Campaigners against excessive bank charges are taking the Scottish Government to the European Court of Human Rights.

Lawyers acting for customers fined thousands of pounds by lenders said Scottish civil justice authorities had failed to ensure a fair hearing for their clients.

The appeal came as Business Secretary Vince Cable warned that banks were continuing to rip off customers as it emerged annualised interest rates for some unauthorised overdrafts had hit 167%.

Mike Dailly, a solicitor at the Govan Law Centre, yesterday made a formal application to the court after client Allison Walls, who was suing Santander for £3000, was told by a Glasgow sheriff her action was too complicated to be heard in a small claims court.

Instead, she faces unlimited costs in an ordinary case before a sheriff. The married mother-of-two and Glasgow NHS worker said she could not afford to risk up to £20,000 in order to get back £3000 in what she regards as unfair bank charges.

Dailly said be believed banks had developed a new strategy to bully their customers into giving up cases by threatening them with the potentially ruinous costs of the full sheriff court.

The lawyer, who has led the nationwide campaign to win back banking charges, has already called on Justice Secretary Kenny MacAskill to introduce a statutory instrument that would see all those who sued in the small claims courts protected from costs if their case was transferred to an ordinary court.

Walls is now formally suing the UK Government. She cannot take action against the Scottish Government directly because Scotland is not recognised as a state by the European Court of Human Rights. She is asking for damages, the repeal of a 1971 Act that means she cannot appeal against the sheriff’s decision to transfer her action to an ordinary court, and for her case to be returned to small claims court.

Dailly said: “We believe the problems highlighted by the Santander case are not limited to bank charge claims. It is now clear that any powerful financial institution can and will use the 1971 Act to kill off small claims actions by consumers. We remain disappointed that the Cabinet Secretary for Justice is unwilling to tackle this lacuna in the law to help ordinary Scots.”

He was backed by LibDem justice spokesman Robert Brown, a former Glasgow solicitor.

Brown acknowledged some cases were very complex, but added that he could not understand why those who sue for modest sums in the small claims courts should not continue to be protected against costs when their cases go to a higher court.

He said: “There is an issue of disproportionality here. Why would people suffer huge costs to reclaim small sums? There needs to be some mechanism for working out these issues and I wish Mr Dailly success.”

Walls was paying out hefty penalties on her current account for some years after going over her overdraft limit. However, campaign groups have stressed that interest rates on unauthorised overdrafts have soared since the financial crisis of 2008.

Research for BBC’s Panorama programme yesterday revealed the average rate was now 32%, while base rates remain at record lows. Cable said this was further evidence of the need to inject more competition into the banking system. He said: “When we talk about restructuring the banks what’s going to come out of this is a more competitive system where customers are not ripped off.

“One of the negative side- effects of this crisis is that our banking system is now even more concentrated so there’s less competition, less choice and bigger temptation for banks to earn margins at the expense of their customers.”