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Britain's major banks make £2.5 billion a year in profits from unauthorised overdraft charges, the Office of Fair Trading (OFT) is expected to reveal.

After hundreds of thousands of people demanded compensation over the sky-high fees the OFT will, for the first time, put an official figure on how much they have been overcharged in a damning review into the banking system.

The watchdog is due to publish its market study into current accounts and unauthorised overdraft charges later this month. It is also expected to say what a reasonable charge for the service would be, as well as looking at how transparent the charges are and how easy it is for consumers to switch banks.

The £2.5 billion figure has emerged as the test case on penalty charges rumbles on.

After several months of deliberation Judge Mr Justice Andrew Smith ruled in April that the OFT should be allowed to press ahead with an investigation that will establish once and for all whether bank charges are unfair.

The eight banks involved in the case, including Barclays, HSBC and Royal Bank of Scotland, were in court today for a second hearing over whether historical terms and conditions were written in clear and plain language.

The hearing is expected to last three days but the court case is forecast to go on for several more months, at least, after the banks refused to accept the initial ruling and sought permission to appeal.

Consumer groups have accused the banks of trying to draw out the process for as long as possible because the Financial Services Authority (FSA) has granted them permission to put customer claims on hold until the judicial process is completed.

Tens of thousands more cases launched in the county courts or with the Financial Ombudsman Service have also been suspended, pending a final judgment.

The banks are concerned that if the OFT is allowed to proceed, it could cap the fee for bouncing cheques or exceeding overdraft limits at a far lower rate than the £30 typically charged.

It could even force banks to refund the difference between the charges they imposed and a new acceptable rate of penalties set by the regulator.

Analysts estimate that a cap on overdraft charges could cost the banks £10billion in lost revenue at a time when they are alrady under pressure from the credit crunch.

The banks have warned that if there is a change to the model of how they construct their fees for the services they provide this could bring an end to free banking.

A spokeswoman for the British Bankers’ Association, the industry trade body, said: “Banks believe their fee structure is clear and obvious because they make it clear in their terms and conditions when they write to customers."

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