An end to hefty bank charges for unauthorised overdrafts moved closer yesterday with a Court of Appeal ruling that the Office of Fair Trading can decide if such charges are fair. But the decision that fees levied on personal current account customers can be regulated could also herald the end of free banking.

Consumer groups called on banks to reimburse an estimated £1 billion in charges and to settle thousands of claims pending a final decision in the courts. The banks, which could lose £2.6 billion a year in revenue, are expected to appeal.

Although the judges refused them leave to go to the House of Lords, they are thought likely to apply directly to the law lords for permission to bring a final appeal.

Sir Anthony Clarke, the Master of the Rolls, with Lord Justice Waller and Lord Justice Lloyd, advised that pending any final appeal, the thousands of claims from customers seeking refunds in the county courts should be put on hold.

Customers who become overdrawn without permission or breach an agreed limit can be charged £35 for one bounced payment, although campaigners claim that the cost to banks could be only £2.50. The OFT had claimed that the banks’ terms were confusing and should be plain. The banks had said that the charges were legitimate remuneration for goods and services supplied.

The industry has warned that the case will put an end to free banking, with customers instead having to pay a monthly fee or a fee per transaction. Although the banks are said to have paid £1 billion to settle claims out of court, many others were put on hold pending the outcome. The High Court case having lasted 14 days and the appeal several more, legal fees are put at more than £16 million.

The banks involved in the test case are Abbey, Barclays, Clydesdale, Halifax Bank of Scotland, HSBC, Lloyds TSB, Royal Bank of Scotland Group and Nationwide Building Society.

Sir Anthony said that the banks had argued that, under a contract, the bank “agrees to provide its customer with an overall package and in return the customer agrees to pay charges as and when they become payable in accordance with the contractual terms”.

But the judges dismissed their appeal against a ruling by Mr Justice Andrew Smith in the High Court, saying that the charges for unauthorised overdrafts were not part of the “core or essential” bargain between bank and customer and therefore an assessment of fairness was not precluded by the regulations.

After the judgment, the head of the consumer group Which?, Peter Vicary-Smith, said that the banks should start refunding customers.

“The banks should now throw in the towel. It’s about time they paid customers their dues,” he said. “If they try to appeal in the face of such a clear decision, they will suffer further losses in the court of public opinion.”

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