[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
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Kim Lipsky, Majority Staff Director
Priscilla Hanley, Minority Staff Director
CONTENTS
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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
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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:]
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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:]
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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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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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