Tens of thousands of people reclaiming unauthorised overdraft charges will have to wait months – possibly years – to see if they will be refunded after the Financial Services Authority (FSA) decided to allow the banks to put all claims on hold.

The decision came after a group of banks including HSBC, Lloyds TSB and Barclays and the Office of Fair Trading (OFT) agreed to test the legality of the fees in the High Court.

The case will centre on whether overdraft charges are part of the "core" terms of current accounts and therefore subject to the Unfair Terms in Consumer Contract law. Under these regulations all fees should be a fair reflection of the administration costs and must not be used as a method of making money.

In a statement, the British Bankers’ Association (BBA) said: “The FSA has agreed to issue a waiver, with immediate effect, to suspend the handling of customer complaints on bank charges pending a decision by the court. Other banks who are not party to the court action will be applying to the FSA for a waiver and as such will be bound by the outcome of the court case.”

“Banks believe the fees customers pay for unarranged overdrafts are fair and clear. However, this is clearly an issue where customers, as well as the banks, would welcome legal clarity. “

The banks will be writing to customers with outstanding complaints advising them personally of their position.

The OFT said: “The banks do not accept that the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply. The OFT believes that they do and is seeking to establish this legal principle in court.”

The decision comes as a surprise as the banks have so far avoided defending their fees in court. The Banks have already paid out about £200 million this year to customers who have complained about the charges.

Bank customers have been encouraged by consumer groups to reclaim fees after the Office of Fair Trading said last year that it believed the charges of up to £39 are illegal. An estimated two million template letters for reclaiming charges have been downloaded from the internet since last year.

In May, the banking industry scored its first victory when Lloyds TSB won a county court case against a customer trying to reclaim almost £2,000 in unauthorised overdraft fees.

A district judge at Birmingham County Court dismissed a claim by Kevin Berwick for more than £1,982.37 in charges and interest on the ground that the fees levied were a legitimate part of the service. However, the case did not set a precedent because it was in the County Court.

If the High Court rules that the charges are subject to the Unfair Terms in Consumer Contract law, the decision will be binding and the banks would face the prospect of refunding all fees levied in the last six years, which would cost the industry about £10 billion.

Experts have warned customers reclaiming their charges that the test case may drag on for years with the “inevitable” result of the end of free banking.

David Black, the Head of Banking at Defaqto, the financial research group, said: “Whilst it is in no one’s interests for the unauthorised overdraft charges test case to drag on for ages it is very unlikely to achieve a quick resolution. The simple fact is that the amounts involved for the banks are enormous and they’re clearly going to argue their corner. Regardless of who wins the High Court case appeals are possible and, frankly, likely.”

Defaqto expects to see more accounts charging monthly fees in return for limiting charges on unauthorised overdrafts. Alliance & Leicester already offers an account charging £5 a month which limits charges for unauthorised overdrafts to £5 a day

“Banks are unlikely to reduce charges on existing accounts while the review is in place because it might be construed as their acceptance that charges are too high,” Mr Black says. “Longer term I still regard it as inevitable that the days of free in-credit banking for personal customers are numbered,” he added.

Doug Taylor, personal finance campaigner, Which?, the consumer group, said consumers should not be put off reclaiming their charges.

“A lot of time and money could have been saved if the banks had not tried to evade questions about their charging structures for the past year. It’s unfortunate that it has to go to court, but at least we will get a decision that banks cannot dispute.

“If the court does find that banks have been acting unfairly we hope they will proactively compensate all consumers who have been charged for going over their overdraft limit in the last six years.

“In the meantime people should not stop claiming. Anyone who thinks that they have been charged unfairly by their bank should use the template letters at www.which.co.uk/bankcharges.”