Britain’s big banks face a major inquiry into current-account charges after the Office of Fair Trading said that it would extend the scope of its six-month investigation into overdraft fees to cover all aspects of retail bank pricing.

In a surprise announcement, the watchdog said that it was launching an “in-depth study” rather than implementing a “quick-fix solution”, and said it shares public concern about “the level and incidence” of current-account charges. The OFT will provide full details of the study next month and expects its inquiry to be completed by the end of the year.

The move served to head off speculation that the OFT would act swiftly to cap fees on current accounts — echoing its imposition of a £12 limit on credit card penalty fees last year — and effectively precipitate the end of free banking in the UK. At present, the charges and fees levied on customers who fall into the red subsidise the free banking received by the majority of customers.

John Fingleton, OFT chief executive, said: “The issue of bank current-account charges is a matter of real concern to the banks’ customers, and raises wider questions about competition and transparency of pricing. The initial scoping work we have undertaken has demonstrated to us that this is not only an issue for those people who are being charged, but also for customers who are not defaulting on their bank accounts.”

That statement implies that the OFT will now examine the payment of credit interest, the amount customers receive for keeping their current account in credit. Royal Bank of Scotland, which owns NatWest, Barclays and HSBC tend to pay interest substantially below base rates, often as low as 0.1 per cent, so that they are able to make big profits on their customers’ deposits. Other fees, such as for stopping a cheque, currently pitched at about £35, are also likely to be scrutinised.

David Black, head of banking at Defaqto, the research consultancy, said: “The banks are caught in something of a cross-fire at the moment. They are enjoying the proceeds of high overdraft fees and charges while also taking a hit by quietly refunding customers who complain. Any cap on charges from the OFT would hit their income going forward but would also set a limit on how much they have to refund.”

For banks the issue of default fees on current accounts is seen as of far greater concern than last year’s reduction of credit card fees because the sums involved are much greater.

“It will be imperative to listen to the public pronouncements of the major banks over the course of the next six months as they may seek to cut their charges in order to influence the OFT decision”, Mr Black said.

Which?, the consumer organisation, estimates that £3.5 billion will be paid in overdraft charges this year. Consumer groups argue that penalty fees — some as high as £39 — should only reflect a bank’s administration costs and not be used as a source of profit.

Joe Garner, head of personal financial services at HSBC, said: “Simply taking one aspect of service, such as charges, will not help banks serve the 21st century consumer properly.”

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