Banks have been accused of condoning criminal behaviour among customers by allowing them to exceed their agreed overdraft limits.

In court documents published yesterday, the Office of Fair Trading said that customers who paid for goods or services without sufficient funds in their accounts “risk committing a criminal offence”. However, the banks “use language that appears to treat such conduct as acceptable or proper”, it said.

The document was part of legal arguments in the run-up to the High Court case over bank charges between the OFT and eight major banks, including HBOS, Barclays, HSBC and Lloyds TSB. The case is expected to be heard in January.

The case will determine whether the OFT has the authority to recommend changes to overdraft charges. Hundreds of thousands of consumers have already reclaimed the charges from their bank because they believe they are unfair.

In their defence statement, the banks said that unauthorised overdraft charges, which can be as high as £38 for each infringement, are essential to cover the cost of current account banking. But the OFT said the fees are “uneconomic” and “disproportionate”.

The watchdog said that some of the banks’ terms and conditions were not in clear and easily understandable language, and in some cases were liable to mislead consumers. Cavendish Elithorn, senior director at the OFT, said: “When you can’t tell what a product is going to cost you over a year, it is difficult to compare different accounts.”

Banks and building societies are estimated to make between £2 billion and £3.5 billion a year from overdraft charges.

The OFT indicated yesterday that it would continue to fight the banks on overdraft charges even if it lost the case in the High Court.

A senior OFT figure said that it could make recommendations to the Government to change the law, refer the banks to the Competition Commission or run a consumer awareness campaign.

Mr Elithorn said: “Banks should have a business model that is clear to consumers . . . Relying on small print is not, in our view, a sustainable business model. If the law doesn’t apply, we need to think about what alternatives there are.”

If the OFT wins the case, it is likely to press banks and building societies to change their overdraft charges to a level it deems to be fair.

The Financial Services Authority has allowed banks to stop making repayments to bank customers who have complained that their charges were unfair until the court case is decided.

A British Bankers’ Association spokeswoman said: “Banks believe the fees customers pay for unarranged overdrafts are fair and clear. But because customers, as well as the banks, would welcome legal clarity, some of our members have joined the OFT to approach the courts for a ruling on this issue. The issues are subject to a court case which commenced at the end of July. The first hearing is due in January.”

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