North Tyneside Council has withdrawn from a pilot project following national negative criticism.
The local authority is no longer involved in the study into pre-payment cards after it was suggested the pilot was part of national policy proposals targeted at individuals with drug and alcohol problems.
Deputy mayor Bruce Pickard said the misrepresentation has undermined the credibility of the project and deterred volunteers from coming forward.
To make it viable the study needed 250 claimant volunteers to opt into the pilot, due to run through until spring next year.
However, following the national media coverage the authority has received only two volunteers.
Coun Pickard added: “It is disappointing that the media coverage has misrepresented an initiative to help our residents further and we therefore have no option but to withdraw from the pilot.
“We will continue to support those residents who have volunteered and will work on alternative support packages to ensure they receive the help they need.”