[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
HEARING ON THE DIRECT DEPOSIT OF SOCIAL SECURITY BENEFITS
=======================================================================
ADJUST Q SPACE AS NEEDED
HEARING
before the
SUBCOMMITTEE ON SOCIAL SECURITY
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
September 12, 2012
__________
Serial No. 112-SS20
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
DAVE CAMP, Michigan, Chairman
WALLY HERGER, California SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas CHARLES B. RANGEL, New York
KEVIN BRADY, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
JIM GERLACH, Pennsylvania JOHN B. LARSON, Connecticut
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida RON KIND, Wisconsin
ADRIAN SMITH, Nebraska BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois SHELLEY BERKLEY, Nevada
LYNN JENKINS, Kansas JOSEPH CROWLEY, New York
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York
Jennifer M. Safavian, Staff Director
Janice Mays, Minority Chief Counsel
______
SUBCOMMITTEE ON SOCIAL SECURITY
SAM JOHNSON, Texas, Chairman
KEVIN BRADY, Texas XAVIER BECERRA, California
PATRICK J. TIBERI, Ohio LLOYD DOGGETT, Texas
AARON SCHOCK, Illinois SHELLEY BERKLEY, Nevada
RICK BERG, North Dakota FORTNEY PETE STARK, California
ADRIAN SMITH, Nebraska
KENNY MARCHANT, Texas
C O N T E N T S
Page
Advisory of September 12, 2012 announcing the hearing............ 2
WITNESSES
Richard Gregg, Fiscal Assistant Secretary, Department of the
Treasury....................................................... 6
Theresa Gruber, Assistant Deputy Commissioner for Operations,
Social Security Administration................................. 14
Patrick P. O'Carroll, Jr., Inspector General, Social Security
Administration................................................. 19
Margot Saunders, Counsel, National Consumer Law Center........... 27
HEARING ON THE DIRECT DEPOSIT OF SOCIAL SECURITY BENEFITS
----------
WEDNESDAY, SEPTEMBER 12, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The subcommittee met, pursuant to call, at 9:08 a.m., in
Room B-318, Rayburn House Office Building, the Honorable Sam
Johnson [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
HEARING ADVISORY
Chairman Johnson Announces Hearing on the Direct Deposit of Social
Security Benefits
Wednesday, September 5, 2012
U.S. Congressman Sam Johnson (R-TX), Chairman of the House
Committee on Ways and Means Subcommittee on Social Security, announced
today that the Subcommittee will hold a hearing to examine the impact
on beneficiaries of direct deposit of Social Security benefits. The
hearing will take place on Wednesday, September 12, 2012 in B-318
Rayburn House Office Building, beginning at 9:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Subcommittee for
inclusion in the printed record of the hearing. A list of invited
witnesses will follow.
BACKGROUND:
The Debt Collection Improvement Act (DCIA) of 1996 (P.L. 104-134)
required all federal payments, including Social Security benefits, to
be made through electronic funds transfer (EFT) beginning in January
1999. In order to mitigate the hardships this mandate would impose on
those who lacked access to accounts at financial institutions, the law
provided the U.S. Department of the Treasury (Treasury Department) with
broad authority to define exception categories and grant waivers from
this requirement. The Financial Management Service (FMS) at the
Treasury Department, responsible for disbursing federal benefits (of
which Social Security and Supplemental Security Income (SSI) benefits
account for approximately 89 percent of all benefit payments), issued
agency rules and implemented several initiatives to encourage greater
use of EFT.
In 2005, FMS launched the ``Go Direct'' campaign targeted at paper
check recipients to emphasize the benefits of electronic payment.
Following pilot testing, in 2008, FMS launched the Direct Express
Debit MasterCard, a reloadable, low-fee debit card that allows
recipients to receive benefits on an electronic card without having a
bank account. The card allows recipients to use the card wherever
MasterCard is accepted and to obtain cash at an Automated Teller
Machine or through cash-back purchases. Benefits may also be disbursed
onto private label reloadable debit cards, if they meet certain
Treasury requirements. Since the DCIA was signed into law, the volume
of all Social Security benefits disbursed electronically has grown from
56 percent to over 90 percent today.
To advance the goal of disbursing 100 percent of benefits through
EFT, Treasury issued a final amended rule (31 CFR Part 208) in 2010,
requiring all new beneficiaries to receive their benefits via
electronic payment, with limited exceptions, beginning May 1, 2011. In
addition, by March 1, 2013, the rule requires all individuals receiving
paper payments to choose an electronic payment option, such as direct
deposit, a Direct Express card, or another reloadable debit card. At
the time of the final rule, Treasury estimated that mandatory
electronic benefit payments would save the Social Security
Administration (SSA) $1 billion over the next 10 years.
Payment by EFT is not mandatory for anyone who was older than 90
years of age before May 1, 2011, or for anyone who is ineligible for a
Direct Express card because the card has been suspended or cancelled.
In addition, limited waivers are available to anyone who submits to FMS
a written, notarized request for a waiver due to a mental impairment or
because they are living in a remote geographic location. How FMS and
the SSA implement the waiver process will have a significant impact on
affected beneficiaries and agency operations.
In October 2011, after receiving allegations that thieves were
redirecting benefit payments away from owners' bank accounts to
accounts they controlled, the SSA Inspector General (IG) began
conducting several investigations regarding electronic payment fraud,
including both direct deposit and reloadable debit cards. In the
report, ``Direct Deposit Changes Initiated by the Social Security
Administration's National 800-Number Staff,'' the IG found that the
SSA's national 800-number service lacks the policies and system checks
to prevent wrongful redirection of payments.
In announcing the hearing, Subcommittee Chairman Sam Johnson (R-TX)
stated, ``Millions of hard working Americans rely on Social Security
and deserve the peace of mind that their benefits will arrive safely
and on time. We need to determine the flaws in the electronic payment
system, protect those who receive their benefits electronically, and
make sure that Treasury and Social Security are taking all necessary
steps to guard innocent seniors against fraudsters trying to steal
their benefits.''
FOCUS OF THE HEARING:
The hearing will examine the impact on beneficiaries of electronic
payment of Social Security benefits; including exceptions to electronic
payment requirements and the effectiveness of efforts to educate
beneficiaries about these changes. The hearing will also focus on the
degree to which electronic payments are subject to fraud and the
actions the SSA and FMS are taking to prevent this fraud.
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the World Wide Web at http://www.waysandmeans.house.gov/.
Chairman JOHNSON. Good morning.
Welcome to the hearing on ``Direct Deposit of Social
Security Benefits.'' I appreciate all of you all being here.
Back in 1996, Congress passed the Debt Collection
Improvement Act, which required electronic payment of Federal
benefits, including Social Security benefits. Not only does the
direct deposit of benefits help seniors avoid delayed, lost, or
stolen checks, it saves taxpayers money. Taxpayers save 90
cents for every check the Treasury Department doesn't have to
send. That doesn't sound like a lot, but it is probably enough
to keep the Metro going until 1 o'clock in the morning here.
In addition to direct deposit, Treasury also supports the
delivery of Federal benefits through two other electronic fund
transfer methods: the Direct Express MasterCard debit card,
along with other private-label reloadable debit cards if they
meet certain Treasury requirements.
Efforts to end paper checks have been under way for over 16
years. The good news is that the percent of all Social Security
benefits paid electronically has grown significantly, from 56
to over 94 percent today.
In a 2010 rule, Treasury mandated the use of direct deposit
for all new Social Security beneficiaries beginning May 1,
2011. Those already receiving benefits are required to sign up
for electronic payment by March 1st next year. That is just
less than 6 months from now.
At the time of the final rule, Treasury estimated mandatory
electronic benefit payments would save Social Security $1
billion over the next 10 years.
But as usual, we have to worry about ID thieves, as we will
hear from the Social Security Inspector General today.
Increasingly, ID thieves have been able to obtain
beneficiaries' personal information and use it to redirect
benefit payments to their own accounts--without the beneficiary
knowing it, in a lot of cases.
It is simply unacceptable that Social Security can't put a
stop to it. While delivering benefits on time and at a lower
cost than paper checks makes sense, at the same time millions
of seniors and those with disabilities deserve the peace of
mind to know their benefits will arrive safely and on time. We
need to determine the flaws in the electronic payment system,
protect those who receive their benefits electronically, and
make sure Treasury and Social Security are taking all necessary
steps to guard beneficiaries against those trying to steal
their benefits.
I now recognize the ranking member, Mr. Becerra, for your
opening statement.
Mr. BECERRA. Mr. Chairman, thank you very much.
This is a more particular hearing, as it is specifically
focused on an issue within the Social Security Administration,
but it is a very important issue because this does affect the
day-to-day lives of millions of Americans who receive their
Social Security benefits.
I want to start by first saying that I support electronic
benefit payments for many of the reasons, Mr. Chairman, that
you just articulated. But our number-one goal should be to make
sure that every single American receives the Social Security
benefits that he or she earned on time and in full.
And so, as we go about the process of transitioning to
these electronic benefit payments, we have to make sure that we
are doing it in a way that doesn't affect those Americans who
worked for a long time to earn these benefits. And we don't
want any of them to find themselves in a situation where they
are the victims or they are losing out because we haven't done
something right.
So I hope we move forward with examining how SSA has been
able to implement this proposal. We know we have a deadline
coming up next year that requires SSA to move 100 percent
toward electronic benefit payments, but there are some
questions about how equipped SSA is to really deal with this in
a way that makes sure that beneficiaries continue to receive
their benefits on time and in full.
Now, I agree with you; every time we move to electronic
benefit payments, SSA saves money. That means the taxpayers are
saving money. And as you mentioned, it is close to a dollar for
every one of these transactions that is done electronically
instead of through a paper check. But we do need better
information on why a significant number of current and new
beneficiaries are not getting their benefits electronically.
March of 2013 is a sort of magical date in that that is
when we are supposed to require all benefits to be paid
electronically. But some 6 million Americans, including many
who have just started receiving their benefits, still get paper
checks. We know broadly that some people don't have bank
accounts, and some people just don't like electronic payment,
and that is why they don't go towards the newer system of
electronic payment.
My understanding is that Treasury and the Social Security
Administration are not collecting information on this group of
folks, of applicants who are not receiving their payments
electronically, and we are not yet sure why they continue to
want paper checks.
We also know that a small but significant number of very
vulnerable Americans have had trouble accessing their benefits
after switching to electronic payment. We have heard from
beneficiary advocates, from the staff from the SSA itself, and
from the beneficiaries themselves, as well, who report
significant problems reaching the customer service office that
services Direct Express, which is the Treasury-sponsored debit
card program.
About 3 percent of Direct Express cards were reported lost
or stolen in 2011. Now, there is an issue here. If you lose a
check or if a check is stolen, a paper check is stolen, it is a
lot easier, my sense is, for SSA to quickly get you back on
your feet and get you the benefits that you were supposed to
receive. When you have an electronic payment through one of
these debit cards, the beneficiary can't access his or her
money until the Treasury Department electronically traces the
original payment, a process which I am told can take several
weeks.
Just mailing these Americans who are receiving benefits a
debit card for their benefits is clearly not the right answer,
but we don't have enough information to know what is. We need
that information, and we need it soon.
As I said, Mr. Chairman, I support electronic benefit
payments, but our number-one goal has to be making sure that
every single American who receives Social Security benefits
receives them on time and in full.
We take our responsibility here on this subcommittee to
make sure that we are protecting Social Security and
strengthening it very responsibly. And I hope that what we do
now is figure out a way to work with SSA to make sure that as
we transition toward electronic benefit payments, we do so in a
way that not only saves us money but makes every American who
worked very hard to earn those benefits very comfortable that
this is the right way to go.
And so, with that, Mr. Chairman, I yield back my time, and
look forward to the testimony of our witnesses.
Chairman JOHNSON. Thank you.
As is customary, any Member is welcome to submit a
statement for the hearing.
Before we move on to our testimony, I want to remind our
witnesses to try to limit your oral statement to 5 minutes.
However, without objection, all the written testimony will be
made part of the hearing record.
We have one witness panel today. And seated at the table
are Richard Gregg, Fiscal Assistant Secretary of the Department
of Treasury--I am glad to see Treasury participating.
Mr. GREGG. Thank you, Mr. Chairman.
Chairman JOHNSON. You work for a tough group.
Theresa Gruber, Assistant Deputy Commissioner for
Operations, Social Security Administration; Patrick O'Carroll,
Inspector General, Social Security Administration--welcome
back, sir; and Margot Saunders, Counsel, National Consumer Law
Center.
Thank you for being here. Welcome.
Mr. Gregg, please go ahead.
STATEMENT OF RICHARD L. GREGG, FISCAL ASSISTANT SECRETARY, U.S.
DEPARTMENT OF THE TREASURY
Mr. GREGG. Thank you, Mr. Chairman, Ranking Member Becerra,
Members of the Subcommittee, for inviting me to testify on a
very important issue this morning.
First and foremost, Treasury is dedicated to make all
payments, including Social Security payments, accurately and
timely.
And over the years, we have done just that. Treasury and
Social Security Administration have also made excellent
progress in moving from paper to electronic payments. Most
individuals have payments credited directly to their bank
account.
Until fairly recently, we did not have a good electronic
option for those who are unbanked. In 2008, Treasury solved the
problem by introducing the Direct Express card. Direct Express
is the prepaid debit card on which benefits are loaded each
month.
In December of 2010, Treasury issued regulations to have
all benefit payments, with limited exceptions, made
electronically. Beginning May of 2011, anyone applying for
Social Security, Veterans, or other Federal benefits is
required to choose an electronic payment option. By March 2013,
existing beneficiaries who receive their Federal benefits by
paper check are required to switch to electronic payments.
The Direct Express card has significantly benefited the
unbanked population. For the first time, Treasury is able to
offer the unbanked an option that is convenient, safe, and
inexpensive. The Direct Express card provides excellent
consumer protections, and most fees can be avoided by using the
card wisely. The card enables cardholders to make purchases,
pay bills, and get cash at thousands of ATMs and retail
locations without having to pay a check-cashing fee, which can
range from 2 percent to 6 percent for the check amount.
As of June 2012, more than 3.6 million payment recipients
have signed up for a Direct Express card, approximately two-
thirds of whom did not have a traditional bank account.
According to a June 2012 survey, 95 percent of individuals who
use Direct Express cards to receive their monthly Social
Security benefits are satisfied with the card. I think that
speaks well for the Direct Express card.
In December 2010, when Treasury issued its rule on
electronic payments, we were issuing over 125 million benefit
checks each year. As of July of 2012, we have almost cut that
number in half, with 92.3 percent of the benefit payments being
electronic.
Through Treasury's longstanding push toward electronic
payments, rather than paper check, Treasury achieved government
savings of $600 million in fiscal 2011 alone because spending
for payment electronically is 9 cents, compared to $1.05 per
check payment. As the number of Social Security recipients
increase, the savings will also increase.
With the current initiative to have all benefit payments
made electronically, an additional $1 billion in taxpayer money
will be saved over the next 10 years.
In addition, electronic payments provide beneficiaries with
a safer, more reliable, and convenient way to receive their
payments. Paper checks can be and are lost, stolen, or delayed.
Electronic payments are reliable, as people would attest who
had to leave their homes from Hurricane Isaac.
Let me address the issue of fraud. Treasury has taken
aggressive measures, working with Social Security, to combat
fraud even though the scale of fraud on Direct Express cards is
not large. There is far less fraud in electronic payments than
in check payments. In fiscal 2011, there were over 1 million
Direct Express enrollments and 6,691 attempts of fraudulent
enrollments, of which 2,411 were successful.
This year, to further tighten our enrollment process, we
have suspended Direct Express enrollment through the Web site.
And, most importantly, we verify all new enrollments by using
Treasury's payment database to cross-check identity on the
enrollment process. This database has information that is very
unlikely that anyone other than the rightful owner would have.
We have also developed a fraud alert system to flag suspicious
activity, and we have customer service representatives who
specialize in fraud mitigation. Finally, we are working closely
with Treasury's Do Not Pay fraud detection and data analytics
service.
Treasury is also working with the prepaid card industry to
prevent fraud from occurring when benefit payments are
deposited on those cards. The debit card industry has been very
responsive to our request for them to review the enrollment
process to help reduce the potential for fraud. Treasury and
Social Security are also working very closely together on this
issue, along with the IGs from Social Security and Treasury IG.
Treasury regulations provide that, beginning in March 2013,
all benefit payments will be made electronically, except for
individuals who qualify for a waiver. Treasury is aware that
there will still be some recipients that have not converted to
electronic options by that date, and we will continue to
encourage people to comply with the regulation. In the
meantime, those individuals will continue to receive their
payments.
Thank you for the opportunity to testify. I look forward to
your questions.
Chairman JOHNSON. Thank you, sir.
[The prepared statement of Mr. Gregg follows:]
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Chairman JOHNSON. What does it cost Treasury to make those
kind of payments instead of sending checks out?
Mr. GREGG. Pardon me?
Chairman JOHNSON. Does it cost Treasury to do that?
Mr. GREGG. Yeah----
Chairman JOHNSON. Do you keep the savings yourself?
Mr. GREGG. But all of the costs that we have on what it
costs us to issue a check, what it costs us to make electronic
payments, all the costs that we incur on both those programs
are fully loaded. In other words, we calculate everything it
costs us to issue a check to do the accounting for that. And
the same thing with the electronic----
Chairman JOHNSON. So what you are telling me is there is no
additional cost. Either way----
Mr. GREGG. It is built in. The comparison is 9 cents for an
electronic payment, which is a fully loaded cost, and $1.05 for
a check payment, and that is a fully loaded cost.
Chairman JOHNSON. Okay. Thank you.
Ms. Gruber, you are welcome to begin. Please proceed.
STATEMENT OF THERESA GRUBER, ASSISTANT DEPUTY COMMISSIONER FOR
OPERATIONS, SOCIAL SECURITY ADMINISTRATION
Ms. GRUBER. Thank you.
Chairman Johnson, Ranking Member Becerra, and Members of
the Subcommittee, thank you for inviting me to discuss Social
Security's efforts to support the Department of the Treasury's
all-electronic initiative. My name is Theresa Gruber, and I am
the Assistant Deputy Commissioner for Operations at the Social
Security Administration.
I want to make it clear that the agency places a paramount
concern on the issue of fraud against our beneficiaries. We
worked with our Inspector General on this from day one, and it
has helped us to be able to combat these issues the moment we
became aware of them.
Clearly, fraud in electronic payments is a very serious
matter, particularly for those affected. However, we agree with
the Department of Treasury that, to date, because of our
efforts, the incidence of fraud related to electronic payments
is relatively low, particularly with regard to fraud related to
paper checks.
It is important to understand that people have always
preyed on the vulnerable elderly, and we are hopeful that
direct deposits will create identity trails that will make it
easier to fight fraud.
Our employees in local Social Security offices have the
responsibility of determining benefit eligibility and the
amount of those benefits. We pass that payment information to
Treasury, and Treasury, in turn, delivers the payment. Our
employees routinely interact with beneficiaries, taking
applications for benefits and collecting bank information that
allows Treasury to deposit checks electronically. They also
explain the rules about how Treasury can deliver payments.
Treasury has allowed direct deposit of Social Security and
Supplemental Security Income, or SSI, since 1975. We agree that
electronic payments are beneficial for the public and more
efficient for the agency. They are significantly cheaper and
less likely to be lost or stolen when compared to a paper
check.
They also allow us and the beneficiary to track payments
more easily. We know when a beneficiary receives an electronic
payment, therefore reducing the replacement payments we must
make if a beneficiary reports that their check has gone
missing.
Severe weather events have perhaps demonstrated one of the
primary advantages of electronic payments. We can get payments
to beneficiaries despite the challenges that natural disasters
bring. After Hurricane Katrina, the number of beneficiaries
along the Gulf Coast who signed up for direct deposit increased
dramatically. Last month, in preparation for Hurricane Isaac,
we worked with the Postal Service and Treasury to make special
arrangements for about 150,000 paper checks, to make sure that
they were shipped early and in the area on time. By contrast,
we did not have to take any special action for the nearly 1.5
million beneficiaries who received electronic payments in the
same storm track area.
We also are working to make sure our beneficiaries
understand the requirement for direct deposit. For example, we
include direct deposit information in our cost-of-living
notices. We display information in our field offices. We
created our ``No Check, Go Direct'' public service campaign,
starring our spokespersons Patty Duke and George Takei. And our
Internet site contains a wealth of information about Treasury's
electronic payment program.
As I mentioned, much of our employees' day-to-day work
involves public interaction. Treasury has the lead for
developing and implementing the regulation, but our employees
often explain it to beneficiaries. We ask all new beneficiaries
to provide us with the information necessary to sign up for
electronic payment. If they decline the electronic payment
option because they do not have a bank account, we tell them
about Treasury's Direct Express card. Our employees emphasize
that electronic payments are a Treasury requirement and that
all beneficiaries must receive electronic payment by March
2013.
For a variety of reasons, some individuals are averse to
switching to electronic payment. If new beneficiaries request a
waiver, we inform them that they must contact Treasury, and we
provide them with the information to do so.
We are proud of our success in signing people up for direct
deposit. We believe that the overall participation rate in
direct deposit is the best indicator of success, because it not
only measures initial enrollment, but it also measures those
who convert from paper to electronic payment sometime after
receiving their first check.
Currently, over 94 percent of Social Security beneficiaries
and nearly 83 percent of SSI beneficiaries receive their
payment electronically. In fact, the regulation itself allows
for some people to have an exception, such as anyone age 90 or
older as of May 1, 2011.
We will continue our efforts to inform our beneficiaries of
the requirement to receive electronic benefit payments, and we
will continue to assist Treasury with the requirement.
Thank you for your time today, and I will do my best to
answer any questions.
Chairman JOHNSON. Thank you for being here.
[The prepared statement of Ms. Gruber follows:]
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Chairman JOHNSON. Mr. O'Carroll, welcome back. Give us the
straight skinny. You are recognized.
Mr. O'CARROLL. I will try.
Chairman JOHNSON. All right.
STATEMENT OF PATRICK P. O'CARROLL, JR., INSPECTOR GENERAL,
SOCIAL SECURITY ADMINISTRATION
Mr. O'CARROLL. Good morning, Chairman Johnson, Ranking
Member Becerra, and Members of the Subcommittee. Thank you for
the invitation to testify today.
My office fully supports SSA's and the Treasury's efforts
to implement direct deposit for almost all Social Security
benefits. Nevertheless, we are concerned about an emerging
identity theft scheme affecting the direct deposit process.
In October 2011, my office began tracking allegations
indicating that individuals other than Social Security
beneficiaries or their representatives had made changes to
direct deposit information and redirected the beneficiary
payments. We have determined that the suspects generally target
senior citizens' personally identifiable information through
social engineering methods, like telemarketing and lottery
schemes as well as other sources.
For example, last year, an 86-year-old Social Security
beneficiary received a letter indicating that he had won $3.5
million. The man called the phone number in the letter and was
asked to provide some personal information so that he could
collect his winnings. Within days, someone had changed the
man's direct deposit information with SSA, and his monthly
payment went to a different bank account. Before the issue was
resolved, the senior citizen had missed several payments, and
he had to obtain a bank loan to pay his rent.
We have seen many similar stories. Through August, we have
received more than 19,000 reports of questionable changes to
beneficiaries' direct deposits. We continue to receive about 50
such reports every day.
My office has responded on multiple fronts. First, we have
partnered with Treasury OIG to investigate these schemes, some
of which have roots in Jamaica but stretch across the United
States.
In June, our special agents, along with Treasury OIG, met
with law enforcement and other U.S. officials in Jamaica, and
at home we are working with U.S. attorneys across the country
to combat these schemes and pursue the people responsible. We
have executed search warrants, made arrests, and worked with
prosecutors to charge several individuals. In July, a U.S.
citizen and a Jamaican national residing in St. Louis pled
guilty to Federal charges, including identity theft and wire
fraud.
We believe these criminals target beneficiaries throughout
the country, deceiving them into sending money through wire
transfer companies and prepaid debit cards. They allegedly sent
the beneficiaries' money to another Jamaican national in
Montego Bay, Jamaica. That person faces similar charges but has
not been arrested to date.
We also have done and continue to do significant audit work
on this issue. There are several controls SSA could quickly
implement to reduce fraudulent changes to beneficiaries'
records. They can continue the planned implementation to block
auto-enrollment for individuals who express concerns about
fraudulent attempts to change direct deposit information. And
SSA has reported to us that they plan to implement an auto-
enrollment block next month.
SSA could develop an automated notification system to alert
beneficiaries of changes made to their direct deposit
information. This could occur through email or mobile phone
alert or a mailer. And SSA could delay implementation of direct
deposit changes until it is sure they are authorized. This
could help identify improper payments before they are made.
Finally, my office continues to urge all individuals,
especially older beneficiaries, to take basic preventive steps
to protect their personal information from improper use. We
urge everyone to recognize phishing and lottery schemes and to
exercise caution and sound judgment when they are asked for
personal information from any source.
In conclusion, the recent rash of unauthorized direct
deposit changes to Social Security records is a significant
issue. SSA, with its partners in government and the financial
industry, must act swiftly to protect beneficiary payments and
taxpayer dollars. We will continue to provide information to
your subcommittee and agency decision-makers as we confront
this issue.
Again, thank you for the offer to testify today, and I am
happy to answer any questions.
Chairman JOHNSON. Thank you. You are always welcome here.
[The prepared statement of O'Carroll follows:]
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Chairman JOHNSON. I hear what you are saying. And you guys
over at Social Security need to figure out how to check with
people when they get indications like that--I must get two or
three a week, for crying out loud, where, you know, ``You won a
billion dollars! All you have to do is call us.'' Well, that is
baloney.
And you can probably stop a lot of that illegal transfer if
you work with him and figure out how, when somebody gets a
message like that, whether it is on a cell phone or a whatever,
have them call you and tell you about it, and you can run it
down and see whether it is real or not. And 100 percent of them
aren't real, just about.
Thank you for your information.
Ms. Saunders, thank you for being here. Welcome. Go ahead.
STATEMENT OF MARGOT FREEMAN SAUNDERS, COUNSEL, NATIONAL
CONSUMER LAW CENTER
Ms. SAUNDERS. Thank you.
Mr. Chairman, Members of the Committee, the National
Consumer Law Center thanks you for inviting us today to testify
on behalf of our low-income recipients of Social Security
benefits. We also offer our testimony today on behalf of three
other national groups representing low- and moderate-income
consumers.
We support Treasury's proposal to substantially increase
the number of recipients of Federal benefits receiving payments
electronically. We agree that the 2010 rule will likely save a
substantial amount of money the Treasury says that it currently
spends mailing checks to Federal beneficiaries. We agree that
there are numerous advantages to electronic deposit.
However, even while electronic deposit is right for most
recipients, it is not right for all recipients. There must be a
better-articulated waiver procedure disclosed and accessible to
that minority of recipients for whom direct deposit into a bank
account or the Direct Express card will not work because of
factors such as disability or geography.
We are concerned that as Treasury pushes the most
vulnerable of Federal recipients into the arms of banks and
prepaid card providers, that Treasury must adhere to its
obligation to make sure that these accounts are safe for people
to use.
In my written testimony, I have covered five topics in
depth. In my oral testimony, I will try to touch on three
topics quickly.
First, I would like to ask you to imagine that you are an
88-year-old retiree collecting Social Security benefits as your
sole source of income. You have received your benefits by check
for years. You have never had a bank account because you don't
trust banks. You have a 6th-grade education and you aren't good
at reading. Your checks have served you well for years. You are
comfortable cashing a check and paying your rent and monthly
bills with money orders and cash.
All of a sudden, you start to receive monthly notices in
the mail from the United States Treasury Department. You can't
really understand them because they are complicated and they
contain a lot of legalese. You call the toll-free number and
ask for information. You are told you can no longer get your
trusted paper check as you have for all these years. Panic and
confusion sets in.
This example describes some real people--not many people,
not a huge percentage of the Social Security population, but a
substantial and an important subset. The current regulatory
structure for direct deposit does not include a reasonable way
for this subset to protect themselves from this panic and
confusion.
Treasury has set out three waivers, essentially three
reasons for a waiver: one, if you are over 92 and have received
a check all along; two, if you have a mental impairment; or,
three, if you live in a remote geographic region lacking the
infrastructure to support electronic transactions.
The problem is that, while these criteria are appropriate,
the actual procedure for obtaining a waiver is far too onerous.
In order to obtain a waiver, someone has to call Treasury, have
a conversation about their eligibility, use the right language
to request the waiver, fill out the waiver form once you
receive it, have it notarized, and send it back to Treasury.
I understand that Treasury has received over 72,000 calls
relating to a waiver, 14,000 people were sent out a waiver
packet, and there have been 281 notarized responses received
back. That is far too great a difference. And we strongly
recommend that the procedure simply be changed to allow that
the Social Security Administration be the determiners of
whether a waiver should be permitted.
We also want to point out to you that there are three ways
to receive Social Security benefits: direct deposit into an
existing bank account, the very good Direct Express card that
was established by Treasury, and the private-label prepaid
cards that anybody can provide to Social Security recipients.
And we are seeing substantial problems with these prepaid
cards. In my testimony, I have laid out examples in
illustration of the confusion, the high costs, and the
predatory loans that are often attached to these private-label
prepaid cards. And we urge Treasury to continue closing the
loop on these problems.
We want to extend our congratulations and our thanks to
both Treasury and Social Security for addressing the many
problems we have already brought to them. And they have really
been very responsive. We just want them to keep being
responsive to the remaining problems.
Thank you.
Chairman JOHNSON. Thank you, ma'am. I appreciate your
testimony.
[The prepared statement of Ms. Saunders follows:]
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Chairman JOHNSON. You guys are going to be responsive,
aren't you?
Thank you. We will turn to questions. As is customary, for
each round of questions I will limit my time to 5 minutes and
ask my colleagues to also limit their questioning to 5 minutes,
as well.
Mr. Gregg, I want to make sure that we are all completely
clear. Come March the 1st, if a beneficiary is not signed up
for direct deposit or another form of electronic payment and
has not applied for a waiver, will they still continue to
receive a paper check? I believe you said they would.
Mr. GREGG. They will.
Chairman JOHNSON. Mr. Gregg, in 2011 Treasury initiated a
pilot project to encourage low- and moderate-income taxpayers
to receive their refunds on prepaid debit cards. The project
was a spectacular failure, according to the people we talked
to.
Worse, over the past 2 years, this committee, led by
Chairman Dave Camp and Dr. Charles Boustany, Chairman of the
Subcommittee on Oversight, had to make repeated requests for
Treasury to finally release an Urban Institute study of this
pilot program paid for by taxpayers.
Do you agree that the results of this Treasury pilot
project failure seem to indicate that many low- and moderate-
income individuals are not yet ready to choose debit cards over
paper checks?
Mr. GREGG. What I would say, Mr. Chairman, is that I don't
think the way that that pilot was structured was the best way.
I mean, what we are seeing across--not only in the Direct
Express card, which over 55 percent of the people who are
getting Direct Express are unbanked. And I think many other
States and other programs are moving to electronic payments.
I think the structure of that pilot was not a good
structure, and if I was sitting in the position I am today and
someone asked me to repeat that, I wouldn't do it because of
the way it was structured. I think we obtained some useful
information, but sending out a letter under my signature
saying, ``Here is a way to get a card so you can have your tax
refund loaded onto it,'' is really not the way to go.
The savings--as we continue to work with Social Security
and other benefit areas, the one remaining area of substantial
checks is still in the tax refunds. We have to figure out,
working with the IRS, how to address that. But the structure of
that pilot was not the way to go.
Chairman JOHNSON. But it has been overhauled, correct?
Mr. GREGG. Well, we are not sure we are going forward with
anything, at this point. But as far as I am concerned, we won't
follow that same structure if we do pursue something along
those lines.
If I was doing it today, I would go out with a very limited
pilot, like, a few hundred, and see what the response rate was,
rather than--that pilot was really structured to kind of gauge
the receptivity to whether fees would make a difference whether
someone signed up, whether or not a loan. And I would narrow it
considerably, much like a pilot that we have working right now
with Direct Express, to very narrowly structure it and see what
the response rate is.
Chairman JOHNSON. Thank you, sir.
Has the Urban Institute study affected your thinking in
that?
Mr. GREGG. Well, I think it reinforced my thinking. You
know, they did a lot of analysis for it, and some of the
information was useful, but the basic structure, I think, was
flawed.
Chairman JOHNSON. Well, are you just in a test mode now?
Mr. GREGG. Pardon me?
Chairman JOHNSON. Are you just in a test mode now, or are
you----
Mr. GREGG. We are not----
Chairman JOHNSON. You are not doing anything?
Mr. GREGG. We are not doing really anything in that area
right now. I am focusing pretty heavily on----
Chairman JOHNSON. I probably shouldn't have said that about
Treasury, you guys not doing anything, huh? Okay.
Mr. O'Carroll, direct deposit helps avoid benefit delays
and lost checks while also saving taxpayer money. And I support
that. But I am concerned about ID thieves taking advantage of
some of our seniors who get caught in scams.
And what are the types of scams seniors need to know about?
And how can we pass that kind of information to them to make
sure they know what is going on?
Mr. O'CARROLL. Well, Mr. Chairman, as we have discussed,
just as you said in the opening on it, a lot of senior citizens
and citizens in general are being, you know, scammed over the
telephone now, where people are calling up, telling them that
they won a lottery, told them that they won money, they have
won other types of things, and then for them to get it, that
they have to provide personal information.
And that is probably the biggest scam that is out there
now, is where they are out there trying to get personal
information. And then the other one on it is that sometimes
people are being called up by people impersonating government
officials and asking for personal information.
And what we are trying to do is to get the word out, and
that is a good reason for this hearing, is for the protection
of the personal information of people that are out there.
And one of the things that we have done along those lines,
and it is on our Web site, is we have a video that we are
putting out for anyone who comes to the IG Web site, as an
example. And it is telling senior citizens and all citizens,
``Don't give up your personal information. When somebody calls
you and asks for this information, don't give up your
information on it. If somebody calls up and says that they are
a government official asking for your information, Social
Security never does it, other government agencies don't do it.
Don't give out your personal information.''
So that is our biggest message to everybody on these types
of scams.
Chairman JOHNSON. Well, do you get law enforcement after
those guys? Isn't it fraud?
Mr. O'CARROLL. Absolutely. We are comparing the information
that we get with the other government agencies that are
affected and also with local law enforcement on when we are
coming up with these scams and different ways to stop it.
Chairman JOHNSON. Thank you, sir.
Mr. Becerra, you are recognized.
Mr. BECERRA. Mr. Chairman, we have had excellent testimony.
I thank you all for all the information you have provided.
Mr. Gregg, let me begin with you. March 2013, that is 5, 6
months away. For any senior who may be watching who may be
concerned about electronic payment or who may have tried by
contacting the correct office to get information about a
waiver, what assurances can we give to that person that, come
March, April 2013, that he or she will still be getting his or
her benefit checks on time and in full, regardless of whether
it is electronic or otherwise?
Mr. GREGG. You can give them the full assurance, we are
going to continue to--and we understand, Social Security
understands that we are not going to be at 100 percent by March
1st of 2013.
Mr. BECERRA. Okay.
Mr. GREGG. We are tracking it very closely. And our goal is
to have as many people as possible convert, but at the same
time--and we are doing that for the reasons I articulated
earlier: because it is actually safer, and it is reliable, and
it saves the government money. But they are going to continue
to get paid.
The thing that I just want to stress--and the woman who is
in charge of all Treasury payments is sitting behind me. The
commitment that Treasury and Social Security have to making
these payments on time is first and foremost what we are about.
Mr. BECERRA. Excellent.
Mr. GREGG. I mean, during Katrina, we had the director of
the Austin center driving down to Houston every morning with
checks for people who had been dislocated so they could get
their payments at a location. They had moved out of their home.
And----
Mr. BECERRA. Well, that is probably one of the most
important things that can come out of this hearing, is an
assurance that, one way or the other, as we move forward on
this transition, that no American is going to be left behind.
And so I thank you for that.
Let me ask a second question. And also, Ms. Gruber, if you
could respond, as well as Mr. Gregg.
We know that 1 in 10 folks are still saying, you know, I am
applying for benefits; no, I don't want electronic payment. And
so we still have a substantial number of folks who are saying
``no.'' For some reason, they are saying ``no,'' even though
all the numbers show that it is probably safer, easier, and it
certainly saves all of us, as taxpayers, money.
What are we doing, or what can you tell us you will do to
try to collect the information that gives us a better sense of
why some people aren't doing it? There is probably a universe
out there that just is reluctant to change. But there is also a
universe that may, as Ms. Saunders said, have legitimate
reasons to be concerned.
So can you tell us, can you give us any assurances that you
will try to collect the information on this universe of people
so we can figure out how best to make sure we can transition
them or, if we can't, why we can't?
Mr. GREGG. We have conducted surveys and focus groups over
the last 4 or 5, 6 years, and you get a range of responses----
Mr. BECERRA. Right. And I understand you have done some of
that. I am just trying to find out, right now, can you give us
some assurances that Treasury and Social Security will make
every effort to try to better home in on why some of these
folks are not wanting to go into electronic benefit payments?
Mr. GREGG. Yeah, and I think the initial sign-up rate is a
little bit misleading because----
Mr. BECERRA. Okay, Mr. Gregg, all I am trying to find out
right now is, can you give us an assurance? I am not saying you
are committing to any one particular activity, but can you give
us an assurance here, the members of this committee, that you
are going to do more to try to home in on why some of those
folks aren't moving toward electronic benefit payments?
Mr. GREGG. Yes.
Mr. BECERRA. Ms. Gruber?
Ms. GRUBER. Yes, we can.
Mr. BECERRA. That is great.
[Transcript Insert #1 Gruber]
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And, again, we understand, this is a smaller universe and
probably a tougher universe to quite understand. But so long as
we have your assurance that next time we come and talk about
this you will have more data to give us a better sense of how
you have tackled this issue and move folks who can move and
explained how those who can't, what we are doing to try to help
them as best as possible.
Mr. Gregg, Ms. Saunders mentioned a number which was
somewhat troubling to me. She said, out of more than 70,000
people who had contacted the agencies or the folks in charge of
the direct debit and so forth about seeking a waiver, less than
300 or so had actually followed through and gotten a waiver.
That is a really slim number. Of more than 70,000 inquiring, to
only have 300 to actually get the waiver, something is going
on. And it sounds like maybe the process is a little too
complicated or too cumbersome.
Not that you can answer the question today, and not that I
have time to have you give me the answer, but can you give us
some assurances that you will delve further into those numbers
to figure out why all those folks who did make the effort to
contact you all about seeking a waiver from the electronic
benefit payments, why so few actually ended up getting it?
Maybe you resolved their problems.
But can you give us some assurance, both Treasury and Ms.
Gruber with SSA, that you will further dig into that to give us
a response?
Mr. GREGG. I can. The only thing I would add is, about
24,000 of them actually making the call converted to electronic
payment.
Mr. BECERRA. Okay.
And, Mr. Chairman, maybe in writing, if they can also give
us a response, if Treasury could give us a response about who
they think--and SSA--who they believe should be the person or
the agency that determines whether a beneficiary should receive
a waiver. Ms. Saunders mentioned that perhaps Treasury should
shift that over to SSA since SSA deals with these folks all the
time.
But I would love to hear your response on who really should
make that determination.
Mr. BECERRA. Thank you.
Chairman JOHNSON. Thank you.
Mr. Smith, you are recognized, 5 minutes.
Mr. SMITH. Thank you, Mr. Chairman and to our panel.
Mr. Gregg, could you reiterate the savings again that
occurs through the electronic payments?
Mr. GREGG. Yeah. The savings, you know, over--we have been
working on this for a long time. But the savings in 2011 alone
were over $600 million by getting to the point where we were
at, at that time, by having electronic rather than making all
check payments.
The additional savings if we are able to move at or close
to 100 percent is going to be an additional $1 billion over the
next 10 years.
Mr. SMITH. Okay. Now, I understand that there would be a
waiver for those wishing for a waiver in remote geographic
locations. Could you define what that would be?
Mr. GREGG. Yeah. And, you know, I grew up in a rural area,
South Dakota. You drive 35 miles from my little town, but when
you get there, you get to Pierre, and, actually, they have--you
know, you can use your debit card and all that. But some of the
comments we got in were from some areas in Alaska, for example,
and I think maybe an Indian reservation in the States, where
one individual goes in for a group every week or every month
and takes checks along.
So that is really why we had that, where it is very remote
and they didn't have the infrastructure to support a debit
card.
Mr. SMITH. So would you say that anyone who could prove a
hardship would probably have access to a waiver?
Mr. GREGG. You know, we don't look behind the statement.
And I will say that the form for the waiver is very
straightforward. If someone comes in and basically makes any
kind of reasonable case for geographic hardship, then we
haven't turned those down. We haven't tried to investigate, and
we didn't plan to do that, going into it.
We said basically, hey, we think most people, given the
experience we have had since 2008 with the Direct Express card,
we think that actually serves people better than checks. But if
there is some exception, then the waiver process is there.
Mr. SMITH. Ms. Saunders?
Ms. SAUNDERS. If I might respond, the people who do not
have access to debit card machines because they live in such a
remote geographic area are unlikely to have access to notary
publics. And signing your waiver request form by a notary is a
prerequisite to getting a waiver. So that, in itself, is a
catch-22 that we are concerned about.
Mr. SMITH. Okay.
Anyone else wishing to comment?
Okay. Thank you, Mr. Chairman. I yield back.
Chairman JOHNSON. Thank you.
Mr. Berg, you are recognized.
Mr. BERG. Thank you, Mr. Chairman.
Thank you to the panel for being here and obviously
discussing this ongoing process here and how to hit the right
thing.
You know, the two things that I am concerned about, of
course, are fraud and theft. And, you know, I can't imagine how
many new scams kind of come up every single day. I was checking
into a hotel in North Dakota about 2 weeks ago, and at the
front desk, they said, if someone calls you--you know, every
time you check in, you give them your driver's license, you
give them a credit card. They said, if someone calls you
claiming they are from the front desk and your credit card
didn't go through or there is a problem, don't give them any
information. And I thought about it, and I thought, you know,
you just check into a hotel, an hour later someone calls and
says, ``Hey, the card doesn't work,'' I mean, you would assume
it is the front desk.
Also, I mean, what is happening--obviously, this has been a
huge area in the credit card industry, when I first--well, I
shouldn't say when I first, but after I had been out here for
about 6 months, you know, I got a call back home saying, ``Hey,
this credit card is being used in D.C. What is the situation?''
It was a credit card that hadn't been used in D.C. for a while.
And so within 24 hours, you know, there was a hold on that
credit card.
And so I guess I kind of look at all the technology that is
out there and the practices that are being used, if you will,
in the private sector to kind of catch these things, and, you
know, I would think--you know, so the first thing, if someone
has their account that is set up, and through scam artists,
whatever, they are trying to change that address or are doing
some different things--and it seems to me when there are so
many checks and balances that are being used out there, and so,
you know, my question, Ms. Gruber, is really, what do we have
for notification now?
So someone has their account set up with a bank, and there
is some call or request to change it to a different location or
do something that is out of the normal, do we have some checks
and balances now? Or are there things we could be doing?
Ms. GRUBER. Thank you, Mr. Berg, for the questions.
We do have some checks and balances. One of the things that
happens right now, if somebody makes a direct deposit change,
we actually send a notice to the address of record to say that
the change had been made.
In fact, as Mr. O'Carroll had said in his testimony, a lot
of the reports of fraud or suspected fraud come from our
frontline employees. And our frontline employees have reported
that they have gotten calls from members of the public who
received that notice to their address of record.
I think that there are some areas, as Mr. O'Carroll had
suggested in some of their ongoing audits, that we can continue
to look at and explore, are there additional measures that we
can take with respect to trying to put an end to the fraud?
You know, one of the keys for us is to continue to work
with Mr. O'Carroll and his staff on learning what the facts are
of their ongoing investigation, because that is the biggest
tool we can have to try to identify what are the right measures
to take to really, you know, put an end to it.
One of the things that we have done over the course of the
year--and I don't want to talk about specific measures we have
taken to combat fraud in this kind of open setting.
Mr. BERG. Sure.
Ms. GRUBER. I don't want to, certainly, provide a how-to
manual, if you will. But those measures have also been quite
effective in catching some folks I think that were trying to
perpetrate a fraud.
So, in answer to your question, yes, we have some checks
and balances, but there are other things that we are willing to
look to do.
Mr. BERG. Just quickly, are there any high-level numbers
that would relate to the people that we have caught committing
fraud and/or prosecuting?
Mr. O'Carroll?
Mr. O'CARROLL. I will take that one, Mr. Berg.
Two things on it. One is, one of the problems with this is
that--we are calling it a cottage industry. So the word is
getting out there. You know, and as Ms. Gruber said, we don't
want to give out any of the technical terms, questions that are
being asked. But the bad guys are out there and the fraudsters
are passing these around, and they are saying, this is the way
to circumvent it to get it out there.
So what we are finding is that it is out there, it is so
much, we are making arrests, we are making convictions, but we
are not making a lot of them, to be really truthful, because it
is a systemic problem at the top that needs to be corrected. We
can't correct it from the bottom by just doing arrests and as a
deterrent on it.
So I have to say, in our cases on it, we have about three
major investigations with convictions on it. And we have quite
a few where we are working with local law enforcement, but they
are small cases, very infrequent. And I guess we can't arrest
our way out of this problem.
One other thing just to talk about, when we were talking
about one of the safeguards that SSA is doing of notifying to
the address of record, the problem with it is, what the
fraudsters have figured out is that when you change a person's
direct deposit information on it, you also change the address.
So when it goes out to the address of record, it is oftentimes
the fraudster's address getting the information rather than the
address of the actual beneficiary.
So we are working with SSA on that as another one of the
ways that we are trying to say, maybe send it to the old
address as well as the new address to let people know that
something has happened.
Mr. BERG. Thank you. I yield back.
Mr. GREGG. Congressman Berg, if I could make one comment if
you have time?
For the people that are interested in Direct Express, as I
mentioned in my oral statement, we have a Treasury database
that has a record of the checks that we have been issuing. So
when the person calls, the person that is at our Dallas call
center calls up that database--and, again, I don't want to get
into the specifics--but asks that person questions that is
unlikely that anyone but the rightful owner would have. It is
more detailed than kind of the regular, you know, address and
Social Security number.
So I think we have gone a long way to really reduce it at
that end. But any time there is a change, if someone is
changing from a direct deposit to Direct Express or an address,
flags need to go up. Because, you know, in some cases that is
legitimate, in other cases you really have to be alert to that.
Mr. BERG. Thank you.
Chairman JOHNSON. You know, it seems to me that Social
Security has an address; otherwise, you wouldn't be able to
send checks out. Are you telling me, Mr. O'Carroll, that the
addresses aren't correct in a lot of cases?
Mr. O'CARROLL. Well, what we are concerned with, Mr.
Chairman, is that when a fraudster gets your information, they
then go and they change the direct deposit information to their
dummy account or whatever account that they are using. At the
same time, a lot of times they will say, we also want to change
our address. So then when the claims representative gets the
information, they are copying down the new address, the new
account number on it, and then that becomes the address of
record for any correspondence.
So our concern on it is that is what the fraudsters have
figured out, is that: change the address at the time you are
doing your direct deposit changes, and the notification will be
just sent to the new address, not the old one.
So it is a good address that the SSA has on it for
everybody that, you know, as the beneficiary. It is just that
when the fraudster changes it.
Chairman JOHNSON. But the fraud guys are actually calling
for a change of address?
Mr. O'CARROLL. Yeah.
Chairman JOHNSON. Garbage.
Mr. Brady, you are recognized.
Mr. BRADY. Mr. Chairman, thanks for holding this hearing.
And whenever we do, it is just so disturbing to hear those
who rip off seniors, especially those with limited education or
limited mental capacity. We have to do everything we can to put
these people behind bars. And I personally hope there is a
special place in hell reserved for those who prey on our
seniors.
A question for Ms. Gruber and Mr. O'Carroll: You said that
when there is a request for a change for the beneficiary, you
send out a letter to confirm it. What is the result of that?
What percentage are responded to? What percentage confirm that
they have made a change? And which ones raise a red flag that
there is fraud likely or possible?
Ms. GRUBER. Thank you, Mr. Brady.
So, just to make sure that everyone has the same context,
as Mr. O'Carroll had said, you know, when you make an address
change at the same time that you are making a direct deposit
change, a notice goes out to the new address. And we agree that
that is something that we need to explore and look at how we
can button that up.
When you make just a direct deposit change, we do send a
notice to the address of record. And that has been one of the
primary ways that our frontline staff have received reports of
fraud.
I don't have hard numbers, but it is something that we can
take a look at and see what we can get our hands on.
Mr. BRADY. Could you get the committee the hard numbers?
Ms. GRUBER. Sure.
Mr. BRADY. Because, really, it may be the most effective
way, but it may not be effective overall in both those
instances.
Ms. GRUBER. Sure.
[Transcript Insert #2--Gruber]
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Mr. BRADY. Mr. O'Carroll, I was reading in the preparation
that most wrongful beneficiary direct deposit changes are
initiated by financial institutions and are made to prepaid
debit cards.
So what can be done to ensure that this is accurate, that
this is verified, that Social Security, working with Treasury,
can help to make sure--you know, if that is the initiator of
much of the fraud in that area, how do we address it better?
Mr. O'CARROLL. Well, I guess the biggest thing to take away
from this, our concern is just to authenticate and to verify.
And what we are finding with the financial institutions on it--
and when you think of financial institutions, Mr. Brady, we are
thinking, one, I always think in terms of the bank on the
corner of a financial institution. But what we are not
realizing is that, with a lot of these prepaid debit cards,
there isn't an actual bank there; it is usually an entity. And
they change quite frequently, you know, with the different
requirements that they have.
So what we are finding with the financial institutions, for
the most part--and it is probably through work with Treasury
Department, FDIC, and other agencies--a lot of the information
that a financial institution asks for and gets from a person
who is trying to, you know, either set up an account or change
an account is fairly good, but it varies from bank to bank,
from institution to institution.
But we are finding with the prepaid debit cards that there
is not a lot of information required, there is not a lot of
verification done on it, and that does seem to be the area that
is the biggest vulnerability on it, is that there is so many of
them out there and there are so many different requirements,
that the safety features aren't built into it.
Mr. BRADY. Could your office compile a list of the
financial institutions where we are having those problems----
Mr. O'CARROLL. Absolutely.
[Transcript Insert #3 O'Carroll]
[GRAPHIC] [TIFF OMITTED] 80440.031
Mr. BRADY.--you know, in volume or percentage, so that we
can sort of shine a light on where we are having some of those
issues and maybe address them?
Mr. O'CARROLL. That would be very good because, in some
cases, some of the other benefit agencies have found, you know,
the most susceptible of the financial institutions on it and
are not allowing those institutions to deal with them for
direct deposit.
Mr. BRADY. Yeah. I think we ought to see those.
Ms. Saunders, you make a great point about the waivers and
some of the challenges there. You have to confirm this is
accurate information by a real, live person seeking the waiver.
If a notary public is too much of a challenge, how else would
you accurately confirm it, in remote areas especially?
Ms. SAUNDERS. Well, the notary public only confirms that
you are the person who has signed it. The notary does not
confirm that you really live in a remote geographic area or
that you have a mental impairment. That is beyond what a notary
can do.
Mr. BRADY. So how would you do that?
Ms. SAUNDERS. We would suggest that the agency make the
determination. They are making other determinations; they are
the ones who are dealing day-to-day with the Social Security.
Mr. BRADY. I am not picking on you, but how would they do
that?
Ms. SAUNDERS. So when someone comes in and says, ``I don't
want a direct deposit because I don't have a bank account, and
I don't have access to the Internet, so I don't want a prepaid
card; I don't understand, how can a card have money on it,''
then the Social Security representative asks a few questions
and makes the determination right then and there.
Mr. BRADY. But if you are in a remote area, you are not
likely to be walking into a Social Security office.
Ms. SAUNDERS. Then however it is that you apply for Social
Security, if you make the phone call and you apply that way,
then that recipient of that phone call at the agency makes that
determination.
Mr. BRADY. But we are telling people not to give their
information over the phone call to a government official.
Ms. SAUNDERS. No, we are only telling--I thought the
information was not to give it----
Mr. BRADY. But to verify, wouldn't you--I am not picking on
you. I am just trying to figure out what is a better way.
Ms. SAUNDERS. So when the recipient goes in to apply for
benefits----
Mr. BRADY. They are in a remote area. They are not walking
into anything. They are sending a letter back.
Ms. SAUNDERS. So they call for benefits. They have to have
a conversation at some point with the Social Security
Administration, don't they? To apply for benefits initially,
isn't there----
Ms. GRUBER. Correct. Correct.
Ms. SAUNDERS. There is some conversation that occurs at
some point.
Mr. BRADY. But we are talking about the waiver. You are
already getting benefits; you are asking for a waiver. How do
you confirm that, in fact, is the person you wanted?
Ms. SAUNDERS. At that point, the recipient calls Social--
either they go into a Social Security office or they call the
800 number that is the Social Security Administration's office
and are sent to the appropriate avenue that knows how to ask
the questions and determine the answer.
I am sure the Social Security Administration is quite
familiar with how to deal with people of limited mental
capacity. As they process their applications originally, they
would process these applications for waivers in the same way.
Mr. BRADY. It seems ripe for fraud. But let's keep pursuing
that. I think the points you raise are good ones.
Thanks, Mr. Chairman.
Chairman JOHNSON. Thank you.
Mr. Marchant, you are recognized.
Mr. MARCHANT. Thank you, Mr. Chairman.
I have a question for Mr. Gregg.
In your testimony, you discussed a pilot project to
determine whether people will sign up for direct deposit if
they are sent an unactivated Direct Express card.
Are only SSI beneficiaries in the pilot? And tell me more
about the pilot and how it is proceeding and its results so
far.
Mr. GREGG. Yes, only SSI. And, to date, it is very limited.
We sent out 400 cards about 3 weeks ago, and so far we have had
a 30 percent rate of people signing up, which is much higher
than I would have expected, actually.
We are going to continue to test this in limited bites to
see. I mean, there is no money on the card. All they have to
do, however, is call our number to activate it and get signed
up for the Direct Express.
So the pick-up rate so far has been very encouraging.
Mr. MARCHANT. And is there any security as to who is
actually calling in and activating the card?
Mr. GREGG. Well, there is a specific number in the
information that we send out there, and we have people at our
Dallas call center that handle those calls specifically.
Mr. MARCHANT. So a person that goes to an ATM machine that
has possession of the card and actually has possession----
Mr. GREGG. They have the card, but unless they activate it
and go through--you know, we know who they are, obviously,
because we have gone through our enrollment procedures before
we send them out. So when they call to activate it, we do some
double checking. But no money is on it until we turn the
switch.
Mr. MARCHANT. Right, but someone could get the number and
someone could call and say, ``I am James Jones, and here is my
number, and I need this money moved.''
Mr. GREGG. That is potentially an issue, but we are looking
at that very closely, and we haven't seen any cases of that so
far.
Mr. MARCHANT. And you don't have some kind of a bat-code or
pin number that only him and his wife or him and you know, that
if either of you don't know that number, then it has to be a
scam?
Mr. GREGG. Well, we are sending it to an address that we
are very confident about.
Mr. MARCHANT. Even the credit card companies now have put
us through quite a strenuous process, and then they say, what
are these last two numbers that you should know? If you don't
have possession of the card, actually, you probably won't have
those numbers.
Mr. GREGG. Right.
Mr. MARCHANT. I would suggest that, as this matures, that
you work closely with the credit card people to see what they
might be able to offer you as far as ideas as far as how you
can take one more step toward making sure that the card goes to
those that we intend it to go.
To activate the direct card, the recipient will have to
call the go line. What safeguards do you have in place to make
sure the caller is who they say they are? I assume the person
that calls has to be the person who is on the card.
Mr. GREGG. Yes.
Mr. MARCHANT. Are you coordinating efforts on this pilot
with Social Security?
And to Mr. O'Carroll, have you looked into this pilot? And
if so, what are the frauds, and what are the acceptable frauds?
Mr. O'CARROLL. Mr. Marchant, to be truthful, we are aware
of this pilot, but we haven't done any work on it. So I really
can't comment on it.
We are working closely with the Treasury IG, and I am sure
they are monitoring it too. And we can get back to you on that
one, but we haven't done any work on it at all.
Mr. MARCHANT. Well, we have had quite a bit of experience
in this. Both when Sam and I were both in the State
legislature, we began to go from the food stamp program to the
debit card program, and it was mailed out. I see Brady down
there; he probably masterminded the whole thing.
But it worked. I mean, after we discovered the avenues of
fraud that could be used, and we solicited the expertise of the
companies that had been doing this forever, I think we have it
down now to where the fraud is a very small instance. And it is
probably the most successful program, as far as efficiency, in
the country.
So I would encourage you to talk to the Texas guys and
see--it would take a very short phone call to see if there is
something they used that is effective, or any State, that you
could incorporate into your program where there will be less
fraud.
Mr. GREGG. We will take a look at that.
Mr. MARCHANT. Yeah. Thank you.
Chairman JOHNSON. No income taxes in Texas.
Mr. Becerra, you are recognized for 1 minute.
Mr. BECERRA. Mr. Chairman, thank you for allowing me to try
to get some clarification. Mr. Brady actually raised some good
points that I would like to just better understand on this, the
issue of waiver.
Ms. Saunders, my sense was from your testimony that the
waiver process which requires the notary public to ascertain
something is for the purpose of ascertaining that the
beneficiary wants to waive the requirement to have electronic
benefit payments but not to ascertain the beneficiary's
identity?
Ms. SAUNDERS. The notary public has the capacity to do one
thing under every State law, and that is to identify that the
person signing the piece of paper is that person. That is all a
notary public does.
It is beyond the capacity or the authority of a notary
public to ascertain that what is on the piece of paper that the
person signs is true.
Mr. BECERRA. Right. And so what you are saying is that--
well, let me ask you. Are you saying that we could bypass the
notary public and allow SSA, which has information on these
individual beneficiaries, to try to do the ascertainment of
that person's identity as it normally would through the regular
process of applying for benefits?
Ms. SAUNDERS. Yes, sir, that is exactly what I am saying.
The purpose of the notary does not seem to be so much to
determine that the person is actually authentically the person,
but to set up a hurdle to make it more difficult for people to
apply for the waiver, for the understandable reason that
Treasury wants fewer people to apply for the waiver.
And what we are saying is we are fully supportive of the
electronic transition, but there are some people who need the
waiver, and it shouldn't be denied to them because they cannot
access a notary public or make their way through this
complicated procedure.
Mr. BECERRA. Mr. Chairman, maybe it would be better to get
a written response than to just ask both Treasury and SSA today
for a reaction response to Ms. Saunders, but maybe we should
try to find out, what value is the notary public?
Especially for folks who are in rural areas, I think what
we want to do is make sure that there isn't any identity fraud
that occurs in the process of applying for a waiver. And so I
certainly would think that we would have some concern if we
remove one step that tries to give us a better sense that the
person that is applying for this is actually the person who is
indicated.
And so, Mr. Chairman, maybe we could just ask both Treasury
and Social Security to give us a written response to the issue
raised by Ms. Saunders about the actual value and necessity of
having a notary public be part of that process to seek a
waiver.
Chairman JOHNSON. There should be another way to do it, and
Mr. O'Carroll can probably figure that out.
Mr. BECERRA. So if you all perhaps could respond to that
question about the waiver process and the value of having a
notary public participate in that, that would be helpful.
Mr. O'CARROLL. I would be happy to.
[Transcript Insert #4--O'Carroll]
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[Transcript Insert #5--Gregg]
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[Transcript Insert #6--Gruber]
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Mr. BECERRA. Thank you, Mr. Chairman.
Chairman JOHNSON. Thank you.
I want to thank you all for being here, and I appreciate
your presence.
And we trust Treasury and Social Security will continue to
work together to protect seniors while ensuring that their
benefits arrive safely and on time.
And get after those crooks, Mr. O'Carroll.
Mr. O'CARROLL. Yes, sir.
Chairman JOHNSON. The meeting stands adjourned. Thank you.
[Whereupon, at 10:19 a.m., the subcommittee was adjourned.]
Public Submissions For The Record
Alan Feiertag
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Consumers For Paper Options
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Mastercard
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