US Treasury to Issue Prepaid Debit Cards for Tax Refunds

As I mentioned in an earlier blog, the U.S. Treasury is getting in on the growing prepaid debit card trend. Last fall, they announced plans to test prepaid debit cards as a means of providing tax refunds to thousands of low and moderate income taxpayers for the 2010 tax year. Last month, they mailed some 600,000 letters to taxpayers making less than $35,000 a year offering them the option of receiving their refunds on a MyAccountCard Visa Prepaid Debit Card. In addition, the Treasury is also offering automatically deposited tax refunds to thousands of existing employees currently using debit cards for payroll check deposits.

The obvious benefit to the Treasury is the large savings of an estimated $40 million in mailing costs. (They claim it costs them roughly a dollar to mail a tax refund check vs. about 10 cents to deposit money onto a debit card.) Sounds great for the government … right? But what about the taxpayer?

Impact to Taxpayer of Debit Card Tax Refund

For those taxpayers electing to receive their refund via a prepaid debit card, the Treasury claims they will benefit from a refund method that is “faster and safer.” But there is a cost associated with these debit cards. Depending on which version of the debit card they select, taxpayers can incur fees such as monthly service fees ranging from free to $4.95 per month, fees for using out-of-network ATMs, as much as $4.95 to add money to the card, and $2.50 to withdraw cash from a bank teller. For low-income taxpayers who don’t have bank accounts and have trouble cashing checks, this may well be worth the costs. But, before you make a decision, carefully review the different card options being offered to see which is the best for your given financial situation and the way you spend and access your money. I am concerned that some taxpayers could end up losing a fair amount of the refund to fees.

In addition to the taxpayer cost concern, I have real concerns over the process used by the Treasury Department to launch this new tax refund initiative and who really stands to benefit. How did Utah-based Bonneville Bank and Green Dot Corp., the prepaid debit card provider and the largest player in the prepaid debit-card industry, get selected? I'm also concerned that these cards are just another way for banks and credit card companies to profit from excessive fees, especially fees impacting those who can least afford them - low income families and those with a lot of debt. Apparently I’m not alone. Congress, especially the Ways and Means committee, is asking similar questions.

Let me know what you think about this or your experience with prepaid debit cards.

The Pitfalls of Prepaid Debit Cards – What You Need to Know

The marketing of Prepaid Debit Cards has become a huge business targeting people with poor credit or those who lack the funds to open a bank account. So big a business, in fact, that it is expected to reach $440 billion by 2017. And it seems like everyone is trying to get in on the action with stars such as the Kardashian sisters touting “designer” cards. Even the Department of the Treasury has announced plans to test market prepaid debit cards in place of tax refund checks (more on that in a follow-up blog).


While prepaid debit cards have their benefits, there can be significant pitfalls associated with using these cards. Carefully weigh the benefits against the pitfalls discussed below to determine whether a prepaid debit card is right for your needs and situation.

Marketed Benefits of Prepaid Debit Cards:

1. No Credit Required – You don’t need to have good credit to get a prepaid debit card since it isn’t a credit card. Your spending is limited by the amount of your own money that you applied – or prepaid - to the card.


2. Safer than carrying cash – Unlike cash, if your card is lost or stolen, most will replace your card for a nominal fee. For your teens, this may be a much safer option than handing them cash and with greater control than giving them a credit card.


3. Alternative to a bank account – For people who lack the funds to open a bank account but need to be able to regularly cash payroll checks, a prepaid debit card may be a better option than check cashing services, especially if you can have your payroll check deposited directly to your debit card.


4. Enable on-line purchases – If you need to make purchases on-line, a prepaid debit card does offer the convenience of a credit card for on-line or over-the-phone transactions.

The Pitfalls of Prepaid Debit Cards: All Prepaid Debit Cards are Not Created Equal:

1. Unregulated Industry - With no laws in place to govern the types of fees or amounts that can be charged, all debit cards are not created equal. It’s up to you, the consumer, to do your homework, compare card costs and limits, and read the fine print on the cardholder agreement to understand the restrictions.


2. Fees can quickly eat up your balance – In addition to the purchase price of the card, some charge monthly maintenance fees, cash withdrawal fees, reloading fees, balance inquiry fees, inactivity fees and even bank teller cash advance fees. With fees as high as $9.95 a month for maintenance and $2.50 per ATM withdrawal, you can quickly eat up the balance on your debit card.


3. They don’t help your credit score – If you need to establish credit, a prepaid debit card won’t help you. Because you are using your own money, there is no credit risk associated with the cards so they don’t help establish credit worthiness. If this is your objective, you may be better off getting a secured credit card that has a credit line limited by a deposit.


4. Limited Protection - While it may be safer than cash, a prepaid debit card doesn’t carry the same level of protection as found with a standard credit card. Most will replace your card if lost, for a fee, but offer minimal protection for charges made on a stolen card, disputed purchases, or fraudulent charges. It is important to read the fine print regarding the cards restrictions and your obligations for reporting a lost card or purchases you didn’t make.

It pays to take the time to shop before you buy; do your homework to find a card with minimal out-of-pocket costs and it will really pay off in the long run. Remember, there are a lot of people making a lot of money off of your need for cash and convenience so be a savvy shopper, not a guppy for rich celebrities!

Do You Feel Trapped by Mounting Credit Card Debt?

If mounting credit card debt is keeping you from getting credit or making it difficult for you to keep up with the bills, then make 2011 the year you are going to regain control of your finances and your future. Every month you delay, fees, interest, and penalties will continue to pile up and make the debt trap that much harder to get out of.

The professionals at Credit Card Relief are ready to discuss your situation and help you determine what the best course of action is to tackle your debt. Give them a call at (866) 960-5454 for a FREE, no-risk, no-obligation consultation or click here to visit their website. You’ll rest easier tonight if you make that call TODAY!

New FTC Rules Support Consumers Seeking Debt Relief

In the last quarter of 2010, new FTC rules went into effect to protect consumers seeking debt relief through debt settlement type companies. This change spells good news to those struggling with mounting credit card debt or other unsecured debt for two important reasons:

1. it cleans up the deceptive and abusive practices that have been associated with some debt relief services and
2. it reinforces the legitimacy of negotiating-down and settling debts with creditors as a way to get out of debt.

You can now feel comfortable in pursuing this option to eliminate your debt with the protection of the FTC.

How Did the Debt Relief Changes Come About?

Since 2005, when Congress passed The Bankruptcy Abuse Prevention and Consumer Protection Act - which actually limited consumers ability to file Chapter 7 bankruptcy to discharge unsecured debts - consumers have been desperate for ways to unburden themselves of mounting debt, especially credit card debt. With the reduction of home values due to the mortgage crisis, debt-consolidation loans were no longer a viable option. Programs such as Consumer Credit Counseling were also ineffective for many people. Their debt was just too big and the time to pay it back just too many years!

As consumer debt grew, so did the debt settlement industry as a way for people to settle and discharge their debts with their creditors for less than what they owed. While many people have found true relief using a debt settlement company, unfortunately, as is the case in many industries, the rise in demand also lead to the rise in unscrupulous companies making unrealistic promises of how much they could save you and how quickly they could get you out of debt. In addition, many so-called experts in the financial reporting world were skeptical of the industry and critical of options that enabled people to settle debts for less than what was owed. Their philosophy was: “It’s your debt problem; buckle down and pay back what you owe!” The unethical practices of some, along with the negative press, cast a shadow on the industry.

Yet, during all of this, banks and credit card companies themselves were under scrutiny by Congress for their own ruthless practices that kept people in debt by raising interest rates without warning and mounting up over-draft charges and late fees. In 2009, in response to consumer complaints and the rampant rise in debt, Congress passed a new law to protect consumers from these kinds of practices. While this helped to stem the blood flow, it did little to cure the epidemic.

With the FTC’s enactment of the new provisions governing debt relief services under the TSR (Telemarketing Sales Rule), there is now a glimmer of hope for debt-strapped consumers. A better product has emerged from the industry cleanup that provides consumers with a doable solution to debt problems, allowing them to discharge their debts honorably and, in most cases, for less than what they owe.

The new Debt Relief Rules and What They Mean for You

1. It’s illegal to charge upfront fees. Debt Relief service providers cannot collect any fees from you until they have settled at least one of your debts. They can, with certain restrictions, require you to set aside money in a dedicated account for your fees and for payments to creditors. The benefit to you is that the service provider has a real incentive to settle your debts as quickly as possible; meaning, you will start to reduce your debt burden in a much shorter period of time.
2. Certain information must be disclosed before signing. Before you sign up for debt settlement services, the provider must disclose specific information about the service, including: how long it will take to get results, how much will it cost, the negative consequences that could result from using debt relief services, and key information on how your account is set up and managed. The benefit to you is that you should have a clearer understanding of how their debt relief program works and what you can reasonably expect before you engage their services.
3. No misrepresentation of services. Debt relief service providers are prohibited from making false or unsubstantiated claims about their services. Again, the benefit to you is a clearer understanding of what you can expect based on the amount of debt you have and the amount of money you can afford to pay towards discharging those debts. Gone are the deceptive, to-good-to-be-true practices of leading you to believe you can be debt-free for just pennies on the dollar.

I hope this blog post will help those of you struggling with mounting debt and uncertain about whether to look at debt settlement as a way to get out of credit card debt. If you are wondering whether debt settlement is a good option for your debt situation, you can call Credit Card Relief Toll-Free at 866-960-5454 for a free, no-obligation consultation. This is one company that for the past decade has provided a consistently reputable product and has helped thousands of people get out of debt. You can also click here and visit their website to learn more.