Times Analysis Leads to False Conclusion About Federal Tax-Refund Debit Cards

This New York Times article discusses the Urban Institute’s research regarding the Treasury’s MyAccountCard pilot program conducted with Green Dot:

Giving consumers who lack accounts at a bank or credit union the option of getting tax refunds on multiuse, prepaid debit cards may help bring them into the financial mainstream, a report from the Urban Institute finds. But the accounts must be low-cost, easy to use and available early in the tax season to encourage their use.

The study examined the MyAccountCard, a card offered in a pilot program to low- and moderate-income families during the 2011 tax season by the U.S. Department of the Treasury, and found the card is ‘a concept with promise.’

Unfortunately, the article failed to recognize or discuss the Treasury’s Direct Express prepaid program and hence failed to identify the Treasury has a successful prepaid program today, although with different goals. Despite the withdrawal of the MyAccountCard, the Direct Express program continues to be a major success story, as identified in Mercator’s “Ninth Annual U.S Open-Loop Prepaid Cards Market Assessment and Prepaid Industry Overview” report.

The Direct Express program is a prepaid card with no upfront cost that lowers the Treasury’s disbursement costs while offering cardholders a safe and convenient way to receive and spend their Social Security funds. Only the Treasury Department can reload the Direct Express card, and cardholders typically throw the card away once they stop receiving benefits.

In contrast, the MyAccountCard was a pilot designed to test the interest of low income tax recipients for a prepaid product that would bring the individual into the financial mainstream with a prepaid card that acts as an alternative to a traditional checking account:

In the Treasury program, adults with household incomes under $35,000 and little connection to mainstream financial services were offered a prepaid card for receipt of their tax refunds. The card could also be used on an ongoing basis for everyday financial needs, like getting paychecks by direct deposit, getting cash from A.T.M.s, making purchases and paying bills

Ironically these more mainstream capabilities proved to be the primary issue related to adoption since the ability to place more funds into a prepaid account demands the product be registered by the user:

A linked savings account offered with the prepaid card was unpopular, perhaps because participants had to activate the account online, the evaluation found.

A better headline for this Times article would have been: Treasury Recipients Say Yes To DirectExpress, But No To Financial Services From the Feds.

This is a corrected version of the story that was published Wednesday, Jan. 9 that misidentified the purpose of the Direct Express and MyAccountCard products. PaymentsJournal regrets the error.