With surprising speed, the Minnesota attorney general's office on Wednesday settled its three-week-old customer privacy lawsuit against U.S. Bancorp.

The Minneapolis-based holding company will pay Minnesota $500,000 for legal and research expenses and donate $2.5 million to charitable causes, including the nonprofit home builder Habitat for Humanity.

The bank also agreed to let customers opt out of any cross-marketing deal with a holding company affiliate.

Representatives from both camps cited U.S. Bancorp's recently announced privacy initiative as the catalyst for the agreement.

"Given U.S. Bancorp's early industry-leading decision to stop disclosing customer information to third parties for purposes of marketing nonfinancial products, we felt it was in the public interest to resolve the lawsuit," said Minnesota attorney general Mike Hatch in a joint statement. "A settlement of the case became an attractive way of reconciling the state's dispute with the bank."

"Action by the attorney general compelled us to step back and look at this industrywide practice," said Jack Grundhofer, the bank's chief executive officer. U.S. Bancorp admitted no wrongdoing.

In its June 9 lawsuit, the attorney general's office claimed that U.S. Bancorp had earned over $4 million in revenue by illegally sharing detailed customer data with telemarketer MemberWorks Inc.

But U.S. Bancorp spokesman Donn Waage said Minnesota was "wrong" about the figure. He said the bank earned only $1.5 million from the deal and has earned just $3 million from all such third-party marketing deals. That, he said, is why the settlement was set at $3 million.

U.S. Bancorp took some wind out of the attorney general's sails just two days after the lawsuit was filed when it announced a new privacy policy. The bank said it would voluntarily stop using third parties to market nonfinancial products to bank customers. U.S. Bancorp also said its customers could opt-out of any plans to share their information with third parties selling financial products.

"Once we decided to get out of the direct marketing of nonfinancial products, then this all kind of fell into place," Mr. Waage said. "We are in a leadership position in the privacy area."

Even without the agreement to let customers opt-out of cross-marketing agreements with affiliates, U.S. Bancorp's new privacy policy is much tougher than the one agreed to by House lawmakers in the context of financial modernization legislation.

Under the House compromise, banks would only be required to let customers opt-out of information sharing deals with third parties selling nonfinancial products. Affiliate data sharing would continue unabated.

Edward L. Yingling, chief lobbyist for the American Bankers Association, said he doubted the U.S. Bancorp agreement would create momentum on Capitol Hill for stricter privacy requirements on all banks. "I don't think so," he said. "I think the privacy issue has been pretty well developed on the Hill at this point."

But Mr. Waage said other banks are welcome to follow U.S. Bancorp's lead, including returning any revenue from third-party marketing off nonfinancial products.

"If others want to follow us, fine," he said.

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