Lloyds TSB has become the first High Street bank to cut its charges for unauthorised overdrafts in the face of a continuing customer revolt.
The bank hopes fewer customers will get a nasty surprise
The bank, one of eight facing a High Court test case next year, will introduce the charges on 2 November.
Lloyds will cut its interest rates for unauthorised borrowing by about a third and charges for going into the red and bouncing cheques will also be reduced.
Other High Street lenders may now also cut their charges, analysts said.
Richard Hunter of stockbrokers Hargreaves Lansdown said that Lloyd's move was probably the "thin end of the wedge".
Earlier this year, the bank revealed that it had had to refund £36m to customers in the first half of 2007, after they threatened to sue for the return of allegedly unfair charges on their unauthorised overdrafts.
BANK REFUNDS IN 2007
Barclays - £87m
HSBC - £116m
HBOS - £79m
Lloyds TSB - £36m
RBS - £81m
Source: bank interim results
Between them, all the High Street banks and building societies have returned an estimated £570m in the same period.
Lloyds TSB said, however, that its decision to reduce the cost of running into the red for its current account holders was simply a response to consumer feedback, and not an attempt to anticipate the outcome of next year's test case with the Office of Fair Trading.
"We want to help our customers avoid accidentally slipping into the red and are giving them the tools to do just that," said Ian Larkin of Lloyds TSB.
"We understand that it can sometimes be difficult for customers to keep tabs on their account and we want to make it easier," he added.
Instead of charging customers £30 a day if they go into the red without permission, the bank will now charge £15 a month and then between £6 and £20 a day on a sliding scale, according to the size of the overdraft.
Its charge for bouncing a cheque, standing order, or direct debit is going down from £35 to £20.
And the interest rate applied to the unauthorised borrowing will be cut by about a third to bring it into line with the bank's interest rate for authorised borrowing.
The bank believes that most of its customers who go into the red do so accidentally.
So any customer in this position will given until 3.30 pm that day to get in contact with the bank and make up the shortfall, thus avoiding any charges at all.
To help them do this the bank is offering an extra text message service, which will alert customers if they are within £50 of their overdraft limit, or if they have actually gone over it.
"Customers who do accidentally go over their limit, will be better off as they have the chance to top up their account and get themselves back on track," said Mr Larkin.
The move by Lloyds TSB was greeted with scepticism by the Consumer Action Group (CAG), which has been leading the customer revolt against bank charges.
Marc Gander of the CAG said the revised charges were still excessive.
"I think they are still well over the top," he said.
"On the basis that the real cost of sending a letter or bouncing a cheque is about £2.00, then the mark-up is still very high."