Here's a math problem for you:
Jane buys a $4 bagel and $2 cup of coffee with a debit card. Jane's bank account is short on cash, so her bank automatically covers the transaction for her. How much was breakfast?
$40. That's $6 for the food and $34 for the typical bank overdraft fee.
It's a trick question. But many consumers have felt tricked by overdraft protection programs. Once reserved only for checks, overdraft protection is now often automatically extended to ATM and debit card transactions.
Some consumers are unaware that the bank is covering their overdrafts, so they keep using their cards and racking up fees.
Banks and credit unions defend these programs as a convenience to customers, but consumers have cried foul. The Federal Reserve is now seeking public comment on its proposal to fix the problem.
The Fed is proposing either an opt-in or an opt-out requirement. With opt-in, your institution would have to get your permission to enroll you in the service before it could charge you an overdraft fee. The other way, your bank couldn't charge you an overdraft fee unless it gave you time to opt out of the service and you didn't.
The Federal Reserve proposal would cover only small ATM and debit-card transactions. Overdraft fees on such transactions total $7.8 billion a year, estimates the Center for Responsible Lending.
Opt-in is a better option for consumers.
Anyone with a little knowledge of human nature knows that if consumers must opt out of a program, most of them don't get around to doing so.
That's why so many employers - with Uncle Sam's blessing - automatically enroll workers in retirement plans with an opt-out provision. Once enrolled in a 401(k), workers generally stick with it.
With opt-in, consumers who want their lender to cover a shortfall can choose it knowing they will pay a fee. Everybody else can deal with the inconvenience or embarrassment of having a transaction rejected for insufficient funds, and be richer for it.
Or, they can set up less expensive ways to cover overdrafts, such as linking a checking account to a savings account that can be tapped when there's a shortfall or establishing a line of credit. These options have costs, too, but less than bank overdraft programs, says Eric Halperin, with the Center for Responsible Lending.
The largest bank in the Baltimore area, Bank of America, covers ATM and debit card overdrafts for a $35 fee. PNC Financial Services, the area's third-largest bank, charges $31 to $36.
