Treasury Announces Pilot of SAFE-T Accounts

The Treasury Department announced yesterday that they will pilot a program to open new banking accounts for unbanked and underbanked Americans during the next tax season. This program will allow individuals to receive their tax refunds on debit cards, creating a direct deposit relationship that opens up opportunities for the account to be used to deposit other sources of income, store money safely, make purchases, pay bills, withdraw cash, and build savings.

This pilot has the potential to open up a major avenue in the effort to “bank the unbanked.” The tax time process involves the vast majority of Americans, and for low-income Americans tax time presents a unique opportunity to build a more stable economic foundation because of the lump sum payments that arrive. What Treasury has announced is a pilot project that could provide an alternative to the wealth-stripping financial transactions that have become so popular around tax time. Instead of heading to a paid-preparer and signing up for a refund anticipation loan (RAL), this pilot creates an opportunity for low-income, unbanked tax filers to open an account and receive their full deposit at tax time, with the added benefit of a savings account/pocket attached to the card/account.

Here’s what Assistant Secretary Michael Barr had to say on the subject,

“Far too often, unbanked and underbanked Americans are forced to turn to high-cost alternative financial products such as check-cashing and other services that take a big bite out of the savings of those who can least afford it. For many individuals, a tax refund is the single largest payment that they will receive each year. That’s why tax season is a great opportunity to deliver safe, low-cost financial products to the unbanked and underbanked that will help those Americans build stronger foundations for their financial futures.”

Treasury’s pilot project is modeled on the SAFE-T account proposal advocated by the Asset Building Program (and authored by Melissa Koide, formerly of NAF and currently doing great work at CFSI.) This is another step taken by the Administration that reflects the hard work done in the asset building field and moves the government toward recognizing the tremendous opportunities provided by the tax time moment. Last year’s adoption of the Savings Bond purchase option was the first big step taken by Treasury in this direction. Thanks to Assistant Secretary Barr and congrats to Melissa Koide and all the others who’ve worked to make this pilot project a reality.

There’s much more work to be done to make the tax time moment all that it can be for low- and moderate-income Americans (enacting the Saver’s Bonus, for instance), but steps like these represent real progress.