I am a landlord in PA and when my current tenants moved in they signed a three year lease and I required a two mo. security deposit due to their bad credit. I now understand that at the end of the first two years I should have returned 1 mo. of the security deposit but I did not b/c I did not know. Now that the lease is over and they have moved out, they are bringing this issue up, as they have become aware of this through the fair housing council in our city. Other than the interst the additional mo. security earned while in my bank acct, are they entitled to any other award or can they take any legal action against me?

Consult a local attorney. You need to consult your lease and state laws or local laws. Not seeing the lease, it is difficult to really say anything as there could be additional damages that come out of the security deposit that are not known.