U.S. Treasury Tests Debit Cards for Tax Refunds

This post comes from partner site LowCards.com

The Treasury Department is now testing the distribution of debit cards instead of paper checks for tax refunds to low-income individuals.

This week, 600,000 low-income individuals will receive letters inviting them to have their tax refund deposited to the MyAccountCard Visa Prepaid Debit Card.

The Treasury Department is converting to debit cards for several reasons.

For the government, they’re less costly to mail than checks. For the recipient, they provide a safer, faster, and more convenient way to distribute money than checks. Many low-income individuals do not have bank accounts, and the cashing of these refund checks can be costly. Cards are expected to be in the hands of consumers six weeks earlier than a check. The government hopes the distribution of these cards cuts down on the costly refund anticipation loans than many low-income consumers receive.

The government has already switched to debit cards in other areas with federal benefits, like Social Security. The Treasury says that more than 1.7 million workers receive their wages on payroll cards, and many of them do not have bank accounts.

The card is accepted wherever Visa debit is accepted and can be used for online purchases. It does not charge for point-of-sale transactions, online bill pay, or cash back at participating retail stores. ATM withdrawals are free at more than 15,000 ATM machines nationwide. However, there is a $2.50 service fee for out-of-network ATM withdrawals, and a 50-cent fee for balance inquiries at out-of-network ATMs. There is a $4.95 fee to replace a lost or stolen card or to get an additional card.

The Treasury is testing different offers, and this has led to some initial controversy. About half of the 600,0000 people will be offered a card with a $4.95 monthly fee. The other half will be offered a card with no monthly fee. The results of this test will affect the nationwide rollout.

The card is available only to those who receive a letter from the Treasury. The letter will explain the fees and how to sign up and use the card. There is no credit check required.

The card offers benefits that can help users manage their balance. Free account updates are available online or by phone anytime. Free balance alerts can be sent to your mobile phone (your wireless carrier may charge text messaging rates).

The Treasury says that consumers have zero liability if a card is lost or stolen or used fraudulently. The cards are insured by the Federal Deposit Insurance Corporation (FDIC).

“This can be a good option for people who do not have a bank account,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “It is safer than cash and the fees are lower than check-cashing operations, which means you can keep more of your money. But we see two concerns: The $4.95 monthly fee that is being tested on half the recipients seems high. And studies show that people tend to spend more freely with a debit card than paying with cash.”

Here’s the U.S. Treasury press release on debit cards for tax refunds.