Prepaid-card users find tax refunds frozen by companies

Associated Press

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 often are 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.

Prepaid debit-card companies Green Dot, NetSpend and others say the problems are the result of tighter fraud-protection measures.

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.