Citi’s good news on overdrafts

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.”

None of the other major banks plan to follow Citi.

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

Chase said there were no plans to change the way checks are prioritized. Bank of America (BAC, Fortune 500) was not immediately available for comment.