£10bn of rip-off overdraft charges won't be refunded

Banks will be able to keep £10billion from rip-off overdraft charges after the Office of Fair Trading abandoned a legal challenge yesterday.

Millions of customers have been hit by the charges, with some forced to pay hundreds of pounds just for going a few pence into the red.

But the watchdog has decided it can no longer pursue its claim that the fees are unfair after a surprise Supreme Court ruling last month that sided with the banks.

Charges remain: Banks will keep the £2.6billion in unauthorised overdraft fees they collected in the past year

The court said that the OFT had no jurisdiction over the charges and no right to reach a ruling that would have paved the way for customers to claim a refund.

Some estimates had suggested that the banks would have faced repaying more than £10billion if they had lost. The OFT's decision was described as a 'huge blow' for consumers yesterday.

Philip Cullum, of the official customer body, Consumer Focus, said: 'Consumer trust in banks is at an all-time low. This decision will add to the public frustration towards the banking sector.'

Conservative Shadow Treasury minister Mark Hoban added: 'This is a huge blow. Given the uncertainty-about the fairness of charges for unauthorised overdrafts, we urge the OFT to use other avenues to ensure a fair deal for consumers.'

The Tories have pledged to set up a Consumer Protection Agency to represent ordinary people against the might of large organisations if they win the General Election.

Will consumers' prayers be answered? OFT boss John Fingleton has vowed to continue the fight on overdraft charges

LibDem leader Nick Clegg described the move as 'extremely disappointing'. He added: 'We will continue the fight for fair bank charges in Parliament and push for a change in the law if necessary so that High Street banks cannot keep ripping off their customers.'

The OFT said it would change its focus to winning a voluntary agreement from banks to adopt a fairer and more open system of overdraft charges.

Chief executive John Fingleton said: 'We remain deeply concerned that the market for personal current accounts is not working well for consumers and does not give banks sufficient incentives to compete.

'We are committed to securing significant changes to unarranged overdraft charges going forward, whether through voluntary agreement with the banks or by other means.'

Some consumer campaigners, including Which?, believe there is still scope to mount a legal challenge.

But it is unlikely any change could happen before next year's General Election. The Daily Mail has campaigned for customers to be given refunds of unfair charges since February 2006.

Anger was fuelled by reports of students and pensioners being forced to pay huge amounts of money. Banks have been raking in more than £2.6billion a year - £5,000 a minute - from the charges.

One-off charges have included up to £39 for bouncing a cheque or exceeding an overdraft limit.

Even the banks themselves were doubtful that the charges were legal, with many offering refunds to customers who threatened to take them to court even before the OFT launched its legal challenge.

It is believed banks paid out more than £500million to those who complained and asked for refunds.

But once the OFT tried to cap the charges, the banks poured millions into a legal case and repeated appeals to block it.