Peter Vicary-Smith, chief executive of consumer group Which?, said the move was a "real kick in the teeth for consumers as it just drags out the whole process".

"It’ll be at least another year before people start to get their money back, during which time the banks will hit us with up to 3.5 billion pounds in overdraft charges," he said.

"The banks should do the right thing now, throw in the towel and start reimbursing the customers they’ve been overcharging all this time."

If the banks do appeal, the case could go to the Appeal Court and the House of Lords before the full case goes to court -- and that could take two years or more.

In the first half of 2007, Britain’s biggest banks refunded more than 400 million pounds.

But several disputed whether the charges, typically between 24 pounds and 39 pounds per unauthorised overdraft, came under the OFT’s remit, triggering the legal dispute.

Justice Smith backed the OFT, which argues that the 1999 Unfair Terms in Consumer Contracts Regulations can be applied to overdraft charges imposed by the bank and, therefore, the banks can be sued.

But he added this did not necessarily mean the terms imposed by banks were unfair.

The country’s biggest banks say their charges are fair and clear, while analysts and campaigners have estimated they take more than 1 billion pounds in such fees a year.

The High Court ruling follows a January hearing at which lawyers for Royal Bank of Scotland, Abbey, Barclays, Lloyds, HSBC, HBOS, Clydesdale Bank and building society Nationwide argued the 1999 regulations were not applicable to charges agreed between banks and customers.

The eight lenders hold about 90 percent of personal current accounts in Britain.

Read Reuters consumer finance blog at http://blogs.reuters.com/uknews/category/uncategorized/consumer- finance/

(Editing by Stephen Addison)