Industry groups for U.S. providers of pre-paid cards and mobile wallets are in talks with the U.S. Treasury Department about allowing stimulus payments designed to help millions of Americans struggling due to coronavirus lockdowns be made via their products, the groups said.
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The Treasury's Internal Revenue Service (IRS) began this month depositing payments, approved as part of a $2.3 trillion Congressional relief package, directly into taxpayer bank accounts. But the IRS may have to issue as many as 70 million paper checks to Americans for whom it has no account data, including several million who do not have a bank account.
Hobbled by budget cuts and obsolete technology, the IRS will struggle with the enormous workload involved in printing and distributing millions of checks and could take months to complete the job, Reuters has reported. Checks are also highly vulnerable to fraud.
The Electronic Transactions Association (ETA), the Innovative Payments Association (IPA) and bank lobbyists are in talks with the Treasury about expanding electronic payment options by allowing companies to load the stimulus cash onto newly issued or existing pre-paid cards, the groups said.
Jodie Kelley, chief executive of the ETA, said talks took a step forward last week when the Consumer Financial Protection Bureau (CFPB) waived a rule that hinders agencies from requiring that a consumer receive government payments through a specific third-party.
The CFPB waived the rule in order to help get funds into the hands of consumers in "the most efficient, secure manner and has offered its perspective and support to Treasury and the IRS to that end," a spokeswoman said.
While that CFPB measure has helped pave the way for the Treasury to adopt new payment types for stimulus checks, the agency still has to work through other issues.
Those include whether to take competitive bids for the contract or potentially use emergency powers to quickly pick a provider, according to the ETA, which represents companies including PayPal Inc, Visa and Mastercard and two lawyers familiar with the discussion.
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While the Treasury would pay the contracted issuer, there was a question mark over whether consumers would have to pay fees to access the funds, the two lawyers said.
In 2018, pre-paid card issuers reported collecting $469 million in fees, according to the Federal Reserve, a figure consumer groups have criticized as being far too high. The Federal Reserve has said that cardholder ATM and account serving fees represented 84% of total cardholder fee revenue.
The U.S. government already disburses Social Security and other benefits using pre-paid cards such as Comerica Bank's Direct Express, and recipients pay no fees to have the benefits uploaded, but may incur fees in using the cards.
Another source said the industry groups expected the Treasury to make a decision on pre-paid card providers once it had completed delivery the direct deposit payments. The precise timeline for issuing the paper checks remains unclear, but Treasury Secretary Mnuchin said on Sunday that checks had not yet been delivered.
The Treasury did not respond to requests for comment.
Brian Tate, chief executive of the Innovative Payments Association, said he hopes the Treasury moves quickly to allow pre-paid card providers to distribute stimulus funds, but declined to comment on the detail of the discussions.
Reuters could not ascertain which companies might be first in line for any pre-paid card contract.
Other major pre-paid card issuers include Bancorp Bank, Green Dot Bank and MetaBank.