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The high court has ruled in favour of the consumer watchdog in a landmark test case over unfair bank charges.

Mr Justice Andrew Smith ruled the OFT could decide if the charges are fair – in a case brought by the watchdog and a group of seven banks and a building society.

The OFT estimates banks make £3.5 billion a year from unauthorised overdraft charges – the equivalent of almost £400,000 an hour.

Doug Taylor, Which? personal finance campaigns manager, said: "Today is a massive day for millions of consumers as well as the UK’s high street banks."

He added the banks should now resolve claims as quickly as possible.

"If they try to drag the process out any longer they will only be doing more damage to their reputations," he said.

It is thought the banks could now make up for the loss of income from current account penalty fees, charges will be introduced for day-to-day banking.

Eventually overdrafts may not be available on current accounts, unless customers sign up to premium packages that banks are already introducing, linking overdrafts with a number of insurance products.

This follows what happened when credit card charges were trimmed by the OFT, and companies upped their repayment interest rates.

The next step – if the banks do not appeal – is for the OFT to continue its investigation into whether charges are fair.

If it deems the charges are too high, it can force the banks – through the courts if necessary – to lower the charges.

During the case the FSA has provided banks a waiver so they do not have to deal with complaints about unauthorised overdraft charges.

However, bank customer who have paid fines are advised to still lodge their complaints.