The care homes group Sunrise Senior Living has agreed to pay £2m in compensation to former residents for charging upfront fees without making it clear what the money would be spent on.

Residents who have paid the fees since 1 October 2015 and left one of the company’s homes within two years will be eligible to receive an average payout of £3,000, after an investigation by the competition watchdog.

Sunrise has also agreed to drop the one-off charge for all future residents.

The Competition and Markets Authority said about 97% of former residents, or 685 people, would be in line to receive compensation. A further 775 current residents were likely to receive the payment in the future. Where a resident had died, family members would receive the money.

“Care home residents shouldn’t be required to pay out thousands of pounds without being clear what they’re getting for their money,” said George Lusty, the regulator’s senior director for consumer protection.

“So it’s only right that residents at Sunrise care homes will now receive compensation if they’ve paid these fees, and that future residents won’t have to make such payments at all.”