When a bank customer is about to make a purchase or an ATM withdrawal, but doesn't have enough money in the account to cover it, usually there are two choices: refrain from going through with the transaction or pay a fee — usually around $35 — to cover the overdraft.

Huntington Bancshares Inc. in Columbus, Ohio, offers a third option. Customers can overdraw without penalty if they replenish the funds by the end of the next business day. The bank began offering a grace period on overdrafts in September, in response to new regulatory guidelines requiring banks to get permission to cover overdrafts. If the first few months of the program are an indication of long-term potential, other banks might want to consider following Huntington's lead.

Dave Schamer, Huntington's director of products and pricing, said what the bank is losing in fee income, it is more than making up for in loyalty. Huntington has had a surge of accounts since it rolled out the program and attrition has dropped off dramatically. "There's something about it that rings fair in people's minds," he said.

Huntington is one of a few banks to offer a grace period on overdrafts, and the service is at the center of retail marketing efforts.

Schamer said the idea came from a focus group conducted after CEO Stephen Steinour encouraged retail banking executives to create an overdraft fee policy "that will make the bank proud."

As researchers brainstormed, a woman in the focus group mentioned that if she overdrew her account, what she'd want is a day to fix it. The idea stuck (Steinour loved it). By last spring the bank was putting systems in place.

Customers who sign up are notified by e-mail each morning if an overdraw took place the previous day; they have until the end of that business day to replenish the funds. Huntington also plans to add text alerts so customers will receive real-time notifications.

Jeff Platter, the vice president of business intelligence at Haberfeld Associates, a consulting firm in Lincoln, Neb., said he would expect the program to appeal to customers. He said research shows that customers are willing to pay a fair price to have overdrafts covered, so he wonders if the bank might be missing out on revenue. "The rub is finding a way to make regulators and customers happy and still make money," he said.

At State Employees Credit Union in Raleigh, N.C., customers have saved about $370,000 in fees since September, when the credit union began giving members 24 hours to fix overdrafts without penalty. (Texts notify customers.)

That is lost income for SECU, but the program's effect is a stronger bond with members, said Leigh Brady, SECU's senior vice president for education services. "We're keeping money in members' pockets, and they appreciate that," she said.

Schamer would not disclose Huntington's overdraft fee income, but said it is down since the 24-hour grace period began. The upside is not just improved loyalty, but lower chargeoffs, as fewer customers are skipping out on the overdrafts the bank had covered, and more production from branch and call center employees because they are spending less time bickering with customers over overdraft fees.

Despite the benefits, Schamer doesn't expect others to copy Huntington. "With all the things that are upsetting revenue streams these days, most banks are trying to fill that hole by creatively looking for ways to get fees," he said. "We are very consciously going the other way."

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