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In the United States, as part of the second wave of coronavirus stimulus payments, the IRS said some payments will be sent as VISA debit cards issued by MetaBank.

Wouldn't this be more complicated and more expensive then printing a check? (e.g. the debit card has to have an associated account opened for it)

Is the government getting some kind of kickback from MetaBank or VISA for issuing these cards?

VISA normally gets to earn merchant processing fees from stores anytime anyone uses a VISA debit or credit card - is VISA opportunistically paying the government to issue VISA cards so when consumers spend their stimulus at stores, VISA gets a forced kickback (2.5% of tens of billions) from the merchants?

Also, I looked up MetaBank on Wikipedia and, relatively speaking, it's a smallish bank. Why would the government partner with MetaBank instead of a larger more established bank like e.g. Bank of America?

To be clear, my question is, why mail debit cards instead of checks for people the IRS don't have direct deposit info for? And, why choose MetaBank to handle that instead of a larger bank?

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    Does everybody who is due to receive the stimulus payment have a bank account that the IRS knows belongs to them?
    – Caleth
    Jan 14 at 9:55
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    I would guess it’s for people who don’t have bank accounts. While it may seem strange not to have one, the number of check cashing places, which charge much higher fees than even debit card companies, shows the large number of people who don’t have access to a checking account.
    – divibisan
    Jan 14 at 16:43
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    One interesting fact that many are not aware of is that a check cashing place is the worst place to cash a check if you don't have a bank account. Checks can always be cashed at the originating bank - the bank where the source account is established - often with no fee (and the government could choose the bank with this in mind). So, if the US Government issues checks drawn on an account at, say Bank of America, the recipient can go to any BofA branch and have the check cashed (subject to normal limits for funds on hand, etc.). See magnifymoney.com/blog/banking/how-to-cash-a-check
    – cpcodes
    Jan 14 at 17:02
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    I would hazard a guess that they think people are more likely to spend the money simulating the economy with a debit card vs just depositing it into savings or paying bills.
    – JohnFx
    Jan 14 at 23:50
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Wouldn't this be more complicated and more expensive then printing a check? (e.g. the debit card has to have an associated account opened for it)

Yes and no. A prepaid debit card does, technically, have an "account" of sorts backing it, but this is not really a traditional checking account. It may or may not be possible to "reload" more money onto the card, but full banking services are generally not available. Depending on the card, it may entitle the consumer to deposit checks and use an ATM, but it probably will not give the consumer access to ACH transactions or the ability to write their own personal checks.

On the other hand, the money is usually FDIC insured, meaning that the government will reimburse cardholders if the bank goes bust. US law also caps the consumer's liability for fraudulent debit card transactions at $50, and many banks voluntarily lower this cap to $0 (effectively meaning, if the card is lost or stolen, the bank will eat any losses).

Also, I looked up MetaBank on Wikipedia and, relatively speaking, it's a smallish bank. Why would the government partner with MetaBank instead of a larger more established bank like e.g. Bank of America?

The normal process for this sort of thing is, greatly simplified:

  1. The government publishes a set of minimum requirements that it wants a contractor (in this case, a bank) to meet.
  2. Various banks submit sealed bids for how cheaply they can do it, and also describe how they are going to do it and what compromises they are going to make.
  3. The government (usually) picks the cheapest bid. However, if a bid does not appear to be credible, or the government feels it makes too many compromises, the government may reject that bid altogether.

Step #3 is complicated and bureaucratic, as you would expect. What probably happened in this case is that MetaBank submitted a "better" bid than any of the larger banks. This is not too surprising, actually. Filling government contracts is a very different sort of business model than "normal" consumer banking. It might be the case that the large banks do not want to get involved with a government contract of this sort, because they feel that the profit margin would be unacceptably low, or because they did not want to go through additional compliance requirements that the government may have imposed.

This bidding process is frequently accused of various forms of favoritism or nepotism. The credibility of those allegations varies widely, and the whole thing tends to be clouded by political and economic considerations (i.e. everyone involved has either a political or economic conflict of interest, and they all tend to tell contradictory stories about what happened). So it's not clear to me whether this is actually a problem, either in general or with respect to MetaBank in particular.

Is the government getting some kind of kickback from MetaBank or VISA for issuing these cards?

It's impossible to categorically rule out bribery, because the parties would probably not tell anyone about a bribe. But such kickbacks are illegal and very much frowned upon in the US. If such a thing were to emerge, it would be considered a serious scandal.

Nevertheless, MetaBank and Visa have obviously contracted with one another, and it's entirely possible that Visa gave MetaBank a below-market price for these debit cards, and that MetaBank then used those savings to lower its bid. Economically, that would be equivalent to a payment from Visa to MetaBank, and from MetaBank to the government. But that wouldn't be a bribe; it would be a large customer (the US government) getting a bulk discount. There is nothing unethical about this, and it's actually good for the taxpayer because it lowers the cost of providing a government service.

The main difference is that, in the case of a bribe, the person receiving the money is usually an individual or (occasionally) a private organization. That's considered unethical because it is taking advantage of the US government's negotiating position for private gain. On the other hand, lowering the cost to the US government is not a bribe at all, because it benefits the public.

To be clear, my question is, why mail debit cards instead of checks for people the IRS don't have direct deposit info for?

Many Americans are unbanked or underbanked. You can take a debit card directly to the store and immediately spend money from it. It's the next best thing to cash. On the other hand, checks must be deposited. If the consumer does not have a bank account, they will likely need to pay a fee for this service. These fees can be quite substantial, and would make the stimulus payments less effective. As such, the government would prefer to pay the upfront cost of a prepaid debit card on behalf of (some) low-income Americans, rather than leaving those Americans with the Hobson's choice of paying for check-cashing out of their stimulus payment.

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  • Checks don't have to be deposited. They can be cashed. The problems with that, for unbanked people, is that most check-cashing places charge a substantial fee, and you are now carrying around the full amount (minus fees) of the check in cash, which is an invitation to robbery if you're e.g. a homeless person.
    – jamesqf
    May 17 at 2:50
  • @jamesqf: That's just semantics. You are using the term "deposited" to mean "deposited into a bank account." I'm using it to mean "redeemed in whatever way."
    – Kevin
    May 17 at 16:34
  • Semantics is (are?) important. Depositing a check and cashing it are two very different things, and might have different consequences.
    – jamesqf
    May 17 at 17:53
  • @jamesqf: At some point, the check gets deposited into some sort of account. Whether that account belongs to the consumer or the check-cashing place is a detail, and I explicitly describe and focus on the excessive fees that result from this difference. If you have any other suggestions that will materially improve the answer, please let me know.
    – Kevin
    May 17 at 17:57
  • Thank you for the great response. To clarify, by "government receiving a kickback", I didn't mean anything unethical, but, whether Visa and MetaBank as part of their bid are legitimately paying the government e.g. $5 per card (i.e. "charging" the government a negative cost per card) knowing they'll make 2.5% in transaction fees ($30 out of each $1200), plus interest on all the billions stored with Visa, especially if there is an average of e.g. $7 perpetually unspent left on every card, forever.
    – Jamin Grey
    May 20 at 1:16

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