The recent FTC Forum on Senior Identity Theft spent time discussing problems in identity theft generally and not necessarily confined to seniors. One subject I found very interesting is the growing use of prepaid debit cards to facilitate the bad guys getting away with their illegally obtained gains.
These days, especially in the case of fraudulent tax returns, the thieves use prepaid debit cards to collect what they are stealing. The Internal Revenue Service will wire refunds directly into prepaid debit cards as they will into bank accounts. The refund thieves set up card accounts in advance. They then take the prepaid cards, newly loaded by the IRS, to stores to buy merchandise or to ATMs to cash them out.
By way of example, south Florida remains the epicenter of identity theft, especially the filing of false tax returns. Police report a majority of the tax-return identity thefts now are being funneled through the prepaid debit cards.
The cards are preferable, say authorities because the criminal doesn’t have to bother with banks or check-cashing stores that may become suspicious when one person starts bring in multiple tax refund checks to be cashed or for deposit. Also the IRS is not alerted by multiple refunds sent to the same address.
By law, banks and financial institutions are required to report to the Treasury any suspicious transitions regardless of the amounts.
Representing the debit card industry at the FTC Forum was John Morton, the Chief Risk Officer of Green Dot Corporation. I would imagine you have never heard of Green Dot, but it is the country's biggest issuer of prepaid MasterCard and Visa cards with its products sole at more than 60,000 retail stores nationwide.
Morton leads Green Dot's Risk Management Program, including analytics, policy, fraud, and consumer compliance functions. He also chairs the Network Branded Prepaid Card Association's Anti-Fraud forum and frequently acts as an industry expert on prepaid card fraud and identity theft.
Morton told the Forum: "We are a financial services company, in many respects no different from a bank. We do see some of these fraudulent proceeds processed through our products.
"When a person applies for one of our prepaid cards the process is no different than what an individual would go through when opening a bank account online. We're going to ask you for your name, address, social security number - all the Patriot Act elements - and we're going to confirm that information. Unfortunately, these individuals have stolen your identity and have access to all that information and they open the card. Then as with any checking account, they can designate that account to receive direct deposits.
"It is a small percentage (of debit cards being opened) but it is something we are very concerned about and we've been working with the industry, law enforcement, the IRS on this problem."
Some people believe that any transaction, especially a tax refund that is being sent to a prepaid card should automatically be viewed with suspicion. But Christopher Lee, of the IRS' Taxpayer Advocate Service told the forum "There are reasons to use something other than a check or a bank account. A (taxpayer) might share a joint mail box and fear a mailed check might be stolen or then may be among the 'unbanked'." But he also indicated that refunds being sent to prepaid cards in South Florida are being closely reviewed.