By Ian Pollock
Personal finance reporter, BBC News, House of Lords
The Law Lords are led by Lord Phillips, the senior Lord of Appeal
The Office of Fair Trading (OFT) will still pursue bank overdraft charges as unfair, even if it loses the current legal appeal in the House of Lords.
The threat was made by Jonathan Crow QC, for the OFT, on the final day of an appeal before five Law Lords.
Seven banks and one building society are trying to overturn two previous rulings that would let the OFT investigate their overdraft fees.
Jonathan Sumption QC, for the banks, ridiculed the OFT's concerns.
He said they were part of a " developing saga" which he suggested had no basis in law.
Mr Crow ended his submission to the Lords by pointing out that the OFT was not just concerned about the high cost of bank charges.
The OFT was, he said, also worried about the way bank accounts and their charges operated in practice.
"This relates to the interplay between the amount and the fact the customer does not truly consent to the charges," he said.
He argued that bank customers were at a disadvantage at two stages: when they first opened an account and when they triggered the overdraft fees.
He listed some of the problems that bank customers faced.
He argued that they typically did not study the terms and conditions of their accounts; had no opportunity to opt out of their contract with their bank; could not work out in advance when the fees might be imposed; would find they were triggered without an explicit request to the bank for an overdraft; and often happened by mistake.
"The OFT is concerned that banks are capitalising on a mistake," he said.
The Law Lords will now consider their judgement and may refer some issues to the European Court of Justice.
That would further delay a final judgement on the OFT's jurisdiction, in a legal process that started in July 2007.
At stake is the currently frozen ability of millions of customers to demand that their banks refund overdraft fees they consider too high.
For the banks, an adverse judgement could lead to them repaying billions of pounds in past charges, and foregoing income of more than £2bn a year.
Jonathan Sumption rejected the OFT's reasons for keeping its campaign against bank charges going, even if it lost the appeal.
He said it was "quite impossible" for the OFT to use the concept of "true consent" in any further action over bank charges without re-writing the European directive on unfair contract terms.
"True consent is simply not the method by which the directive seeks to give effect to consumer choice," he said.
During the morning of the third day of the appeal, Mr Crow attacked the banks' claim that their charges were so central to the operation of current accounts that they fell outside the scope of the 1999 consumer contract regulations.
THE STORY SO FAR...
Nearly 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 billions of pounds will be handed back to customers
The issue at stake is whether or not these regulations, which derive from European legislation, allow the OFT to scrutinise bank charges.
The banks argue that as their overdraft fees are part of the price paid by customers for having a current account, then they necessarily fall outside the scope of the regulations.
But Mr Crow argued that when people opened a current account "overdraft charges are not what is being sold as part of the bargain".
He said the crucial distinction that meant the 1999 regulations did in fact apply to bank charges was that current accounts did not involve any free negotiation between customers and banks.
There was "no meaningful consent", he said.
He went on to argue that overdraft charges could only escape the regulations if they were central to the bargain between bank and customer; were readily recognisable as the price of the service to the customer; and arose in the normal operation of the contract.
None of these conditions applied, he argued.
Mr Crow accused the banks of "cosmetically rewriting" their terms and conditions in the past couple of years to disguise the penal nature of their overdraft charges.
He said that most banks had rewritten their terms and conditions to remove any suggestions that consumers were not allowed to go overdrawn and would be penalised for doing so.
One that still does is the Nationwide building society.
He pointed out that its terms and conditions stated explicitly that a customer can be expelled from membership for running up an unauthorised overdraft.
How could having an unauthorised overdraft be a central feature of having a current account under these circumstances, he asked.
Mr Crow went on to warn the five Law Lords hearing the appeal not to be scared of some dire warnings issued earlier by Mr Sumption.
He said it should not be assumed that the banks' current policy, of providing free current accounts to people in credit, was doomed if their appeal failed.
The structure of current accounts might just need to be adjusted, Mr Crow said.
He denied that victory for the OFT implied there would be a deluge of litigation in other industries where cross-subsidies were common in pricing tariffs.
He also said it was "assuming a great deal" to suggest that banks might have to automatically make huge refunds to their customers if they lost the current appeal.
"Banks will not necessarily have to reimburse everything", he said.
"The domestic courts will have to sort out the consequences," he added.