PROVO, Utah-A pilot program by the federal government to issue tax refunds via a loaded Visa debit card rather than a direct deposit or by paper check has some credit unions wondering about the value of continuing to participate as VITA sites.

The federal government's aim is to reduce costs and go paperless. More than half-a-million individuals-primarily the unbanked and underbanked-are set to begin receiving letters from the Treasury Department that they may elect to participate in a pilot program and receive their tax refunds on a direct deposit pre-paid Visa debit card rather than as a paper check. The MyAccountCard will be issued by Bonneville Bank, based in Provo, Utah. Participants will, at random, receive one of four cards with different product features and fee structures, including two with a linked savings account. Government officials are attempting to determine which card is best as they navigate a potential national roll-out of the program.

The 600,000 people randomly selected represents about 2% of the un- and underbanked population, which is estimated to be around 30-million Americans, according to a 2009 FDIC survey. A Treasury spokesperson said the number 600,000 was chosen because it would provide a sufficiently large sample size. As the 2011 tax season approaches, many CUs and CDFIs will once again be serving as Volunteer Income Tax Assistance (VITA) sites for this population, assisting in the tax process. For many credit unions, acting as a VITA site not only helps fulfill what they see as their mission within their communities, it also helps the un- and underbanked align themselves with a financial institution as they save a portion of their tax return, and helps the CU itself.

Many CU officials say they worry about the affect the MyAccountCard will have not only on efforts in getting the unbanked to become banked, but on the future of VITA. Michael Daugherty, president and manage of Community Plus FCU in Rantoul, Ill., posited that there may be a great many banks and CUs currently serving as VITA sites that may no longer feel it's worth it to participate, since MyAccountCards already assign users to a financial institution, albeit one they have little actual relationship with. "The extent of that relationship is going to be that card," he said. "You can go to Wal-Mart and buy a pre-paid debit card and the total sum of your relationship with the issuer of that card is buying the card and using it. That's not going to expose you to the opportunity of saving money" or using any of the other products that are the lifeblood of financial institutions.

Pre-Paid Cards 'A Step Forward'

That being said, Lauren Saunders, managing attorney at the National Consumer Law Center, called pre-paid cards "a step forward." Even if they don't bring consumers into the world of traditional banking and a full-fledged bank account, she posited, it still exposes those consumers to electronic banking.

While member relations are the bread and butter of credit unions, Saunders said she was less concerned about the possibility of relationship banking than she was about consumers having access to their account information-particularly considering the possibility of fees associated for different services with such cards.

"This is where your money is, and if you're somebody who goes online all the time to check [your balance], that's great," said Saunders. "But a lot of people can't or won't do that."

MyAccountCard holders will be able to monitor their balance and account activity over the phone and online, said a Treasury representative. "I'm more worried about the lack of free means of getting information about your card than I am about being able to walk into a brick and mortar" bank or CU, added Saunders.

For his part, Jim Updike, CEO of Honda FCU in Torrance, Calif., compared the assigned banking to indirect car lending, "where you go to a dealer and get a car loan and it ends up being at XYZ credit union" said Updike. "Does that mean you're now a real live participating member at that credit union? No, not even close."

This type of program is not unprecedented, however. Many older unbanked Americans already receive monthly Social Security income through similar cards, which allow users to get cash back and transfer the card's funds into a bank account. Daugherty said that, when the MyAccountCard program rolls out nationally, he expected a lot of similarities to the current Social Security model.

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