Leading article: The case for punitive bank charges is weaker than ever

When this newspaper began its campaign against excessive bank charges in February 2007 the financial world was a very different place. It was before the credit crunch; before the nationalisation of Northern Rock; before the unprecedented state bailouts of some of the most famous banking names on our high streets. In those carefree days, few of us had heard of sub-prime mortgages or collateralised debt obligations.

When The Independent began to encourage bank customers to demand that these charges be refunded, the likes of Lloyds TSB, the Royal Bank of Scotland and HBOS made billions of pounds in profits each year. Now all that stands between these banks and insolvency is the hand of the state.

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Yet, despite this traumatic humbling, the banks continue to fight for their right to levy these charges, bringing their case before the House of Lords yesterday. Over the coming days, five Law Lords will rule on whether the Office of Fair Trading has the authority to decide if these charges are fair or not.

Should the fact that the high street banks have been brought low have any bearing on the outcome of this case? Expect the banks and their defenders to argue that it does. They will claim that removing this income stream (which before 2007 yielded the sector some £2.5bn a year) will hasten the end of "free" banking in the UK.

We can predict this because this is the tune the banks have been playing since this saga began. The alternative to allowing the banks to impose hefty penalties is, we are told, monthly account fees for all, of the sort that are levied on the Continent.

We should not allow such threats to be a distraction from what has always been the central issue. The basic objection to these charges is not that they make the banks too much money, but that they are unlawful. The law, as outlined in the 1999 Unfair Terms in Consumer Contracts Act, says that banks cannot impose charges for services that are in excess of what it costs them to provide those services.

But the level of these charges is not set to cover the costs to the banks of unauthorised overdrafts and the like. It does not, for instance, cost a bank £40 every time one of their customers goes unexpectedly overdrawn. Independent analyses suggest the true cost is less than a tenth of this. These are penalty charges and, as such, they are breaking the law.

The question of the banks' revenues is another matter entirely. If the banks want to impose account fees to maintain their profit margins, let them make the case for this on its own merits. It is, though, hard to see them getting a receptive hearing from their customers in the present climate.

The banking crisis, far from supporting the case for bank charges, emphasises the extent to which the financial sectors enjoy an implicit guarantee from the state when it overreaches itself. Commercial banks have a tendency to privatise profits in the good times and socialise losses in the bad.

Given the implicit – and, at the moment, explicit – state guarantee the banks enjoy, the case for allowing them to levy punitive charges looks weaker than ever. It is bad enough to be gouged by a private company. But coming from businesses that we - as taxpayers - are required to support, it is surely an insult too far.