The Internal Revenue Service is planning to delay refunds for people claiming the earned income tax credit in order to help prevent fraud, the associated press reported. IRS Commissioner John Koskinen noted that for many filers, the refund check is the largest one they will receive all year.
The tax filing season starts Jan. 23. But a new law requires the IRS to delay tax refunds for people claiming these credits until Feb. 15. Processing times will delay most of the refunds until the end of February, Koskinen said.
While the delay is designed to fight fraud, it will affect prepaid card programs that receive those funds as a direct deposit from cardholders. It means that the flow of funds could be slower or different for the companies that typically see large deposits around tax time
Tax preparer H. & R. Block is offering zero-interest loans for earned income tax customers, the A.P. reported in its article. When looking into this on the company’s site, the loans have certain restrictions and must be loaded onto a prepaid card. It is worth noting that the loans can only be made for in-person customers, which presumably gives Block a better ability to verify that the return is not fraudulen.
This is an optional tax refund-related loan from MetaBank®, not your tax refund. Loans offered in amounts of $500, $750, or $1,250. + Approval and loan amount based on estimated refund, ID verification, eligibility criteria, and underwriting. If approved, funds will be loaded on a prepaid card and the loan amount will be deducted from your refund reducing the amount paid directly to you. Tax returns may be e-filed without applying for this loan. Fees for other optional products or product features may apply. Limited time offer, at participating locations. Not offered in PR. HRB Maine License Number FRA2. See hrblock.com/loan for details. Details can be found here: https://www.hrblock.com/
This might seem like an attractive option, but prepaid providers should be careful. The new prepaid regulations from the Consumer Financial Protection Bureau require more work and underwriting for customers who load prepaid cards with funds issued as part of a loan.
Fraud remains a continuous problem, and the work to solve it can sometimes have ripple effects, as in this case. Companies should thing about the opportunities they have to protect their customers and reduce the friction that customers face even as they protect them.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
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