Millions of bank customers set to receive up to £10bn in refunds after court ruling on rip-off charges
Test case: If upheld, the decision to regulate unauthorised overdraft charges could cost banks £1billion in refunds and spell the end of free banking
Banks could be forced to refund their customers more than £10billion following a landmark court victory.
The Court of Appeal yesterday ruled that the Office of Fair Trading has the right to decide whether sky-high charges - such as fees of up to £38 for exceeding an overdraft limit - are unfair.
The decision clears the way for the OFT to rule that millions of Britons have been overcharged for going overdrawn or bouncing a cheque.
If the watchdog did this - and assuming the banks did not appeal to the House of Lords - customers could then claim refunds on any unfair charges levied in the last six years.
The news was welcomed by consumer groups yesterday as a victory for ordinary customers.
However, there are fears that the banks would try to recoup their lost income by charging for all current accounts.
The decision by the Court of Appeal follows the Daily Mail's Fair Play on Charges campaign, which has highlighted sky-high bank fees and helped thousands of people to claim
refunds.
Yesterday, the consumer group Which? called on the banks to start paying refunds with immediate effect.
Its chief executive, Peter Vicary-Smith, said: 'The courts have made it clear the banks should now throw in the towel. This case has been going on too long and it's about time they tried to regain some of their dignity and paid customers their dues.
'This whole saga has severely damaged the banks' reputations. If they try to appeal in the face of such a clear decision, they will suffer further losses in the court of public opinion.'
In the past, banks have generated big profits by issuing sheaves of warning letters linked to overdrafts and bounced payments - and charging up to £25 for each one.
Customers, including students and pensioners, have also been hit with bills of £100 or more after going just a few pence into the red.
The OFT calculates that banks and building societies have been making £2.6billion a year from such charges.
The Court of Appeal case means as many as 10million people will be entitled to a refund, generating a total bill likely to top £10billion.
Such a huge bill would be a hammer blow to the banks - which are already reeling
from multi-billion pound losses linked to their reckless borrowing and expansion.
Martin Lewis, founder of MoneySavingExpert.com, said: 'This is a fantastic day for bank charge reclaiming. All gates to victory have now been unbarred.'
He said all that is needed is for the OFT to rule that the charges are unfair - a decision expected later this year - before refund claims can be processed.
There are millions of claims already in the pipeline, but banks and building societies have been refusing to settle them until the legal case was concluded.
Consumer experts said it would be wise for people to make their refund claims as early as possible to ensure they are among the first in the queue for a payout.
Advice on how to make a claim, and template letters to do so, are carried on the Daily Mail's sister website thisismoney.co.uk.
OFT officials have made it clear that the banks have no reason to use the loss of the court case as an excuse to start imposing monthly fees on current accounts.
However, many analysts believe the banks will ignore this advice.
Michelle Slade of the moneyfacts.co.uk website said: 'Penalty charges are a significant revenue stream for the banks, which they can ill afford to lose at the moment.
If the OFT does move to force the banks to lower charges, we could see increased costs elsewhere. That some banks may now levy an account fee is a real possibility.'
Such a system could involve a monthly fee to cover a fixed number of direct debits, cheques and cash machine withdrawals.
Customers would then be charged additional fees if they went above this number.
The British Bankers' Association yesterday gave no indication whether banks would appeal against the ruling.
A spokesman said: 'These are important points of law. The courts can now go on to clarify the fairness of charges.'
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