Over the past two decades, policymakers, academics, and others have pursued an array of policies and strategies to help lower and middle income households build savings and assets and access reasonably-priced financial products. While progress has been made, there have been few advances to delivering a high-value, affordable financial product at scale.
Over the last five years, however, technological developments, new entrants into the financial services market, and new insights into consumer demand, particularly the financial behavior of lower income consumers, have boosted the creation of innovative financial products. Prepaid debit accounts are one such innovation. These products can meet many of the transaction functions that checking and savings accounts offer, but without the limitations of credit checks and ChexSystems because the accounts are literally pre-funded.
How Would the SAFE-T Account Work?
Building on these financial innovations, leveraging the billions of dollars in annual tax refunds, and harnessing the bargaining power of the federal government, this initiative proposes the delivery of a prepaid debit account - Savings and Financial Electronic Transaction (SAFE-T) Account - at tax time. Each year, tax refunds would be electronically deposited into SAFE-T Accounts for tax filers who do not elect to directly deposit their refunds into other accounts and who do no elect to receive a paper check.
The SAFE-T Account would be issued, delivered, and serviced by financial institutions on behalf of the U.S. Department of Treasury. The accounts would be accessible with a network branded card (such as VISA or MasterCard) and could be used for point of sale transactions, to access cash, to make web-based or telephone-based bill payments and retail purchases, and possibly to make remittances and secure money orders. The savings component would help consumers to meet short-term expenses and savings goals. And with enactment of federal legislation, the SAFE-T Account could serve as the "plumbing" for large-scale assets policy targeted at lower income families.
What are the Benefits of the SAFE-T Account?
The SAFE-T Account would leverage the billions of dollars in federal tax refunds that are not electronically deposited each year to entice financial institutions to offer the product at low cost. Almost $70 billion in tax refunds were not direct deposited by tax filers with AGIs of $60,000 or less according to recent IRS data. In addition, the federal government could save over $30 million dollars annually through the electronic delivery of refunds that are currently issued via paper checks.
The availability of the SAFE-T Account also could encourage more households to file their taxes in order to receive a SAFE-T Account, resulting in more households "on-the-grid" and generating additional tax revenues at the state and local level. And finally, the SAFE-T Account may offer a scaleable strategy to reach millions of lower income households with a financial tool that can help them to save, build assets, and conduct routine financial transactions, in a safe, affordable, and convenient way.