The Treasury Department is expected to announce a pilot program Thursday for distributing 2010 tax refunds on a reloadable prepaid card.
The MyAccountCard program, first announced in September, is the Treasury's latest effort to cut costs by shifting paper check volume to electronic payments.
"There are still 45 million paper checks that get sent out every year [for tax refunds], and that costs the government about $40 million," Josh Wright, the director of financial access innovation in the agency's Office of Domestic Finance, said in an interview Wednesday.
It costs about $1 to make a check payment versus 10 cents for an electronic payment, such as direct deposit, Wright said.
The Treasury plans to send letters next week to 600,000 low- and moderate-income individuals inviting them to participate in the pilot, which will determine whether the government agency begins offering it as a standard option for taxpayers.
Bonneville Bank, a subsidiary of the Provo, Utah, bank holding company Bonneville Bancorp, will issue the cards. Green Dot Corp., which has an application to buy Bonneville Bancorp pending before regulators, will help manage the program, offering telephone and Internet customer service and access to its retailer reload network.
"This becomes really that opportunity for that customer to come into the mainstream, regulated financial world and come out of that cash economy," Steve Streit, Green Dot's chairman, president and chief executive, said in an interview Wednesday.
The Treasury has been offering recipients of Social Security and other federal benefits the ability to receive the payments on nonreloadable cards since 2008 through an agreement with the issuer Comerica Inc. However, it could struggle to gain adoption in the tax refund market because preparers such as H&R Block Inc. and Jackson Hewitt Tax Service Inc. already offer the option to their customers.
"You have a broad spectrum of the market that's kind of spoken for," said Ben Jackson, a senior analyst at the market research firm Mercator Advisory Group in Maynard, Mass. If the agency does make prepaid cards a permanent option on tax forms for all filers, it could give it "an edge, especially if the individual filers saw that as sort of a Treasury-approved or Treasury-guaranteed kind of program."
The fact that tax refunds are one-time payments could also make it difficult to encourage long-term card use, Jackson said.
Streit acknowledged that is a challenge but said a "material number of consumers" who receive Green Dot's TurboTax Refund Card from Intuit Inc. keep the card and use it over and over.
During the trial, some cards will have no monthly fee and others will have a fee up to $4.95. There is also a $2.95 fee for out-of-network ATM withdrawals, a $4.95 replacement fee for lost or stolen cards and other fees. Cardholders will be able to make free withdrawals at more than 15,000 ATMs.
