The payday lender Ezcorp Inc. is offering a reloadable prepaid card that gives $300 in overdraft protection to people who direct-deposit their paychecks onto the card.
Though many companies that cater to the underbanked offer prepaid cards, Ezcorp said its All-Access MasterCard is among the first offered by a payday lender to roll out the overdraft protection feature.
"As I review our major competitors in the industry I'm not aware of anybody, any of our direct competitors, that have the overdraft protection," said Joe Rotunda, the president and chief executive of Ezcorp, during an earnings call with investors Tuesday. "I think it is … unique in the industry."
Gwenn Bezard, a research director at Aite Group, called overdraft protection an "essential feature" because "those [types of] cards definitely drive a lot of overdraft."
The overdraft feature costs $20, $40, or $60, depending on the size of the loan, and is collected with the overdraft balance when the card is reloaded. Mr. Rotunda said no other fee would be charged for the overdraft feature.
Banks usually automatically enroll customers in protection programs that cover the transaction, and charge a fee of about $34, according to a study published this month by the Center for Responsible Lending, a Raleigh, N.C., advocacy group.
Eric Halperin, the director of the center's Washington office, was wary of the Ezcorp card's fees, which total about 20% and which he said would trap borrowers in a cycle of debt.
"With most forms of short-term credit … the demand is actually fed by the loans, not by an actual need of consumers," he said. "Those are just products that are going to trap a consumer in debt."
NetSpend Corp. of Austin markets the All-Access card and processes transactions. MetaBank in Storm Lake, Iowa, is the issuer.
Ezcorp and NetSpend would not make executives available to comment on Wednesday.
Mr. Halperin's comments draw on his office's July report, which said financial services providers averaged $1.94 in overdraft fees for every dollar borrowed.
Most of the $17.5 billion in overdraft fee income generated last year came from debit and automated teller machine transactions by people unaware that they were over their limit, the study said.
A spokeswoman for the prepaid card marketer Green Dot Corp. said the Monrovia, Calif., company protects against overdrafts and does not charge a fee for doing so.
Mr. Bezard said a 20% fee is reasonable compared with the excessive annual percentage rates typically offered to underbanked consumers. "If you think about how much some subprime credit cardholders pay … it's pretty good," he said.
The cards became available this month at 15 Ezmoney sites run by Ezcorp and are to be rolled out to 50 more stores in August, Mr. Rotunda said during the call. Eventually, Ezcorp plans to offer the cards at 390 sites in 10 states.
Ezcorp said Tuesday that it earned $6.7 million in its fiscal third quarter, or 16 cents per share — 21% better than a year earlier. Mr. Rotunda attributed the growth to higher fees from its pawn service and tighter underwriting standards that improved the company portfolio's credit quality.
Ezcorp was also expanding an installment loan introduced during its second quarter, he said. The loans, which are valued at $1,500 to $3,000, have been available at 11 Ezcorp sites for the past three months. They are to be rolled out to another 22 stores next week and to 243 Texas sites by Christmastime.
