INSIGHT: Prepaid Cards—A Critical Tool in Providing Financial Relief

Prepaid accounts are one option the federal government has at its disposal to give U.S. citizens financial assistance due to the coronavirus pandemic, allowing consumers to maintain access to the financial services system, avoid check-cashing fees, and pay bills online or by phone, Brian Tate, president of the Innovative Payments Association writes. These products give Americans access to the digital economy through online shopping and effective budgeting tools.

Over the next several weeks, prepaid accounts will be a central tool the federal government uses to help Americans who are bravely enduring the twin health and financial crises gripping our country.

The truth is, prepaid accounts have been assisting governments at all levels to help their citizens in good times and bad for over a decade. 

Congress and the Trump administration reached agreement last week on a $2 trillion “Phase 3” coronavirus relief package. We hope the initial, bold steps taken by our nation’s leaders will help our country weather this crisis and recover quickly once it is finally over. 

​In addition to providing critical support for hospitals, health-care workers, and small businesses, this legislation provides checks to American households through an advancable, refundable tax credit—up to $1,200 for individuals and $2,400 for married couples, plus an additional $500 per child subject to income limitations.

In the next weeks, the Department of the Treasury and will distribute the funds automatically, with no action required for most people. Even before the bill was signed into law, Congress provided Treasury with the ability to process these funds electronically, and during floor remarks just moments prior to the bill’s passage, House Speaker Nancy Pelosi (D-Calif.) encouraged Treasury to do just that.

This individual financial relief will be distributed though the architecture of the federal income tax refund system, one that IPA members and our consumers are very familiar with because each year millions of Americans elect for IRS to electronically deliver their tax refunds into prepaid accounts. Taxpayers who have done so in the past two years will receive the Phase 3 advance rebates in their prepaid account. 

Phase 3 benefit distribution has shone a new light on prepaid accounts and how they help both consumers and governments during good times and bad. This is an opportune time to examine why.

Prepaid Accounts Are SafePrepaid accounts are safe. Prepaid accounts (cards, mobile wallets, etc.) are strictly governed by a regulation finalized by then-Director Richard Cordray at the Consumer Financial Protections Bureau.

Christina Tetreault, senior staff attorney for Consumers Union, said “The rule [is] strong and will protect consumers from hidden fees and losing their money to fraud and mistakes.” The most recent CFBP Consumer Response Annual Report found that only 0.8% of all complaints were about prepaid accounts.

These and other regulations governing prepaid accounts ensure consumers are well informed though multiple disclosures and have strong anti-fraud protections. Our members help to lead the IRS’s Security Summit and this public-private collaboration reduced identity theft tax returns by 54% from 2015 to 2018. 

Governments have been delivering benefits into prepaid accounts for well over a decade and providing those without checking accounts an opportunity to participate in the electronic economy. The federal government and all 50 states currently use prepaid account products to deliver benefits in a cost-effective and expeditious manner.

In fact, the Social Security Administration began delivering benefits to America’s retirees in 2008, providing seniors with easy-to-use accounts that protects them from fraud and check cashing fees. Moreover, Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance to Needy Family (TANF), and unemployment insurance are delivered into prepaid accounts as well.

In September 2019, the Federal Reserve observed that “[f]ederal, state, and local government offices use prepaid cards to disburse funds at a lower cost than checks (or other paper-based payment instruments such as vouchers or coupons) and to provide an alternative to direct deposit for payment recipients, especially those who do not have bank accounts.” 
Consumers BenefitPrepaid accounts are good for consumers, especially during this health crisis. The Financial Health Network said it best: “[P]repaid cards are generally high-quality products that allow consumers to build financial health by helping them spend wisely, save, and plan for the future.” 

During this difficult time, when social interaction is limited, prepaid accounts allow consumers to maintain access to the financial services system, avoid check-cashing fees, and pay bills online or over the phone instead of in-person. Most importantly, however, these products give Americans access to the digital economy through online shopping and effective budgeting tools. 

We are extremely grateful for the front-line heath care workers who are providing care and comfort to our nation and risking their own health to stop the spread of this deadly virus. They and other first responders are the true heroes during this health crisis. 

IPA members stand ready to do our part to help alleviate the economic crisis that our country and our consumers are dealing with. Financial accounts are safe, reliable, and accessible for consumers, especially those without checking accounts during this national emergency. 
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This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Author InformationBrian Tate is the president and chief executive officer of the Innovative Payments Association.