Users of Prepaid Debit Cards Find Their Tax Refunds Frozen

AP Photo/J. David Ake

Thousands of people have had their prepaid debit cards frozen when they try to direct their tax refund to their accounts, a result of financial industry efforts to combat an escalation in tax fraud.

It’s keeping people from their money, and delaying access to much-anticipated tax refunds. People who rely on prepaid debit card accounts are often poorer Americans who don’t have traditional bank accounts.

Shannon King had her money frozen for two weeks. She had planned to use it for car repairs and to help pay for a move, both of which then had to be delayed. “It was very frustrating,” King said.

King has a Wal-Mart MoneyCard, which is run by Green Dot. She said after her refund was deposited, Green Dot froze the card and asked her to send a picture of her Tennessee state identification card to verify the account. The process to release the money took more than two weeks, she had to submit photos of her ID a number of times — Green Dot said they weren’t readable — and she says she spent hours on the phone with customer service agents to resolve the problem.

The Associated Press reviewed documents sent to Green Dot by King, including her ID picture, and they appeared clear.

Prepaid debit card companies Green Dot, NetSpend and others say the problems are the result of tighter fraud protection measures. Both Green Dot and Wal-Mart have apologized, but emphasized the measures were there to protect their customers.

“We’re working with the company to ensure that any customer service issues are resolved as quickly as possible,” a spokeswoman for Wal-Mart said.

The card companies, along with the IRS, are trying to stem a tide of tax fraud by identity thieves. Criminals file bogus tax returns using other people’s identities, claim a refund and collect the money. Many people do not know they are a victim until they try to file a legitimate return and are unable to.

The fraudsters often use prepaid debit cards to pull off their scams because the accounts can be relatively anonymous.

For example, in 2012 a Miami man was sentenced to five years in prison and three additional years of probation for filing nearly 500 fraudulent tax returns. Instead of having the refunds deposited in a bank or mailed, he had them electronically deposited to prepaid debit cards, including Green Dot, and gift cards. When he was arrested, prosecutors say the man had 11 Wal-Mart money cards loaded with more than $32,000 from fraudulent returns.

Tax and wage-related fraud was the most common form of identity theft reported to the FTC in 2015. It’s on the rise — about 45 percent of the identity theft complaints to the FTC last year were tax or wage-related, up from 33 percent in 2014 and 30 percent in 2013.

The IRS says tax-related identity theft is one of its biggest challenges. In 2015, it stopped 1.4 million confirmed identity theft returns, totaling $8.7 billion. For criminals, the IRS makes for a quick, easy score: the IRS processes most returns in less than 21 days, and the average return was $2,797 last year.

To combat the problem, the IRS held a security summit last year with states and tax-industry representatives to find ways to solve the problem together. As a result, efforts to fight fraud have intensified this year and banks and other prepaid debit card companies are tightening their protections.

The IRS and other industry representatives would not say if account delays or freezes were requested or required. But the IRS did say that it is working with banks and debit card issuers to obtain information that would be helpful in detecting and preventing fraud.

Green Dot estimates that 9,000 customers have had their accounts blocked this season, representing 0.2 percent of their customers. NetSpend, the second largest issuer, said they also have been freezing accounts, but declined to give a number impacted. American Express, which issues a prepaid debit card known as American Express Serve, also said it has been stepping up fraud protection measures.

A spokeswoman with American Express said customers can minimize the chances of being flagged for fraud by making sure their personal identification information on the account matches the information on their tax forms. And Jackson Hewitt, which uses American Express cards for its customers, requires two forms of ID to receive a prepaid bank product to help cut down on fraud.

While their intentions are good, the industry’s efforts still are somewhat frustrating for people like King.

“I understand the reasons, but it shouldn’t have taken two weeks,” she said.

Written by Ken Sweet and Sarah Skidmore Sell of Associated Press

(Source: MSN)

Many US Retailers Not Ready for Fraud-Proof Cards

© Provided by CNBC
© Provided by CNBC

By the fall, millions of Americans will have gotten new high-tech credit and debit cards, part of a broad effort across the financial industry to reduce fraud.

But many U.S. small businesses are unprepared for the changeover, which could leave them on the hook for any fraudulent transactions that occur after the shift happens.

The new credit cards are called EMV (Europay, Mastercard and Visa), and include a microchip intended to lower fraud.

While the new credit cards will still contain the current standard magnetic strip to allow for backward compatibility, they are designed to be read through their more secure microprocessor chip that creates unique data with every transaction.

This dynamic element makes EMV cards almost impossible to counterfeit; The United Kingdom saw a 32.5 percent reduction from 2004 to 2011 after the introduction of chip-based cards.

Credit card companies in the United States are pushing businesses to follow suit, and start accepting the microchips through a liability shift on Oct. 1, when American Express  (AXP), Discover  (DFS), Maestro, Mastercard  (MA) and Visa (V) will relinquish their liability for EMV card-present fraud to any businesses not accepting EMV.

While bigger retailers like Target  (TGT) and Wal-Mart  (WMT) have already made the adjustment, and are now accepting microchip cards, the transition has been more difficult for many small businesses. According to a recent Intuit study, only 42 percent of small businesses in the United States have committed to accepting EMV credit cards. Those that don’t will soon take over financial and legal liability for fraudulent activity in their transactions.

The liability change was designed to give businesses time to conduct research and make smart decisions about upgrading their technology.

“Liability shifts have been used very effectively around the world and what they do is instead of a hard mandate that would require all businesses—both issuing banks and merchants—to transition quickly at the same time, it allows each business to make their own decision about the investment to migrate as well as any resulting costs and liabilities,” said Carolyn Balfany, senior vice president of product delivery–EMV, MasterCard.

More than half of the small businesses who do not intend to switch cited the cost of a new point-of-sale terminal as their primary barrier, while around a quarter said that the time necessary to research the tech and educate their employees was stopping them from moving forward.

However, according to Intuit, 85 percent of those small businesses said that they didn’t know about the liabilities they’ll be taking on, and 86 percent said that they might not be able to handle them.

Sally Cook, owner of Heirloom Bakery in South Pasadena, California, said she hadn’t known about the liabilities her business will be taking on in October. Cook switched her business over to a new EMV-capable system called Clover a few months ago because it saved money on credit card processing, and learned about chip cards in the process.

“When they came and pitched the product, they informed me that there were some changes that needed to take place and they were already in place on the Clover system,” Cook said. “I do know that there was a shift in terms of how certain things would be processed that we would need to comply with, I think, by the end of this year. At that point we would have to have everything in place, and that was another reason we were happy to switch over.”

However, even with smart-chip capabilities, Heirloom has been processing EMV cards using their magnetic stripe.

“We just slide all of them the same way,” Cook said. “We haven’t been given any other information from Clover in terms of how to process them.”

The new processing system made accepting credit cards cheaper for Cook, and for businesses already using mobile readers, the switch requires ordering an updated version from their provider at a cost of around $30. More traditional small point-of-sale systems can be found online for between $150 and $450, but those with more complicated systems could have higher research and technology costs.

However, the cost of a new point-of-sale system is far from the biggest expense a business could face if it does not have an EMV terminal and accepts a fraudulent credit card. Sixty-three percent of all the small businesses surveyed claimed some level of credit card fraud on an annual basis, with an average of 7 percent of transactions being fraudulent.

Those transactions add up; in 2012, the United States saw $5.2 billion in credit fraud loss, 47.3 percent of the world’s total. For smaller companies, the losses incurred could be enough to push them out of business.

A recent survey from MasterCard says that American consumers are ready for the shift to EMV. In fact, 77 percent of them are concerned about their financial information being stolen or compromised. Balfany stated that accepting EMV cards might help businesses reassure their customers.

“Consumers actually expect merchants to upgrade and what consumers tell us is that they see a merchant that upgrades more positively because they see them as being willing to invest in their security,” Balfany said.

Written by Sofia Goode of CNBC

(Source: CNBC)