A CUSTOMER hit with £743 penalty charges after he went £2.67 over his overdraft limit has won a legal case against Lloyds which could end up costing the banks billions of pounds.

A judge at Taunton County Court ruled that Lloyds should not have hammered Oliver Foster-Burnell with fees that pushed him deeper into debt and meant he was unable to pay other bills.

Deputy District Judge Richard Stockdale made his decision based on European law which states that companies cannot change your contract without an explanation.

Mr Foster-Burnell, 28, from Taunton, who was a public health worker with Taunton Deane Council at the time of the charges in 2008, said: “My temporary contract ended and I was given an extension that wasn’t going to start until two months later.

“As a result, my pay dropped and I went £2.67 over my overdraft.

“Lloyds just started charging me £20 a day. The charges reached £330 in two months and £743 overall.

“It just snowballed and caused me to miss other bills and credit cards repayments.

“I spoke to Lloyds every day, but they just refused to stop the charges. I felt entrapped because they kept charging me even though I was in difficulty.”

Lloyds placed a default on the credit file of Mr Foster-Burnell, who is now an area organiser with UNISON, and refused to remove it – despite the Information Commissioner saying it was unmerited.

The judge initially said the ruling only applied to the claimant, but Mr Foster-Burnell has been back to court to ask if the rule could be applied to all bank customers – a decision is expected later this year.

He added: “There could be 12.6million people impacted if the case becomes a legal precedent – the floodgates could open.

“Many people would just have accepted the charges and done nothing about it.

“It wasn’t about the money – it was the principle.”

A Lloyds Banking Group spokesman said: “We do not discuss individual customer cases and any decision will be specific to its facts.”

He added that legal issues relating to bank charges had been dealt with by a Supreme Court ruling five years ago which meant customers were unable to challenge their bank.

Money expert Martin Lewis said: “The judge said that as Oliver's contract allowed the bank to vary charges without explaining by how much (as we suspect other banks do too), the charges needed to be fair.

“In Oliver's case they weren't, as they caused him to get into a cycle of debt. This decision was based on a European Court of Justice ruling (that related to telecoms, but can be read across).”