US Bank, a subsidiary of Minneapolis-based U.S. Bancorp (USB), has recently announced easing of its overdraft penalties. The bank is modifying its service charge policies for checking accounts which will become effective in the first quarter of 2010.

U.S. Bank will eliminate fees when a customer’s account is overdrawn by less than $10, regardless of the number of overdraft transactions that may have occurred. It will also limit the number of overdraft fees to three or fewer per day. Customers will also be permitted to “opt out” of a transaction, if possible, when the charge might overdraft their account.

New customers will also be allowed to decide whether to allow the bank to overdraft their accounts if they have insufficient funds for transactions. The bank will also establish an annual cap on the amount of overdraft fees it can assess on a single account.

Overdraft fees have become a massive source of capital for banks and an exceptional burden on consumers. U.S. banks will collect $38.5 billion in overdraft charges in 2009, which is almost twice the amount of fees banks collected in 2000. Despite the recession, overdraft fees have trended higher this year. While the median overdraft fee in 2008 was $25, it rose to $26 in 2009. Such fees are mostly collected from customers who are worst affected due to the economic crisis worldwide.

Recently, some of the major U.S. banks like Bank of America Corporation (BAC), JP Morgan Chase & Co. (JPM), BB&T Corporation (BBT) and Wells Fargo (WFC) have also announced restructuring of overdraft policies and fees.

Easing of overdraft policies follows widespread criticism by US congressional leaders and consumers groups who have argued that the fees are excessive. As a result of the credit card reforms, the ability to raise fees and interest rates remains restricted. Also, the credit card issuers need to give longer notice periods to customers before altering their interest rates.
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