Eight major credit card companies have been told by the Office of Fair Trading (OFT) that the charges they levy for late payments are too high.
Late charges "need to be reduced in order to be fair", the OFT says
The OFT described the imposition of charges of around £20 and £25 for late payment as "disproportionately high".
The OFT has given the eight providers, including Barclaycard, three months to adjust charges to better reflect the costs to them of managing late payment.
If the firms fail to co-operate they could be taken to court and fined.
During the course of its investigation, launched in October 2003, the OFT looked at the amount of money made by firms through late payment charges.
It said that the sum being made was greater than the costs of late payment.
The OFT said that as the law restricts damages that can be awarded to compensate for loss suffered as a result of a breach of contract, the late payment fees were "disproportionately high."
"The levels of the default charges imposed by the credit card companies need to be reduced in order to be fair," the OFT said in the statement.
Firms come forward
Throughout the investigation, the credit card firms maintained that late payment charges were fair.
Despite being promised anonymity under OFT rules, two of the firms - Barclaycard and Royal Bank of Scotland (RBS) - came forward to defend the need to impose charges on consumers who make late payments.
"Only a very small proportion of customers attract a default charge and as a responsible lender we must have a process in place to manage late payments," a spokeswoman for RBS credit cards told BBC News.
Barclaycard, the UK's biggest credit card provider, supported RBS's line but said it would fully co-operate with the OFT to address the issue of late payment charges.
The move is the latest clampdown by the OFT on consumer lending.
The OFT recently stiffened rules on credit card advertising, and has investigated the store card and doorstep lending industries.