The Competition Commission is to investigate the practices of the "Big Four" retail banks in Northern Ireland following criticism by Which? and the Consumer Council, sending alarm through the sector.
The investigation follows a so-called "super complaint" made last November.
The commission, which has the power to regulate the market, is to examine how the largest banks - the Northern Bank, the Ulster Bank, Bank of Ireland and First Trust - have operated in the £1.9 billion (€2.75 billion) personal bank account market.
The Office of Fair Trading has already concluded that the banks were unfair in their charging policy. It found that some charges were 21 times higher than those levied by banks in Britain - including those banks which are members of the same group.
The banks had only themselves to blame, the office said. They knew of the investigation and had several months to review their procedures.
The Office of Fair Trading believes there is weakness of competition in the personal account market.
It claimed of the banks: "They impose a number of charges when customers are in credit and overdrawn which are not found in the rest of the UK - and there are no offsetting advantages such as higher interest payments on positive balances.
"They do not actively compete on price and there is evidence of parallel pricing behaviour among them, and of possible price leadership and price signalling.
The office also claimed: "They do not actively compete for customers switching accounts."
Rosamund Bennett of the Northern Bank rejected claims that competition was weak. She said the Northern had actually lost market share because of competition and reminded customers the bank had recently introduced a new account free of controversial charges.
The announcement was widely welcomed. Eleanor Gill, chief executive of the Consumer Council, said customers were being overly charged regardless of whether they were in credit: "This is a victory for Northern Ireland consumers and yet another condemnation of the behaviour of the big four banks," she said.
"A referral to the Competition Commission is the most serious action that the OFT can take against the banks."
Sinn Féin's economy spokesman, Foyle Assemblyman Mitchel McLaughlin said: "Excessive and unregulated charging by banks eats into the pockets of everyone. What is unacceptable is excessive charging to boost bank and shareholder profits."
DUP spokesman George Dawson said: "Northern Ireland's consumers are paying excessively for basic banking services such as current accounts, overdrafts and ATM withdrawals, while at the same time receiving paltry levels of interest for accounts that are in credit."
For the Alliance party, Seán Neeson said: "It is disappointing that the banks here didn't take adequate action themselves. Yet today's announcement that the Competition Commission will now intervene should at last result in some positive action."
