In an effort to get its share of looming consumer tax refunds, Lowe's is offering a Tax Refund Card as part of a "Load Up For Spring" promotion. It enables consumers to spend their tax refund on a prepaid Lowe's debit card, and earn an extra 10% for home-improvement purchases. TV spots are advertising the program, which runs until March 14, with a minimum purchase requirement of $500, and a maximum of $4,000.
While marketers wooing refund money isn't new, Lowe's plastic version -- sweetened by the 10% discount -- is innovative. And the government isn't far behind: This tax season, the feds are testing handing out refunds on prepaid debit cards for low-income families -- and if it proves popular, that move might be a bonanza for retailers.
Last month, the U.S. Department of the Treasury launched a pilot program offering taxpayers an account card option, for "Americans with limited or no access to traditional banking services." The program, announced back in September, has mailed letters to 600,000 low- and moderate-income individuals, inviting them to open a MyAccountCard Visa Prepaid Debit Card in time to have their 2010 federal tax refund directly deposited to the card. It also invited thousands of current and potential payroll card users to direct-deposit their 2010 federal tax refund onto existing payroll cards. (Currently, it says some 1.7 million workers use these cards to receive and access their wages, often because they do not have bank accounts.)
"Tax refund time is a point on the calendar when retailers really lick their chops," Greg McBride, senior financial analyst with Bankrate, tells Marketing Daily. "That part is nothing new. But you may see a little bit more innovation if this small test is expanded."
There are advantages to refund cards, which are already used for such government benefits as welfare, unemployment and Social Security. "From a security standpoint, it's better than waiting by a mailbox for a check, and this way an unbanked individual doesn't have to pay fees to get a refund check cashed, or run the risk of carrying that cash," he says.
But there are significant risks, too. "It may make it that much easier to squander the money, as with other forms of plastic," he adds. "A tax refund is the type of windfall that can really help struggling families right the ship -- catch up on bills, pay the rent, pay down debt -- things that aren't easy to do with a card."
"It may affect people differently," Michael McCall, chair of the marketing and law department at Ithaca College's School of Business, tells Marketing Daily. "But it would certainly encourage spending over saving."
What's intriguing, he says, is that while consumers certainly understand that a tax refund is their own money, refunded without interest, they behave as if it's "found money," he says. "It's given back to them in a context that encourages them to spend, and a refund card may feel more like a gift card than their own savings."