Treasury Should Use the Federal Prepaid Debit Card Program to Distribute Relief Payments to the Unbanked
The US Department of the Treasury and Internal Revenue Service (IRS) have made history by sending out economic impact payments to Americans at breakneck speed. But there are already reports that millions of payments were misdirected.
Reaching those who are unbanked, underbanked, or typically don’t file taxes is challenging. Treasury should use its federal prepaid debit card program to get payments safely to these groups, just as it does for Social Security beneficiaries.
Getting your payment
The IRS has launched two tools to get payments to people quickly: one for those who filed a tax return in 2018 or 2019, and another for those who did not have to file in either year (typically because their incomes were too low).
For those who filed taxes in the past two years, the only option to receive payment is through direct deposit. If the payment bounces back, the government will issue a paper check to the address on file. Nonfilers can either provide their bank information for direct deposit or their mailing address to receive a paper check.
But there’s another option that has not been employed.
Add the federal Direct Express™ card to send payments
Treasury Secretary Steven Mnuchin has said government is working with digital companies and prepaid card providers to distribute payments quickly, but has not mentioned the role of Direct Express™.
To reach its decades-long goal of moving to electronic payments, Treasury’s Bureau of the Fiscal Service developed a federal prepaid debit card. Direct Express™ was designed to deliver federal benefit payments like Social Security and veterans benefits to the unbanked and underbanked. But Treasury has noted its potential for making other federal payments.
Through its online portals, Treasury could allow nonfilers to receive their payment via Direct Express. Users are already instructed to enter their addresses to receive a paper check. Instead, they could elect to have a debit card mailed to them. Once users receive and activate the card, Treasury would load the payment.
The government already does something similar with federal beneficiaries to encourage those still receiving paper checks to convert to electronic payments. Cards can be mailed to prompt them to begin receiving their federal benefits via Direct Express™.
As concerns mount over misdirected payments and people getting tricked into paying third-party preparers to get their check, Treasury could also offer this option to those tax filers.
Is it feasible?
The Direct Express™ card already delivers federal benefits to Social Security, veterans, and other federal beneficiaries. Recent data provided to banks bidding for the Direct Express™ contract indicates that over $3 billion in combined federal benefit payments are loaded onto cards every month (PDF). Roughly 3.5 million cards are in use every month and over 275,000 new cards are issued monthly.
This means that the scale of the program would have to grow tremendously to meet the need for issuing economic impact payments. It could take time, and Treasury would have to negotiate with its fiscal agent, Comerica. Some prioritization may be needed, such as limiting the cards to unbanked nonfilers first, followed by those who relied on third-party preparers to receive their refund.
The potential risks are worth acknowledging, too. The cards have been subject to some fraud, and action has been taken to address it. There are some fees associated with the card as well. While they are low and mostly avoidable, it makes sense to reduce them further and add the ability to reload them with personal funds.
Helping people now and preparing for what comes next
Getting payments to people in the form of prepaid debit cards has many important benefits. For the unbanked and underbanked, the program makes it safer and easier to receive payments (checks are prone to more fraud) and make safer, socially distant payments. They also help people safely reduce reliance on payday lenders and are accepted broadly (the cards are MasterCard branded).
Even if it takes time to expand the Direct Express™ program to issue the economic impact payments, doing so now would position us to more easily deliver a second round of payments. And relying on paper checks creates delays, too.
We need to create the infrastructure within government to enable flexibility in times of crisis. This isn’t the first time the government has had to deliver payments in a time of economic crisis (it did during the 2008 financial crisis) and it’s unlikely to be the last.