THE OFFICE of Fair Trading (OFT) is to investigate current accounts in the most wide-ranging study to date into personal banking. The probe comes amid mounting concern that customers are being hit with unfair penalty charges for unauthorised overdrafts.

The announcement last week follows a recent review by the OFT of bank charges. John Fingleton, chief executive of the OFT, says: "The initial review found the OFT shares the public concern about the level and incidence of current account charges. This wider study will help the OFT to consider the charges in the broader context of efficiency, transparency, value and consumer choice within personal current accounts."

Banks raked in £4.7 billion in charges in 2005-06, according to Which?, the consumers' association magazine. But they are now facing an unprecedented consumer backlash. Complaints to the Financial Ombudsman Service are running at a rate of about 150 a week and a more than one million people have so far lodged complaints about overdraft fees.

Legally, banks and building societies can charge customers who break the terms of their contract, but the charge should reflect only administrative costs involved. Which? says: "Under the Unfair Terms in Consumer Contracts Regulations 1999, when charges are disproportionate to the loss incurred, they are unenforceable at law."

Tony Herbert of Citizens Advice welcomes the OFT's investigation. He says: "Evidence from local bureaux shows that bank charges have a disproportionate effect on people already on low incomes; one charge may be enough to push them into the red and keep them there, incurring more charges that push them further into debt."

The OFT last year clamped down on penalty charges on credit cards, by insisting on a cap of £12. But card firms have since increased other fees to make up for the loss. There are fears that banks would take similar steps to protect their revenue if the OFT were to cap overdraft charges - and that could be the end of so-called free banking. David Black, head of banking at Defaqto, says: "I will be very surprised if free banking is universally available in two years' time. The first major provider to introduce charges for all customers is going to take a lot of flak but it is likely that the majority of the main providers will then follow the lead."

If you have been stung by bank charges, you can contact your bank and ask for a refund, citing the Unfair Terms in Contracts Regulations. You can also take your case to the Financial Ombudsman Service, and even to court.

But you will have to be persistent, because banks routinely fob off customers who complain. It might also be a good idea to first open a new account in case your bank closes down your existing account. You can get more details on lodging a complaint at www.which.co.uk/bankcharges.