The nation's largest consumer loan company has agreed to pay $1.25 million to settle claims that the company overcharged or sold unnecessary insurance to about 2,200 customers in Maryland and the District. Maryland officials said yesterday.

Alan T. Fell, state commissioner of consumer credit, said that the settlement is the largest in state history, and required Beneficial Finance Co. to refund an average of $568 to those affected. One third live in the Washington area.

"We feel the settlement is very consumer-oriented and has allowed us to avoid a protracted court fight," Fell said yesterday. "Beneficial has changed its procedures and methods and I don't think this will happen again."

Officials for the company, which maintains 20 branches in Maryland and thousands more across the country, said yesterday that the company has done nothing wrong and agreed to the settlement to end a two-year dispute with the state.

"The company made errors inadvertantly," said Beneficial's general counsel Richard Bate. "This is not the kind of thing [overcharging or selling unnecessary insurance] that consumer credit companies sit in smoke-filled rooms trying to plot."

Beneficial officials said the company has assets of about $5.8 billion and provides loans to consumers for school expenses, clothes, vacations, doctors' bills and loan consolidation.

The settlement announced yesterday followed more than two years of investigation by the state and negotiations with Beneficial officials, Fell said.

Maryland officials discovered in September 1977 that Beneficial was making small loans to customers with longer time limits than those permitted by state law. Because of the longer limits -- called "excessive terms" by state officials -- Beneficial was able to collect greater premiums.

Company officials said they exceeded the legal time limits because of a computer error made when new loan application forms were being prepared for Maryland customers.

"There's no question that Beneficial was programmed to make loans in excess of what's allowed," Bate said. "But we were able to show that [the time limit] parameters left our legal department correctly and got mixed up when they were programmed by the computer people."

The state investigation also found that Beneficial frequently sold personal property coverage to customers who had other insurance -- such as homeowners or renters -- that would have covered their personal possessions.

The company, which said it found the "double coverage" problem in August 1977 and immediately made refunds to nearly 1,300 persons, agreed in yesterday's settlement to pay refunds for any other double coverage situations and to pay a penalty fee of double the cost of the premium on top of the refund.

The state investigation also found many instances where state officials thought the company inflated the value of insured property in order to charge larger premiums.

Fell said yesterday that the company will conduct an audit of its Maryland accounts by mid-July to determine the eligibility and amount of refund each customer will receive. He said that the state will then check the audit to ensure that no customers who deserves refunds are excluded.

If an eligible customer is unfairly excluded from the refund list, Fell said, the state will charge the company $100 extra for each instance.

In addition to the Beneficial investigation and settlement, Fell said his office is currently attempting to work out similar agreements with three other consumer credit firms that his office believes have violated state lending laws. He would not name those companies yesterday.