Beware of "Bounce Protection Plans"

Newsweek has an interesting article this week talking about the recently approved Bounce Protection Plan for low-income checking acccount customers who don't qualify for traditional overdraft protection. What's interesting about this is that apparently many consumer groups fought against this but the Federal Reserve, the group in the U.S. Government that manages banks and the banking system, approved it anyway.

Why is this Bounce Protection Plan such a bad thing? Because banks are now authorized to levy flat fees as high as $30 for each check covered by the Bounce Protection Plan. Not a percentage of the amount as with traditional overdraft protection, but a flat fee. So if you have a check for $40 to the supermarket caught by the Bounce Protection Plan net and it clears but you're charged $30 for the process, that's akin to a penalty of 75% on the transaction.

Yeah, but most people write larger checks, you're thinking. But remember, the Bounce Protection Plan is for people who don't qualify for overdraft protection, and they are more - not less - likely to be writing smaller checks against their checking account.

Here's what Newsweek says: "Block it yourself. Shop for a bank that will give you a traditional credit line with market interest rates to cover bounced checks. If you can't get one, deposit a $100 cushion into your account and forget it's there. And learn to balance that checkbook."