Citizens Bank is the latest bank to settle in a massive class action lawsuit over dodgy overdraft fee practices. On Wednesday, the midsize New England institution agreed to pay $137.5 million to settle the suit, which is part of a broader class action suit that involves more than 30 banks. A court must still approve Citizens’ settlement.

Wednesday’s agreement puts Citizens in the company of 12 other banks, including Bank of America and JPMorgan Chase, who have agreed to pay out settlements to customers who were charged unfair overdraft fees. At issue is the financial institutions’ method of reordering debit-card transactions from highest to lowest amount–rather than in the order that the transactions occurred–in order to maximize the number of overdraft fees that could be charged to a customer.

All together the settlement money, including the latest agreement by Citizens, will return approximately $750 million to customers, according to the Boston Globe. It is a chunk of change, to be sure, but it represents a very small portion of the billions of dollars banks have made in overdraft fees.

Every settlement in this overdraft lawsuit has represented a different portion of the alleged damages, according to American Banker. In the case of the Bank of America suit, which was approved last fall, the $410 million settlement represented only 10 percent of the alleged damages.

The practice of reordering transactions was a major way for banks to charge customers additional overdraft fees — typically from $25 to $35 per transaction — and drive revenue for themselves. Regulation of overdraft protection adopted in 2010changed the laws to require that banks make it an optional service, rather than the default for all customers. The result of that legislation has saved consumers billions in overdraft fees — but has taken a major bite from revenue for all banks.

And that is just one of many reasons that has driven banks to increase other fees or add new pricey services. Some banks, like JPMorgan Chase, are putting a renewed focus on getting more high net worth customers.

Other banks, including large regional institutions like US Bank and Regions, are aiming to make money from their low-income customers by offering new services that come with a high-sticker cost, such as short-term loans and fee-laden prepaid cards. According to the New York Times, these services are growing quickly because they largely skirt the regulations that have been put in place over the last few years.

(Reuters) – Citizens Financial Group Inc agreed to pay $137.5 million to settle lawsuits accusing it of charging customers excessive overdraft fees, in the second-largest settlement to date in nationwide litigation.

Citizens, a unit of Royal Bank of Scotland Group Plc (RBS.L), joins Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and several smaller lenders in settling litigation over the fees, which are typically assessed when customers overdraw their checking accounts.

“It is a very fair and reasonable settlement” that lets thousands of Citizens customers recover a “significant percentage of the likely damages from excessive overdraft fees,” Peter Prieto, a lawyer for the customers, said in a phone interview.

Citizens spokesman Jim Hughes said the bank is pleased to put the matter behind it. The Providence, Rhode Island-based lender has roughly $130 billion of assets, and more than 1,500 branches in 12 U.S. states.

A $410 million overdraft settlement agreed to by Bank of America, the largest to date, won court approval in May 2011. JPMorgan reached a preliminary $110 million accord in February.

The British government owns 82 percent of RBS, after rescuing the lender during the 2008 financial crisis.

Wednesday’s settlement requires approval by U.S. District Judge James Lawrence King in Miami, who oversees overdraft cases against more than 30 lenders that were consolidated in 2009. Roughly one-third of the lenders have settled.

Customers accused lenders of routinely processing transactions from largest to smallest rather than in chronological order. They said this caused overdraft fees, typically $25 to $35, to pile up for millions of people.

Critics say the banks’ practice disproportionately burdened customers with lower incomes and balances. In 2010, the Federal Reserve barred banks from charging overdraft fees on electronic and debit card transactions without advance customer approval.

Prieto said some banks that continue to litigate have arbitration provisions in their deposit agreements with customers. Some banks have also agreed to try mediation.

Capital One Financial Corp (COF.N), Citigroup Inc (C.N), PNC Financial Services Group Inc (PNC.N), US Bancorp (USB.N) and Wells Fargo & Co (WFC.N) are among large banks that have not settled.

The case is In re: Checking Account Overdraft Litigation, U.S. District Court, Southern District of Florida, No. 09-md-02036.

Columbus, OH: If you are like many people, chances are that you have at least once attempted to make a purchase with a bank card only to be informed that your account does not have enough money and the transaction is declined. A potentially embarrassing situation and one that the banks say they are preventing by automatically allowing people to run into overdraft in their accounts. However, many consumers say they were not told about any bank overdraft fees and they did not accept overdraft protection for their accounts, meaning they are paying excessive overdraft fees for protection they never wanted in the first place.

Overdraft protection may seem like a good idea. After all, the consumer gets to avoid the embarrassment of having a transaction denied at the checkout counter. However, consider that some overdraft fees run as high as $35 per transaction, regardless of how far into overdraft the consumer goes. So, a muffin and a coffee, often less than $5, could wind up costing $40, if the consumer goes into overdraft to pay for the transaction.

Consumers are upset that they were automatically signed up for overdraft protection, with no warning about the potential fees. They expected that if they tried to make a purchase without enough money in their account, that the transaction would be denied.

Some also say that their banks have “held” deposits until after all withdrawals have been posted to the account, pushing accounts into overdraft regardless of whether or not they should have been.

For example, a person could have $100 in his account and make a deposit of another $100, increasing the account to $200. Thinking he has $200 in his account, he goes out and spends $150. However, he later finds out that his purchases were posted to his account before his deposit was, meaning he was $50 overdrawn. He has now been charged $35 for being in overdraft, even though he had no idea he was ever in overdraft—and he should never have been, if the deposit and withdrawals had been posted to his account in the proper order.It sounds like an unethical way to run a business—charge customers for offering protection they never accepted and then run your business in such a way as to ensure that they will require that protection. However, it is also a highly profitable way to run a business. According to a study by the Center for Responsible Lending (quoted in St. Louis Business Journal October 7, 2009), banks and credit unions made almost $24 billion in overdraft fees in 2008. That’s 35 percent more than they made in 2007 from overdraft fees.

The study also said that it is standard practice for financial institutions to automatically enroll customers in the most expensive overdraft programs.

So, consumers must now be on the lookout to make sure they are not accidentally going into overdraft—and incurring all the fees that go along with that.