It's a subject that continues to divide opinion; should banks be allowed to charge people for dipping into their overdrafts without permission? If you think they should, then what constitutes a fair charge - a one-off fine, a daily charge or a percentage-based penalty?
This very issue is currently the subject of a long-running legal battle. In 2007, the Office of Fair Trading (OFT) brought a test case to the High Court, because it believes that it should have the right to apply consumer contract regulations to bank charges and decide whether they are fair or not.
However, banks disagree that the OFT should have the power to cap charges, which they maintain are fair.
In April last year, the High Court came back with its judgment - it declared that the OFT does have the power to decide if fees are fair or not. However, the seven banks and one building society involved in the test case appealed this decision and the case returned to the courts.
Today (26 February) The Court of Appeal gave its verdict and quashed the appeal.
Are charges too high?
Research carried out by the OFT suggests that charges are too high - since the beginning of 2006, thousands of customers have tried to reclaim charges that can be as high as £39 when an agreed overdraft is exceeded or a direct debit or cheque bounces. The OFT believes the extortionate charges do not reflect the true cost incurred by the banks, which is thought to be as little as £2.50.
If it is granted the right to take action on bank charges, then it is expected to cap these and demand the banks refund those they have penalised in the past.
So will I get my money now?
Despite the court ruling in favour of the OFT, it is still not clear how soon people who have been hit with bank charges will be able to get their money back.
Prior to the test case, large numbers of people started to seek refunds for bank charges through the county court system. At the end of 2007, the Financial Services Authority (FSA) put a waiver in place removing the obligation of banks to deal with complaints and refund requests surrounding unauthorised bank charges until a final decision was reached.
This waiver was recently extended until July 2009.
What's going to happen now?
It is expected that the banks will once again appeal this decision - if they do, then the issue will be heard by the House of Lords and potentially drag on into 2011.
The European
Commission could even become involved at some point.
If the banks do appeal then the FSA's waiver is likely to remain in place until the House of Lords reaches a decision. This means that all pending cases are likely to stay on hold and banks will continue to charge overdraft fees, warns Which?
If the banks don't appeal, then the OFT will assess their terms and conditions and current overdraft fee structures and decide whether it thinks these are fair or not.
So what should I do?
If you have beeb hit with an unauthorised overdraft charge since July 2001, you should still write to your bank and lodge a claim. Although the FSA waiver is still in place, your bank must acknowledge your complaint within five working days.
In addition, the FSA's waiver can be overruled if a customer can prove they are suffering from financial hardship as a result of the charges.
What will the impact of this be on banking customers?
A poll carried out last year found that 85% of users didn't think that bank charges should be replaced with monthly current account fees.
Unfortunately, the bank charge test case does put the future of free banking at risk. It is estimated the banks earn up to £3.5 billion a year from penalty charges and, if banks lose this income stream, they will look to other areas to recoup their losses.
In 2008, HSBC said it expected to pay back a further £300 million if the OFT decision went against it.
