Consumers are being overcharged in excess of £300 million a year in "unlawful" penalty charges, according to a report by the OFT.
The industry has until May 31st to respond to criticism and take action to reduce this number, the OFT said.
The default charge threshold set by the watchdog is now £12 and wherever charges exceed this amount they will be deemed "unfair", according to the report, except in extenuating business circumstances where other factors come into play.
The Citizens Advice Bureau (CAB) has welcomed the report: "This announcement from the OFT is excellent news for the many millions of people in the UK who pay banking charges every year," enthused Sue Edwards, senior policy office for CAB.
"The citizens advice service helped people with 1,250,000 debt problems last year and a large proportion of those people will have seen their debt increased by late payment charges," Ms Edwards explained.
CAB pointed to excessive charges levied against several people on benefit or Income Support, whose debts mounted as a direct result of the fees, noting that "some basic bank accounts charge as much as £39 for 'bouncing' a direct debit".
Industry analysts concluded that by reducing bank and credit card charges, those with bad credit or who are heavily in debt will find it easier to rectify their situations, claiming the substantially reduced charges will encourage more responsible lending.To read more on credit cards, click here.
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