fees for abusive overdraft loans have reach $17.5 billion per year, more than the loans themselves, which now amount to $15.8 billion per year.
A common example of an overdraft is when there isn't enough in a checking account to cover a debit card purchase or a check. Banks typically cover this overdrawn transaction even if you didn't sign up for this. In addition to the cost of the loan, a fee is charged which averages $34.
Perhaps this is the reason many small banks are starting these reward checking accounts which require the customer to make around 10 debit card purchases a month. Many customers will hope to make money from the 6% yield, but if they don't watch their balances, the overdraft fees will easily do away with high yield benefit.
Not all banks charge overdraft fees. ING Direct is one which only charges interest on the overdraft. Please see this post for more info on ING's Electric Orange Checking Account.
WaMu still charges fees, but it offers one free overdraft waiver per year on its Free Checking Account (see post).
For other checking account alternatives, please see my summary of the best checking accounts.