[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.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word or 
WordPerfect document, in compliance with the formatting requirements 
listed below, by the close of business on Wednesday, September 26, 
2012. Finally, please note that due to the change in House mail policy, 
the U.S. Capitol Police will refuse sealed-package deliveries to all 
House Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days' notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
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]
    [GRAPHIC] [TIFF OMITTED] 80440.030
    

                                 

    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]
    [GRAPHIC] [TIFF OMITTED] 80440.032
    

                                 

    [Transcript Insert #5--Gregg]
    [GRAPHIC] [TIFF OMITTED] 80440.033
    

                                 

    [Transcript Insert #6--Gruber]
    [GRAPHIC] [TIFF OMITTED] 80440.034
    

                                 

    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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    Jerry Deckard
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    Mastercard
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