How to Keep Overdraft Fees in Check

Overdraft protection seems like such a good idea.

Who wants the embarrassment that comes with bouncing a check?

But as Suzanne Barlyn recently recounted, one overdraft can quickly escalate into huge fees.

Besides, those pesky bounced checks aren't even the worst culprits.

Debit cards are.

Banks allow consumers' debit cards to overdraw their accounts for ATM withdrawals and store purchases, essentially rendering the responsible debit card nothing more than an expensive credit card -- one that carries an average fee of $34 per overdraft item.

The result: Consumers pay a total of $17.5 billion in annual fees for overdraft "loans," according to the Center for Responsible Lending.

And get this: That amount comes to $1.7 billion more than the overdrafts themselves!

Miracle of miracles, even Congress is taking notice. New York congresswoman Carolyn Maloney introduced legislation in February 2007 that would force banks to disclose the interest rates they charge on overdraft protection. The Consumer Overdraft Protection Fair Practices Act would require bankers to be more open with consumers about their fees. It also would force banks to require customer consent before initiating overdraft protection on an account. The law would halt the practice of posting the largest debits to an account first in order to generate more fees.

Before you break out any celebratory champagne, take note that a similar bill (H.R. 3449) by the same name languished in committee during the previous Congressional session, and was finally cleared from the books in 2006 without debate or vote.

Banks claim that overdraft protection is offered as a "courtesy"-- one that most clients appreciate. Congress isn't so sure. While it ponders (or doesn't ponder) the issue, here's what you can do to avoid triggering your own cascade of overdraft fees.