[Senate Hearing 113-800]
[From the U.S. Government Publishing Office]


                                                      S. Hrg. 113-800

                 SOCIAL SECURITY PAYMENTS GO PAPERLESS:
                     PROTECTING SENIORS FROM FRAUD
                             AND CONFUSION

=======================================================================

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS


                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                        WEDNESDAY, JUNE 19, 2013

                               __________

                            Serial No. 113-6

         Printed for the use of the Special Committee on Aging
         
         
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         Available via the World Wide Web: http://www.fdsys.gov
         
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                       SPECIAL COMMITTEE ON AGING

                     BILL NELSON, Florida, Chairman

RON WYDEN, Oregon                    SUSAN M. COLLINS, Maine
ROBERT P. CASEY JR, Pennsylvania     BOB CORKER, Tennessee
CLAIRE McCASKILL, Missouri           ORRIN HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     MARK KIRK, Illinois
KIRSTEN E. GILLIBRAND, New York      DEAN HELLER, Nevada
JOE MANCHIN III, West Virginia       JEFF FLAKE, Arizona
RICHARD BLUMENTHAL, Connecticut      KELLY AYOTTE, New Hampshire
TAMMY BALDWIN, Wisconsin             TIM SCOTT, South Carolina
JOE DONNELLY Indiana                 TED CRUZ, Texas
ELIZABETH WARREN, Massachusetts
                             
                             ----------                              
                  
                  Kim Lipsky, Majority Staff Director
               Priscilla Hanley, Minority Staff Director
                                
                                CONTENTS

                              ----------                              

                                                                   Page

Opening Statement of Chairman Senator Bill Nelson................     1
    Prepared statement...........................................     8
Statement of Ranking Member Susan M. Collins.....................     5

                           PANEL OF WITNESSES

Alexandra Lane, Victim of Social Security Fraud..................    11
Rebecca Vallas, Staff Attorney and Policy Advocate, Community 
  League Services of Philadelphia................................    16
Theresa L. Gruber, Assistant Deputy Commissioner of Operations, 
  Social Security Administration.................................    31
Richard Gregg, Fiscal Assistant Secretary, U.S. Department of 
  Treasury.......................................................    38
The Honorable Patrick P. O'Carroll, Jr., Inspector General, 
  Social Security Administration.................................    45

                                APPENDIX
              Prepared Witness Statements and Deliverables

Alexandra Lane, Victim of Social Security Fraud..................    14
Rebecca Vallas, Staff Attorney and Policy Advocate, Community 
  League Services of Philadelphia................................    19
Theresa L. Gruber, Assistant Deputy Commissioner of Operations, 
  Social Security Administration.................................    33
Richard Gregg, Fiscal Assistant Secretary, U.S. Department of 
  Treasury.......................................................    40
    Deliverables submitted for Secretary Gregg...................    73
The Honorable Patrick P. O'Carroll, Jr., Inspector General, 
  Social Security Administration.................................    47

                  Additional Statements for the Record

Alastair M. Fitzpayne, Assistant secretary for Legislative 
  Affairs, U.S. Department of Treasury...........................    80
John Runyan, Executive Director, Consumers for Paper Options.....    82

 
                      SOCIAL SECURITY PAYMENTS GO.
                     PAPERLESS: PROTECTING SENIORS
                        FROM FRAUD AND CONFUSION

                              ----------                              


                        WEDNESDAY, JUNE 19, 2013

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, 1:57 p.m., in Room 
SD-366, Dirksen Senate Office Building, Hon. Bill Nelson, 
Chairman of the Committee, presiding.
    Present: Senators Nelson, Blumenthal, Donnelly, and Warren.

       OPENING STATEMENT OF SENATOR BILL NELSON, CHAIRMAN

    The Chairman. Well, good afternoon, everyone, and thank you 
for being here to discuss a very important topic, identity 
theft-related Social Security fraud.
    Today is the third in a series of investigations into 
fraudulent schemes that target senior citizens. In March, we 
examined the Jamaican phone scams. A month later, we took on 
tax refund fraud. Today, we are going to get into Social 
Security fraud.
    The Social Security Inspector General is here and he has 
graciously agreed to bat cleanup for us this afternoon, and he 
is going to tell us about how these fraud criminals are able to 
divert people's hard-earned Social Security benefits from their 
bank account to the criminal's bank account or debit card.
    And aside from the financial cost to taxpayers, the worst 
thing about stolen Social Security benefits is the human cost. 
Five-point-two million senior citizens in this country, and 
nearly a third of them in my State of Florida, Social Security 
benefits are their only source of income. Underscore that--only 
source of income--a third of all of my senior citizens in 
Florida. I mean, it is an astounding statistic. Without their 
monthly benefit, many would be unable to pay for basic 
necessities--food, rent, medicine.
    So, today, we are going to hear from Alexandra Lane of 
Winter Haven, Florida, in the center of Florida, Polk County, 
who spent 50 days in and out of field offices, banks, and 
police departments trying to recover three months' worth of 
benefits that identity thieves had redirected from her into 
their own account.
    We have heard from a number of other victims, as well. 
There is Bob Rizzardi. He is an 87-year-old World War II 
veteran. He is from Fort Myers. He has been victimized on five 
separate occasions, most recently, in January. And despite the 
Social Security Administration finally putting a block on his 
account, Mr. Rizzardi says that he still walks down to his bank 
wondering every month if he is going to have the money 
deposited into his account as he hopes and prays for.
    Some seniors do not even know that they have been 
victimized. David Krant of Fort Lauderdale, he reached out to 
us with a simple suggestion because he received a notice from 
the Social Security Administration telling him he requested his 
money be put in a bank account. The form was so plainly worded 
that he had no idea whether it was trying to tell him he had 
been a victim of fraud or if he had just moved his money into a 
new bank. The Social Security Administration is here, so we can 
hear from them about the idea to include on the form the dates 
of the switch and the bank information, basically, the kind of 
details that you would need to actually raise a red flag for 
victims.
    And all of these fraud victims deserve to be made whole in 
a timely manner. You can imagine, one-third of all my seniors 
in Florida, that is it for their income, is their Social 
Security check. And, obviously, they cannot live if they cannot 
have their money deposited into the right account on a monthly 
basis. And yet, time and again, we are told by victims and 
advocates that unless they walk into a field office and unless 
they say the magic words, that they are in dire need, they will 
walk out of the office without their money. Social Security 
says this is not the policy, but from what we consistently 
hear, this, in fact, down in the field offices, is the 
practice.
    Ultimately, our goal is to prevent this fraud from 
happening. And as we learned from our previous hearings on the 
Jamaican lotto scams and the tax refund fraud, we keep hearing 
about the use of private prepaid debit cards as being the easy 
way to transfer the money by the fraudsters. By the way, 
fraudster is too kind of term. We need to call them criminals. 
These cards are ripe for criminals because there is still not 
enough work being done to authenticate that the people who set 
up these accounts are actually--make sure they are actual 
Social Security recipients, not the criminals.
    Well, you would think there would not be a problem, because 
Treasury has its own debit card, which is much safer and has 
lower fees than most of these private cards. So it is curious 
why these private cards are even allowed to accept Federal 
benefits. We are going to put that question to Treasury.
    Now, I have already sent word to the Secretary of the 
Treasury, Jack Lew, in his office, that we are having this 
hearing today and I want his personal cooperation. Fortunately, 
he is a good man. I know him. He was an excellent Chief of 
Staff in the White House. And I want Jack Lew to know exactly 
what is happening way down in his department.
    We are also going to ask them why the contract for this 
Government Preferred Direct Express card has been amended after 
a competitive bidding process. Get this, a competitive bidding 
process, they won the contract, but now the bank that won that 
wants more money to run it when they already agreed to do it 
for less, and that is how they won the competitive bid. The 
Treasury Inspector General is in the midst of an audit on this, 
so they say they cannot comment on it. But this committee will. 
This is not how our government should be conducting business. 
Something does not add up, and we are going to get to the 
bottom of it. And I expect the Secretary of the Treasury, if we 
cannot get it out of those underneath him, I expect him to get 
to the bottom of this, because if he knows about it, he is that 
type of caring individual that he will do it.
    Now, we are also going to have an examination into the 
fraud--into the latest type of fraud. So we have to look at the 
impact of the switchover from paper to electronic payments for 
all Social Security recipients. Treasury has run a very 
aggressive campaign, as they should, to get people to switch to 
electronic payments, and the results are evident. Almost 97 
percent of recipients get paid electronically.
    But in the run-up to the March 1 deadline to switch, the 
amount of misinformation was staggering. Our committee staff, 
these folks, contacted the call center and were told on a 
variety of occasions that benefits would be suspended for 
people who failed to switch before the deadline. They have got 
a deadline. They are encouraged to switch from paper to 
electronic. And at the call center set up by the Treasury 
Department and Social Security, the senior citizens are being 
told that they are going to lose their benefits unless they 
switch. Is that what the law says? No, ma'am.
    Seniors are scared and they are not willing to risk giving 
up a good chunk of their income, so they switched. There was so 
much misinformation out there that the Treasury had to remind 
the call center operators that checks would keep coming past 
the deadline. But this reminder was too late for most, because 
it just happened ten days before the deadline. What is 
happening? Does Treasury not have control over its own 
contractors in the call center?
    This transition has gone off without a hitch for millions 
of Americans and Treasury should be applauded for the work that 
it has done to save the government money. But just because 
electronic payments work well for many does not mean it is 
going to work well for all. There are the people who should 
still want to be receiving paper checks. There are people with 
health conditions. There are folks that are quite senior. There 
are people who live far away from an ATM.
    Treasury allows for waivers, but why don't you try getting 
one. You cannot find a form online; we have checked. And even 
if you could, Treasury only accepts a form that is connected to 
your account. And although the agency said there is not a 
requirement for a notary to sign it, it is still on the form. 
And, obviously, to a very senior senior citizen, that is very 
confusing.
    So you try to contact your call center. An operator is 
there under direct orders only to transfer you to a waiver 
specialist as a last resort, and it is no wonder that only a 
few thousand of these waivers to get a paper check have been 
granted. Only 2.5 million people are still receiving paper 
checks today, yet Treasury remains adamant about targeting 
these individuals to switch. Given the media blitz, there is 
likely a very good reason why these people are still resisting 
electronic payments.
    This group contains some of the most vulnerable and the 
least tech-savvy of our seniors and this committee is going to 
stand up for them, and it is hard to understand the value of 
getting them to switch. This is also a group that is sure to 
shrink as a percentage of the population as more and more of 
our seniors become comfortable with the electronic banking and 
its technology as a whole and as we get the administration to 
get a grip on stopping the fraud that is occurring because of 
the electronic banking.
    Well, we have an excellent panel of witnesses today. I want 
to thank all of you for being here.
    I will insert the opening statement of our Ranking Senator 
Collins.
    [The prepared statement of Senator Collins follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    
    The Chairman. I want to introduce our panel. We have 
Alexandra Lane. She is of Winter Haven, Florida. She is going 
to share her experience as a victim of Social Security fraud.
    We have Rebecca Vallas. Ms. Vallas works for the Community 
Legal Services of Philadelphia. She is an attorney, an advocate 
for low-income elderly and disabled clients. And as I was 
making the statement, I saw her nodding in agreement on a 
number of occasions.
    Then we have Theresa Gruber. Ms. Gruber is the Assistant 
Deputy Commissioner of Operations for the Social Security 
Administration.
    Next is Richard Gregg. He is the Fiscal Assistant Secretary 
for the United States Department of Treasury, which includes 
overseeing the financial management service.
    And then we will hear from the Honorable Patrick O'Carroll, 
the Inspector General for the Social Security Administration, 
who has graciously agreed to speak last in order to sum things 
up for us. The Inspector General has conducted audits and 
produced several reports on fraud involving Social Security 
payments.
    Do either of my colleagues have anything you would like to 
share before we have the folks testify?
    Okay. All of your statements, written statements, will be 
entered in the record, so if you would take about five minutes, 
no more, share with us your story, and then we want to get into 
some questions.
    [The prepared statement of Chairman Nelson follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Ms. Lane.

  STATEMENT OF ALEXANDRA LANE, VICTIM OF SOCIAL SECURITY FRAUD

    Ms. Lane. Good afternoon, Chairman Nelson and other members 
of the committee.
    Today is the third Wednesday of the month. This is a very 
important day to me because it is when my Social Security 
earnings are electronically deposited into my checking account. 
These payments have occurred like clockwork, without 
interruption, since 2002. The exception came in February and 
March of last year, when I discovered, much to my surprise and 
bewilderment, that I had not received the Social Security 
benefits that I had earned.
    The first months of last year were remarkable for me 
personally. In 2005, I was diagnosed with heart failure due to 
a serious heart defect. Since that time, I have been faced with 
numerous chronic long-term conditions associated with not only 
the circulatory and respiratory systems, but also the aging 
process. At the start of 2012, I began suffering from digestive 
problems and serious side effects of a new medication, and 
doctors also detected early signs of heart failure. My life was 
consumed, spending many long and tiresome hours in and out of 
physicians' offices.
    Because of my medical issues, I was not paying close 
attention to my finances until I realized in March that I did 
not have enough money in my checking account to pay my bills. I 
was able to tap a small savings account to cover my expenses. 
It was a challenging time, but I would never dream of claiming 
that it was rough. Throughout the process of trying to get my 
money back, I came across people in the Social Security field 
office who were in real trouble. I was clean, relatively 
healthy, and certainly well fed. I would simply have to cut out 
wishes, stick with needs, and, hopefully, get by.
    However, this was money that was rightfully owed to me. 
This is money I earned over 37 years as a nurse, midwife, 
educator, administrator, town supervisor, and county 
legislator.
    Once I realized the money was missing, I began a 50-day 
ordeal to get it back. My bank referred me to the local Social 
Security field office, where I learned for the first time that 
a request was put in in my name two months earlier to switch my 
direct deposit benefits to a Rush Prepaid Debit Card, serviced 
by Chase Bank in Tampa. I was told that I missed the cutoff 
date to report not just the two previous missed payments, but 
also my pending payment to be made the following month, meaning 
that I was denied close to $3,500 in my benefits.
    A case worker told me that she would begin an 
investigation. If I did not hear anything in 30 days, I was 
told to call, at which point the office would have 15 days to 
respond to me.
    I decided to pursue additional options to recover my money. 
I went down to my local Chase bank. The bank employee told me 
that she could not find an account that matched the one where 
my money was sent. She also told me that the Rush Card is not 
our product and has nothing to do with the bank. She said, even 
if she did have access to the information, confidentiality 
prevented her from giving it out. Then she told me that the 
Social Security office had no business, indicating that it was 
okay for me to visit Chase Bank for the purpose of asking 
questions about the missing payments.
    Later that day, I went to the Winter Haven Police 
Department. I ended up talking to a detective who told us not 
to expect that the Police Department would be able to help me 
because the local Social Security office does not cooperate 
with them. Further, he told me, be persistent with the local 
Social Security office to ensure that the matter would be 
resolved in a timely manner.
    At day's end, I was numb. I realized that this situation 
was far more complex and of a criminal nature and it scared me. 
I thought, what if my husband's Social Security was 
compromised, as well? If my situation was not resolved in a 
timely manner, we could find ourselves facing the same plight 
of so many other victims of identity theft. Our lifestyles 
would be devastated because there would be very restricted 
money for living.
    After receiving a couple more form letters regarding my 
missed and future payments, I recognized that I did not have 
the tools to fix this problem myself. I did not feel 
comfortable with the ambiguity of the direction and timeline 
given me by the local Social Security office. My personality is 
of the nature that does not permit procrastination to the 
extent that a problem becomes a boondoggle of anger, 
frustration, and confusion. I believed I was justified at this 
time to contact Senator Nelson to request intervention and 
direction.
    I ended up going back to my local Social Security office 
after receiving an additional letter. They said, if I am in 
dire need and need money to pay water, mortgage, electric 
bills, and the like, and that I can prove that I am unable to 
pay, I could bring the bills into the field office and 
sometimes we can give you the money to pay the bills. After 
sitting next to those families who really were in dire 
circumstances, I did not feel comfortable doing that.
    A little over a week later, much to my surprise, the third 
payment I had missed suddenly appeared in my checking account. 
I was euphoric, feeling it must have fallen out of the clear 
blue sky. I heard from Senator Nelson's office soon thereafter 
and was told my information had been referred to the 
appropriate office. I was so relieved that the Senator was 
listening to me and willing to help, because I had been feeling 
anxious, a little paranoia, and a lot feeling sorry for myself.
    I then got a call from my Social Security field office a 
week later. I signed the Critical Payment Form, was told to 
expect payment of the outstanding two months within the week, 
and asked if I was ever told about placing a block on my 
account. Essentially, this would prevent changes being made 
regarding my address and payment deposit. The block requires me 
to visit the local Social Security office in person to 
authorize changes. Needless to say, both my husband and I 
requested blocks be placed on our files.
    Two days later, I was made whole with the final two 
payments. I firmly believe that in the manner in which the case 
was progressing, it surely would have taken another 50 days to 
resolve without Senator Nelson stepping in to break the logjam.
    I am a very proactive person, but not everyone is as 
committed to resolving this situation in the manner I did. I am 
concerned about all the hoops I had to jump through and the 
idea that there are many others in similar situations who are 
unable to do the same. It should not take a call to a 
Congressional office to get your money back.
    Thank you for inviting me to share my story, and I would be 
happy to answer any questions you may have.
    [The prepared statement of Ms. Lane follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    The Chairman. Thank you, Ms. Lane.
    By the way, we have some vacant seats here, so those of 
you, since we have an overflow, please come on and avail 
yourselves of the seats here and over here, and we will just 
hold the committee until you all are seated here. I do not want 
any lady standing.
    [Laughter.]
    The Chairman. There are plenty over here. Come on, ladies. 
Ladies, take these chairs in here.
    Ms. Vallas, in Florida, we would say the double-L is 
``yah,'' ``Vayas.'' Is that how you pronounce it?
    Ms. Vallas. It is how I pronounce it for my Spanish-
speaking clients, but with my English-speaking clients, I 
usually call me ``Vallas.''
    The Chairman. Okay. Which would you prefer?
    Ms. Vallas. ``Vallas'' would be great.
    The Chairman. ``Vallas.''
    Ms. Vallas. Thank you.
    The Chairman. Okay. Ms. Vallas, please.

    STATEMENT OF REBECCA VALLAS, STAFF ATTORNEY AND POLICY 
  ADVOCATE, COMMUNITY LEGAL SERVICES, INC.; ON BEHALF OF THE 
  NATIONAL CONSUMER LAW CENTER, NATIONAL SENIOR CITIZENS LAW 
                  CENTER, AND SENIORLAW CENTER

    Ms. Vallas. Chairman Nelson, members of the committee, 
thank you for the opportunity to testify today. I offer 
testimony on behalf of the low-income elderly and disabled 
clients of Community Legal Services of Philadelphia as well as 
the National Consumer Law Center, the National Senior Citizens 
Law Center, and the SeniorLAW Center.
    Treasury's effort to convert the lion's share of Federal 
benefit recipients to electronic deposit has been enormously 
successful. However, as the Chairman said, while electronic 
deposit may be advantageous for most recipients, it is not 
right for all recipients. Treasury is required by the 
authorizing statute to avoid harming Federal benefit recipients 
in the course of going paperless. We appreciate Treasury's 
efforts to deal with the hurdles facing recipients in this 
transition. However, there is still a great deal more to do.
    First, it is critical that fraud and theft of benefits via 
electronic deposit be addressed. So-called benefits hijacking, 
in which a person's benefits are fraudulently diverted to 
another payment method, has become alarmingly widespread. 
Millions of recipients of Social Security rely on their 
benefits as their primary or sole source of income, to keep a 
roof over their heads, put food on the table, and purchase 
needed and often life-sustaining medications. Loss of even a 
single month of benefits can lead to very real hardship for an 
already vulnerable population.
    Take Juliet, a client of mine. She is 57 years old and from 
West Philadelphia. She worked her whole life until being 
seriously injured in a car accident. Her roughly $700 a month 
in Social Security benefits is her only source of income. After 
her benefits were hijacked from a private label card, she 
switched to Direct Express, but it offered no greater 
protection. Between 2011 and 2012, she had six months of 
benefits stolen from her Direct Express card. She was evicted 
twice, from two separate apartments, after she was unable to 
pay her rent, and in the process, she lost her precious Section 
8 housing voucher. She remains unable to afford stable housing 
today and has yet to see a dollar of the money that was stolen 
from her, despite repeatedly contacting Comerica and Social 
Security.
    Juliet is just one of many thousands around the country who 
have had their vital benefits hijacked. If Treasury is going to 
require electronic deposit, they have an obligation to ensure 
that the available electronic deposit methods are secure.
    Second, the process for requesting a waiver from the 
electronic deposit must be accessible for the small but 
vulnerable population who still need to receive paper checks. 
Treasury recognized from the beginning that electronic deposit 
will not work for everyone. Narrow criteria were thus 
established, which the Chairman laid out in his opening 
statement: Advanced age, defined as over age 92, having a 
mental impairment, or geographic remoteness. Many seniors and 
people with disabilities who are unable to adapt to electronic 
deposit will not meet these narrow criteria. Anxiety, lack of 
ability to adapt to electronic deposit, is not sufficient to 
qualify. Many seniors are unaware of cognitive impairments or 
unwilling to acknowledge them.
    In addition, Treasury's burdensome process for requesting 
waivers has made them largely inaccessible to the very 
populations they are intended to help. As of June 2013, 
Treasury reports granting some 2,079 waivers based on 
geographic hardship or mental impairment, plus another 3,107 
so-called automatic waivers based on age, nationwide. Yet, more 
than 300,000 Social Security beneficiaries are 92 or older. 
Millions more have mental impairments. In all of Florida, just 
102 elderly individuals have been granted waivers based on age, 
and just 32 for mental impairments. These extremely low figures 
speak for themselves.
    The biggest obstacle is that the waiver form is not 
publicly available, as the Chairman noted. Assuming a 
beneficiary is even aware of the waiver option, despite its 
being very poorly advertised, she must contact Treasury via a 
special call center, convince the call center representative 
that she meets the criteria, wait for a special form in the 
mail, complete it, return it, and wait for a response, also by 
mail. While Treasury, thankfully, no longer requires the form 
to be notarized, the form still contains a notary field, 
confusing many beneficiaries.
    Plus, each waiver form that Treasury mails out is tracked 
uniquely. This prevents advocates like me from helping my 
clients by obtaining blank copies of the form and then 
assisting them if they are unable to navigate the process on 
their own.
    Just three percent of Social Security beneficiaries still 
get paper checks. This share will only dwindle as the current 
population of beneficiaries ages out and is replaced by a 
generation that has grown up in the computer age. What is the 
purpose of aggressively pressuring a small and shrinking subset 
of seniors and people with disabilities to switch to electronic 
deposit instead of just letting them continue to receive their 
vital benefits in a way that they understand and trust?
    Thank you for the opportunity to testify today. In my 
limited time, I have discussed just a few of the issues that 
still need to be addressed and I point you to our written 
statement for a fuller discussion. We look forward to working 
with the committee, with Treasury, and with SSA to protect 
seniors and people with disabilities from harm and confusion in 
this switch to electronic deposit.
    [The prepared statement of Ms. Vallas follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    The Chairman. Thank you, Ms. Vallas.
    Ms. Gruber, what do you say to all this? You are right 
there in the Social Security Administration. You are the 
Assistant Deputy Commissioner of Operations. Tell us, what do 
you think?

 STATEMENT OF THERESA L. GRUBER, ASSISTANT DEPUTY COMMISSIONER 
         FOR OPERATIONS, SOCIAL SECURITY ADMINISTRATION

    Ms. Gruber. Thank you, Chairman Nelson and Senator Warren, 
for your time today, and thank you for inviting me to discuss 
our efforts to help transition our beneficiaries to electronic 
payment and to detect and prevent electronic payment fraud. My 
name is Theresa Gruber, as you have stated, and I am the 
Assistant Deputy Commissioner for Operations at the Social 
Security Administration, with responsibility over our field 
operations.
    Millions of our beneficiaries receive their benefit 
payments electronically every month. With rare exception, 
beneficiaries receive these payments without any problem. 
Electronic payments benefit the public and the agency. They are 
significantly less expensive and less likely to be lost or 
stolen. They also allow us and the beneficiary to easily track 
payments, something we cannot do with paper checks. We can 
efficiently determine whether a payment is missing, and in most 
cases, quickly replace it with a critical or an immediate 
payment.
    Advantages of electronic payment and direct deposit can 
readily be seen during severe weather or natural disasters, 
like tornadoes or this past week's wildfires. When one of these 
events occur, we have to take special care to make sure paper 
check delivery is not disrupted, or we have to make alternate 
arrangements with Treasury or the Post Office to ensure the 
delivery of the paper check. Alternately, we do not have to 
take any special action for beneficiaries who receive 
electronic payment.
    Unfortunately, though, we know that a very small percentage 
of our beneficiaries have been victimized by unscrupulous 
identity thieves who go on then to commit electronic payment 
fraud. I want to make it clear that any amount of fraud is of 
paramount concern. In our view, fraudsters who prey on and 
exploit our vulnerable beneficiaries should be stopped and 
brought to justice.
    For many of our beneficiaries, as you had said in your 
opening statement and Ms. Vallas, their monthly Social Security 
payment is their only source of income. A delay of just a few 
days can lead to severe hardship.
    We are working in close collaboration with the Inspector 
General and Treasury to combat fraud as soon as we learn of it, 
and we appreciate both IG's and the Treasury's ongoing efforts. 
Last year, we strengthened our procedures for verifying the 
identity of callers who request changes to their direct deposit 
information, and we are continuing to strengthen those 
verification protocols. We created a new feature where our 
beneficiaries can block any attempt to change their direct 
deposit information through automated changes initiated by 
financial institutions.
    Over the past several months, we have continued to bolster 
our online authentication technology that powers our ``My 
Social Security'' portal by adding aggressive and multi-layered 
safeguards. We proactively analyze ``My Social Security'' 
registration trends and suspicious activity and patterns. We 
continue to work in close collaboration with our Inspector 
General and have implemented additional protective measures and 
are planning to add additional very soon.
    We provide individuals an opportunity to block their Social 
Security number from electronic services. This has been a 
particularly effective tool for victims of identity theft or 
domestic violence.
    I would like to now turn briefly to our efforts to 
transition our beneficiaries to electronic payment. Our 
employees routinely interact with beneficiaries and collect 
bank information, which allows Treasury to deposit payments 
electronically. We tell beneficiaries about Treasury's 
electronic payment requirement. For example, we created a 
Public Service Announcement informing the public about the 
advantages of direct deposit, and our Internet site contains a 
wealth of information about Treasury's program. We ask all 
beneficiaries to give us information necessary to establish 
electronic payment. If they decline to enroll because they do 
not have a bank account, we tell them about the Direct Express 
card.
    For a variety of reasons, a small percentage of individuals 
remain averse to switching to direct deposit. We inform them 
that they must contact Treasury directly to request a waiver 
and we tell them how to do so. Our Web site also contains a 
link to Treasury's online waiver information.
    We are proud of our success in signing people up for direct 
deposit. Nearly 98 percent of Social Security beneficiaries and 
over 92 percent of SSI recipients receive their payments 
electronically, significant progress over even last fall, where 
we stood at 94 percent for Social Security and 83 percent for 
SSI.
    We will continue our efforts to help transition our 
beneficiaries to electronic payments. Again, while the 
percentage of payment fraud may be small, it is something we 
take extraordinarily seriously and will continue to work 
diligently to detect and prevent.
    Thank you for your time and I will be happy to answer any 
questions.
    [The prepared statement of Ms. Gruber follows:]
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    The Chairman. Thank you, Ms. Gruber.
    Mr. Gregg, you are the Fiscal Assistant Secretary for 
Treasury, which includes overseeing all of this financial 
management. Tell us about it.

STATEMENT OF RICHARD L. GREGG, FISCAL ASSISTANT SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Mr. Gregg. Thank you, Mr. Chairman, Senator Warren. It is 
great to be here today to discuss the progress that the 
Department of Treasury and the Social Security Administration 
have made in transitioning to Electronic Federal Benefit 
Payments.
    Treasury is dedicated to making all payments, especially 
Social Security payments, accurately and in a timely manner. We 
have done that without fail for many years. At the same time, 
we have a responsibility to make those payments as efficiently 
as possible. In support of the latter goal, Congress enacted in 
1996 the Debt Collection Improvement Act, which included the 
requirement that all Federal payments, except tax refunds, be 
issued electronically by January 2, 1999.
    There are important benefits to making payments 
electronically. Electronic payments provide beneficiaries with 
a safer, more reliable and convenient way to receive their 
payments. Our experience shows that beneficiaries are 125 times 
more likely to have a problem with a paper check than with 
electronic payment. The reliability of this form of payment is 
clearly demonstrated every day, but is made even more vivid 
when hurricanes, tornadoes, or other natural disasters occur.
    And, at all times, but certainly now, there is a great 
interest in reducing government cost. Electronic payments are 
far less costly than issuing paper checks. Electronic payments 
cost nine cents, compared to $1.25 for a paper check. As a 
result of Treasury's long-term commitment to payment 
automation, in fiscal year 2012 alone, $885 million in cost 
savings was achieved.
    Between the passage of the Debt Collection Act in 1996 and 
2008, Treasury continued to make progress encouraging the use 
of electronic payments. However, we did not have a good 
solution for individuals without bank accounts. The 
introduction of the Direct Express card in 2008 provided a 
solution to that problem. The Direct Express card is credited 
each month and enables holders to make purchases, pay bills, 
and get cash at tens of thousands of ATMs and retail locations. 
This card also has excellent consumer protections.
    The Direct Express card has been very successful. As of 
April 2013, more than five million beneficiaries have signed up 
for the Direct Express card. Also, 95 percent of individuals 
who use the card report that they are satisfied or very 
satisfied with the card.
    In December of 2010, as a result of the success of the 
Direct Express card, Treasury issued an updated regulation 
requiring that all benefit recipients receive payments 
electronically. That regulation provides that beginning in May 
2011, any individual applying for Social Security, veterans, 
and other benefit payments is required to choose an electronic 
payment method. Starting in March 2013, individuals that had 
been receiving payments by paper check were required to switch 
to an electronic option.
    Based on comments we received in the regulatory process, 
Treasury provided three waivers from the electronic option. 
Waivers are granted automatically to anyone 90 years of age or 
older as of May 1, 2011. Treasury will also grant waivers for 
individuals living in remote locations that lack the 
infrastructure to support the receipt and use of electronic 
payments. In addition, waivers will be granted to individuals 
who lack the mental capacity to handle their own affairs. It is 
likely that individuals who might qualify for the last waiver 
will instead choose to have a representative payee manage their 
finances.
    As we have increased electronic payments, Treasury has 
given much attention to the potential for fraud, particularly 
through identity theft. Compared to paper checks, the 
proportion of fraud in the Direct Express card payment is 
significantly lower. While the scale of fraud on the Direct 
Express card remains low, Treasury has taken aggressive 
measures to verify individuals who are signing up. We do that 
through checking with our own internal database to ensure that 
the right person is getting a Direct Express card. We also have 
a fraud alert system.
    Treasury, in partnership with Social Security, has been 
extremely successful in increasing the use of electronic 
payments. Since December of 2010, the percentage of Federal 
benefit payments made electronically has increased from 85 
percent to 96.6 percent. Since that date, almost eight million 
monthly benefit payments have been converted to an electronic 
option. Since it costs $1.16 more to make a check payment 
compared to an electronic payment, Treasury will save the 
taxpayers more than $1 billion over the next ten years as a 
result of this switch. These savings will only increase as the 
number of individuals receiving Social Security benefits and 
receiving them electronically increases.
    In conclusion, let me reiterate that Treasury is deeply 
committed to making sure that Social Security recipients 
receive their payments in a timely and accurate manner. We also 
know from long experience that the best way to make payments is 
through an electronic payment mechanism. Over the past two-and-
a-half years, we have achieved our goal of moving to electronic 
payments, and the challenge going forward will be to maintain 
close to our current percentage level. We will do that with 
sensitivity to payment recipients and in partnership with 
Social Security and other benefit agencies.
    Thank you. I will be happy to answer any questions.
    [The prepared statement of Mr. Gregg follows:]
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    The Chairman. Thank you, Mr. Gregg.
    General O'Carroll, tell us what Ms. Gruber and Mr. Gregg 
have said, how they can improve.

STATEMENT OF HON. PATRICK P. O'CARROLL, JR., INSPECTOR GENERAL, 
                 SOCIAL SECURITY ADMINISTRATION

    Mr. O'Carroll. Good afternoon, Chairman Nelson, Senator 
Warren. Thank you very much for the invitation to testify 
today.
    The phone rang. A Social Security Disability beneficiary 
answered and he listened to the incredible news. The 55-year-
old Wisconsin man won the Jamaican lottery, or so he believed. 
His winnings, he was told, were millions of dollars and several 
luxury vehicles. Those prizes were his, the caller said, if he 
sent money to Jamaica to cover the taxes and other fees. Sadly, 
over the next few months, the man repeatedly sent money to 
unknown individuals in Jamaica. He depleted his savings in the 
process. In all, the man lost more than $30,000, and he was 
told he could recover his losses if he assisted in a larger 
scheme to victimize others.
    But his involvement in the scheme, mailing stolen money to 
Jamaica, led to a recent breakthrough in our efforts to 
investigate identity theft schemes aimed at Social Security 
beneficiaries. The man's plight led us to a Jamaican national 
named O'Brain J. Lynch, who recently pled guilty to wire fraud 
in Wisconsin. We believe Lynch coordinated an extensive scheme 
to steal Social Security benefits. He and others defrauded 
senior citizens out of hundreds of thousands of dollars. Lynch 
now faces up to 20 years in prison, and he has agreed to repay 
$100,000 in restitution.
    We have several investigations of similar fraud schemes in 
progress across the country. In October 2011, we began tracking 
reports from beneficiaries that someone had changed their 
direct deposit information and redirected their monthly 
payments. Suspects generally target senior citizens' personal 
information through social engineering methods like 
telemarketing and lottery scams, as well as other sources. Our 
investigative work has revealed that these changes often 
involve fraudulently directing Social Security benefits onto 
prepaid debit cards, which are widely available for purchase at 
retail stores and online.
    As of June 1, we have received more than 37,000 reports of 
questionable changes to Social Security direct deposit records. 
We are currently receiving about 50 new reports every day. Our 
auditors will soon issue a report that seeks to quantify the 
cost of replacing missing benefit checks due to unauthorized 
direct deposit changes. In that report, we identified over 
23,000 beneficiaries who may have not received payments of 
about $28 million for the period of review, which ended in June 
of 2012.
    Over the last year, we have issued audit reports that 
reviewed controls over direct deposit changes through auto-
enrollment at financial institutions; through Treasury's Direct 
Express program and other prepaid cards; in Social Security 
offices; and through SSA's national 800 telephone number. We 
found the controls in place were not fully effective and 
authentication methods could be improved. We recommended that 
SSA work with Treasury to improve identity verification for 
direct deposit changes made through financial institutions, 
particularly to prepaid debit cards. We also said to notify 
beneficiaries of changes made to their direct deposit 
information, and delay implementation of direct deposit changes 
until SSA can verify the changes are authorized.
    Also in January, SSA expanded the ``Social Security'' 
online portal to allow beneficiaries to initiate or change 
direct deposit information. It appears that identity thieves 
are now establishing fraudulent ``Social Security'' accounts to 
redirect monthly benefits. The OIG has received over 6,200 
fraud allegations related to ``Social Security.'' It is 
important to note that each of these allegations may involve 
multiple ``My Social Security'' accounts. Our investigators and 
auditors are already hard at work with SSA combating this new 
approach.
    As we heard from Ms. Lane, these schemes target and 
victimize older citizens. We urge all individuals, especially 
seniors, to protect their personal information. They should be 
aware of e-mail phishing and lottery schemes and exercise 
caution when anyone asks them to provide their personal 
information. They may also want to open a valid ``Social 
Security'' account so no one else can fraudulently open one in 
their name.
    In conclusion, the growing incidence of unauthorized direct 
deposit changes is a significant concern. We will continue to 
provide information to your committee and agency decision-
makers as we confront this issue.
    Thank you again for the invitation to testify and I will be 
happy to answer any questions.
    [The prepared statement of Mr. O'Carroll follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    The Chairman. Thank you, General.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman, and thank you very 
much for holding this hearing today. I also want to thank all 
of you for coming today. I very much appreciate it. I want to 
say, especially, Ms. Vallas, thank you for being here. Before I 
came to this life, I spent a lot of time working with Community 
Legal Services and the National Consumer Law Center and I know 
the great work that you do on behalf of consumers and on behalf 
of our seniors every single day, so thank you.
    Ms. Vallas. Thank you.
    Senator Warren. So, I have a question about the electronic, 
moving people to electronic payment, and I want to start here, 
Secretary Gregg. I understand there are many advantages to 
having people receive their payments electronically, advantages 
to the Federal Government, advantages to the recipients, and 
that you have been quite successful in moving people to this 
program. If I understood you correctly, all but about two 
percent of our eligible seniors receive their checks 
electronically now.
    But that also tells me that the two percent probably differ 
in some significant respects from the other 98 percent that are 
comfortable with this process. The ones who have not made the 
transition are our oldest seniors, are people who are not 
comfortable with electronic payments, people who are impaired, 
people who live in rural areas, may not live where they will 
have access to their money, and people who are past victims of 
fraud, and so for some very obvious reasons would just feel 
more comfortable having a paper check.
    Now, I know that when we set this system up, we said we 
would permit waivers to the system and that you agreed that 
that would be the case. The problem is, and I think you have 
heard it multiple times here, the waiver system is a mess. 
Right now, there is very poor access to the system. We have 
heard this in repeated ways. It is hard to qualify. You have to 
be over 90. I noticed, Mr. Gregg, you said that people over 90 
are automatically given waivers. I think what you mean is if 
they make it through the process to be able to request them, 
because that is sure not what the numbers seem to show. That 
people will qualify if they live in a rural area or if they 
have an impairment, a mental impairment.
    But we have also heard the forms are confusing, this 
business about the notaries, that it still says on the form 
that a notary is required, even though it is not.
    So here is my problem. In July, you are going to issue 
another letter and I understand there is going to be a follow-
up letter in the fall that is basically a letter threatening 
the last two percent that they have got to move over to 
electronic transfer, suggesting they will be breaking the law 
if they do not do that, and not making any indication in that 
letter that there are waivers available to people.
    So, the question I have is twofold: One, whether or not you 
plan to fix the waiver system; and whether or not you plan to 
make some indication in that letter that waivers are available 
and what the criteria are for those waivers and an easy way for 
people to be able to get them. Mr. Gregg.
    Mr. Gregg. Thank you, Senator. One of the things that we 
have experienced over the last two years is we have made a 
transformation, and one that I would say is going to pay 
dividends for many, many years to come, not only in terms of 
reducing the cost, but in terms of people having access to a 
better payment mechanism because they are far less likely to 
have a problem with an electronic payment than they are with a 
check. In fiscal year 2012, we had 500,000 instances of lost or 
stolen checks compared to about 7,000 on the Direct Express 
cards.
    Senator Warren. Secretary Gregg, you are not going to get 
any push-back from me that the electronic system works better 
for the government and works better for almost all recipients. 
What we are talking about here is that last two percent that 
you are about to send a threatening letter to.
    Mr. Gregg. I was getting there.
    Senator Warren. Good.
    Mr. Gregg. You know, as we started this campaign, many of 
the people who called in who may have been initially interested 
in a waiver actually in the course of the conversation said, 
``No, that sounds okay. I will switch to the Direct Express 
card or to direct deposit.'' So one of the things that we have 
been doing is really educating people about the options that 
are available.
    I agree that we have not been strongly advocating the 
waiver, and we did that for a very important reason. Back in 
1998, when we initially issued regulations that pretty much had 
a self-waiver process, we did not get very far. And so we 
wanted to go through a process that really encouraged 
electronic and we are improving the waiver. We have done 
retraining of people at the Dallas call center that the 
Chairman alluded to. We have sharpened up the form. We are also 
changing----
    Senator Warren. Let us tick these off. So you have done 
some retraining so people now on the phone will explain that a 
waiver is available?
    Mr. Gregg. We have two letters that go out reminding people 
that they should switch. We also will have in both letters in a 
month or so--we have it in one now, we will have it in the 
second letter soon--to say that if you think you qualify for a 
waiver, call a specific number at the Dallas call center and 
there will be someone trained there to help you.
    Senator Warren. Okay. So the letters that are going to go 
out will mention waivers and explain how to get those waivers, 
is that right?
    Mr. Gregg. Yes.
    Senator Warren. Okay. I just want to make sure I am 
tracking this. And you said the waiver form itself has been 
improved?
    Mr. Gregg. Well, the--I do not----
    Senator Warren. So that it no longer says----
    Mr. Gregg. I do not know what the timing was. When we met 
with, committee staff a number of months ago, we discussed the 
issue on the notary and we agreed to take that off. Now, it was 
not instant as far as changing the form----
    Senator Warren. Fair enough.
    Mr. Gregg [continuing]. Because we agreed to it before we 
could do the paperwork to change the form, but that is no 
longer a requirement, and I do not know whether the form has 
been adjusted since then. But we do not require a notary.
    Senator Warren. Okay. And that the forms will be readily 
available.
    Mr. Gregg. We will send them out for anyone who calls that 
number. We will send them out to the individual that is 
requesting it.
    Senator Warren. Okay. Anything more on improving the waiver 
system? Did I get them all?
    Mr. Gregg. I think so.
    Senator Warren. Okay. Thank you, Secretary.
    Ms. Vallas, could I ask you to comment? You have sort of 
lived this on the other side with your clients.
    Ms. Vallas. Thank you for the question, Senator.
    Senator Warren. I am sorry. I am a little over time. Is 
that okay, Mr. Chairman?
    The Chairman. No, no. I have the clock off.
    Senator Warren. Thank you.
    Ms. Vallas. I am pleased to hear that Treasury is taking 
seriously the need to make the waiver process accessible. I 
have to say that the answers that I have heard so far have not 
fully reassured me that that is going to make the process 
accessible for those three percent that you were talking about.
    I think that one of the major difficulties is that the 
waiver form is not publicly available, and so by virtue of 
forcing people to go through a process where you have to call a 
number and you actually have to do a little bit of battle to 
get the person to send you the form--and I can say that with 
personal experience. I was on the phone with a call center 
representative last week. I like to call in periodically with 
clients just to see what they are really going to experience. I 
had to fight with the call center representative just to get 
her to agree to send the form to my client who was on the phone 
with me.
    Senator Warren. So, can I just stop you there for just a 
second, Ms. Vallas. Secretary Gregg, did I understand the form 
will be made available only when people ask by telephone, or is 
there a reason you cannot just download it if you have got 
someone who has got access to the Internet?
    Mr. Gregg. Right now, if a person calls in and asks for a 
waiver --and if we are not able to convince them to go 
electronic, because we have been trained to do that and we have 
been very successful--then we would send them the form. The 
problem that I have with putting the form out there, on the 
Internet, is I expect that the increase we have been moving 
towards as far as electronic would level off and we would maybe 
fall back.
    Senator Warren. What you are telling me is you might not 
catch the last two percent.
    Mr. Gregg. The issue really is, in my opinion, that the 
Direct Express card, it is better than a check. And while we 
have some waiver exceptions, we viewed those all along as being 
very limited exceptions for people.
    Senator Warren. Well, Mr. Gregg, that seems like what you 
have accomplished. You have 98 percent of seniors receiving 
their payments electronically, by your own testimony. And the 
question is, for the last two percent who would qualify legally 
for a waiver, whether or not you are making that waiver 
accessible to them.
    Mr. Gregg. I understand.
    Senator Warren. And what I am hearing you say, what you 
describe as ``we want to persuade them not to use the waiver,'' 
I am hearing Ms. Vallas describe as ``I had to fight to get 
someone to send me by mail a copy of the waiver.'' We have got 
a government form. People are legally entitled to fill it out 
and make a request and you are telling me you will not make 
that form available, and I am just having some difficulty with 
that, Mr. Secretary.
    Mr. Gregg. We will take that under consideration and see 
what else we can do to make the form more accessible. We are 
not interested in getting down to having every last person 
receive benefits electronically. As I said in my brief opening 
statement, I feel that we have achieved our goal. The challenge 
is really to maintain where we are at, because not everyone 
when they go into a Social Security office, even though they 
may or may not really need or qualify for a waiver, do not 
initially sign up.
    And so when we set this program up, we agreed to take on 
the waiver process so that we did not burden Social Security. 
We did that for a good reason, because Social Security has a 
huge task on their hands. So we send follow-up letters to those 
individuals. Some of them do not want or need a waiver. In 
other cases, they do.
    Senator Warren. Fair enough, Mr. Gregg. But I think we can 
all agree that if we have established a program and that we do 
have people who are legally entitled to waivers and they want 
those waivers, that we need to make that accessible, and I 
think we have now agreement on that. Is that right, Mr. 
Secretary?
    Mr. Gregg. We will take a look and see what all we can do, 
but I think the idea of making it easier, whether it is on the 
Web or some other way, is something we will look at very 
carefully and work with Social Security on.
    Senator Warren. All right.
    The Chairman. I want Senator Warren to continue, which it 
is such a pleasure that I can sit back and listen to you carry 
on the interrogation.
    [Laughter.]
    You do not realize it, Mr. Gregg, but she has sliced and 
diced you, because with a big smile, it does not feel painful 
at all. We do not want you to consider helping these people 
with a waiver. We want you to do it.
    Please continue.
    Senator Warren. Well, I think the Chairman has taken care 
of our conversation here. But, Mr. Gregg, that really is the 
point. Someone has to advocate on behalf of the two percent who 
may be different in some substantial respects from the other 98 
percent, and the Chairman has led the way on this. I am just 
trying to be helpful on it. But the point is that it is our 
responsibility to oversee what it is that you do and it is your 
responsibility to carry out the law in a way that is accessible 
to those who need it. So I think we are of one view here, and 
that is that you will make this more accessible. Are we in 
agreement?
    Mr. Gregg. I think we are.
    Senator Warren. Good.
    The Chairman. And, Senator Warren is so pleasant, and thank 
you.
    Again, Mr. Gregg, we are not picking on you, because you 
obviously have had to accomplish a great feat, and that is that 
you have 98 percent that have gone over to the electronic. But 
what has happened, and the General mentioned, he started 
talking about Jamaican scams, and then there is income tax 
fraud. And what is happening is as we have transitioned from 
paper to electronics, it has become very easy for the criminal 
to adapt so that, literally, in the case of the payments by the 
IRS, the street crime has been reduced and they are not selling 
drugs on the street. They are not breaking into people's 
houses. They do not use a pistol and a knife and a crowbar. The 
criminal is using a laptop. And as a result, we have to adapt 
when we are looking out for the senior citizens to that new 
type of criminal activity.
    And so we want you in Treasury, we want you in Social 
Security to assist these seniors who, if you will remember that 
statistic, it is astounding. One-third of the seniors in a 
State, in this particular case Florida, are entirely dependent 
for 100 percent of their income on that Social Security 
payment. And so if it is interdicted and it does not arrive, 
they are in trouble, and they are senior and it is hard to 
navigate the system and we want to make it easier.
    I want to ask, I do not know if it is Ms. Gruber or if it 
is you, Mr. Gregg, this Direct Express card. They did a 
competition, they were selected as the lowest bidder, and now 
they are coming back and they want a lot of money. Why?
    Mr. Gregg. Because the circumstances changed from the time 
we had the agreement. In 2008, when we went through an open 
competition, I think 15 banks competed and it was a very 
competitive process. At that time, when we made the award in 
2008, no one was planning on issuing the regulation that we 
issued in 2010. We were all expecting about a million, maybe a 
million-one or two cards would be issued. As a result of the 
change that we made in 2010, the volume shot up. We have now 
issued five million cards.
    And beyond the volume of the cards, the requirements 
changed. In working with Social Security and other benefit 
payment agencies, we made changes to the requirements that we 
wanted Comerica to perform, such things as modifying their 
system to enable submissions from a batch form into the Social 
Security claims process. We also made changes in such things as 
allowing field agents to call in to assist an individual who 
was there who needed help in handling something on a Direct 
Express card. And that may sound like a little deal, but in the 
business of protecting against fraud, they have set up 
procedures to make sure that only certain individuals could 
call in to recognize that they were getting information that 
was personal to that individual. In addition, we made changes 
for the Veterans Administration, to help veterans going to a 
health facility to get a special card.
    So we changed the nature of the agreement, and as a result, 
we modified the agreement with Comerica.
    The Chairman. Did you, in modifying the agreement, did you 
allow them to tack on additional fees?
    Mr. Gregg. They did not change any fees for what the 
individuals are charged, like ATM, that was not changed at all. 
And that was one of the things that we looked at. We believe 
that the Direct Express card is extremely good as far as 
consumer protection and very minimal fees. So we did not want 
to modify that, and we did not.
    The Chairman. So the senior citizen is not paying any 
additional fees----
    Mr. Gregg. They are not paying any additional fees, and I 
might add----
    The Chairman. Is Social Security?
    Mr. Gregg. No, they are not.
    The Chairman. I mean, Treasury?
    Mr. Gregg. Treasury modified the agreement with Comerica, 
so we are----
    The Chairman. So you are paying additional fees?
    Mr. Gregg. Yes.
    The Chairman. How much more are you paying per year on the 
Direct Express card than what was their accepted competitive 
bid?
    Mr. Gregg. We modified it so that, to date, we pay them 
around $30 million more. I might add, Mr. Chairman, that with 
the increase in the volume, no one had anticipated this. This 
had never been done before.
    And so, for example, in May, the Direct Express card, 
Comerica, had 17 million phone calls, and none of this was 
anticipated. There is a clause in our agreement that we signed 
in 2008 that if circumstances change, we would renegotiate the 
contract, and that is exactly what we did. Beginning between 
now and January of 2015, we will recompete the contract.
    The Chairman. Given the fact that you are paying $30 
million more per year than the original contract five years 
ago, do you think it is worth going ahead and recompeting that, 
that through competition, you might get those costs brought 
down?
    Mr. Gregg. I do not know, Mr. Chairman. First of all, it is 
not per year, it is the total that we have paid since we 
modified the agreement. I do not know whether we will or not, 
because there are a couple of factors here that were quite a 
bit different than Comerica or, I think, any of the other banks 
would have expected.
    Comerica has great experience in dealing with State benefit 
programs and the number of calls that came in through the 
Direct Express card were far in excess of what they were 
experiencing with debit cards in the State programs. The amount 
of money that is pulled out within a day or two from the Direct 
Express card is far different than was experienced in the State 
programs. So I think when we go through the bid process, the 
other banks, especially now, are going to be aware that the 
circumstances are different than they would have expected in 
2008. So I do not know what we will see, but the landscape has 
certainly changed.
    The Chairman. What you might want to do, since the 
landscape has changed, is start talking to some other potential 
banks that might give you some ideas that maybe you should not 
wait around.
    Mr. Gregg. Well, the----
    The Chairman. Let me ask Ms. Vallas--I keep wanting to say 
``Vayas.'' It is ``Vallas.''
    Ms. Vallas. You can say it however you want, Senator.
    [Laughter.]
    The Chairman. Do any of your clients express to you a 
difference in costs between the Direct Express card and other 
debit cards?
    Ms. Vallas. The Direct Express card is far advantageous to 
the other private label prepaid debit cards. I think advocates 
are fairly in consensus that the Direct Express card is a very 
positive product and it is one that we recommend, apart from 
the fraud that we have seen. The private label cards typically 
have a lot of fees attached to them. They can often restrict 
where you can make your withdrawals to certain ATMs that are 
often housed in check cashing places. They can be a gateway to 
predatory credit. There are a lot of problems associated with 
them, in addition to all of the fraud that we discussed today.
    It is not entirely clear to a lot of advocates why prepaid 
private label cards are even permitted to receive Social 
Security benefits onto them, and especially given that 
compliance with Reg E and with other consumer protections that 
apply to the Direct Express card, compliance with those is 
voluntary under Treasury's current regulations for the private 
label cards, which has become a real problem.
    When people lose money off of a private label card, such as 
if Ms. Lane had actually had a private label card instead of, 
say, direct deposit into a bank account and she had lost that 
money, she would not necessarily be guaranteed that she would 
get the money back, because if the private label card, like 
RushCard debit or NetSpend, decided not to voluntarily comply, 
there might be real problems.
    The Chairman. Well, we are up here looking out after the 
senior citizens. Mr. Gregg, if I recall correctly, the 
statistics, by far, most of the electronic payments go directly 
into their bank account. And about an equal number of what is 
left over go into the Direct Express card and into the private 
label cards. If Ms. Vallas is correct, that the senior is 
paying a lot more fees going into the private label cards, is 
this something that Treasury ought to be concerned about?
    Mr. Gregg. I think the fee structure varies considerably in 
the private label card. It has gotten very competitive.
    The Chairman. That is not the answer to the question. The 
question is comparing the Direct Express card to the private 
label cards as to what costs the senior citizen more.
    Mr. Gregg. And, again, I think it varies. There are some 
cards that have recently been introduced----
    The Chairman. I am sure there are.
    Mr. Gregg [continuing]. That the fee structure is very 
competitive.
    The Chairman. Have you compared the two, the Direct Express 
versus private labels?
    Mr. Gregg. There are some private label cards that I agree 
that the fees are considerably higher.
    The Chairman. What are you doing about that?
    Mr. Gregg. We do not have the authority within Treasury to 
set the fees on private label cards.
    The Chairman. Who does?
    Mr. Gregg. The banking regulators may. The new consumer 
agency may.
    The Chairman. Who steers them to the private label cards?
    Mr. Gregg. Who steers them? I am sorry, I do not 
understand.
    The Chairman. How do they end up making the choice of it 
going to the private label cards?
    Mr. Gregg. Well, the individual makes that choice.
    Senator Warren. How?
    The Chairman. How?
    Mr. Gregg. By someone reaching out to them, one of the 
private label card producers, and offering them a product and 
they accept it.
    The Chairman. Do they know, since the Direct Express card 
has the blessings of the Treasury Department--that is correct, 
is it not?
    Mr. Gregg. That is very correct.
    The Chairman. Okay. Does the senior citizen know about 
that?
    Mr. Gregg. As we have talked about, we have been educating 
people over the last two-and-a-half years with millions of 
inserts in the checks we send out telling them about direct 
deposit and Direct Express. So we have done our very best to 
educate them about Direct Express and why it is advantageous.
    The Chairman. Do you have the authority to outlaw private 
label cards?
    Mr. Gregg. Not across the board. We do have the authority 
to limit or perhaps outlaw cards from receiving Federal benefit 
payments, and we had thought about that. What we discovered a 
few years ago was that, suddenly, the private label card had 
become used quite extensively on Federal benefit payments, and 
we issued a regulation that said that they can be used for 
Federal benefit payments as long as they meet certain 
requirements, some consumer protection, FDIC insurance, and not 
have a standing line of credit for any kind of a loan.
    So those were the broad outlines that we authorized in our 
regulation, and we know fairly recently there was one fairly 
major private card provider that had not provided for FDIC 
insurance. We became aware of it. We notified them and they 
went back and modified it so they now have FDIC insurance.
    The Chairman. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    So, we are talking here about fraud, and I just want to go 
back and unpack this a little bit. To steal someone's Social 
Security benefits, you have to start out by--a criminal has to 
get someone's Social Security number. This is the way that I 
understand that it typically works. Opens an online account, 
and then sends in information to change so that the money goes 
to this new account rather than to where it was originally 
intended.
    And I understand that means that the Treasury, when it 
receives the indication, or the Social Security Administration, 
when it receives the indication that there has been a change to 
send the payment to a new account, sends a letter to the 
recipient to make sure that the recipient authorized that 
change. In theory, this closes the loop and it would be 
detected if this were going to a criminal's account instead.
    The problem, as I understand it, is the letter that is sent 
out is a fairly routine form letter and that I understand that 
many seniors do not appreciate the significance of the letter, 
that is, that this is a warning and that if it is not right, 
they need to get in touch with someone right away because it 
indicates there is fraudulent activity that is occurring.
    So, my question for you, Ms. Gruber, is have you considered 
redesigning the letter in a way that makes it clear how 
important this is, that fraudulent activity does occur, theft 
occurs--this is theft, as the Chairman says--and that the 
failure to recognize that the money is now moving to another 
account can lead not only to loss of benefits, but the kinds of 
problems that Ms. Lane talked about for how long it takes to 
correct the problem? Have you thought about a letter that waves 
a red flag maybe a little stronger?
    Ms. Gruber. Well, I appreciate the question Senator Warren. 
It is something that we have thought about. In fact, based on 
some collaboration with the Office of the Inspector General 
last year dealing with direct deposit fraud, particularly 
through the auto-enrollment channel, one of the recommendations 
they made was the letters we send and what addresses we send 
them to.
    But as we began to dissect that particular recommendation, 
which we are pursuing as we speak, we also said, we have got to 
redesign the letter a little bit. And so I think we are in the 
process of looking at a new letter that is more helpful in 
making sure that seniors and other victimized individuals, or 
potentially victimized individuals, understand this is 
something important, just not routine, not junk mail. We are 
certainly open to explore with the committee other options.
    Senator Warren. Actually, and I want to pursue that, but 
one thing I want to ask on this letter, as you redesign, do you 
have plans to actually get out there and test it? You know, it 
is one thing for you and me to sit around and say, whoa, that 
looks like a letter----
    Ms. Gruber. Right.
    Senator Warren [continuing]. That would catch my attention 
when I am looking at it in isolation and not as one more thing 
that arrives in the mail. But have you considered testing this 
at all?
    Ms. Gruber. I cannot give you a 100 percent answer on that, 
it has been under consideration, but it is a great idea, 
because it is something we typically try to do with new online 
services. We do testing. We get--anything that we roll out, we 
get a focus group. We do some user testing.
    Senator Warren. Good.
    Ms. Gruber. I really think that is a wonderful suggestion 
and we will go ahead and take that back.
    Senator Warren. Good. And you are considering options in 
the alternative? For example, I realize costs are always a 
concern and that people have legitimate reasons to switch from 
one checking account to another. But, for example, using robo 
calls as a way to say there has been a change in the account 
where your Social Security check will be deposited. If this is 
not something you authorized, press one, you know, emergency 
flashing lights will go off, however, you want to do this. 
Sending checks to the old and to the new address, other 
alternatives.
    Ms. Gruber. Right. So, as I had mentioned before Senator, 
we are actively pursuing the old-new address. There are some--
when we started to dissect it, like I said, we discovered some 
problems. One is we, on our notices, the vast majority display 
the full SSN. So if an individual, and in the vast majority of 
cases, individuals have legitimately moved when they did the 
change of address. So if I send that notice that has that full 
SSN to the old address that they are no longer at, I run the 
risk of giving a new person that person's PII.
    Senator Warren. My suggestion, when I said the letter, that 
it does not have the Social Security number.
    Ms. Gruber. You have got it. I got that.
    Senator Warren. It does not tell you, we do not want to 
send a letter----
    Ms. Gruber. And that is part of the changes we are looking 
at. Redesigning the letter includes masking the SSN.
    Senator Warren. That is right.
    Ms. Gruber. So, the suggestion about robo call, that is 
certainly not anything that we had necessarily looked at, but 
again, we are open to explore a variety of options.
    If I may, for just a----
    Senator Warren. Please.
    Ms. Gruber [continuing]. Add that the actual letter that we 
use for when somebody is notified that a change has been made, 
or particularly with the ``My Social Security'' fraud that we 
have seen, that is actually one of the most important fraud 
deterrents that we have had. Mr. O'Carroll had talked about the 
numbers of fraud allegations we have sent their way. About half 
of those, or a little over half of those was because the 
individual got the letter and said, hey, this is not me. It did 
not make sense.
    Senator Warren. No, I totally understand this, because that 
is the best possible check, is if the individual receives a 
letter, a phone call, some notification, and says, wait a 
minute and raises a hand immediately that there is a problem 
here. And so while I appreciate your comment that most of the 
time when you send these out, people say, yes, this is 
accurate, if we can reduce fraud by getting some increased 
percentage of people to say, no, this is not accurate, then we 
have not only saved a lot of money, we may shut down some 
criminal activity, but we have also saved a lot of heartache in 
that, so----
    Ms. Gruber. Thank you.
    Senator Warren [continuing]. I appreciate your exploring 
that. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. If you think this cross-examination is tough, 
just wait until you get to Senator Blumenthal.
    [Laughter.]
    And we are coming to you next, Senator, and I just want to 
point out, here is the contract for the Direct Express card 
winner. Now, Mr. Gregg, did this not say that they would 
produce 20 million cards?
    Mr. Gregg. No, it did not.
    The Chairman. It did not.
    Mr. Gregg. What they said is that they were scalable to 20 
million. I have been in operations for about 35 years. What 
that means is that they have an architecture that could get up 
to that amount. That does not mean that they have people or 
equipment or software in place at any time for that kind of 
volume.
    Let me give you an analogy, if I may. We have, within 
Treasury, an agreement with Oracle. They provide accounting 
platform and operating systems for us. I do not know what the 
scale of Oracle On Demand is, but it is huge. When we have new 
customers or have new requirements, we sit down with Oracle and 
renegotiate the contract because they do not have them sitting 
idly by until we have the demand, and that is precisely what we 
did with Comerica.
    The Chairman. Mr. Gregg, I am reading directly from the 
contract. Comerica attested in its successful bid that it was 
fully capable--this is a quote--``fully capable and has the 
existing capacity to readily scale to 20 million or more 
cardholders.''
    Mr. Gregg. Yes. Again, that is scalable, and that means 
that they have an architecture that is designed to go up to 
that level.
    The Chairman. Well, does it----
    Mr. Gregg. It does not mean that they have people or 
equipment or software in place to do what we asked them to do 
as we increase the volume.
    The Chairman. Well, that does not mean that you should pay 
them $22 million extra, does it?
    Mr. Gregg. It means, as I said before, that as the 
circumstances change, the volume of cards that we got was much 
higher than anyone expected, either Treasury or Comerica. In 
addition, as I mentioned, the requirements that we had that to 
help Social Security and the benefit agencies pay, or to 
provide better service to their customers, those are 
modifications to the agreement that no one had anticipated at 
the time that was signed.
    The Chairman. How much was the successful bid? What was 
that amount?
    Mr. Gregg. Pardon me?
    The Chairman. In 2008, they were the successful bidder. It 
was for how much?
    Mr. Gregg. They were not going to receive any funds from 
Treasury and they were actually going to do some marketing, 
which they did.
    The Chairman. Okay.
    Mr. Gregg. And the income would come from the ATM charges 
and things like that.
    The Chairman. The, what do you call it, the float. That is 
what they were going to make their money on, was the float.
    Mr. Gregg. Part of it, and also from fees, from interchange 
fees.
    The Chairman. And Comerica says, quote, ``they are fully 
capable and has existing capacity to readily scale to 20 
million or more cardholders,'' and that requires the United 
States taxpayer to pay $22 million more?
    Mr. Gregg. As I said, Senator, it is an architecture that 
is designed to grow up to that amount. It does not mean that we 
had specific requirements that would have them add resources or 
change systems, because we did not know what those were at the 
time.
    The Chairman. Well, maybe you ought to consider recompeting 
and seeing if all those other potential bidders out there would 
agree with this.
    Senator Blumenthal, I want to call on you. Senator 
Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman.
    The Chairman. Mr. Attorney General. Mr. Prosecutor.
    [Laughter.]
    Senator Blumenthal. Well, I was once a law school student 
and the most intimidating question I have ever seen is in a law 
school classroom at the Harvard Law School, so you have nothing 
to fear from me compared to----
    The Chairman. Was that by----
    Senator Blumenthal [continuing]. Professor Senator Warren.
    The Chairman. Was that by Professor Warren?
    [Laughter.]
    Senator Blumenthal. Thank you for being here today. Thank 
you for your good work on this program.
    And I understand and commend that our goal--your goal is 
100 percent participation in the electronic method of payment. 
Let me ask you, are there, in your view, legitimate reasons 
that people may not want or be able to participate in this 
electronic method of payment delivery? Ms. Gruber.
    Ms. Gruber. Thank you Senator Blumenthal. Actually, there 
are a few. I mean, as Senator Warren and Mr. Gregg had 
testified, or had talked about, 98 percent, 97.6 percent of our 
beneficiaries receive direct deposit. There is just a hair 
around two million that do not.
    And we actually did a study a little bit earlier this year 
to ask folks why they were not interested in signing up, about 
300 of our field offices. We did an informal study, and the 
study is not quite final, but we did get some interesting 
information.
    The three top primary reasons are, starting with people do 
not have a bank account so they cannot participate in the 
direct deposit.
    The second reason is there is concern over fees, user fees 
and ATM fees.
    And the final reason, and Chairman Nelson had alluded to 
this a little bit earlier, is some people do like the stability 
of having the check in hand.
    But those were the primary reasons. So, yes, we do feel and 
have seen legitimate reasons, and again, we think that we have 
made good progress, but there are a few who still are not able 
to participate.
    Senator Blumenthal. And for those, you do make an 
exception?
    Ms. Gruber. We continue to pay them by paper check. We do 
have to, under our rules, remind them of the requirement, but 
yes, we do still continue to pay them.
    Senator Blumenthal. Are there ways, in your view and Mr. 
Gregg's view, that the electronic system may be more 
susceptible to fraud than the paper method of check delivery? I 
know that view may be counterintuitive because everybody feels, 
well, you know, you deliver checks electronically and nothing 
will happen, but we all know that some of the most massive 
frauds have been committed through the use of electronic 
criminal activity.
    Mr. Gregg. I think the fraud area is something that all of 
us are continuing to look at what people who are committing 
fraud are going to do next and trying to stay up with them or 
even get ahead of them. There is certainly a lot of fraud that 
we have experienced over the years with paper checks, far 
greater than we are seeing now. At the same time, the cases 
that we have seen for identity theft, whether it is paper check 
or whether it is electronic, makes the Social Security 
recipients very vulnerable.
    And we worked with Social Security and VA and put out a PSA 
announcement that the Commissioner of Social Security at the 
time and the Deputy Secretary of VA did to warn seniors about 
identity theft, and one of the lines in there says, ``You did 
not win the lottery,'' and it was very blunt and I think it was 
very effective.
    But, that would be the one thing that I would just 
encourage all of us to push as hard as we could to educate 
seniors against the dangers of identity theft. My mother-in-law 
is in her late 80s and I keep reminding her, ``Edna, do not,'' 
you know, ``if someone calls, do not give them any information, 
period,'' unless it is me or my wife. And so it is a serious 
problem. But it runs the gamut of paper and electronic and we 
have taken steps within Treasury to work hard to reduce the 
sign-up fraud we had for the Direct Express card, but it is an 
ongoing struggle.
    Senator Blumenthal. And some of the fraud that I saw as 
Attorney General was not just approaches by the con artists, 
but also loss of information by government agencies, some 
Federal, some State.
    Mr. Gregg. That is true, and I do not want to jinx us, but 
Treasury and Social Security, as well, have worked and have 
infrastructure and processes in place to be very careful about 
protecting your information. But we are challenged every day 
with our databases, people trying to get in and pull 
information down, and it is a constant struggle. And, again, 
just like identity theft, if you feel secure, then you are 
being foolish because they are very creative and you have to 
work every day to protect that information.
    Senator Blumenthal. Do you have systems in place that are 
Treasury-wide that apply to Social Security, or does the Social 
Security Administration have separate defenses against cyber 
intrusion or cyber attack?
    Mr. Gregg. We each have our own protections. I mean, Social 
Security has theirs, and when they send a file to us for 
payment, that comes in and we have a lot of protections in 
place to ensure that that information is not hacked and no one 
has access to it that should not. But it is one that you do not 
get overconfident in, because there are people out there who 
have very creative minds and a lot of resources, in some cases, 
and you have to keep up with them.
    Senator Blumenthal. Does--were you going to add something, 
Ms. Gruber?
    Ms. Gruber. I was just going to say, Senator Blumenthal, 
Social Security does have multi-layered, multifaceted systems, 
protections in place, to protect our systems from all sorts of 
types of assaults. But when we look at fraud prevention on this 
end, we look at it from both the front end and the back end. So 
we do have separate systems from Treasury, but one of the 
things that we try to do is leverage the data available on our 
own systems to make sure that we are dealing with the right 
person at the right time.
    Senator Blumenthal. Do you employ outside consultants to 
develop and implement those systems to protect against cyber 
intrusion?
    Ms. Gruber. When it comes to our ``My Social Security'' 
portal or platform, which is the personalized platform we use, 
what we did is we benchmarked against the best in government 
and the best in industry in building what our authentication 
protocol would be, and that involves looking at all of the data 
that we have available about an individual like yourself to 
match against certain data points.
    But as an extra measure of due diligence, we actually do 
contract with Experian currently to do additional data analysis 
and verification to, again, give us a very high degree of 
confidence that we are dealing with the right person.
    Senator Blumenthal. With Experian.
    Ms. Gruber. Currently, correct.
    Senator Blumenthal. Finally, let me ask you, a lot of 
seniors are vulnerable to calls, false calls they receive from 
supposed government agencies telling them we are just going to 
check on, you know, information from you. Is your name such and 
such? Remind us of your Social Security number and your bank 
account number, you know, in effect, phishing. Does the Social 
Security Administration call anyone----
    Ms. Gruber. We----
    Senator Blumenthal [continuing]. To check on information--I 
mean, legitimately call anyone?
    Ms. Gruber. We do not call legitimately individuals to 
phish for information--I mean, to ask them questions. Of 
course, we would not do that.
    [Laughter.]
    To ask them questions, for example, what is your Social 
Security number, because we already have that. Most of the 
calls we make are in response to an individual's inquiry to us.
    I will tell you that as part of our new ``My Social 
Security'' portal, one of the things we do is we look at fraud 
from two ends. We look at it from the front end and 
authentication, but we also do a series of data analysis behind 
the scene where we look for suspicious patterns. And in those 
cases, we may contact an individual that we suspect has become 
or may be a victim of fraud and will talk to them about whether 
they made a change with us. But we do not, again, ask them 
about their Social Security number or identifying----
    Senator Blumenthal. Well, I understand you will not 
necessarily ask them that specific question, but if I were to 
tell people in Connecticut, if somebody calls you without your 
having called first----
    Ms. Gruber. Yes.
    Senator Blumenthal [continuing]. And says, ``I am from the 
Department of Treasury or the Social Security Administration,'' 
that call is a fraud. Do not talk to that person. Hang up.
    Ms. Gruber. I think you can tell them that [there is a 
high--that] is not normally what Social Security would do, so 
you should contact the Social Security office yourself.
    Mr. Gregg. And the Public Service Announcement that the 
Commissioner and Deputy Secretary gave was very clear on that 
point, that neither Treasury nor Social Security or VA is going 
to call and ask for your Social Security number or that kind of 
information.
    Senator Blumenthal. Well, I guess I understand they are not 
going to ask for that information, but the ordinary citizen, 
when called by someone purporting to be from the Social 
Security Administration or the IRS or a bank, and I warn about 
all of these calls, saying, they are not going to call you. If 
somebody calls you, you know, tell them you will call back, 
not----
    Ms. Gruber. I think that is a good----
    Senator Blumenthal [continuing]. Not to give any 
information. The fine line between your Social Security number 
and a lot of the other private information is a very fine line, 
and for people to say, well, they are not calling about my 
Social Security number, therefore, it is okay to talk to them 
about everything else in my life, is difficult to draw. I am 
sort of beating a dead horse here, but if--I think if we were 
able to tell people, if they call you, do not talk to them 
unless you have initiated the call, it is much easier to 
understand.
    Thank you. Thank you Mr. Chairman.
    The Chairman. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    So, if we could, I would like to go back to the Comerica 
contract for Direct Express, Secretary Gregg, that the Chairman 
raised earlier, and I just want to make sure I understand this 
contract, that the way Comerica was going to get compensated is 
it would get the float on the money. It would get whatever 
interchange fees were available when the card was used. And it 
would have marketing opportunities for the people who used the 
card, is that right?
    Mr. Gregg. Certainly, the first two are right. Maybe the 
marketing. I am not sure on that point and I will have to get 
back to you on that, but----
    Senator Warren. Fair enough. I thought you had mentioned 
it. So, I am just trying to get all the--but that is how they 
planned to get themselves compensated, right?
    Mr. Gregg. Yes.
    Senator Warren. And that is how they bid for this and said 
they wanted to do it on that basis, not charge the government. 
They had the platform, they would build it, because they knew 
that those were valuable.
    Now, these cards are a scalable business. That is, the cost 
per card of whatever services you have to provide actually goes 
down as the number of cards go up. To provide this service for 
only one card would be enormously expensive. To provide it for 
a million, the per card cost has gone down. To provide it for 
five million, the per card cost presumably has gone down even 
more. And yet the revenues from those cards, that is, your 
opportunities to market, your opportunities for interchange 
fees, your opportunities for float, continue to go up for every 
card that is added.
    So the problem I am having in understanding what has 
happened here with the additional payment that Treasury has 
made of $30 million to Comerica is that, as I understand this 
contract, five million cards would be far more valuable to 
Comerica than one million cards. And so I cannot understand--I 
understand they are handling more cards, but they are also 
getting more revenues in the way that they design the revenues. 
What I cannot understand is why Treasury paid them an 
additional $30 million. So maybe you could just help me 
understand that better, Mr. Secretary.
    Mr. Gregg. Senator, as I said before, the usage of the card 
was much different than either we or Comerica experienced. 
Individuals are pulling out almost all their funds within a day 
or two. So the float factor is very small, especially with 
interest rates what they are. It is very small.
    Secondly, we asked them to do a lot more. There were many 
requirements that we had not anticipated at the time we had the 
agreement so we could help Social Security and VA and other 
agencies provide better service to their customers.
    So, I agree. One other factor that I should say is that 
Comerica has, with our help and Social Security, has shifted 
the landscape in the last two-and-a-half years, and that was a 
huge transition. Now, going forward, if we can keep at 97 or 98 
percent, we are not going to have that again. It is going to be 
a level--you know, if we can stay around those percentages, we 
will not have the heavy lift that we have had in the last two-
and-a-half years. As I said, they had 17 million phone calls in 
May alone.
    Senator Warren. Well, Mr. Secretary, I am glad to hear that 
we are not thinking about giving them another $30 million, but 
I am still having trouble understanding the contract itself. 
Did the U.S. Government agree to provide some kind of minimum 
float here? In other words, who took the risk that the float 
might turn out to be less than estimated, that people would 
cash it out sooner rather than later? Did the U.S. Government 
take that risk on?
    Mr. Gregg. I think that was one factor. The other was----
    Senator Warren. I am sorry. What was the answer to that?
    Mr. Gregg. I think we did not expect that the volume of the 
money would come out as quickly as it did, either.
    Senator Warren. Had the----
    Mr. Gregg. We had a choice, Senator. We had a choice of 
saying, oops, this contract, we are not going to modify it, and 
too bad, you are going to be out a lot of money, and I do not 
think they have made much, if any, money on this so far, or----
    Senator Warren. I am sorry. Do you have some information 
about how much money they have made off this card?
    Mr. Gregg. I do not have it, but I know how much they are 
getting from ATM fees, which is quite small, and----
    Senator Warren. So, have they made public what their 
profits are off the Comerica card?
    Mr. Gregg. I do not think they have, but we have 
information, and the requirements changed, as I said. We asked 
them to do more things than we had anticipated in the contract.
    Senator Warren. Were the requirements--these are 
requirements, you are saying, that were not in the contract?
    Mr. Gregg. They were not.
    Senator Warren. So these were additional requirements, $30 
million worth----
    Mr. Gregg. That we added.
    Senator Warren [continuing]. Of additional requirements?
    Mr. Gregg. That we added. We and Social Security added to 
provide better service for the customers.
    Senator Warren. And so you paid them $30 million without 
knowing whether they are making a profit or loss or how much 
the profit is on the Comerica card?
    Mr. Gregg. We do not know exactly what their profit or loss 
is. We did recognize that circumstances have changed and we 
agreed to reimburse them and I think it was the right decision.
    Senator Warren. Well, I appreciate that you think it is the 
right decision. I am just having difficulty understanding the 
economics of this transaction, and I am having difficulty 
understanding the contract law aspects of----
    Mr. Gregg. The economics are that it costs us $1.16 less to 
issue an electronic payment than it does a check payment.
    Senator Warren. Secretary Gregg, let me stop you there----
    Mr. Gregg. The return on investment----
    Senator Warren. Secretary Gregg, let me stop you there. I 
very much appreciate and understand the importance of trying to 
move as many people as possible to the electronic system. My 
question is about the contract negotiated on behalf of the U.S. 
Government to make that happen and a compensation system that 
should have produced, when the number of cards went from one 
million to five million, which you started out as identifying 
the big shift in the contract, should have produced greater 
profits for Comerica than they had originally contracted for, 
not fewer profits, and that we agreed to give Comerica--we, the 
U.S. Government, through the Treasury--an additional $30 
million without knowing whether or not they were already making 
substantial profits on this contract or not. And I just want to 
express my concerns about that.
    I am glad to hear that we do not have plans to do that in 
the future, but I am not quite satisfied about having done this 
at least once in the past.
    Mr. Chairman.
    The Chairman. And, Mr. Gregg, if you would supply to the 
committee for the record the additional requirements that you 
levied on the contractor and exactly when those were requested 
so that we can further evaluate the changes in the payments 
that you made. And please understand, we want the Direct 
Express card to be successful, especially by virtue of some of 
the things that Ms. Vallas has testified here about how it is 
cheaper for the senior citizen if they decide that they do not 
want the direct payment into their bank account, that they have 
got a choice of cards. And Ms. Vallas has testified that it is 
cheaper for the senior citizen with the Direct Express card. We 
want it to be successful. But we do not understand this 
contract and we do not understand why it cost $30 million 
extra.
    And so if you would supply that for the record, and let me 
ask you this on the other cards. What responsibility do the 
debit card companies and the banks have in covering funds 
stolen from their cards?
    Mr. Gregg. First of all, we will supply that for the 
record, as far as the contract.
    I think, first of all, the non-Direct Express card, is 
something that, apart from the regulation that we put out, 
saying here are the requirements for receiving benefit 
payments, those agreements are really between the card provider 
and the individual and the bank that is involved.
    The Chairman. So, theoretically, if the senior citizen has 
the money go into another one of these debit cards and the 
money is stolen and that debit card company or bank says, we 
are not paying it, the senior citizen under those circumstances 
it out of luck? There is nothing that you all would do to 
require that they pay?
    Mr. Gregg. There is protection under Regulation E, assuming 
that that card has Reg E protection. So if someone got a hold 
of it and used it improperly, then they would have that 
protection.
    If I could add one thing, Mr. Chairman----
    The Chairman. Please.
    Mr. Gregg. About a year or year-and-a-half ago, partly as a 
result of questions we got from the committee staff and from 
Social Security and the IG, we became aware of more instances 
of fraud in the non-Direct Express card environment than we had 
been and we took it upon ourselves to meet with the debit card 
industry and went through their procedures on enrollment, and 
to be quite frank, we found some of those procedures to be 
fairly lax. They were very responsive. I am not saying that 
everything is completely where it should be, but they took 
steps to greatly improve the enrollment process as a result of 
actions that we took and Social Security took.
    The Chairman. Well, maybe Treasury should take it upon 
themselves, since what we are all trying to do here is protect 
the senior citizens, that there be some explanation to the 
senior citizen that you are going to have to do this, this, and 
this if your money is stolen with these debit cards. So that is 
a concern.
    Ms. Vallas. Mr. Chairman, if I might----
    The Chairman. Yes, Ms. Vallas.
    Ms. Vallas. This is absolutely one of the concerns that 
many advocates have, and as I mentioned previously and as is 
laid out more fully in our written statement, part of the 
problem here is that Reg E, while very helpful, does not 
directly apply to these private label cards. And so the 
requirements that Treasury has placed on the private label 
cards, if they wish to receive Social Security benefits on 
them, it includes voluntary compliance.
    The Chairman. Oh oh.
    Ms. Vallas. Now, I am not really sure what voluntary 
compliance means, but I can say that I have had experience 
representing clients who have been flatly refused to have their 
funds returned to them, which one would think would violate Reg 
E, and neither Treasury nor Social Security has felt that it 
has the ability to take any sort of enforcement action that 
would correct that sort of situation.
    The Chairman. You would think for the privilege of 
receiving the senior citizens' Social Security payment that the 
debit cards would make sure that they were going to secure 
those payments, if stolen, in exchange for the privilege of 
receiving all of those millions of dollars in Social Security 
payments.
    Senator Blumenthal.
    Senator Blumenthal. Yes. I agree completely, Mr. Chairman, 
and would agree voluntarily to comply, or at least adhere to, 
Regulation E. But I also want to follow up on that question, 
and I know we have a vote, so I am going to be brief.
    You mentioned the danger to seniors of the overdraft 
protection plans, and I do not know whether you feel or Mr. 
Gregg can guarantee that there is sufficient protection against 
these kinds of abuses from the private label prepaid debit 
cards. I gather you feel there is insufficient protection right 
now.
    Ms. Vallas. Is that a question to me?
    Senator Blumenthal. Yes.
    Ms. Vallas. Thank you, Senator, for the question. This is 
mentioned in the written statement----
    Senator Blumenthal. I know it is mentioned in your written 
statement.
    Ms. Vallas. That is exactly right, and the general sense 
that advocates have is that the protections that exist are not 
yet sufficient at this time and we would call for them to be 
strengthened.
    Senator Blumenthal. And what do you feel about that, Mr. 
Gregg?
    Mr. Gregg. The overdraft protection is not covered in, and 
I may have to correct this for the record--it is not covered in 
our regulation. But we do--just going back to the Reg E----
    Senator Blumenthal. Do you commit that you will?
    Mr. Gregg. We will take a look and see what our authorities 
are. One of the things that we did when we drafted that 
regulation about three years ago was, according to our 
attorneys, we reached kind of the outer bounds of what our 
authority is.
    Senator Blumenthal. Well, I would appreciate it. I have not 
looked at your statute. It is hard for me to believe that you 
cannot prevent that kind of abuse under your existing 
authority, but if you cannot, I would appreciate your letting 
us know through the Chairman so that we can consider adding 
to--augmenting that authority so that you can afford that kind 
of protection. But if you can report back to us--I do not want 
to put you on the spot now. If you could report back to us on 
that issue and the one that the Chairman raised, I think it 
would be very helpful.
    Mr. Gregg. Just one point of clarification, Senator 
Blumenthal, that the regulation that we do have in place for 
private label cards getting Federal benefit payments, they are 
required to have Reg E protection.
    Senator Blumenthal. So they are covered by Reg E. And you 
are shaking your head.
    The Chairman. Ms. Vallas says no.
    Ms. Vallas. I respond with my face. I apologize. Yes. I 
mean, our understanding is that the compliance is voluntary, 
that they are not directly covered by Reg E. They are told that 
they need to voluntarily comply.
    The Chairman. All right. We need to get that cleared up for 
the committee, and we have two different statements. We will 
get that cleared up and we will report.
    Ms. Lane, we have got to go vote over on the floor. I just 
want to thank you, because you started all this discussion, and 
thank you for courageously coming forth and expressing your 
difficult circumstances and how someone, if they were in that 
third that entirely rely on their Social Security payment, 
would have been in much more difficult circumstances than you. 
So thank you for standing up for them.
    Ms. Lane. You are welcome.
    The Chairman. And the committee also looks forward, 
General, to your compatriot in the Treasury, the Treasury IG is 
going to report on the Direct Express contract that has been a 
lot of the discussion of the committee today. But in the 
meantime, General, you have a lot more information here with 
which to observe your particular area of jurisdiction. So thank 
you for your participation.
    Mr. O'Carroll. Yes, Chairman.
    Below please find responses to the Deliverables for the 
Record sent by the Committee as follow up to Treasury Fiscal 
Assistant Secretary Richard Gregg's testimony on June 19, 2013 
at the Committee's hearing, ``Social Security Payments Go 
Paperless: Protecting Seniors from Fraud and Confusion.''
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    The Chairman. And with that, the committee is adjourned. 
Let us go vote.
    [Whereupon, at 3:53 p.m., the committee was adjourned.]

                                
                                APPENDIX
                                
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