Billions of pounds of past and future bank income are at stake
The future of overdraft fees paid by millions of customers could be decided after an appeal in the House of Lords this week, starting on Tuesday.
Five Law Lords will hear an appeal by the UK's main banks against an earlier decision this year by the Appeal Court.
It upheld a ruling from last year that the Office of Fair Trading (OFT) had the power to decide if bank charges were fair or not.
About one million people are waiting to see if they can reclaim their charges.
"We certainly hope the House of Lords will uphold a very strongly worded judgement of the Court of Appeal," said Chris Warner, a lawyer with the consumers' association Which?.
Long drawn out
At stake is £2.5bn of income each year for the banks, and overdraft charges as high as £40 each time someone goes overdrawn without permission, or has a cheque or direct payment bounced.
THE STORY SO FAR...
About a million people have claimed for the return of their unauthorised overdraft charges but their cases are on hold
If the banks win this week's appeal, these people are unlikely to get any money back
If the banks lose, then the legal arguments should move on to a key stage - a case to determine whether these charges were fair or not
Only then will people have a clearer picture as to whether millions of pounds will be handed back to customers
"I hope the House of Lords will make a very clear finding that the bank charge terms are subject to the Unfair Terms in Consumer Contracts rules," said Marc Gander of the Consumer Action Group (CAG).
The Law Lords hearing will take place almost two years after the banks and the OFT decided jointly to go to court to resolve the legality of bank charges.
At the time, the banks were facing a deluge of claims, both directly and via the courts, from customers who were angry about the amount they had been charged when going overdrawn.
The BBC estimated that in 2007, before the test case agreement, the banks had paid out a total of £784m to about 378,000 of their customers, rather than defend in court their right to impose the charges.
But when both sides agreed to the litigation, the Financial Services Authority (FSA) and the courts decided that all fresh claims should be put on hold until the legal issues were resolved.
"It's going to be a very significant outcome, either way," said Nick Spooner of the campaign group Legal Beagles.
The banks have argued all along that their charges are fair, reasonable and perfectly legal.
If their appeal is successful it will be a mortal blow to the efforts of the OFT and bank charges campaigners.
To argue their case, the banks have employed one of the UK's leading civil barristers, Jonathan Sumption QC.
"If anyone can do it for the banks, he can, but he's got an uphill task," said another barrister who specialises in banking, Ray Cox QC.
"But you can never be sure; the Law Lords will certainly not rubber-stamp the decisions of the other courts," he added.
If the OFT wins, it will be the end of the first part of what is in fact a two-part test case, settling only the issue of the OFT's jurisdiction.
Behind the scenes, the OFT and the banks have also been arguing for months over what level of overdraft charges, if any, the OFT might regard as fair.
The Law Lords will be led by Lord Phillips, the senior Lord of Appeal
It has already said it thinks that the current level of charges are probably not fair, but will come to a final conclusion later this year.
But such a decision could lead to another round of High Court hearings if the banks decide they want to challenge the OFT's ruling.
For the banks, total defeat could push them into ripping up their current charging arrangements, which would probably see the introduction of monthly fees for current accounts.
And it could also lead to the repayment of billions of pounds to millions of customers, going back at least six years and maybe even longer.
Last year the BBC revealed details of how one bank, RBS, was preparing a contingency plan to refund overdraft fees "pro-actively" if the test case was lost.
"A victory for the OFT would swiftly open the door for refunds of past charges," said Nick Spooner.
"If the OFT rules they were indeed unfair, I believe they will have to be refunded in total, as the unfair terms triggering the charges will be unenforceable."