"Every interaction with your bank shouldn't be an act of self-defense," says Eric Halperin, director of the Washington, D.C., office of the Center for Responsible Lending, or CRL. "It's very reasonable to say that consumers should have the right upfront to decide whether they want their overdraft covered through ATM or debit transactions. Then you don't have to worry about defending yourself against your bank when you're making a debit purchase. You can make the debit purchase with confidence knowing that you can only spend what's in your account; which is why people use debit cards in the first place.

"Right now, not only do banks not ask consumers whether they want to sign up for the program, we hear from many consumers who say they called their bank to opt out and were told they can't, or the bank says they'll (remove the customer from the program) but they don't."

Avoid embarrassment or fees?
In testimony last summer before the House Subcommittee on Financial Institutions and Consumer Credit, Nessa Feddis, senior federal counsel for the American Bankers Association, said that consumers value and expect banks to pay overdrafts.

"They value the ability to avoid the embarrassment, hassle, costs and other adverse consequences of having a check bounce or a transaction denied. Whether made by check or electronically, returning a payment to a merchant, mortgage company or credit card company usually means the consumer pays additional fees charged by the person receiving the payment.

"Customers also avoid the inconvenience of having to resolve the issue and arrange a second payment. They risk having adverse information reported to a credit bureau or 'bad check' database. Moreover, as the consumer pays a fee whether the bank pays the item or returns it unpaid, consumers typically appreciate the depository institution paying items when there are insufficient funds."

A January 2007 debit card survey by CRL found that 60 percent of survey respondents said they would rather the bank deny the debit card purchase if it will overdraw their account, and "nearly all would cancel an ATM withdrawal if warned they had insufficient funds."

It seems reasonable to assume that millions of consumers would prefer to have their overdraft paid as opposed to any of the negatives mentioned by Feddis. But what if they had $500 in courtesy overdraft protection and they made five $100 overdrafts, each one racking up the $29 average fee? Maybe they'd prefer the embarrassment of having the first overdraft refused.

Billions paid in fees
In a 2006 study of 8,500 courtesy overdrafts, CRL found that consumers paid $17.5 billion in fees for $15.8 billion in overdraft loans.

The center's study notes that debit card transactions at the cash register or the ATM are the primary cause of overdrafts, triggering 43 percent of overdrafts across all ages, and 46 percent for 18- to 24-year-olds. But since younger people use debit cards for smaller purchases, they end up paying a median fee of $3.25 for every $1 overdrawn versus $1.94 per $1 overdrawn for all adults.

Avoid the fee trap
In her testimony, Feddis noted that consumers have multiple ways to protect themselves against overdraft fees and that they must keep track of their spending and account balance. She's right. You don't have to get caught in this fee trap. Ask your bank what tools they have available to help you avoid overdrafts.

"We have a free service called 'balance alert' that allows the customer to go online and sign up for an e-mail or text message that will notify them if their account reaches a minimum balance," says Ferris Morrison, a Wachovia spokeswoman. "They can set that figure to whatever works for them. It's a great way for customers to know when they might need to make a deposit or (put off) buying that extra item."