Claim Bank Charges Back - Helping you to reclaim Unfair Bank Charges!

When this newspaper began its campaign against excessive bank charges in February 2007 the financial world was a very different place. It was before the credit crunch; before the nationalisation of Northern Rock; before the unprecedented state bailouts of some of the most famous banking names on our high streets. In those carefree days, few of us had heard of sub-prime mortgages or collateralised debt obligations.

When The Independent began to encourage bank customers to demand that these charges be refunded, the likes of Lloyds TSB, the Royal Bank of Scotland and HBOS made billions of pounds in profits each year. Now all that stands between these banks and insolvency is the hand of the state.

Yet, despite this traumatic humbling, the banks continue to fight for their right to levy these charges, bringing their case before the House of Lords yesterday. Over the coming days, five Law Lords will rule on whether the Office of Fair Trading has the authority to decide if these charges are fair or not.

Should the fact that the high street banks have been brought low have any bearing on the outcome of this case? Expect the banks and their defenders to argue that it does. They will claim that removing this income stream (which before 2007 yielded the sector some £2.5bn a year) will hasten the end of "free" banking in the UK.

We can predict this because this is the tune the banks have been playing since this saga began. The alternative to allowing the banks to impose hefty penalties is, we are told, monthly account fees for all, of the sort that are levied on the Continent.

We should not allow such threats to be a distraction from what has always been the central issue. The basic objection to these charges is not that they make the banks too much money, but that they are unlawful. The law, as outlined in the 1999 Unfair Terms in Consumer Contracts Act, says that banks cannot impose charges for services that are in excess of what it costs them to provide those services.

But the level of these charges is not set to cover the costs to the banks of unauthorised overdrafts and the like. It does not, for instance, cost a bank £40 every time one of their customers goes unexpectedly overdrawn. Independent analyses suggest the true cost is less than a tenth of this. These are penalty charges and, as such, they are breaking the law.

The question of the banks' revenues is another matter entirely. If the banks want to impose account fees to maintain their profit margins, let them make the case for this on its own merits. It is, though, hard to see them getting a receptive hearing from their customers in the present climate.

The banking crisis, far from supporting the case for bank charges, emphasises the extent to which the financial sectors enjoy an implicit guarantee from the state when it overreaches itself. Commercial banks have a tendency to privatise profits in the good times and socialise losses in the bad.

Given the implicit – and, at the moment, explicit – state guarantee the banks enjoy, the case for allowing them to levy punitive charges looks weaker than ever. It is bad enough to be gouged by a private company. But coming from businesses that we - as taxpayers - are required to support, it is surely an insult too far.

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Banks have been given the right to appeal against a court ruling that could have seen more than £1bn in unauthorised overdraft charges returned to customers.

In a blow to The Independent's bank charges campaign, the House of Lords has ruled it is prepared to hear an appeal from seven banks and building societies who maintain the charges are not subject to a consumer law on fairness.

The decision overturns a ruling by the Court of Appeal that the banks should not be able to take their two-year battle against the Office of Fair Trading (OFT) to the highest court in Britain.

In February, the Court of Appeal upheld a High Court ruling last year that the charges fell under the 1999 Unfair Terms in Consumer Contracts legislation, as the OFT had argued. Campaigners had hoped one million people whose cases had been frozen pending the case outcome would soon receive a payout.

The institutions – Abbey, Barclays, Clydesdale, HBOS and Lloyds TSB (now part of the same group), HSBC, RBS and Nationwide Building Society – are waiting for a date for the hearing.

The OFT brought the test case in April 2007 after thousands of customers started demanding refunds for the charges. People who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 for a single bounced payment, although the cost to the banks could be as little as £2.50.

Prior to the case, banks had paid out £559m in refunds. Martin Lewis, the creator of moneysavingexpert.com, who has run a campaign against the charges, said: "It's time the banks gave up and paid out. Both the High Court and the Court of Appeal have already said bank charges are governed by fairness rules and the OFT has said it provisionally thinks charges are unfair."

The Which? personal finance campaigns manager, Doug Taylor, said: "It's outrageous that public money is being used to drag this saga out for even longer when the banks should accept the Court of Appeal's decision and draw a line under this issue once and for all."

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The Office of Fair Trading pledged yesterday to decide by mid-July whether bank borrowing charges are unfair and how much compensation customers should receive. The regulator was pressed into giving the commitment by a High Court judge, who said courts considering such cases and customers making claims for refunds had already faced significant delays due to the legal impasse in the dispute.

The OFT gave its commitment to Mr Justice Andrew Smith yesterday afternoon after its barrister had initially warned that he did not know how long the regulator's ongoing inquiry into unauthorised borrowing charges would take.

"We are facing a lot of litigants who have not had their claims struck out and who should be in a position to pursue their claims," Mr Justice Smith said. "How long should we hold up the county court litigation? Are we talking months, years or weeks?"

Having been urged to set a deadline for a decision, the OFT's legal representatives returned to court later in the day and said they would give the banking sector its verdict during the second week of July. If banks dispute the decision, the two sides pledged to return to court before Christmas to settle the question.

The OFT has been conducting an investigation for more than a year into whether the charges – often more than £30 – that banks levy on customers who exceed current account overdraft limits or bounce cheques are lawful.

Last month, Mr Justice Smith said the OFT had a legal right to consider what level of charges was fair – and to order compensation if necessary – under consumer contract laws enacted in 1999. However, the OFT has until now been unable to say when it would reach a decision, leaving hundreds of thousands of bank customers who have already filed claims for compensation facing uncertainty over when their cases would be heard.

Despite yesterday's commitments, customers may still face a long wait for compensation. Mr Justice Smith also gave the eight banks covered by test cases on borrowing charges leave to appeal last month's ruling. The appeal will be heard this autumn, but the case could drag on into next year if subsequent appeals by either side are launched in courts at different levels up to the House of Lords.

The appeal was criticised by consumer groups, which accused the banks of deliberately spinning out the dispute to put off paying compensation for as long as possible. Phil Jones, of Which?, said: "This has taken far longer than we had hoped, so the OFT's move is a positive one, but we are disappointed in the banks, which we had called on not to continue stringing this out."

Nevertheless, yesterday's commitment by the OFT represents a breakthrough for customers seeking refunds that could cost the banking sector up to £3.5bn. A spokesman for the regulator said: "We have always made it clear that any appeal by the banks would not prevent us from considering the fairness issue."

The OFT was also buoyed by the banks' decision to accept that verdicts in the test cases would be binding on previous terms and conditions on current accounts, as well as the detail in the cases under consideration.

In theory, the OFT could now come to a view about the compensation owed to customers only for the courts to rule the 1999 consumer contracts legislation does not give it the right to use its authority in this way. However, the OFT's pledge also means the regulator will be in a position to order compensation payments – assuming it deems charges unfair, as it has in the credit card sector – as soon as the courts give a final verdict on its jurisdiction.

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That eight current account providers are to appeal the High Court's ruling against the fees charged to customers who bust their overdraft limits or bounce cheques will shock no one. What is more surprising is how little detailed law there is on the rights and wrongs of this case.

Last month's ruling was a curate's egg for both sets of protagonists – in the original sense of the phrase. Both sides could, with some justification, claim the judgment was good in parts for them, but the overall effect of the mixed ruling was to spoil its usefulness whether you are complaining about bank charges or defending them.

The good news for the banks was Justice Andrew Smith's decision that their unauthorised borrowing charges did not constitute a breach of contract, the basis on which a good number of customers have brought actions for compensation in the Small Claims Court. The benefit of this, however, was cancelled out by his insistence that the Office of Fair Trading was within its rights to decide whether the charges were fair, under the Unfair Terms in Consumer Contract Regulations legislation enacted in 1999.

It is this latter point that the banks will today appeal. That process is likely to take a couple of months, which will no doubt frustrate consumer groups. But the thornier matter for them is that Mr Justice Smith has so far been unable to offer guidance on how the OFT should come to a view about the issue of fairness, not least because the 1999 regulations offer so little help.

Put another way, even before the appeal to be announced today, customers are still only marginally closer to finding out whether or not they'll get compensation, let alone how much, than when the OFT first announced this test case last summer.

It may be little consolation to customers eager to get their hands on pay-outs worth hundreds or even thousands of pounds, but there is mounting frustration in the banking sector too over this saga.

Privately, many bank bosses wish this whole business had been quietly settled last summer, as it was in the case of credit card late payment charges, where the OFT simply said any fee over £12 would be considered unfair.

Unfortunately, the OFT, hindered by the vague terms of those darned Consumer Contract Regulations, felt unable to take the same approach on bank charges, where the volume and potential cost of claims is far larger. It would inevitably have faced legal attack from one side or the other.

Several banks feel the potential cost of losing this case makes it worth fighting for as long as it takes, despite the damage to their reputation. Accusations of foot-dragging will increase public hostility towards the sector and there's also the chance of embarrassing revelations as the banks are forced to disclose documents relevant to the case. But giving in would mean accepting a large hit on banking profitability at just about the worst time.

So, back to the courts it is then, on an ongoing voyage into uncharted legal waters. This newspaper has championed the cause of consumers who have, in our view, been repeatedly ripped off by charges of £30 or more following account breaches that can't possibly have cost banks more than a few pounds to deal with. We will continue to do so.

It is becoming increasingly obvious, however, that the legal framework set up to protect consumers from unfair terms falls a long way short of providing the clarity required, whichever side of a contract on which you sit.

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Britain's banks will unveil plans to appeal against the first stage of the bank charges test case today, as they meet with the judge to decide how the case should proceed.

The banks lost the first round of the battle last month, when Mr Justice Andrew Smith sided with the Office of Fair Trading and ruled that current account charges are subject to the Unfair Terms in Consumer Contract regulations.

As a result, the OFT is expected to ask the judge today to oversee a new case to determine whether or not the banks' charges are indeed "unfair" and in breach of the regulations.

Meanwhile, the banks will ask the judge for leave to appeal against his original verdict, and are likely to take the case all the way to the House of Lords if they are unsuccessful.

Although a final resolution is still a long way off, the banks' decision to appeal should not delay the process. The judge is expected to allow the new case to get under way in the High Court, at the same time that the appeal process for the first case is taking place in the Court of Appeal and House of Lords.

Today's case management conference will also see the judge present a distilled version of his 119-page judgment on the first part of the test case, giving both sides some more detail as to what it might mean in practice.

Although the OFT won the main battle in the first case, it is possible that it will also launch an appeal today – against the judge's ruling that the banks' charges cannot be considered to be a penalty.

It is thought that any appeal cases will take around two months to reach court, and will last for a few days, meaning a verdict is unlikely before the end of the summer. A House of Lords hearing would then follow some months later.

The second part of the test case is also likely to take several months to get set up, and is expected to last for several weeks, with a judgment unlikely before the end of the year. Thereafter, there are likely to be further appeals by the losing side.

The earliest that consumers can expect a final resolution now looks to be the middle of next year, although some believe it may be 2010 before the case is settled.

In the meantime, the thousands of customers who are hoping to be given refunds for allegedly unfair bank charges, are being forced to wait. Last year, the Financial Services Authority gave almost all banks a waiver, allowing them to stall any claims for the refund of charges until the test case is settled.

A loss for the banks could see them forced into refunding billions of pounds of historic charges, and would also see them lose out on much of the £3.5bn that they currently earn from current account charges every year.

Two years ago, the Office of Fair Trading clamped down on credit card fees, preventing banks from charging more than £12 each time a customer makes a late payment. It is thought that a win for the OFT in the bank charges test case would result in similar restrictions being placed on the current account market. At the moment, some banks charge more than £30 to customers who bust their overdraft limit, and as much again if a cheque is bounced at the same time.

However, David Black, the head of banking at Defaqto, warns that a clampdown on overdraft charges is likely to result in the end of free banking – forcing banks to charge a monthly fee for all customers.

According to a YouGov survey to be published today, more than half of the UK's banking customers wrongly believe that the UK has the highest bank charges in the world. In fact, Britain is one of the three cheapest countries in the world, when it comes to retail banking.

The survey, commissioned by technology company EDS, also revealed that only a third of people would favour a monthly fee over other bank charges.

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Britain's biggest banks face payouts of more than £10bn after losing the right to charge current account holders as much as they like for unauthorised borrowing. Vindicating The Independent's year-long campaign against bank charges, the High Court ruled yesterday that fees for slipping into an overdraft or bouncing a cheque are subject to standard legal rules on fairness of contracts, raising the prospect of hundreds of thousands of successful compensation claims. High Street banks had insisted that charges on customers could be levied entirely at their own discretion, with penalties of up to £38 common for breaches of overdrafts. The Office of Fair Trading (OFT) is now expected to press ahead with an epic legal battle to prove that the charges are unfair. If the case succeeds, then banks may be forced to compensate every customer for charges going back years, giving millions of people a windfall.

Consumer groups hailed the ruling as a "massive victory", though the banks hinted they will appeal, threatening protracted legal warfare in the Court of Appeal and the House of Lords.

In the meantime, claims for refunds worth about £711m are on hold, pending the outcome of the case. The OFT estimates that banks and building societies make £2bn to £3.75bn a year from unauthorised borrowing fees, suggesting the total reclaimable could be as much as £20bn.

One million customers won refunds before the OFT and eight financial institutions announced on 27 July last year that they would jointly bring yesterday's test case to establish whether the charges are legal.

The banks – Abbey, Barclays, Clydesdale, Halifax Bank of Scotland, HSBC, Lloyds TSB, Royal Bank of Scotland and the Nationwide Building Society – assembled one of the biggest commercial legal teams of recent times to fight the case.

Judge Andrew Smith agreed with them yesterday that the charges were service rather than "penalty" fees and that their terms and conditions were, for the most part, in "plain intelligible language".But he went on:"I reject the banks' contention that the relevant terms are exempt from assessment as to fairness under the 1999 [Unfair Terms in Consumer Contracts] Regulations.

"This does not mean that the relevant terms are necessarily to be regarded as unfair... or that they are not binding upon consumers. Those are not questions for me to decide in this judgment." Campaigners claimed the banks should now lift the waiver and immediately start paying out to customers. "The banks should do the right thing now: concede defeat, agree with the OFT what constitutes a fair unauthorised overdraft fee, and refund their customers as soon as possible," said Doug Taylor, of the consumer group Which? "The Financial Services Authority [FSA] must now drop its waiver so the thousands of cases pending can be processed. Every second this remains unresolved is costing consumers £111 in overdraft charges."

Martin Lewis, of MoneySavingExpert.com said: "Thisis a massive victory for the bank charge campaign because the primary line of attack has been that bank charges are unfair under unfair terms legislation.

"Banks currently charge £35 for what is an automated letter printed off the computer. What does it really cost? Some generous people say £4, I say about £2."

The British Bankers' Association said the judgment was "complex" and the banks were considering its implications, adding that further court hearings were required.

"As previously agreed with the Financial Ombudsman Service and the FSA, customer complaints relating to unauthorised overdraft charges will currently remain on hold," it added.

Under the law, bank customers can bring legal claims for bank charges dating back six years in England and Wales and five years in Scotland. Annual results for the major lenders show they have so far paid out more than £559m in refunds but the total is higher because Abbey and the Nationwide kept their refunds secret.

"In one sense this is a good result," said David Kuo, of the personal finance website fool.co.uk. "But the banks will try and appeal and prolong the agony for consumers. I do hope they see sense – they have lost this one and will certainly lose the next one."

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What does this week's ruling mean for me?

Although Thursday's judgment moves us one step closer to a potential clampdown on bank charges by the Office of Fair Trading, this was only the end of the first stage in a very long process. Unfortunately, if you've made a claim against your bank for unfair charges – and have been told that you have to wait for a resolution in the test case – the waiting isn't over yet.

The Financial Services Authority has told banks they don't have to pay any claims until the test case process is completed – and this could still be well over a year away.

Why is the process taking so long?

The test case is split into two parts. The first stage – which concluded on Thursday – was all about deciding whether or not bank charges were subject to the Unfair Terms in Consumer Contract Regulations (UTCCR) 1999. The judge ruled that they were, opening the door for the second stage, which will consider whether the charges really are unfair. Each of these cases is likely to be subject to appeals – regardless of the outcome – followed by a final appeal to the House of Lords (where a final and binding decision will be made). Even then, there is the possibility of the case continuing in the European courts. The first case started in January, and took almost four months to conclude – and it is unlikely it will reach the House of Lords before 2009.

Does Thursday's verdict mean the banks are likely to lose the next stage of the case?

Not really. In fact, Thursday's judgment wasn't all bad news for the banks. Although they lost their battle regarding the consumer contract regulations, the judge ruled in their favour when it came to the debate over whether bank charges could be considered to be a "penalty". It's a technical point, but if they'd lost here, it would have been much easier for the OFT to win the second stage of the case.

What happens next?

The banks and regulators need a few weeks to digest yesterday's 120-page judgement. They will then all get together on 22 May to decide what happens next. It is expected that the banks will confirm their intention to appeal the initial decision, while the OFT will get things moving for the second part of the case. Fortunately, the OFT doesn't have to wait for the result of the appeals to get the second case under way.

Much of the second hearing will revolve around the banks trying to prove that their charges relate to the costs they incur. For example, many banks still charge upwards of £20 for going overdrawn without permission. However, the OFT is likely to argue that the actual cost to the bank here is much less – perhaps only the cost of sending a letter, and the cost of providing the additional funds.

Can I still make a claim for unfair charges?

There's nothing to stop you putting in a claim for unfair bank charges now. If you've accidentally slipped into the red for the first time, and found yourself hit with nasty fees, it's well worth appealing to your bank's better nature and asking them to waive the charges. If you don't have any luck, try suggesting that you'll take your account elsewhere if they don't scrap the charges.

If you're making a large claim for several years' worth of charges, however, you're unlikely to get any resolution to your claim now – although there's nothing to stop you from filing it. The vast majority of banks and building societies are covered by the FSA waiver, meaning they don't have to process claims until the test case is resolved.

A small number of small providers are not covered by the waiver, such as ICICI, so you may still be able to pursue claims against these. To check whether your bank is covered by the waiver, visit www.fsa.gov.uk/pubs/waivers/details_disp.pdf.

If your bank does have a waiver, your claim will sit in the queue until the test case is over. You can make a claim for any charges levied within the last six years.

I've made a successful claim – can the banks take it back?

No. If you've already been paid out, the banks will not ask for the money back if they win the test case. However, if your claim is in the queue, it's very unlikely that you'll secure a payout if the banks win.

What will happen if the banks lose?

All the claims in the queue should be paid out if the banks lose. Furthermore, the OFT is likely to impose a cap on bank charges. It is thought that banks won't be allowed to charge more than £12 if you bust your overdraft limit.

Beware, however, that such a clampdown will only result in banks looking to recoup their revenue from elsewhere. Some commentators believe that it is only a matter of time before the banks will be forced to start levying a monthly fee for every current account holder.

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The long-awaited court case that will determine whether thousands of aggrieved bank customers can pursue overcharging claims against banks begins today.

A High Court judge will formally begin the case brought by the Office of Fair Trading (OFT) against seven banks and one building society which will help resolve the legality of unauthorised borrowing fees.

The OFT is seeking to prove bank charges fall under the remit of consumer contracts regulations, which stipulate that "penalty fees" must be proportionate to their cost. The banks maintain that the charges, of £30 for bouncing a cheque or exceeding an overdraft limit, are not punitive and so do not fall under the terms of the act.

Thousands of cases brought against banks have been stayed pending the conclusion of the case, saving institutions millions of pounds in interest.

If the OFT wins, it will seek to launch a second case aiming to prove that fees levied on customers are too high because they exceed costs of £4 a transaction.

If the banks win, they will be able to claim victory in the main arena of the bank charge revolt: current account charges. Until last summer, financial institutions were settling thousands of cases from customers claiming they have been overcharged before they reached court. High street banks paid out at least £400m in the first six months of 2007 but the total bill for the past few years may be more than £1bn.

Regardless of this case, customers can claim back late payment fees on credit cards of more than £12, the level set by the OFT as reasonable. The banks fighting the case are Abbey National, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland Group, along with the Nationwide Building Society. They provide 90 per cent of current accounts.

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The Office of Fair Trading yesterday warned Britain's banks it intended to take them to task over unauthorised overdraft charges whatever the outcome of a High Court test case on the fees that is scheduled to begin in January.

The OFT published its formal submission to the High Court last night, rebutting a submission from the banking industry that unauthorised borrowing charges were fees paid for a service provided to customers. The regulator said it believed the fees were penalty charges and accused the banking industry of misleading customers.

Millions of bank customers have this year filed claims for refunds of charges paid for breaching overdraft limits or bouncing cheques, which can be as high as £35. The industry is thought to have paid out close to £600m in compensation to more than 300,000 customers, but earlier this year the OFT said it would bring a test case against eight current account providers to establish the legalities of the fees.

The Financial Services Authority, the banking regulator, subsequently announced it would allow banks to suspend reviews of customers' complaints until the case, due to begin on 14 January, had been heard. In theory, if the High Court rules in favour of the banks, no more compensation would be payable. But yesterday, Cavendish Elithorn, a senior director at the OFT, said the regulator had no intention of letting the industry off the hook.

"Banks should be clear to consumers about their costs so they can be predicted and compared – relying on small print is not a sustainable business model," he said. "If we lose the case, there may still be an issue that should be addressed – if the law doesn't apply, we need to think about what alternatives there may be."

Mr Elithorn said these alternatives included the possibility of referring the banks to the Competition Commission, or making recommendations to the Government for a change in the law. The OFT is also conducting a wider review of bank charges, which it will publish after the High Court case, and which could include other remedies designed to penalise the sector.

The OFT's hardline stance on unauthorised overdraft fees is causing growing irritation among the banks, which are angry that the regulator has chosen to continue making public statements on the charges. "We thought we were letting the courts decide these issues, but the OFT seems to want to play this out in the media," a spokeswoman for the British Bankers' Association said.

The banks' submissions to the court have not been published, the BBA pointed out.

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Consumers challenging charges for overdrafts and bounced cheques have claimed back £2.6bn from Britain's financial institutions, according to figures that suggest the rebellion against the banks is taking place on a greater scale than imagined.

In a dramatic victory for The Independent's six-month assault on the charges, an estimated three million people have obtained a full or partial refund from their bank or building society.

The figures come from a YouGov poll which found that more than one third of customers had been charged fees since 2001. Refunds averaged £685. One in 20 bank customers had been billed more than £2,500. Applying the figures to the general population, the price comparison website uSwitch said its research showed that 3.8 million current account customers would have received refunds with a total of £2.6bn.

The British Bankers' Association disputed the figure but declined to give its own estimate of the cost of the revolt against its members.

Campaigners, the consumer group Which? and the Office of Fair Trade believe unauthorised borrowing fees of up to £38 a time are illegal because they exceed costs. But in a deal that has infuriated campaigners, the OFT is allowing banks to continue levying them – while freezing compensation claims – until a High Court test case in January.

From its polling of 4,000 customers, uSwitch said Lloyds was the most aggressive big high street bank, billing £800 over the six years, with a £30 fee for an overdraft. But it said Abbey was the most prolific, charging £1,376, or £230 a year.

As the campaign against charges has gathered pace, millions of forms challenging the banks and threatening them with legal action have been downloaded from the internet. Martin Lewis, whose moneysavingexpert.com has received more than three million downloads – believes a further £500m to £1bn in refunds is currently frozen pending the OFT case.

If uSwitch is right, the banks have been paying out far more money to aggrieved customers than estimated by City analysts, who have hitherto underestimated the scale of the revolt.

The investment bank Credit Suisse suggested earlier this year that the revolt would knock £200m off the banks' interim profits. In fact, the five biggest groups – HSBC, Barclays, RBS Group, HBOS and Lloyds – paid out a total of £400m in the first six months of 2007. Given that those five have 65 per cent of the current accounts in the UK, the total level of refunds so far this year may be £550m.

Campaigners have hailed the amount being back paid as an example of people power. "There is a massive sense of empowerment. We get letters and emails saying: 'This is the first time I have stood up to an organisation'," said Marc Gander, of the Consumer Action Group.

"The strength of feeling is enormous. We are talking about people who have had their entire lives compromised; their families compromised and their businesses compromised, simply for fees that will turn out to be illegal."

Angela Knight, chief executive of the British Bankers' Association, said uSwitch's figures were "misleading, and to portray the industry in this way is totally wrong ... We are working with the statutory consumer protection authorities to bring about a legal and fair resolution of the debate over the fees we levy for unauthorised overdrafts."

The campaign against the fees began in earnest last year after a Plymouth law student, Stephen Hone, objected to two £32 charges levied by Abbey and looked up the law books. There, he found the 1999 Unfair Terms in Consumer Contracts Act, which allowed him to reclaim his charges and he sued the bank. Abbey paid £840 before the case reached court, sending shock waves through the financial system.

Opposition snowballed in February this year when The Independent put its campaign on the front page three times in a week. National television bulletins and other national newspapers took up the story and hundreds of thousands of claims flooded into the banks and the Financial Ombudsman Office, which at one stage was receiving 3,000 complaints a day.

Customers have successfully claimed fees running into tens of thousands of pounds. In many instances, the banks have settled straight away, but in others they have engaged in delaying tactics, obfuscation and retaliation by closing accounts. Two hundred people complained to the Information Commissioner that the banks were not detailing past charges in accordance with data protection rules.

Tracy North, of uSwitch, said the campaign against penalty fees had hit a peak, but warned that there were £731m of charges frozen pending the OFT case, saving financial providers £20m in interest alone.

"For the past six years, banks have been able to carry out this practice ... it's good so much money is now being refunded today. But there's a lot more to be refunded." A Which? spokeswoman, Helen Ainsworth, said: "The reason this campaign has struck such a chord with people is because they feel these charges are disproportionate and unfair considering the cost to the bank."

Banks are estimated to make between £1.2bn and £4.7bn a year from charges when their costs are put at no more than £2 to £4 a time, taking into factors such as offices and staff. In all but a few cases, financial institutions have paid out before they have reached court in what campaigners believe is an attempt to prevent the charges being ruled illegal. If they were declared illegal, banks might have to stop charging the fees, which are a useful source of revenue.

The Consumer Action Group and Moneysavingexpert.com have set up a £120,000 fund to establish a legal precedent.

People can claim back unauthorised borrowing fees on current accounts, credit card charges for late payment and mortgage exit fees. Only current account fees have been frozen, though some courts may still accept new cases.

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