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A judge has decided that the Office of Fair Trading (OFT) can apply consumer contract regulations to decide if bank overdraft charges are fair or not.

Doug Taylor, personal finance campaigns manager at Which?, said: "The banks should do the right thing now and concede defeat, agree with the OFT what constitutes a fair unauthorised overdraft fee and refund their customers as soon as possible."

But the judge also decided against the OFT, saying that the banks' terms and conditions were plain and intelligible.

This judgement continues the process which could eventually allow the OFT to decide what a fair overdraft charge would be for unauthorised overdrafts.

Both the banks and the courts were deluged with overdraft charge claims which they were finding very difficult to deal with.

But since both sides agreed to stage the test case, tens of thousands of claims have been put on hold in either the county courts or with the Financial Ombudsman Service (FOS).

It is estimated that last year the banks refunded about £784m in overdraft charges to nearly 378,000 customers.

If the banks eventually suffer a complete defeat on the issue, then it has been widely predicted that they will try to recoup their losses by abandoning the long standing policy of so-called "free banking" for customers in credit.

Instead, monthly or annual charges could be introduced as standard for running an ordinary current account.