Alternative Finances

Will Louisiana Send Prepaid Packing?

Yet another state, Louisiana, is looking to convert plastic back to paper, at least when it comes to how tax refunds are distributed.

Under a bill approved by the state’s House Ways and Mean Committee on March 31, taxpayers who do not specify a specific method for providing tax refunds will receive their refund via a check. The current default method when no other option is chosen is to provide the taxpayer a prepaid debit card.

The bill is before the House of Representatives for a full vote. If passed, the bill would increase the Louisiana Department of Revenue’s expenses only by about $36,000 the first year and about $21,000 annually thereafter, according to the Legislative Fiscal Office.

The state distributed about 35,000 JPMorgan Chase-issued debit cards last year. Had those been checks, the state would have paid about 60 cents each, or about $21,000. A one-time system initiation would cost $15,000 in IT time, thus creating the bigger first-year expense. Chase is providing the tax refund debit cards to the state for free.

Last year, 13,500 Louisiana debit cards were exposed to a breach reported by Chase, which said someone had broken into the company’s security system and accessed personal information related to debit cards provided to three state agencies. Some 6,000 of those were used to hold tax refunds, 5,300 for child support and 2,200 for unemployment benefits.

In Louisiana, consumers still have the option to get their refunds via direct deposit, paper check or prepaid debit card. It’s only when no option is chosen by the taxpayer that the default would switch to check should the bill be signed into law.

In early April this year, a glitch in Louisiana’s system reportedly caused 8,000 taxpayers in Louisiana to receive their tax refunds on prepaid debit cards, even though they asked for direct deposits. The state has offered to cancel the card and issue checks to the refund recipients, though that would delay access to their funds.

Other states, including Minnesota and Connecticut, are postponing or suspending the distribution of prepaid debit cards for tax-refund purposes. Their main concern is card security stemming from the recent data breaches, including one Chase itself experienced but also the merchant breaches at Target, Neiman Marcus and other stores.

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