PHOENIX — 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 Walmart 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 ID card to verify the account.
The process to release the money took more than two weeks, King said. She had to submit photos of her ID a number of times — Green Dot said they weren’t readable — and she said she spent hours on the phone with customer service agents to resolve the problem.
Prepaid debit card companies Green Dot, NetSpend and others say the problems are the result of tighter fraud-protection measures. Both Green Dot and Walmart 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 Walmart said.
The card companies, along with the Internal Revenue Service, 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.
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 Walmart money cards loaded with more than $32,000 from fraudulent returns.
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 refund was $2,797 last year.
The IRS and other industry representatives would not say whether account delays or freezes were requested or required.
