Credit and Debit Card Ratings

Tax Refunds And Prepaid Debit Cards

Prepaid debit cards have recently become a favored way for states and the federal government to pay tax refunds, but for consumers, whether it is a benefit or not – the answer is, it depends.

By Shane Tripcony

The arguments in favor of the use of prepaid debit cards over paper checks in states like Connecticut, Georgia and Louisiana are similar. Not only do citizens who lack a bank account – and therefore cannot take advantage of direct deposit – receive their refund quicker than if it came through the mail in the form of a paper check, but the governments themselves like prepaid debit cards because it save them money.

Those are a few of the issues John Friedman took up in a recent story for Bloomberg Law entitled, “Policy Perspectives On Tax Refunds: An Economic Analysis Of Government-Sponsored Debit Card Refunds.” Friedman, an assistant professor of public policy at the Harvard Kennedy School and a faculty research fellow at the National Bureau of Economic Research, does an in-depth cost-benefit analysis of the embrace of prepaid debit cards and arrives at some conclusions that go counter to many of the arguments policymakers have made.

To be sure, Friedman acknowledges just how popular prepaid debit cards have become as a way to dispense tax refunds. In fact, he notes that in the 2012 tax year, almost 20 million taxpayers opted for prepaid debit cards to receive their refunds. Still, despite that increasing popularity, Friedman takes direct aim at the seemingly uncomplicated assertion that governments, and thereby taxpayers, save money by utilizing prepaid debit cards.Even though states like Connecticut report that they saved about $300,000 by sending out prepaid cards instead of paper checks in 2012, Friedman points out that those calculations fail to acknowledge that governments don’t pay account setup fees; instead, taxpayers do. “It is true that state governments can cut their own costs by switching to debit cards from paper checks, but this simply pushes costs off the government budget and onto taxpayers directly in the form of fees,” he writes. “The roughly $1 of government savings is very small in comparison with the average fees incurred by individuals who received their tax refunds via debit card.”

Although he acknowledges that some taxpayers truly benefit by receiving their tax refunds on a prepaid debit card instead of a check, in particular because of the speed at which it arrives. This speedy refund, he says, means that high-interest debts on payday loans can be paid down quickly and that exorbitant check cashing fees can be avoided. But Friedman also says that the fees that come with the normal use of prepaid cards could make them a less attractive option for others. “Therefore, use of the debit card to receive the tax refund is not costless to individuals,” he says. Because prepaid debit cards are a mixed bag, good for some but bad for others, Friedman urges governments to still offer taxpayers the option of receiving refunds via a paper check.

Category: Best Low Fee Prepaid Cards

Millions of people are turning to prepaid debit cards as a smart alternative to carrying cash and writing checks. Almost anyone can qualify and they don’t require a credit check or a bank account.

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There are dozens of debit cards on the market, many of them issued by the same bank, but fee structures are vastly different. Bestprepaiddebitcards.com has done all the research for you and provides comprehensive reviews to help you decide which card is best for you.

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  • Tax Refunds And Prepaid Debit Cards

    Tax Refunds And Prepaid Debit Cards

    Prepaid debit cards have recently become a favored way for states and the federal government to pay tax refunds, but for consumers, whether it is a benefit or not – the answer is, it depends.

    By Shane Tripcony

    The arguments in favor of the use of prepaid debit cards over paper checks in states like Connecticut, Georgia and Louisiana are similar. Not only do citizens who lack a bank account – and therefore cannot take advantage of direct deposit – receive their refund quicker than if it came through the mail in the form of a paper check, but the governments themselves like prepaid debit cards because it save them money.

    Those are a few of the issues John Friedman took up in a recent story for Bloomberg Law entitled, “Policy Perspectives On Tax Refunds: An Economic Analysis Of Government-Sponsored Debit Card Refunds.” Friedman, an assistant professor of public policy at the Harvard Kennedy School and a faculty research fellow at the National Bureau of Economic Research, does an in-depth cost-benefit analysis of the embrace of prepaid debit cards and arrives at some conclusions that go counter to many of the arguments policymakers have made.

    To be sure, Friedman acknowledges just how popular prepaid debit cards have become as a way to dispense tax refunds. In fact, he notes that in the 2012 tax year, almost 20 million taxpayers opted for prepaid debit cards to receive their refunds. Still, despite that increasing popularity, Friedman takes direct aim at the seemingly uncomplicated assertion that governments, and thereby taxpayers, save money by utilizing prepaid debit cards.Even though states like Connecticut report that they saved about $300,000 by sending out prepaid cards instead of paper checks in 2012, Friedman points out that those calculations fail to acknowledge that governments don’t pay account setup fees; instead, taxpayers do. “It is true that state governments can cut their own costs by switching to debit cards from paper checks, but this simply pushes costs off the government budget and onto taxpayers directly in the form of fees,” he writes. “The roughly $1 of government savings is very small in comparison with the average fees incurred by individuals who received their tax refunds via debit card.”

    Although he acknowledges that some taxpayers truly benefit by receiving their tax refunds on a prepaid debit card instead of a check, in particular because of the speed at which it arrives. This speedy refund, he says, means that high-interest debts on payday loans can be paid down quickly and that exorbitant check cashing fees can be avoided. But Friedman also says that the fees that come with the normal use of prepaid cards could make them a less attractive option for others. “Therefore, use of the debit card to receive the tax refund is not costless to individuals,” he says. Because prepaid debit cards are a mixed bag, good for some but bad for others, Friedman urges governments to still offer taxpayers the option of receiving refunds via a paper check.

  • Risky New Bank Card Technology – Is Your Card At Risk

    Risky New Bank Card Technology – Is Your Card At Risk

    It sounds like a great idea. A host of new credit and debit cards issued by big financial players like Chase and MasterCard come armed with small computer chips and radio antennae that allow consumers to make payments by literally waving their plastic over a card reader. But according to a story in Consumer Reports Magazine, in exchange for the convenience of these so-called contactless cards their holders face increased risk of being victimized by thieves.

    Here’s the main problem: the very same technology – often a radio frequency identification, or RFID, chip – that makes it such a snap to hand over debit or credit card information to a merchant is also what makes it easy for a thief to lift those vital numbers themselves. That’s because criminals need only to get their hands on the sort of card reader stores use, which is easy because they sell for less than $100. Armed with a reader, a thief must only get within a few inches of a victim’s card in order to swipe the account number and expiration date, which can then easily be transferred to blank cards. Unfortunately, that means a crook can start making purchases with a counterfeit card, even if a victim still physically has theirs in their wallet or purse.

    So how do you know if your cards use this technology? Chase cards have labeled their contactless cards “Blink,” MasterCard’s are called “Pay Pass,” and others simply have a symbol consisting of four curved lines. There are plenty of people who have one. Citing The Nilson Report, a newsletter, the Consumer Reports story says 35 million contactless cards are in circulation in the U.S. alone.

    If you do have a contactless card, protecting yourself is not necessarily easy. There are wallets with shields that market themselves as RFID blockers. Although they can make it more difficult for an electromagnetic reader to swipe your account information, they don’t entirely block the transmission of card data. Another option is a protective sleeve made out of duct tape and lined with aluminum foil. Consumer Reports tests show that approach was superior to many options available for purchase but still didn’t offer complete protection. Probably the best method of protection is to ask for a card that doesn’t have this technology.

    Representatives of the credit and debit card industry insisted to Consumer Reports that contactless cards are safe. Chase spokesman Paul Hartwick told the magazine that the security codes on its contactless cards are designed to change with every transaction so that even if a card were compromised it would work for only one fraudulent transaction.

    The Smart Card Alliance, an industry group, maintains that contactless card technology deployed by American Express, Discover, MasterCard, and Visa is secure and that there have been no reports that consumers have been victimized.  American Express says its contactless cards do not reveal the card account number, and Consumer Reports’ own tests supported this assertion.

    According to Kevin Fu, a University of Massachusetts at Amherst assistant professor, the absence of a flood of fraud reports linked to the cards is not proof of their security.  Because the contactless cards in circulation in the U.S. represent only 3.5 percent of the total debit and credit cards in use, they have not yet presented a big enough target to lure many crooks, especially when traditional magnetic stripe cards are so easily counterfeited.

Credit and Debit Card Ratings