Treasury Turns to Prepaid Debit Cards for Tax Refunds

The Treasury Department is launching a pilot program to deliver tax refunds via prepaid debit cards rather than checks.

The plan aims to cut down on the administrative costs associated with checks and to help lower-income taxpayers without bank accounts, The Wall Street Journal said.

The government will send letters to about 600,000 low- and moderate-income taxpayers inviting them to activate a debit card that can receive direct deposits.

The U.S. issues about 45 million paper checks for tax refunds each year. Each check costs the government about $1, while each direct deposit costs about 10 cents.

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"My goal, one that's been talked about for many years, is to get out of the check-payment business," said Richard Gregg, Treasury's Fiscal Assistant Secretary.

The government is also working to lower the cost of financial services for consumers who don't have bank accounts. Many of these people rely on expensive neighborhood check-cashing outlets, making it more difficult for them to save money.

The new Treasury pilot program will provide some consumers with a debit card that has many features of a checking account, including free bill paying and ATM withdrawals.

"They can use it in an ongoing way to pay bills, save money, get cash and have a real basic, robust, safe and convenient transaction account," said Treasury Financial Access Innovations Director Joshua Wright.