For Michael and Amy Hines of Denver, financial disaster began with the electronic payment of a utility bill. "When I saw our other pending payments, I realized that we’d be overdrawn," Michael says. "I called the bank to try and stop it, but they said it was too late."

The Hineses had what's called overdraft coverage. This standard policy of most banks allows customers to keep drawing funds —for a fee, of course—when their checking accounts dip below zero. But U.S. Bank bounced the payment anyway, imposing a $35 penalty that helped push the balance into the red. Unbeknown to many consumers, overdraft coverage leaves banks free to bounce checks. (Overdraft protection — see below — makes that less likely.) Soon the bank began charging $8 for every day the account was overdrawn. The fees had reached $150 — a blow to the Hineses, who live on $1,300 a month — when a friend, Michael Myers, covered the deficit. The Hineses had paid the utility directly, but then the fees started again when somehow the automated bill was resubmitted.

Banks will earn $35.2 billion this year by penalizing customers in the red, says Moebs Services, a research firm. Though a new federal rule curbs overdraft coverage for ATM- and debit-card transactions — banks must now ask you to enroll in this service — consumers are still vulnerable to cascading charges on checks and online payments.  

After Myers wrote to On Your Side, I contacted U.S. Bank, which reversed $360 in charges to the Hineses, though not the initial ones. So Myers is still out $150.

The best way for you to avoid such problems: When your bank asks you to sign up for overdraft coverage, don't take the bait. And ask that it not honor overdrawn bill payments, either; some banks will cooperate (and if yours doesn't, try a different bank). If an online payment does overdraw your account, settle up with the biller right away to prevent multiple bounce fees.

Ron Burley is the author of Unscrewed: The Consumer's Guide to Getting What You Paid For.