In another expansion of its financial services offerings, Walmart says it will dole out cash to consumers for both federal and state tax refunds of up to $7,500. The Walmart Direct2Cash program is a partnership with 25,000 tax-preparation locations nationwide that “allows consumers to ‘skip the check,’” according to the retailer.
The “why” is obvious.
“It’s always a good thing to have customers in our stores who have jingles in their wallets and their pockets,” Walmart’s senior vice president for services Daniel Eckert tells CNN Money’s Chris Isidore. “Tax refunds can be one of the largest financial payouts of the year for many of our customers, and the last thing they want is to wait for their refund check to arrive and then spend money on unnecessary fees.”
Here’s how it works, according to the Associated Press’ Anne D'Innocenzio: Customers who have used one of the participating tax preparers will receive a confirmation code for their returns through an email from Tax Products Group (TPG), which was recently acquired by Green Dot, or Republic Bank when their refund is ready.
“Customers will then go to the Walmart MoneyCenter or customer service desk at their local stores, show their confirmation code, confirm their identity” and walk away with cash in hand.
Tax preparers using software with the Walmart Direct2Cash option may charge a maximum of $7 at the time of filing but Walmart itself will not charge a fee when refunds are claimed.
Putting this into context, Walmart claims “a consumer who has the average federal tax refund of $2,900 and chooses a check-cashing provider who charges a 2% fee would spend $58 to cash the check. This could also be in addition to a $20 processing fee to issue a paper refund check.”
The Consumerist’s Laura Northrup responds that “while the boast that using this service can save customers substantial amounts in check-cashing fees may be true, they’ll have to pay a tax preparer. People who earn less than $53,000 per year and senior citizens can get their taxes prepared for free, and the only expense remains cashing the check or having a bank account to receive an electronic deposit.”
But “consumer advocates praised the program as a consumer-friendly alternative for people who don't have access to typical banking products,” reports Hadley Malcolm in USA Today.
“Initially, this looks positive for people who are unbanked, because it keeps them from falling into the hands of these very expensive check-cashing locations,” National Foundation for Credit Counseling spokesperson Bruce McClary tells Malcolm.
On the other hand, McClary offers, “You've got a pocketful of cash, and you're standing in a very large retail store. It's really going to be a test of willpower for a lot of people who don't have tight control on their spending habits.”
And low- to moderate-income consumers have other choices, John Ewoldt points out in the Minneapolis Star Tribune, “that can potentially save them more money.” Darryl Dahlheimer of LSS Financial Counseling cites Prepare + Prosper in St. Paul, which provides free tax assistance, as an example.
“They not only do their taxes free, but they also do it with an eye to specific tax credits, improving their credit report and getting out of debt,” Dahlheimer tells Ewoldt.
Dave Boden, president and CEO of Hiway Federal Credit Union in St. Paul says the Walmart program is “a good way to serve the unbanked. But the unbanked should have someone looking out for their best interest.” Many credit unions do this, Boden tells Ewoldt.
“It’s no secret that early filers — and those hoping for big refunds — tend to be lower-income households,” observes Forbes.com contributor Kelly Phillips Erb. “These are folks who are relying on refundable tax credits like the Earned Income Tax Credit while still others treat tax withholding like a forced savings account.”
Refunds, of course, also present an opportunity for struggling consumers — 40% of consumers live paycheck to paycheck, according to McKinsey; “two-thirds” do, according to an American Payroll Association study — to replenish bare cupboards and threadbare wardrobes.
“When refund checks were slowed in 2013, Walmart had a ‘terrible’ February, Phillips Erb reminds us, before pointing out that nearly $275 billion was paid out in tax refunds last year.
“That’s a lot of tube socks and milk,” Phillips Erb writes.