Why California is urging people who got middle class tax refunds to withdraw the money ASAP

The California state flag, depicting Monarch the bear

The California state flag, depicting Monarch the bear

Douglas Sacha / Getty Images

To prevent fraud, the Franchise Tax Board is urging Californians who receive their Middle Class Tax Refund on a Visa debit card to withdraw the money or transfer the funds to a bank account as soon as possible.

Since at least December, some card recipients who tried to withdraw funds or check their balance after activation discovered that they had been depleted by thieves, some of whom spent the money at out-of-state retailers. People who called the card issuer to complain often faced long waits on hold or never got through, according to KGO-TV in San Francisco.

Assemblymember Jim Patterson, R-Fresno, has heard from 10 to 20 constituents whose cards were depleted, his office reported.

The state began issuing payments ranging from $200 to $1,050 to most California residents in late October. State lawmakers authorized the payments, which are not technically tax refunds, to offset inflation.

State residents are eligible if they filed a 2020 state tax return and meet income limits. People who filed their 2020 return electronically and had a state tax refund directly deposited into a bank account were the first to get refunds; they were directly deposited into the same bank account.

Everyone else received prepaid debit cards. As of last week, the state had issued about 7.2 million direct deposits and 9.4 million debit cards totaling almost $9.1 billion. Most people will have received them by the end of January.

Recipients can use the prepaid debit cards to make purchases where Visa debit cards are accepted, withdraw cash from an ATM or bank teller or transfer the funds to a bank account. They can also request a paper check instead. Some transactions have a fee.

The FTB has a $25.3 million contract with Money Network Financial to produce and mail the debit cards and provide customer service. Money Network is a subsidiary of Fiserv, a giant publicly held payment processing company. The cards are issued by My Banking Direct, a service of New York Community Bank. Money Network could not be reached and Fiserv did not return an email requesting comment.

The California Employment Development Department, which distributes unemployment benefits on debit cards issued by Bank of America, disclosed in early 2021 that it might have paid up to $30 billion in fraudulent claims early in the pandemic.

The Money Network contract required “the use of an EMV (Europay, MasterCard, and Visa) chip enabled card to offer the maximum protection possible.”

Chips can deter but not completely prevent fraud. Because of a nationwide shortage of chips, some of the debit cards went out without chips, FTB spokesman Andrew LePage said via email.

The contract also required Money Network to “Provide sophisticated fraud prevention services with evidence of preventing fraud at a success rate of ninety-nine percent (99%) or higher.”

The FTB is not disclosing the level of fraud “for security reasons,” but the program “is expected to run with less than a 1% fraud rate, and currently Money Network reports that the rate is well below that level,” LePage said.

Recipients can learn how to use and protect their cards by going ftb.ca.gov and to a site operated by Money Network at mctrpayment.com .

On Dec. 22, the FTB added a section to its Middle Class Tax Refund page entitled “Avoiding Debit Card” with several tips including: “Secure your MCTR payment by transferring or withdrawing your funds as soon as possible.”

Users must activate their cards by calling 1-800-240-0223 and setting up a Personal Identification Number. There is no fee to transfer funds to a domestic bank account, but they’ll have to provide Money Network with personal information. They can also withdraw funds without a fee at an ATM that is part of the Allpoint or MoneyPass network. There is a small fee for out-of-network ATMs and over-the-counter cash withdrawals at a bank.

Alternatively, users can cancel the card and have the funds sent on a paper check by calling 1-800-240-0223 and choosing option four.

LePage added that anyone who discovers fraud should call Money Network immediately at that same number, Monday through Friday, 8 a.m. to 5 p.m. From the menu, select option one, “To Activate, Customer Service, and Main Menu.” After hearing the balance, press option two to continue. On the next menu, select option six for “new or existing dispute” and the caller will be transferred to an agent to intake the claim.

He added that fraud claims will be processed as quickly as possible but can take 45 to 90 days to be resolved.

LePage said the FTB chose “an experienced debit card vendor like Money Network” because it could deliver a large volume of mailed payments “nearly six months faster than state checks could be issued, as well as provide a dedicated customer service line to handle phone calls.”

The state conducted a competitive bid process for the contract and while 21 companies (none based in California) expressed interest, only five submitted bids, LePage said.

“Money Network was selected as the contractor based on multiple factors, including the ability to provide a limited number of chipped cards” during the nationwide shortage, he added.

Kathleen Pender is a freelance writer and former columnist for The San Francisco Chronicle. Email: kathpender84@gmail.com Twitter: @KathPender