Wells Fargo customers who set up direct deposit will no longer incur charges for overdrawing their accounts on the day before payday.

Under changes announced Tuesday morning, Wells said it will offer a grace period to consumers who have an automatic deposit scheduled for the following morning that is large enough to cover the overdrawn transaction. The San Francisco company typically charges a flat overdraft fee of $35.

Wells said it has also eliminated overdraft fees on all transactions under $5 for retail and business customers. The changes are designed to accommodate the “more than half” of Wells’ retail customers who live paycheck to paycheck, according to Karen Moore, the bank's executive vice president of deposit transaction and payment services.

“Regardless of whether or not you overdraw, your account balance is lowest right before it’s replenished with your next direct deposit,” Moore said in an interview. “This is where customers might be at their most vulnerable.”

Karen Moore, EVP at Wells Fargo
“We are making this change primarily for our customers, keeping customer satisfaction and retention top of mind,” said Wells Fargo Executive Vice President Karen Moore.

The changes to its overdraft policies are the latest in a series of moves Wells has made to improve its standing with customers and rehabilitate its tarnished image following a string of scandals within its embattled retail unit.

Wells last fall paid $190 million to settle charges that employees opened more than 2 million unauthorized customer accounts to meet sales goals. The company in August increased its estimate of phony accounts to 3.5 million, following an external review.

Additionally, Wells this past summer disclosed problems in the tactics some employees used in selling auto insurance and interest rate locks.

Looking to turn the corner on a difficult year, Wells has revamped a number of deposit products and services in an effort to boost customer satisfaction. In February, it imposed a daily cap of three overdraft charges per customer account. Over the summer, it began providing customers with same-day alerts when their accounts reach a zero balance, and it recently rolled out a service that allows customers to deactivate their debit cards from their mobile phones.

“Everything Wells Fargo is doing and has done is intended to improve and help with Wells Fargo’s reputation,” Moore said. Signaling more changes to come, she added, “We’re not stopping on this journey."

While the grace period announced Tuesday is officially billed as Wells’ “Overdraft Rewind” program, no refunds are involved. Instead, Wells will simply not assess an overdraft fee on a transaction if it expects a direct deposit to arrive the next morning. The company made the change by tweaking the way it it processes accounts in the early morning, before the start of the business day, according to Moore.

Moore declined to comment on what impact, if any, the overdraft changes would have on Wells’ fee-based revenue. Deposit service charges were flat as of Sep. 30 compared with a year earlier. Primary checking accounts were down slightly, just under 1%, from a year earlier.

Notably, the changes come as regulators have begun sharpening their focus on banks’ overdraft-protection programs.

The Consumer Financial Protection Bureau has laid the groundwork in recent months for increasing disclosure requirements on overdraft programs. The agency in August published a study showing that, while just 9% of customers frequently overdraft their accounts, they account for 79% of all overdraft and insufficient funds fees.

Moore emphasized that Wells has been tracking all of the “best practices” that have so far been outlined by the CFPB. Still, she said, the company’s desire to step up its customer service motivated the shift.

“We are making this change primarily for our customers, keeping customer satisfaction and retention top of mind,” she said.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.