Some rubber checks cost you more than others
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"She'd never bounced a check in her life," says Pomponio. "Her income is about $565 a month. It really jammed her up. A deficit like that takes her a long time to get back out of the hole and it could mean she goes without other needs.

"We're not challenging the one-time fee, we're challenging the $5 a day. It's technically, and legally, a loan at rates that are prohibited by West Virginia's usury statute."

Pomponio says City National has since dropped the $5 a day fee. The bank didn't return our phone call. In fact, none of the banks we called returned our calls.

Bounce protection is offered by an estimated 2,000 institutions, mainly smaller, community or independent banks. Washington Mutual and Bank of America are among the large institutions offering the product.

The Federal Reserve is reviewing bounce protection to see if it should come under federal banking regulations and the Truth in Lending Act, which, activists say, would require institutions to call bounce protection a loan and disclose its true costs.

Consumer groups have made the following recommendations to the Federal Reserve regarding bounce protection:

• Require truth-in-lending disclosures, including the finance charge and the annual percentage rate.
  
  
• Prohibit banks from claiming that bounce protection is "discretionary" when they promote it as credit. Banks should not be allowed to encourage their customers to write checks without making a firm commitment to pay the overdraft.
  
  
• Prohibit banks from imposing bounce-protection plans on consumers without their consent.
  
  
• Require banks to inform consumers about more reasonable alternatives, such as overdraft lines of credit and transfers from savings accounts.
  
  
• Prohibit banks from seizing Social Security and veteran's benefits to repay bounce-protection loans.

If your bank or credit union automatically signs you up for bounce protection and you don't want it, call the institution and opt out of the program.

If bounce protection appeals to you, be sure you get 30 days to repay the overdraft, and make sure the program doesn't have a daily fee in addition to the NSF fee. Find out whether the institution includes the bounce-protection dollar limit in your account balance when a balance inquiry is made. If it does, keep that in mind when making withdrawals.