By Ian Pollock
Personal finance reporter, BBC News
How they pay for their banking services may have to be changed
If the UK's banks needed any further evidence that the way they work will have to change, then the Office of Fair Trading's report on personal current accounts is surely it.
In the light of its latest pronouncement, there can be no doubt that the OFT will soon declare, in a parallel investigation, that bank overdraft fees are unfair and should be cut.
Meanwhile, the hundreds of thousands of people who have been trying to reclaim their bank overdraft charges will see the OFT report as firm vindication of their actions.
"These charges are designed to make huge profits for any minor miscalculation," said Martin Lewis, a leading campaigner against bank charges.
"Many people have been charged hundreds of pounds for slipping just a few pounds over the limit; the whole structure is set up to add charges on charges, penalising those least able to pay.
"It's no accident the banks make so much out of charges," he added.
The scale of the banks' income, from current account fees and forgone interest payments to customers, is startling at £6.7bn.
And the OFT's conclusion, from its analysis of the opaque and complex way customers are charged, can be summarised in just one word - unfair.
The regulator points out that "there is significant potential for slight errors in financial management to result in hundreds of pounds of charges".
"Those consumers who incurred a charge were more likely to incur at least six charges than just one," it adds.
One result is that some poor people with few savings, who find it hard to manage their finances, are subsidising other more prosperous and more savvy customers who get their accounts "free" while staying in credit.
The current system of charging for bank services will now have to change if the industry is to meet the demands of the OFT.
It has openly threatened "regulatory intervention" or an investigation by the Competition Commission if nothing happens.
For the moment though, both sides are being cagey about exactly what will happen.
The British Bankers' Association (BBA) points out that the current system is popular with the majority of people who avoid going into the red without permission.
So it intends to defend the "free in credit" system for current accounts.
"It is clear from the OFT's report that many customers are content with the system," said a BBA spokesman.
However, that simply will not wash with the OFT, though the BBA declined to say what its alternative might be.
The most obvious one is quite simple - to charge every customer a monthly fee merely for the privilege of having an account, in exchange for restricting the size and scope of fees.
"It is difficult to escape the view that the underlying theme does seem to point to the eventual demise of 'free in credit' banking in order to allay the concerns over cross-subsidisation," said David Black, banking consultant for the analysts Defaqto.
There will be a further three-month consultation by the OFT, with the industry and interested consumer bodies, before it publishes its final report early next year.
Until then, the watchdog will not say exactly what it would like the industry to do.
"What we want to see is the banks working with us to come up with ways of making the market work better," an OFT spokesman said.
"It may be the banking model changes, but we can't predict how," he added.
As well as dealing with the way fees are levied, it also wants to improve the ability of people to switch accounts from one bank to another.
And it wants banks to deal with the fact that people seem quite happy to be paid little or no interest at all for the privilege of keeping their money safe in a bank.
If the banks do not play ball, the idea of a Competition Commission enquiry is attractive to Marc Gander, organiser of one of the campaigns against high bank charges, the Consumer Action Group (CAG).
But he believes that the industry is simply not open to persuasion, or moral pressure, to introduce more effective competition voluntarily.
"It is obvious the banks are all acting in unity, even if they are not actively colluding," he said.
"Fundamentally I think the banks need to be regulated, just like the utility industries, as they are simply not to be trusted."