At stake is an estimated £2.6bn of annual income for the banks, which had appealed against earlier rulings. Small company owners had been hoping to be able to reclaim money from their personal accounts that banks had taken off them with overdraft charges.
The court has overturned earlier court rulings that allowed the Office of Fair Trading (OFT) to investigate the fairness of charges for unauthorised overdrafts.
The ruling means that banks can continue charging high fees for customers who go overdrawn
The ruling means that banks can continue charging high fees for customers who go overdrawn to subsidise the cost of providing current accounts to other customers who stay in the black.
The relationship between banks and small business owners is already strained, with recent data showing that small firms are still struggling to access bank finance.
"This is a bitter blow for the millions of people who have been patiently waiting to get their bank charges back. Not only does it give banks licence to charge what they like for unauthorised overdrafts, but it could have ramifications for other areas of personal finance. The banks now have no excuse for introducing other fee charges," said Which? chief executive, Peter Vicary-Smith.
The decision means that it is now very unlikely that small business owners will be able to claim money back from the banks.
"Today's decision is a hammer blow to the OFT and signals the end of the road when it comes to investigating bank charges on behalf of the public," said Mathew Rea, head of litigation at solicitors Dawsons.
"Consumers now have the option to pursue individual claims against the bank, but this would be extremely costly and time consuming. Had the decision gone in favour of the OFT we could have expected to see a much greater number of headline-hitting court proceedings involving major financial organisations."
