The Office of Fair Trading (OFT) will halt its investigation into the fairness of bank overdraft charges.
The move follows last month's Supreme Court ruling stating the OFT could not challenge the fairness of bank charges using the unfair contract regulations.
However, the OFT says "significant concerns" remain over the way banks operate current accounts, the BBC reports.
More than a million refund claims which have been awaiting closure since July 2007 are now likely to be rejected.
Despite the u-turn the regulator says "fundamental change" is still needed in the interests of customers.
It says: "The OFT has concluded that any investigation it were to continue into the fairness of current unarranged overdraft charging terms under the Unfair Terms in Consumer Contract Regulations (UTCCRs) would have a very limited scope and low prospects of success."
"Given this, it has decided against taking forward such an investigation."
Banks levy charges of around £2.6bn each year on their overdrawn customers, totalling a third of their income from running current accounts.
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