Bank customers could be in line for a £1 billion refund after a significant ruling in the High Court over unfair charges.
The charges made for going overdrawn and bouncing a cheque were found to come under “unfair contract” rules, raising the prospect banks will have to repay millions of account holders.
Consumer groups hailed the decision in the first round of a test case as victory against charges of up to £35 each time customers exceed their limit, when they estimate it costs a bank just £2.50.
The Office of Fair Trading and High Street banks bought the case after a widespread consumer campaign saw customers reclaim more than £550 million through the courts.
However, the decision raised concerns banks will now end free current accounts to recoup the estimated £3.5 billion a year they take from charges.
Martin Lewis, of MoneySavingExpert.com, who has led the campaign against charges, said: “This is a real victory for bank charge reclaimers. “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 around £2.”
Liberal Democrat Shadow Chancellor, Vince Cable added: “This is great news. However, it is only the first step in what will be a very long journey. “The massive penalty charges imposed are yet another example of the major banks taking consumers for a ride.
“The banks can receive unrivalled guarantees and support from taxpayers when things go wrong, but continue to make huge profits at the expense of their customers.”