Tag: tax refunds

The holidays just got a little more stressful for millions of Target customers. In a statement on Dec. 19, the large retailer acknowledged that as many as 40 million customers who used their debit or credit cards at Target’s U.S. stores between Nov. 27 and Dec. 15 might have had personal information stolen. Online shoppers at Target.com were not impacted.

Target says that it discovered the problem on Dec. 15 and was able to take steps to resolve future problems. Target also said that the information stolen included customer names, credit or debit card numbers, card expiration dates and three-digit security codes.

According to a report in The New York Times, criminals focused their attention on point-of-sale transactions taking place inside Target stores. “By breaching point-of-sale systems, they can steal the so-called track data on credit and debit cards, which can be sold, in bulk, on the black market and used to create counterfeit cards,” says the story by Times reporters Nicole Perlroth and Elizabeth Harris.

This high-profile theft comes at a very bad time for both Target and its customers. The first day criminals accessed customer credit and debit card information was Nov. 27, the day before Thanksgiving and just prior to Black Friday, the traditional start of the holiday shopping season.

In its statement alerting customers about what happened, Target said it had partnered with a third-party forensics company to investigate the security breach and had alerted financial institutions and law enforcement officials. The New York Times report said that the Secret Service, which is responsible for investigating financial fraud, had launched an investigation.

Target also urged customers who may have been impacted by the theft to take a number of steps to protect themselves. Specifically, the company urged people to keep a close eye on credit and debit accounts in order to spot any fraudulent transactions. Target also suggested customers monitor free credit reports available from Equifax, Experian and TransUnion, the nation’s three major credit bureaus. “If you discover any suspicious or unusual activity on your accounts or suspect fraud, be sure to report it immediately to your financial institutions,” says the statement from Target.

In the case that a customer does find irregular charges, Target suggests contacting law enforcement or the Federal Trade Commission (FTC) to report the incident.

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.