Court rules in favour of banks on fees

The OFT's 2008 market study found banks earn around a third of their retail revenues from unarranged overdraft charges which it said were not subject to effective consumer controls.

An earlier study found the banks benefited in 2006 from 2.6 billion pounds in charges associated with unauthorised overdrafts and questioned whether they are linked to banks' administrative costs.

Banks, however, welcomed the decision. Lobby group the British Bankers' Association said it would work to bring a swift conclusion to outstanding customer complaints over the charges, which can be as high as 35 pounds.

Analysts estimated the cost of defeat for the banking industry would have been over 2 billion pounds in refunds and lost revenue from 54 million active current or checking accounts.

Around 12 million people regularly incur unauthorised overdrafts, effectively subsidising a "free if in credit" system for millions of others who do not regularly slip into the red.

The two-year court battle was designed to clarify the law after growing numbers of customers said the fees were unfair and took advantage of an uncertain legal status to demand refunds.

Tens of thousands of Britons claimed back up to six years of penalty fees when the issue first came to light in 2005, spurred by templates on Internet sites, high profile media coverage and anecdotal evidence that banks would repay charges in full.

Refunds have been frozen by the FSA until January.

The case involves HSBC, Lloyds Banking Group, Abbey (now owned by Spain's Santander), Royal Bank of Scotland, Barclays, Clydesdale (part of National Australia Bank), HBOS -- now part of Lloyds -- and building society Nationwide.

These lenders represent an estimated 90 percent of Britain's current accounts market.