Banks to rake in extra £1.3bn in next six months after delaying OFT overdraft crackdown

The bonus comes as a result of their dragging out a long-running court case on the legality of penalties of up to £38 a time for unagreed overdrafts or bouncing a cheque.

The Office of Fair Trading (OFT) launched a High Court battle against the banking industry and won an initial judgment that should ensure refunds are paid.

Banks are delaying offering refunds by dragging the case through the appeal courts

However, the banks are pushing the case through the appeal courts with the result that payments are being delayed and charges are still being imposed.

The City watchdog, the Financial Services Authority (FSA), has allowed the banks to put the handling of complaints and refunds on hold until the case is settled.

The move has been described by critics as 'a kick in the teeth' for millions of customers. This so-called waiver was introduced in July last year and was due to end this month  -  a year in which the banks will have collected £2.6billion in overdraft fees.

Today the FSA said it would allow the waiver to run another six months, until January 2009, allowing the banks to collect a further £1.3billion.

There is every chance the banks' appeal will go all the way to the House of Lords, which could delay any compensation for customers until well into next year.

The FSA said the delay will not affect the ability of bank customers to claim refunds of charges going back to 2001 once the case is finally settled.

And while a general waiver for dealing with refunds has been established, the banks will be required to handle complaints involving customers suffering real financial hardship.

Martin Lewis, founder of MoneySavingExpert.com, said: 'For all its talk of consumer protection, the FSA's decision to extend the hold on reclaiming bank charges is a kick in the teeth to the millions trying to reclaim them.

‘The original hold was installed as a test case was announced, because of apparent "inconsistencies", even though the enormous majority of people were being paid out by the banks.

‘Yet now, a year on, the test case decision is out and there's a legally binding, precedent-setting court decision, so why not allow people the chance to ask for their money back?'

Louise Hanson of the consumer group Which? said: 'Scrapping the waiver won't get people their money back.

'Only the banks can do that by conceding defeat and paying up instead of continuing to string out the process.'

Dan Waters, of the FSA, said: 'Our objectives continue to be certainty over this complex issue and a fair and consistent resolution of consumer complaints about unauthorised overdraft charges.

'The FSA has reviewed the circumstances and has decided to offer firms a new waiver for six months, when we expect to have a Court of Appeal decision.'

The watchdog has the power to lift the waiver if it believes the banks are dragging out a resolution of the case unnecessarily.