Yes and No, sorry it’s been a minute since I worked in that industry and wasn’t aware that their was an update and change of laws as of last year to allow prepaid accounts same options as bank accounts. Below is a huge paragraph that explains the differences as to why a prepaid card is not the same as a bank checking account. You have the option of having your account function the same way as a bank account is set up. However most companies when they send customers a refund for a Payment they paid using a ach payment method if it was a prepaid account they will tell you your refund will attempt and then reject and your payment will be sent to you via mailed check. That is because the IRS and other companies like your insurance company utility company etc, they are not usually set up to transact refunds through third parties. Prepaid cards usually use a bank as a third party to transact. For prepaid accounts it has to meet a certain criteria in order to be insured by the FDIC deposit insurance. So this is why the IRS will not deposit it to your prepaid account I am assuming because even if they are insured maybe they are not in states are because they don’t verify identities on all cards they sell etc.
A number of entities market prepaid cards that state they offer FDIC deposit insurance to cardholders. The following information is intended to help consumers better understand FDIC deposit insurance coverage for prepaid cardholders.
When does FDIC deposit insurance apply to my prepaid card?
- The prepaid card must be registered with the card issuer so that the FDIC can identify the cardholder should the bank fail.
- FDIC deposit insurance coverage only applies when a bank fails.
- Your funds are insured by the FDIC if specific deposit insurance requirements* are met.
When would FDIC deposit insurance not apply to your funds?
As stated above, FDIC deposit insurance coverage applies only when a bank fails. Please remember that deposit insurance does not apply in other situations, such as where your card is lost or stolen or your card provider declares bankruptcy. However, in those situations, other legal options may be available to you to pursue recovery of your funds. These options may be discussed in your account agreement.
*Deposit insurance requirements:
In order for the funds on your prepaid card to be insured, certain requirements must be met:
- the account records at the FDIC-insured bank must disclose that the prepaid card provider is serving as the custodian on behalf of the cardholders;
- the records of the FDIC-insured bank, custodian or other party must disclose the identities of the actual owners of the funds (you, the cardholder) and the amount owned by you
- the deposits must be owned (under the agreements among the parties) by you and the other cardholders of the prepaid cards
If these three requirements are met, your funds will be insured up to $250,000 (together with any other funds in the same right and capacity that you (the cardholder) may have established in another deposit account in the same bank)
