British retail banks won a landmark legal case yesterday when the newly-created Supreme Court ruled in favour of unauthorised overdraft charges.

In a keenly watched test case, the Supreme Court sided with eight major lenders including HSBC and Barclays, which had challenged decisions made by lower courts that the charges come under "unfair contract" rules.

The ruling was a blow to tens of thousands of bank customers whose refund claims have been frozen while the case went through the courts.

If the banks had lost the case, it could have cost them £2.6 billion (€2.9 billion) a year in lost revenue and forced them to repay customers up to a total of one billion pounds.

Consumer groups were dismayed at the ruling that allows banks to continue charging customers up to £35 each time they are overdrawn without permission.

Mark Gander, of Consumer Action Group, said: "I'm shocked. It's completely unexpected. What a devastating blow for all the people who brought claims."

He told BBC TV that the ruling flew in the face of the opinion of the Office of Fair Trading, which has found the charges to be "so excessive and cause so much damage."

Phil Jones, of consumer magazine Which?, said the "outrageous" ruling would be badly received by British taxpayers who have been forced to bail out banks which came close to collapse last year at the height of the financial crisis.

"We all know that we have put billions and billions of pounds into the banking sector, yet they are still charging us these outrageous fees. They are disproportionate and they are unfair," he said.

"The regulation seems to leave us with no protection against what the banks want to do."

The Bank of England revealed Tuesday it had made secret loans of nearly £62 billion to Royal Bank of Scotland and HBOS during last year's crisis, on top of the billions of pounds injected into lenders.

Those banks were two of the seven institutions which brought Tuesday's appeal.

The others were Abbey, Barclays, Clydesdale, HSBC, and Nationwide Building Society.