Editor's note: This article appeared originally at Debt-Proof Living on June 29th 2012. 

If you use a debit card, no doubt you recall the way banks used to slap you with outrageous bounce fees if you happened to operate close to the edge. It was so crazy, a six-dollar burger could end up costing $45 or more if all you had in your account was $5.99 when you made the swipe.

What irked us here at DPL, as well as millions of people across the country, was that the banks allowed those debit overdrafts to go through. Most people, when surveyed, said they would rather have the transaction denied than have the purchase covered with the bank’s money as a short-term loan and get clobbered with exorbitant overdraft fees and penalties.

In 2010 a new federal law became effective requiring banks to get customers’ written permission before covering debit-transaction overdrafts and the high penalties and fees that go with them. Without it, banks would have no choice but to deny that burger purchase or whatever else a customer tried to buy with a debit card if the amount exceeded the available balance in the account.

With the stroke of a pen, banks were out more than 24 million dollars each year in overdraft fees. As you can imagine this did not sit well with them. I warned you that they would be exceedingly creative in finding new loopholes, new ways to recover all that lost revenue. And guess what? They have.

Banks got very sneaky about how they manipulated customers into “opting in” for overdraft protection. They created consumer confusion.

In a recent survey by the Pew Charitable Trust, over one-third of those surveyed were unaware that their bank even offered overdraft coverage until they incurred a penalty for having used the service!

Here’s a weird loophole in the 2010 law: It only requires that banks get written opt-in approval for transactions where a customer takes money from an ATM machine and day-to-day debit-card transactions. If you write a check and overdraft your account, that is not covered by the law requiring written opt-in permission. I’m confused just writing about it.

All kinds of people in the survey believed if they didn’t do anything when presented with the opt-on form, their bank would charge them huge fees if they were to unknowingly commit a debit-overdraft. They signed the forms so the bank could not charge them!

Bottom line, and this is what most people do not understand: The law does not forbid banks  from charging unlimited overdraft fees on debit-card transactions. It simply requires the issuing bank to get the customer’s permission to do it. And it appears that banks stop at nothing to get customers to agree, even if that requires them to confuse, manipulate and deceive.

The Pew survey turned up other startling information, as reported by CBS Money Watch:

90 percent of overdrafts are unintentional, but about 10 percent of those who have overdrawn their checking accounts did it on purpose at least part of the time.

75 percent of consumers said they would much rather be declined when they had insufficient funds than covered by the bank at a cost.

54 percent of those who had paid an overdraft fee in the past year believed they declined overdraft coverage; just 37 percent of those paying the fee knew they had opted in; another 8 percent said they didn't know whether they'd opted into coverage or not.

35 percent of those surveyed had closed an account as the result of overdrafts.

26 percent of those who learned they'd been charged an overdraft fee found out only through a monthly checking account statement, while about 21 percent credited some form of communication initiated by the bank through email, a phone call or a text message.

If you insist on keeping your card, please call right now to find out if you opted in for overdraft protection. If you did, please cancel it.

Look, if you are worried that you might accidentally spend more than you have in your account, you should be living with cash, not plastic. And if you aren’t worried about going over, then why do you need the protection?

© 2012 Debt-Proof Living. All rights reserved. Used with permission.

"Debt-Proof Living" was founded in 1992 by Mary Hunt.  What began as a newsletter to encourage and empower people to break free from the bondage of consumer debt has grown into a huge community of ordinary people who have achieved remarkable success in their quest to effectively manage their money and stay out of debt.  Today, "The Cheapskate Monthly" is read by close to 100,000 Cheapskates.  Click here to subscribe.

Publication date: August 8, 2012