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Good news on overdrafts! Citi will pay small checks first

By Jessica Dickler, staff writer

NEW YORK (CNNMoney) -- For many Americans living paycheck to paycheck, it just got a little easier to avoid hefty overdraft fees.

As standard practice, banks process checks from largest to smallest, which means that if a large check overdraws an account, then each smaller check will too -- resulting in multiple overdraft charges, at nearly $30 a pop.

But on Monday, Citibank (C, Fortune 500) said it will start clearing smaller consumer checks first, giving a reprieve for those struggling to get by.

Citi's new policy of processing checks from smallest to largest will be effective July 25, 2011, although consumer customers will be notified this week, the bank said.

"It's a very consumer friendly policy," said Chris Viale, CEO of Cambridge Credit Counseling, a nonprofit consumer advocacy group. "With things being so tough for consumers out there and people living paycheck to paycheck you have to imagine this is going to be helpful for a large number of consumers."

The median fee for overdrafts is $27, even though the average overdraft is triggered by transactions totaling $17, according to the FDIC.

None of the other major banks plan to follow Citi.

A spokesman for Wells Fargo (WFC, Fortune 500) said its policy of clearing larger checks first ensures that big expenses like mortgage or car payments, which are often the most important, are cashed first.

Bank of America (BAC, Fortune 500) and Chase (CCF) said there were no plans to change the way checks are prioritized.  To top of page

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