Senate’s Tax Refund Fraud Bill Takes Aim at Prepaid (April 16, 2015)
Several U.S. senators used income tax season to promote new legislation that takes aim at program providers that enable consumers to receive their tax refunds on prepaid cards.
The Identity Theft and Tax Fraud Prevention Act of 2015, introduced last week, terms prepaid cards as “at-risk accounts” if they’re not verified accounts—verified accounts being those in which the identity of the “prepaid access customer associated with the account is verified by customer identification procedures and direct review of an original, unexpired government-issued form of identification bearing a photograph or similar safeguard, such as a driver’s license or passport.” The bill would require federal primary financial regulatory agencies to prescribe regulations requiring newly issued deposit or transaction account numbers to be distinguishable between verified accounts and at-risk accounts.
Industry experts suggest tax refund fraud is an identity theft issue, not a CIP issue. Prepaid providers already perform CIP on cards that receive tax refunds. Another problem is that the IRS typically isn’t verifying taxpayer identities prior to issuing refunds. That said, the legislation could prove problematic for the industry. Verified accounts, according to the proposed bill, include those that have undergone CIP and direct review of a current government-issued form of identification. The language is unclear but may mean that ID review would have to be done in person, which would define any card obtained online or in the traditional retail channel as an “at-risk account.”
The legislation also would require a review to determine whether current risk-based standards for customer identification are the best means to prevent criminal use of prepaid cards. Should the bill become law, the U.S. Comptroller General will have to report to Congress findings of its review as well as any proposed legislative or administrative action to improve the customer identification practices of the prepaid card industry.
Tax refund fraud, in all its forms, is nothing new, and to address the growing problem, many prepaid industry providers are using enhanced authentication methods and account monitoring to reduce the likelihood that their cards will be used in this type of fraud.
“Although the bill doesn’t explain the purpose for proscribing regulations to separately track ‘verified’ accounts and ‘at risk’ accounts, future legislation may eventually require providers to only allow verified deposit accounts, transaction accounts and prepaid accounts to receive certain payments, such as tax refunds,” Brad Fauss, NBPCA interim executive director and general counsel, tells Paybefore.
This would be a significant change from the existing risk-based customer verification system that has been in place for prepaid card accounts for years, and might force retailers to collect and retain personally identifiable information for prepaid card purchases, he adds.
The NBPCA shares Sen. Nelson’s concern with reducing tax refund fraud, and the industry has been working closely with the IRS and other federal agencies to further that goal, Fauss says.
The legislation was introduced by Sen. Bill Nelson (D-Fla.) and is co-sponsored by Sens. Dianne Feinstein (D-Calif.), Charles Schumer (D-N.Y.), Kirsten Gillibrand (D-N.Y.), Ben Cardin (D-Md.), Amy Klobuchar (D-Minn.) and Sherrod Brown (D-Ohio). The legislation was referred to the finance committee. A similar bill was sponsored by Sen. Nelson and others in 2013, but it died in committee.
Additional coverage on this legislation will appear in next week’s edition of Pay Gov.
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