SEATTLE -- A free service from your bank - one you probably don't know you have - can cost you a bundle. It's called "automatic overdraft protection."

Would you pay $38 for a cup of coffee? Clifford Phillips of Spokane did.

"Yeah, it bothered me," he said.

Phillips used his debit card to pay for a latte, not knowing there wasn't enough money in his checking account to cover it.

The bank could have declined the transaction for insufficient funds. Instead, it approved the electronic payment and dinged his account with a $34 overdraft fee.

"That's not customer service. That's exploitation," said Phillips.

At most banks and some credit unions, most checking accounts are now automatically enrolled - as a customer service - in an overdraft protection program. The financial institution lets you spend more than you have, loans you the difference up to a certain amount and hits you with a hefty fee.

Consumer groups hate these automatic overdraft programs.

"Why shouldn't the banks be required to say, 'Do you want to take advantage of our over-priced, rip-off service or do you want to reach in the other part of your wallet for $5 bill to pay for that latte?" said Ed Mierzwinski of US PIRG.

The banking industry sees it differently. Nessa Feddis with the American Bankers Association tells me customers appreciate the service.

"People want important bills paid. Eight out of nine people would choose the service because they want important bills paid," she said.

And Feddis says most banks will let you opt out of the automatic protection if you ask. Phillips says he tried to opt out and his bank said no.

The Federal Reserve Board has proposed rules for how banks should handle their overdraft service for ATM withdrawals and debit card transactions. There are two options on the table: opt-in and opt-out.

Opt-in would require banks to get your permission in writing before you could be enrolled in the overdraft program.

Opt-out keeps things the way they are -- you could be enrolled without your express consent but the bank would be required to let you opt-out if you don't want the costly protection.

It's no surprise the banking industry supports the opt-out proposal while consumer groups want the rule that requires customers to opt-in.

The Center for Responsible Lending's Web site has more information on bank overdraft fees and an easy way to comment.

Federal officials are taking comments through Monday. You can let the regulators know how you feel by sending an e-mail. The subject line must include "Docket No. R-1343."

More information:

Banking industry loves massive penalty fees; consumer groups up in arms