House Republicans Seek Answers on Debit-Card Tax Refund Plan

U.S. House Ways and Means Committee Chairman David Camp is questioning a Treasury Department pilot program through which up to 600,000 taxpayers could receive refunds on prepaid debit cards.

In a letter to Treasury Secretary Timothy Geithner dated yesterday and released today, Camp and Representative Charles Boustany, the chairman of the Ways and Means oversight subcommittee, inquired about a program that they said has “morphed” into an attempt to establish bank accounts for low-income taxpayers.

“We question the wisdom of the federal government becoming so involved in the financial affairs of individual taxpayers,” wrote Camp, a Michigan Republican, and Boustany, a Republican from Louisiana. They have pledged an assertive oversight agenda for the committee.

They asked Geithner to reply to 10 questions by Feb. 3. The inquiries include whether the financial institutions in the program were selected without an open competition.

Green Dot Corp., the largest U.S. provider of reloadable prepaid money cards, and a banking unit of Bonneville Bancorp were chosen without competitive bidding for the government’s experiment with debit-card tax refunds, a Treasury Department official said today.

Selection Process

“If we were to do this on a larger scale, then we would have a process that was more open and that would have a longer process to select the vendor,” said Josh Wright, Treasury’s director of financial access innovations.

Wright wouldn’t identify other suppliers considered or say how much the government is paying the Monrovia, California-based debit-card company and Provo, Utah-based Bonneville Bank to deliver tax refunds on preloaded cards.

Treasury has the authority to designate financial agents, which it used in deciding on a closed process to choose the vendors, Wright said.

Earlier this month, Treasury began mailing letters to 600,000 randomly selected taxpayers with annual income of less than $35,000, inviting them to receive their federal tax refund on a Green Dot card issued by Bonneville, according to a statement from Green Dot.

Camp and Boustany asked for copies of the letters and for information on how the sample was chosen.

The test is part of a heightened effort to distribute tax refunds electronically. For instance, direct deposit costs, on average, 10 cents per transaction, compared with a cost of $1 for each paper check sent in the mail, Wright said.

The Unbanked

The tax-refund pilot program targets low-income individuals because they may not have bank accounts and often collect refunds through anticipation loans from tax preparers.

Customers can pay as much as 25 percent of their refund in fees to receive it a week earlier, according to a 2008 report by Treasury’s Inspector General for Tax Administration. The IRS said in August that it would stop providing data used by preparers such as H&R Block Inc. to underwrite such loans.

Some tax-refund cards in the pilot program will carry a $4.95 monthly fee while others will be free, Wright said.

Camp and Boustany asked for “an explanation of all fees and charges that will be incurred by taxpayers.”

The Urban Institute, a nonpartisan Washington-based economic and social policy research group, will analyze card usage trends, Wright said. The evaluation will begin “in the next month or so” and continue through June, Stu Kantor, an Urban Institute spokesman, said in a telephone interview.

Pilot Program

“We’re trying to learn from the pilot the different account features and pricing that most resonate with people,” Wright said. “Based on what we learn, there’s still a decision to come about whether we’d do this nationally.”

Prepaid cards make up one of the fastest-growing segments of the payment-card market, with transactions forecast to reach more than $840 billion by 2017, according to a Boston Consulting Group study commissioned by MasterCard Inc. and released this year.

Green Dot, which raised $164 million in an initial public offering last year, reported revenue of $88.9 million in the third quarter of 2010, according to data compiled by Bloomberg News. Its competitors include Austin, Texas-based Netspend Holdings Inc. and Englewood, Colorado-based Western Union Co.

Green Dot agreed last year to acquire Bonneville, which in the third quarter of 2009 had $36 million in assets, according to Federal Deposit Insurance Corp. data.