Banks argue that there's no reason for them to be fair, as court battle on overdraft fees begins

High Street banks claimed yesterday that overdraft charges which rake in billions of pounds a year are not subject to normal 'fairness' rules.

In the first day of a long-awaited legal battle, the banks insisted they have the right to charge the fees that can be as high as £38 even if a customer has slipped only a few pence into the red.

Campaigners claim the actual cost to the bank is as little as £2.50.

Experts estimate that banks make about £3.5billion a year from unauthorised overdraft fees.

The case, which follows a two-year Daily Mail "Fair Play on Charges" campaign, could force banks to pay billions of pounds in compensation.

An army of 60 legal advisers representing seven banks - Abbey National, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB and the Royal Bank of Scotland - and the Nationwide building society were in court yesterday for what has been described as the biggest commercial legal case for more than 20 years.

Laurence Rabinowitz QC, for Royal Bank of Scotland, told the court that the outcome is "eagerly awaited up and down the country".

Customers have launched a 'torrent of claims' against banks following a "deluge of complaints" about charges, Mr Rabinowitz told the court.

The Office of Fair Trading, representing consumers, claims that the overdraft charges are unlawful and too high.

The case is about whether unauthorised overdraft fees are subject to the Unfair Terms in Consumer Contracts Regulations.

The banks argue that customers agree to overdraft conditions, including charges, when they open an account.

They deny accusations that the conditions are not written in "plain, intelligible" language.

Mr Rabinowitz argued the OFT was partly responsible for the consumer revolt after "ill-informed" comments made following an earlier ruling about credit card charges.

He told Mr Justice Andrew Smith: "A hornet's nest had been disturbed and something had to be done."

The case was sparked by an extraordinary consumer backlash against bank charges.

Millions of people have won back thousands of pounds from their banks after complaining about excessive charges.

But many other complaints have been put on hold for almost a year pending the outcome of this crucial case.

Experts warned that if banks are forced to scrap, or reduce, their fees, they will try to make money in different ways from their customers.

This is most likely to include axeing 'free' current accounts.

If they lose, it is almost certain that the banks will appeal.

Marc Gander, of campaign website Consumer Action Group, said: "This is just the first part in what could be a very long process."

The hearing, at the International Dispute Resolution Centre in Central London, is expected to last three weeks.