Prepaid card users find tax refunds frozen

Thousands of people have had their prepaid debit cards frozen when they try to direct their tax refund to their accounts, a result of financial industry efforts to combat an escalation in tax fraud.

The process to release the money took more than two weeks, she had to submit photos of her ID a number of times — Green Dot said they weren’t readable — and she says she spent hours on the phone with customer service agents to resolve the problem.

The card companies, along with the IRS, are trying to stem a tide of tax fraud by identity thieves.

Criminals file bogus tax returns using other people’s identities, claim a refund and collect the money.

Instead of having the refunds deposited in a bank or mailed, he had them electronically deposited to prepaid debit cards, including Green Dot, and gift cards.

When he was arrested, prosecutors say, the man had 11 Walmart money cards loaded with more than $32,000 from fraudulent returns.

To combat the problem, the IRS held a security summit last year with states and tax-industry representatives to find ways to solve the problem.

[...] the IRS did say that it is working with banks and debit card issuers to obtain information that would help detect and prevent fraud.

A spokeswoman with American Express said customers can minimize the chances of being flagged for fraud by making sure their personal identification information on the account matches the information on their tax forms.