Britain's consumer watchdog told credit card companies to cut penalties for the late payment of bills, adding the charges should not exceed limited administrative costs.
The Office of Fair Trading (OFT) said excessive penalties had led to unlawful penalty charges of over £300m a year across the industry.
'We expect credit card issuers to adjust their default fee levels quickly,' the OFT's CEO John Fingleton said in a statement. 'We have not ruled out future legal action if the market does not respond positively.'
The OFT said charges above £12 - a lower than expected limit - would be presumed to be unfair, though levels below that threshold could also be challenged. The industry has until May 31 to respond.
The OFT said the principles set out in its decision on credit card default charges would apply to other bank charges like those for overdrafts, store cards and mortgages.
Analysts had estimated banks could lose up to £1.5 billion in revenue if the OFT imposed strict price caps across bank accounts and credit cards. The OFT had been expected to rule against the credit card companies after last July provisionally concluding the default fees were excessive.