Barclays will charge people for a temporary overdraft extension
Barclays Bank is to cut the charge levied each time customers go beyond an agreed overdraft limit.
The penalty will change to £8 for each transaction made while in the red without permission, from a levy of up to £35 a day.
The change, happening in August, comes as eight banks prepare to defend the fairness of their overdraft charges in a high-profile High Court case.
The bank is also offering a temporary authorised overdraft extension for £22.
The Office of Fair Trading estimates that the banks make £3.5bn a year in unauthorised overdraft charges. In 2007, Barclays paid £116m to customers who sued for the return of their overdraft charges.
BARCLAYS' CURRENT OVERDRAFT CHARGES
£30 for each guaranteed but unauthorised payment (up to three a month)
£35 per day for bounced payments above overdraft limit
27.5% interest rate when paying back each unauthorised payment
Marc Gander, of the Consumer Action Group, gave the cut in charges a cautious welcome.
"It vindicates our stance that the charges have been wildly excessive," he said.
"It shows that for years they have been milking their customers for nearly £30 more than they needed."
The revamped current accounts are aimed at appeasing customers who are hit with large overdraft charges when they occasionally and accidentally go into the red.
BARCLAYS' NEW OVERDRAFT CHARGES
£22 for each five-day use of the Personal Reserve
£8 for each guaranteed but unauthorised payment
£8 per day for each bounced payments above overdraft limit (up to five per day)
From 18 August, the bank is launching its "Personal Reserves" - a buffer zone of about £250 which will be an authorised overdraft for five days.
All 11 million Barclays current account holders will receive a letter offering them the new Personal Reserve for £22 for each five days they use it. There will be no additional interest payments.
Anyone going beyond the limit - whether they choose the buffer or not - will be charged £8 for each unauthorised payment they make while in the red, up to a maximum of £40 per day.
Currently, bounced payments prompt a charge of £35 a day. Guaranteed payments are charged £30 (up to a limit of £90 a month).
"If customers continue to run their accounts as they are now, we will earn less money than before from overdraft charges," said a Barclays spokeswoman.
Those hit by bigger bills from the charges would be people using the new buffer zone who previously never exceeded their overdraft limit, and people who make more than four unauthorised payments a day.
The spokeswoman added that customers would receive advice to move to a more suitable account if they repeatedly triggered the five-day Personal Reserve, at a cost of £22 each time.
Peter Vicary-Smith, chief executive of consumer association Which?, said he hoped other banks would follow Barclays' lead.
"We've long said that people want simple and transparent banking and Barclays is going in the right direction," he said.
"We welcome the reduction in unauthorised overdraft charges and a simplification for customers. It would have addressed a lot of customers' problems if this had happened years ago.
"We are pleased to hear Barclays' commitment to fee-free current accounts, and hope that other banks will follow their lead."
The banks and their customers are caught up in a long legal process which could eventually allow the Office of Fair Trading to decide what a fair charge would be for unauthorised overdrafts.
The High Court has been the scene of the latest legal battle
Eight banks are challenging the regulator, and the case is unlikely to be settled ahead of next year.
Since the two sides first agreed this long process of litigation last July, tens of thousands of claims for the refund of bank charges have been frozen in the county courts.
Nick Spooner, of consumer campaign group Legal Beagles, said: "This [Barclays' new structure] is unquestionably connected to the OFT test case."
Barclays, however, said it was planning the changes before the High Court case.