Fifth Third Bank has agreed to pay $9.5 million in a proposed settlement with customers who claimed they were improperly charged overdraft fees for insufficient funds on debit card purchases and ATM withdrawals.

The class-action lawsuit filed Nov. 21, 2009 in U.S. District Court in northern Illinois alleges that Fifth Third changed the sequence of transactions to deplete customers’ accounts more quickly and boost the number of overdraft charges.

Cincinnati-based Fifth Third has denied the claims. In a statement Wednesday, the bank said that while it was admitted no wrongdoing under the proposed settlement, “we felt that it was in the best interest of the company to settle this matter and move forward.”

The federal court ordered current and former customers to be notified of the proposed settlement. The proposed settlement class covers people who had a Fifth Third account between Oct. 21, 2004 and July 1, 2010 and incurred at least one overdraft fee associated with a debit card transaction.

A hearing on final approval of the settlement is scheduled for March 16.

The lawsuit says Fifth Third charges an overdraft fee when it processes a transaction and there is not enough money in the account to cover it. Although debit card payments are made at the time of purchase, the amount is not taken from the customer’s account until the close of Fifth Third’s accounts for the day, when transactions are processed together, the lawsuit says

During that so-called “batch processing,” Fifth Third computers can change the sequence of transactions when deducting money from a customer’s account, regardless of the order in which the purchases were made, the lawsuit states. The lawsuit alleges that the bank improperly charged overdraft fees by changing the sequence of transactions from different days and within the same day.

“The result of this re-sequencing is that account balances can be manipulated to exhaust the available balance more quickly and in fewer transactions than if the transactions were processed in chronological order,” the lawsuit says.

The bank also said that it has agreed to post debit card and ATM transactions in chronological order. That posting procedure change is targeted to occur in early 2011, the bank said.

The office of Barnow and Associates P.C., attorneys for the proposed settlement class, declined comment Wednesday.