate those affected.
The Central Bank is also investigating PPI sales by other banks and credit institutions.
It is also considering enforcement action, or fines, for those responsible.
Speaking on RTÉ's Morning Ireland, Director of Consumer Protection at the Central Bank Bernard Sheridan said lenders will be required to either refund the premium paid or give the customer the option of retaining the insurance at the current price.
Mr Sheridan said compensation would arise in terms of restitution.
He said that customers would get the premiums back plus interest, which a person could have earned if they had not bought the insurance in the first place.
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