Treasury using prepaid cards to speed delivery of stimulus payments

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Nearly 4 million Americans are expected to receive their federal stimulus payments soon on prepaid debit cards, as the Trump administration pushes to distribute coronavirus relief aid to households as quickly as possible.

The plastic cards, issued by Sioux Falls, S.D.-based MetaBank, should speed up delivery of federal stimulus payments to unbanked households or those whose bank account information is not on file with the Internal Revenue Service. Paper checks were expected to take weeks or even several months to arrive in the mail.

For individuals who receive their payments on plastic, there are also potential downsides, though the same can be said of people who receive paper checks.

The Treasury Department is expected to start mailing prepaid cards to certain households this week.
The Treasury Department is expected to start mailing prepaid cards to certain households this week.

Recipients of the prepaid cards will be subject to certain fees, including a $2 charge for out-of-network ATM withdrawals in the U.S. and a $5 fee for cash withdrawals from banks, according to disclosures on a website that was recently established for users.

Prepaid cards previously issued by MetaBank under an existing partnership with Treasury charge $1.50 when the user goes three consecutive months without activity, but that fee has been waived on the new card.

Of course, unbanked individuals who receive paper checks could also be hit with check-cashing fees.

“I think most people will find a card more useful than a check,” said Lauren Saunders, associate director of the National Consumer Law Center. “I think it’ll be an interesting experiment.”

Saunders said that prepaid cards may be more useful than checks during a pandemic in particular, since people who are stuck at home will be able to use their cards to make online purchases.

In the past, efforts by the Treasury Department to distribute government benefits on prepaid cards have been marred by fraud.

Last year, a watchdog report called for stronger oversight of Comerica Bank, which has a contract with Treasury to deliver certain government benefits on prepaid cards, after fraud victims said that the bank was slow to reimburse them and charged fees to activate new cards.

In an effort to deter fraud on the new prepaid cards that carry stimulus dollars, recipients will be required to call a phone number to activate their cards, similar to the process that has long been used by credit card issuers.

“It looks like they’ve got good safeguards in place to make sure that the person who receives the card is the rightful recipient and can be authenticated,” said Madeline Aufseeser, a payments industry consultant.

Treasury’s push to distribute the emergency aid on prepaid cards was only possible because the Consumer Financial Protection Bureau issued a ruling last month that made it easier to use such cards to distribute pandemic-relief payments. The prepaid cards will only go to a small fraction of the tens of millions of Americans who were previously expected to receive their stimulus payments by check.

The Treasury Department said in a press release Monday that the cards will be sent starting this week to qualified individuals who do not have bank information on file with the IRS and whose tax returns were processed by either the IRS service center in Andover, Mass., or the location in Austin, Texas.

“Prepaid debit cards are secure, easy to use, and allow us to deliver Americans their money quickly,” Treasury Secretary Steven Mnuchin said in the release. “Recipients can immediately activate and use the cards safely.”

MetaBank referred an inquiry about the new card to the Treasury Department, which did not respond to questions about how MetaBank was chosen to issue the cards, or about the financial arrangements between the parties.

Since October 2016, MetaBank has been the issuing bank for a debit card program at Treasury that enables federal agencies to deliver certain payments electronically.

The stimulus payments are a key part of the federal government’s response to the coronavirus crisis. Under the CARES Act, passed in March, households making up to $150,000 a year receive one-time payments of up to $1,200 per adult and $500 per child. Households with reported income of up to $199,000 receive lesser amounts.

Treasury said Monday that it has already delivered 140 million payments totaling $239 billion, including by direct deposit and check. A House committee estimated in mid-April that it could take up to 20 weeks for the Treasury Department to deliver all of the paper checks.

Kate Berry contributed to this report.

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Prepaid cards Treasury Department IRS Coronavirus