According to the OFT, the three banks “provide the best representative selection of all the banks’ unarranged overdraft charging terms, and therefore the outcome of this more focused investigation will be relevant to the assessment of other banks’ terms.”

Honing in on Lloyds, HSBC and Clydesdale’s terms on bank charges for unauthorised overdraft borrowing will, the OFT believes, allow it to “streamline” its investigation, and bring the test case to a conclusion in the “shortest and most efficient way possible.”

The OFT has stressed that its investigation into the other remaining banks – Abbey, Barclays, HBOS plc, Royal Bank of Scotland, and Nationwide Building Society – is simply on hold. Its decision should not be interpreted as a clean bill of health for the other banks’ terms and conditions, it said, and it should not be assumed that the test case is more or less likely to find the terms of the three banks unfair than the others.

The OFT announced its investigation into the fairness of terms for providing unarranged overdrafts in April 2007, which have resulted in customers paying millions of pounds to their banks in so-called ‘unfair’ bank charges. It hopes to reach a final conclusion later this year.

The banks maintain that their terms are not subject to the Unfair Terms in Consumer Contracts Regulations 1999, and have appealed a ruling made earlier this year which said they can be tested for fairness.

Last week, the House of Lords unexpectedly upheld the banks’ appeal, after it was dismissed by the Court of Appeal in February.

Commenting on the OFT’s decision to narrow its case against just three banks, head of banking at moneysupermarket.com, Kevin Mountford, said: “Regardless of whether the three brands chosen are truly representative of the market, any efforts to move this forward are welcome. I hope this marks the next step in resolving the overdraft charges saga, which has dragged on far too long.”

Meanwhile, consumer watchdog Which? has called the move by the OFT pragmatic’: “We’re pleased that the OFT is doing whatever it takes to bring this saga to an end as quickly as possible,” said Louise Hanson, head of campaigns at Which? “We welcome its assurances that all the banks are still within its sights and we remain confident that the unauthorised overdraft charges of all banks will be found to be unfair.”

Consumer groups are still urging bank customers to get a claim in for their bank charges, because this could mean a faster pay out if the OFT is successful, and banks are refunding some customers deemed to be in financial hardship.

Find out about reclaiming bank charges

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