The new Supreme Court will rule on overdraft fees later this autumn
Banking group RBS-NatWest - majority owned by the taxpayer - has broken ranks with the rest of the industry and decided to slash its overdraft charges.
The move comes ahead of a decision of the new Supreme Court on whether or not the Office of Fair Trading (OFT) can regulate these charges.
From 1 October, RBS and NatWest customers will be charged £5 for having a cheque bounced, down from £38.
The fee for paying an item on an overdrawn account falls in half to £15.
"This is good news for customers, not least because the fees for unarranged borrowing have been an area of ongoing concern for them," said the head of UK retail banking, Brian Hartzer.
"As we look ahead there are many issues to consider, but we thought it was time to move this particular customer concern forward by cutting our charges.
"As it relates to past charges we are awaiting the outcome of the industry-wide bank charges test case," he added.
At stake is annual income for the banks of more than £2bn a year.
Since 2005 the banking industry has faced increased customer discontent.
Hundreds of thousands of customers have tried to reclaim the overdraft fees they have been charged, on the grounds that they were unfair and therefore illegal.
In 2007 the UK's banks refunded about £784m to nearly 378,000 customers.
But since the banks and the OFT embarked on their legal test case in July 2007 a further 1.2 million people have now had their claims frozen, awaiting the outcome of the legal battle.
Peter Vicary-Smith, of Which? said it was a victory for consumer pressure.
"If RBS and NatWest truly want to get back in their customers' good books, they should admit defeat in the bank charges test case and repay the millions of pounds Which? believes they've been unfairly taking from their current account holders for years," he said.
"Hopefully this is a recognition of how unfair their pricing system has been," said Marc Gander of the Consumer Action Group.
"But apart from the £5 charge I think that the others are still much too high."
After losing before both the High Court and Appeal Court, the banking industry took the matter to the House of Lords, whose decision will now be handed down by the new Supreme Court.
NEW RBS-NATWEST CHARGES
Bounced cheque, direct debit or standing order - £5, down from £38
Payment on overdrawn account - £15, down from £30
Guaranteed card payment fee - £15, down from £35
Monthly overdrawn account charge - £20, down from £28
Overdraft interest rate - reduced to 19.24%
In July this year, the government in its White Paper on reforming the financial markets called on the industry to find a quicker way to resolve the issue.
"This announcement [by RBS-Natwest] is highly significant," said Nick Spooner of the campaign group Legal Beagles.
"I would expect most of the other banks to follow suit quite quickly," he added.
The RBS-Natwest group declined to say how much income it would forego each year from its reduced fees.
A spokesman said its change of policy had been prompted by the arrival of Mr Hartzer.
But the spokesman said there had been no pressure from the government to change the bank's overdraft fees.
Between them, the RBS and NatWest have 12.5 million current account holders, of whom only a minority go overdrawn without permission each year.
The OFT said it noted the RBS-NatWest decision.
"Our investigation into the fairness or otherwise of unauthorised overdraft charging terms is ongoing, and is unaffected by this announcement," said a spokeswoman.
The British Bankers' Association (BBA) said it was purely a commercial decision for the RBS-NatWest group.