Free banking could end if the Office of Fair Trading takes further punitive action against the industry, bankers warned yesterday.

The OFT is poised to announce a formal investigation into the penalty fees charged on current accounts, having last year forced banks to cut similar fees on credit cards from £30 to £12.

Amid a growing consumer challenge across a wide front, banks were last week ordered to reduce or refund mortgage exit fees, while this week their much-criticised sales of payment protection insurance (PPI) were referred to the Competition Commission.

In a speech in Edinburgh defending an industry under siege, Angela Knight, the former Conservative Treasury minister who is now chief executive designate of the British Bankers' Association, warned: "We wait for the OFT's decision in this area. I am one of the 80% of individuals who are in credit and don't pay unauthorised overdraft banking fees, and I hope the OFT decision will not take a narrow view and fail to look at the big picture - and so adversely affect them. There are no no consequence' optionsbanking is not a cost-free public utility."

The banks stand accused of charging around £30, and sometimes adding on further fees of up to £90, where an account slips over into the red for even a day.

Ms Knight said: "People don't like paying overdraft fees? They don't like parking tickets either, or speeding fines. But these are things which are part of normal life. The reality is that a bank charge pays for the credit check and the other things that have to be done when an individual writes a cheque, or a direct debit comes in, when there is no money in the account."

She added: "If you are in credit in the UK, banking is free - unique in developed countries. It is a sensitive area, but a bank charging a fee for an unauthorised overdraft is not illegal."

The legality of the current level of fees, however, is under challenge from the Consumer Action Group. It was yesterday said to have helped 5283 people obtain over £7.3m in claims against all major banks, an average of £1386 each, without a single case having been allowed to go to court.

Ms Knight said: "If one of the banks takes a case right now in court, we will end up with two or three years' worth of a court case as it goes through all its processes; it doesn't seem to be the most appropriate way of handling something while an (OFT) investigation is under way."

She complained banks had three regulators - the OFT, the Financial Services Authority, and the Financial Ombudsman Service, which seemed to be in competition, "making similar requests about one particular issue".

Fending off criticisms of irresponsible lending, she attacked as "rubbish research and rubbish data" last week's report by uSwitch, the price comparison website, which accused the banks of failing to ask for proof of income when issuing credit cards. Ms Knight said the system of electronic credit checking was standard across all lenders.

But, Tracey North at uSwitch said: "The existing protocol does not stipulate they have to check income and affordability - you can say you are earning £100,000 and nobody will check it."