In a statement, Treasury fiscal assistant secretary Dick Gregg says the department's goal is to keep Americans without bank accounts from paying exorbitant fees to check-cashing outlets and other unscrupulous businessses that operate outside the financial mainstream.The government is paying $1.5 million for the pilot program, which includes the cost of the cards themselves (they generally retail for a few bucks at places like Walmart), as well as the mailings introducing users to the cards.
A Treasury spokeswoman tells WalletPop that the agency is experimenting with two models -- both voluntary for citizens at this point. About half of the 600,000 people being targeted for the pilot will be offered a card that costs around $5 a month; the other half will be offered a card with no monthly fee. The spokeswoman says this is part of an effort to find out what consumers will respond to; the results of this year's pilot will help the Treasury figure out how to structure an eventual nationwide rollout.
When it comes to other fees, these cards don't stack up too badly against other prepaid offerings out there. Using the card at a store and getting cash back is free; using one of 15,000 Money Pass ATMs nationwide to get cash or check a balance is free (although if you don't live near one of these ATMs, you could be out of luck.)
There's a $4.95 fee to replace a lost or stolen card, which is reasonable when compared with others we've come across, and a $4.95 fee if the cardholder wants a second card. The spokeswoman tells WalletPop that the pilot is being conducted in English, but since it's well-documented that many Americans who don't have bank accounts are immigrants who may have difficulty with the English language, a larger rollout might include bilingual materials.
The Treasury is already switching over recipients of Social Security benefits to prepaid cards if they don't have a bank account into which their benefits can be direct-deposited, and it's also undertaking an initiative to get people who receive their wages on a payroll card to get their refunds loaded onto those.
We don't always agree with government-issued money being loaded onto prepaid debit cards. In the event of unemployment payments, there simply aren't enough safeguards in place to make sure the recipients' best interests are being honored. Part of this is because of a lack of oversight and a lack of committed funds (unemployment is distributed by increasingly cash-strapped states); another issue with unemployment is it's frequently the only income the recipient has, so any disruption or added expense is a huge burden. In the case of a one-time tax refund, these issues aren't as pronounced.
The Treasury spokeswoman adds that consumers would have zero liability in the event that a card is stolen and used fraudulently. This is good but not great, because the government is relying on Visa's voluntary gesture of generosity rather than mandating that consumers be protected. Regulators' failure to extend bank liability protections to holders of prepaid debit cards is an issue that concerns consumer advocates.
While it's good that the Treasury wants to keep poor taxpayers' refunds out of the greedy hands of check-cashing store operators, it needs to make sure that the products it offers have the consumers' best interests at the forefront. Otherwise, poor Americans will simply wind up trading one set of fees for another. Ultimately, if the government is going to require people who don't have a bank account to access their money via prepaid debit cards, they should also ensure beforehand that there is a regulatory framework in place to prevent that from happening. Offering a product with no monthly fee and free access to funds is a good start; ensuring that cardholders are protected -- not just by the network but by law -- in the event of fraud is an important next step.