California is currently in the process of issuing over $9 billion dollars in tax refunds to over 16 million Californians. Although I love some cash in my pocket like the rest of us, the way that California went about providing these refunds is an absolute mess and a waste of resources.

According to the Franchise Tax Board’s website, 7.1 million of these refunds were issued through direct deposit, while 9.4 million of these refunds were issued via prepaid debit cards. Despite the obvious issue with printing out 9.4 million plastic cards that are used briefly, these cards once activated are checked with usage fees and are ripe for fraud.

First, the financial institution that is holding the funds and issuing out the money through these debit cards has several fees associated with the use of the card. For example, It costs $1.25 each time it is used on a non-Money Network ATM or to get cash over the counter at a bank.

More importantly, such a method is easily susceptible to fraud scams. The cards that are being used do not have a security chip that makes fraud more difficult but instead have only magnetic strips. Since it is not chip-enabled, it has zero security. Therefore, scammers have the ability to get access to the card’s information before the consumer receives the card. Once the card is activated by the consumer, the fraudster is able to begin draining the funds.

Some consumers have become victims already at no fault of their own. Many individuals have complained that before they were even able to use the card, somehow the funds were already drained. One individual even details how she purchased $10 worth of Mcdonald’s, and then when she went to fill up her vehicle moments later, the card was completely empty.

Scammers have already begun texting and emailing people pretending to be the California Franchise Tax Board asking for people’s information to verify the card. These scammers will also claim that they can speed up the processing so that the consumer can get their card quicker, but in reality, all they are trying to do is gather as much sensitive information from the consumer.

Regardless of how your Middle Class Tax Refund is stolen, luckily federal law provides a remedy. Under Regulation E, the Electronic Funds Transfer Act (“EFTA”), 15 U.S.C. § 1693, a consumer can get a refund of their money if they dispute the fraud with the financial institution. EFTA expressly protects consumers from fraudulent transactions that are initiated on a prepaid card, such as the ones issued by California.

So although I think California made a mistake by issuing refunds on debit cards–a device known for not being secure–consumers need to know that they can still get their money back from the financial institution that is holding the funds. In these cases, the debit card is issued by the New York Community Bank and serviced by the Money Network.

If you believe that you are a victim of theft and want to get your money back, feel free to give us a call. On a day-to-day basis, we help consumers fight financial institutions to get their money back.