COMMITTEE on WAYS and MEANS

Chairman Dave Camp

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Hearing on the Direct Deposit of Social Security Benefits

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Washington, Sep 12, 2012 | comments




Hearing on the Direct Deposit of Social Security Benefits
 

________________________________________

HEARING

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY

OF THE

COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION
________________________

September 12, 2012
__________________

SERIAL 112-SS20
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Printed for the use of the Committee on Ways and Means

 

COMMITTEE ON WAYS AND MEANS
DAVE CAMP, Michigan, Chairman

WALLY HERGER, California
SAM JOHNSON, Texas
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
DEVIN NUNES, California
PATRICK J. TIBERI, Ohio
DAVID G. REICHERT, Washington
CHARLES W. BOUSTANY, JR., Louisiana
PETER J. ROSKAM, Illinois
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida
ADRIAN SMITH, Nebraska
AARON SCHOCK, Illinois
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

SANDER M. LEVIN, Michigan
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
JIM MCDERMOTT, Washington
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
MIKE THOMPSON, California
JOHN B. LARSON, Connecticut
EARL BLUMENAUER, Oregon
RON KIND, Wisconsin
BILL PASCRELL, JR., New Jersey
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York

JENNIFER SAFAVIAN, Staff Director
JANICE MAYS, Minority Chief Counsel






SUBCOMMITTEE ON SOCIAL SECURITY
SAM JOHNSON, Texas, Chairman

KEVIN BRADY, Texas
PATRICK J. TIBERI, Ohio
AARON SCHOCK, Illinois
RICK BERG, North Dakota
ADRIAN SMITH, Nebraska
KENNY MARCHANT, Texas

XAVIER BECERRA, California
LLOYD DOGGETT, Texas
SHELLEY BERKLEY, Nevada
FORTNEY PETE STARK, California








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C O N T E N T S

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WITNESSES

Richard Gregg, Fiscal Assistant Secretary, Department of the Treasury
Testimony

Theresa Gruber, Assistant Deputy Commissioner for Operations, Social Security
Administration
Testimony

Patrick P. O’Carroll, Jr., Inspector General, Social Security Administration
Testimony

Margot Saunders, Counsel, National Consumer Law Center
Testimony


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Hearing on the Direct Deposit of Social Security Benefits

Wednesday, September 12, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.


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The subcommittee met, pursuant to call, at 9:08 a.m., in Room B‑318, Rayburn House Office Building, Hon. Sam Johnson [chairman of the subcommittee] presiding.

[The  advisory of the hearing follows:]

_______________________________________________________________________________

Chairman Johnson.  Good morning. 

Welcome to the hearing on "Direct Deposit of Social Security Benefits."  I appreciate all of you all being here. 

Back in 1996, Congress passed the Debt Collection Improvement Act, which required electronic payment of Federal benefits, including Social Security benefits.  Not only does the direct deposit of benefits help seniors avoid delayed, lost, or stolen checks, it saves taxpayers money.  Taxpayers save 90 cents for every check the Treasury Department doesn't have to send.  That doesn't sound like a lot, but it is probably enough to keep the Metro going until 1 o'clock in the morning here. 

In addition to direct deposit, Treasury also supports the delivery of Federal benefits through two other electronic fund transfer methods:  the Direct Express MasterCard debit card, along with other private‑label reloadable debit cards if they meet certain Treasury requirements. 

Efforts to end paper checks have been under way for over 16 years.  The good news is that the percent of all Social Security benefits paid electronically has grown significantly, from 56 to over 94 percent today. 

In a 2010 rule, Treasury mandated the use of direct deposit for all new Social Security beneficiaries beginning May 1, 2011.  Those already receiving benefits are required to sign up for electronic payment by March 1st next year.  That is just less than 6 months from now. 

At the time of the final rule, Treasury estimated mandatory electronic benefit payments would save Social Security $1 billion over the next 10 years. 

But as usual, we have to worry about ID thieves, as we will hear from the Social Security Inspector General today.  Increasingly, ID thieves have been able to obtain beneficiaries' personal information and use it to redirect benefit payments to their own accounts ‑‑ without the beneficiary knowing it, in a lot of cases. 

It is simply unacceptable that Social Security can't put a stop to it.  While delivering benefits on time and at a lower cost than paper checks makes sense, at the same time millions of seniors and those with disabilities deserve the peace of mind to know their benefits will arrive safely and on time.  We need to determine the flaws in the electronic payment system, protect those who receive their benefits electronically, and make sure Treasury and Social Security are taking all necessary steps to guard beneficiaries against those trying to steal their benefits. 

I now recognize the ranking member, Mr. Becerra, for your opening statement.

Mr. Becerra.  Mr. Chairman, thank you very much. 

This is a more particular hearing, as it is specifically focused on an issue within the Social Security Administration, but it is a very important issue because this does affect the day‑to‑day lives of millions of Americans who receive their Social Security benefits. 

I want to start by first saying that I support electronic benefit payments for many of the reasons, Mr. Chairman, that you just articulated.  But our number‑one goal should be to make sure that every single American receives the Social Security benefits that he or she earned on time and in full. 

And so, as we go about the process of transitioning to these electronic benefit payments, we have to make sure that we are doing it in a way that doesn't affect those Americans who worked for a long time to earn these benefits.  And we don't want any of them to find themselves in a situation where they are the victims or they are losing out because we haven't done something right. 

So I hope we move forward with examining how SSA has been able to implement this proposal.  We know we have a deadline coming up next year that requires SSA to move 100 percent toward electronic benefit payments, but there are some questions about how equipped SSA is to really deal with this in a way that makes sure that beneficiaries continue to receive their benefits on time and in full. 

Now, I agree with you; every time we move to electronic benefit payments, SSA saves money.  That means the taxpayers are saving money.  And as you mentioned, it is close to a dollar for every one of these transactions that is done electronically instead of through a paper check.  But we do need better information on why a significant number of current and new beneficiaries are not getting their benefits electronically. 

March of 2013 is a sort of magical date in that that is when we are supposed to require all benefits to be paid electronically.  But some 6 million Americans, including many who have just started receiving their benefits, still get paper checks.  We know broadly that some people don't have bank accounts, and some people just don't like electronic payment, and that is why they don't go towards the newer system of electronic payment. 

My understanding is that Treasury and the Social Security Administration are not collecting information on this group of folks, of applicants who are not receiving their payments electronically, and we are not yet sure why they continue to want paper checks. 

We also know that a small but significant number of very vulnerable Americans have had trouble accessing their benefits after switching to electronic payment.  We have heard from beneficiary advocates, from the staff from the SSA itself, and from the beneficiaries themselves, as well, who report significant problems reaching the customer service office that services Direct Express, which is the Treasury‑sponsored debit card program. 

About 3 percent of Direct Express cards were reported lost or stolen in 2011.  Now, there is an issue here.  If you lose a check or if a check is stolen, a paper check is stolen, it is a lot easier, my sense is, for SSA to quickly get you back on your feet and get you the benefits that you were supposed to receive.  When you have an electronic payment through one of these debit cards, the beneficiary can't access his or her money until the Treasury Department electronically traces the original payment, a process which I am told can take several weeks. 

Just mailing these Americans who are receiving benefits a debit card for their benefits is clearly not the right answer, but we don't have enough information to know what is.  We need that information, and we need it soon. 

As I said, Mr. Chairman, I support electronic benefit payments, but our number‑one goal has to be making sure that every single American who receives Social Security benefits receives them on time and in full. 

We take our responsibility here on this subcommittee to make sure that we are protecting Social Security and strengthening it very responsibly.  And I hope that what we do now is figure out a way to work with SSA to make sure that as we transition toward electronic benefit payments, we do so in a way that not only saves us money but makes every American who worked very hard to earn those benefits very comfortable that this is the right way to go. 

And so, with that, Mr. Chairman, I yield back my time, and look forward to the testimony of our witnesses. 

Chairman Johnson.  Thank you. 

Chairman Johnson.  As is customary, any Member is welcome to submit a statement for the hearing.

Chairman Johnson.  Before we move on to our testimony, I want to remind our witnesses to try to limit your oral statement to 5 minutes.  However, without objection, all the written testimony will be made part of the hearing record. 

We have one witness panel today.  And seated at the table are Richard Gregg, Fiscal Assistant Secretary of the Department of Treasury ‑‑ I am glad to see Treasury participating. 

Mr. Gregg.  Thank you, Mr. Chairman. 

Chairman Johnson.  You work for a tough group. 

Theresa Gruber, Assistant Deputy Commissioner for Operations, Social Security Administration; Patrick O'Carroll, Inspector General, Social Security Administration ‑‑ welcome back, sir; and Margot Saunders, Counsel, National Consumer Law Center. 

Thank you for being here.  Welcome. 

Mr. Gregg, please go ahead.

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

Mr. Gregg.  Thank you, Mr. Chairman, Ranking Member Becerra, members of the subcommittee, for inviting me to testify on a very important issue this morning. 

First and foremost, Treasury is dedicated to make all payments, including Social Security payments, accurately and timely. 

And over the years, we have done just that.  Treasury and Social Security Administration have also made excellent progress in moving from paper to electronic payments.  Most individuals have payments credited directly to their bank account. 

Until fairly recently, we did not have a good electronic option for those who are unbanked.  In 2008, Treasury solved the problem by introducing the Direct Express card.  Direct Express is the prepaid debit card on which benefits are loaded each month. 

In December of 2010, Treasury issued regulations to have all benefit payments, with limited exceptions, made electronically.  Beginning May of 2011, anyone applying for Social Security, Veterans, or other Federal benefits is required to choose an electronic payment option.  By March 2013, existing beneficiaries who receive their Federal benefits by paper check are required to switch to electronic payments. 

The Direct Express card has significantly benefited the unbanked population.  For the first time, Treasury is able to offer the unbanked an option that is convenient, safe, and inexpensive.  The Direct Express card provides excellent consumer protections, and most fees can be avoided by using the card wisely.  The card enables cardholders to make purchases, pay bills, and get cash at thousands of ATMs and retail locations without having to pay a check‑cashing fee, which can range from 2 percent to 6 percent for the check amount. 

As of June 2012, more than 3.6 million payment recipients have signed up for a Direct Express card, approximately two‑thirds of whom did not have a traditional bank account.  According to a June 2012 survey, 95 percent of individuals who use Direct Express cards to receive their monthly Social Security benefits are satisfied with the card.  I think that speaks well for the Direct Express card. 

In December 2010, when Treasury issued its rule on electronic payments, we were issuing over 125 million benefit checks each year.  As of July of 2012, we have almost cut that number in half, with 92.3 percent of the benefit payments being electronic. 

Through Treasury's longstanding push toward electronic payments, rather than paper check, Treasury achieved government savings of $600 million in fiscal 2011 alone because spending for payment electronically is 9 cents, compared to $1.05 per check payment.  As the number of Social Security recipients increase, the savings will also increase. 

With the current initiative to have all benefit payments made electronically, an additional $1 billion in taxpayer money will be saved over the next 10 years. 

In addition, electronic payments provide beneficiaries with a safer, more reliable, and convenient way to receive their payments.  Paper checks can be and are lost, stolen, or delayed.  Electronic payments are reliable, as people would attest who had to leave their homes from Hurricane Isaac. 

Let me address the issue of fraud.  Treasury has taken aggressive measures, working with Social Security, to combat fraud even though the scale of fraud on Direct Express cards is not large.  There is far less fraud in electronic payments than in check payments.  In fiscal 2011, there were over 1 million Direct Express enrollments and 6,691 attempts of fraudulent enrollments, of which 2,411 were successful. 

This year, to further tighten our enrollment process, we have suspended Direct Express enrollment through the Web site.  And, most importantly, we verify all new enrollments by using Treasury's payment database to cross‑check identity on the enrollment process.  This database has information that is very unlikely that anyone other than the rightful owner would have.  We have also developed a fraud alert system to flag suspicious activity, and we have customer service representatives who specialize in fraud mitigation.  Finally, we are working closely with Treasury's Do Not Pay fraud detection and data analytics service. 

Treasury is also working with the prepaid card industry to prevent fraud from occurring when benefit payments are deposited on those cards.  The debit card industry has been very responsive to our request for them to review the enrollment process to help reduce the potential for fraud.  Treasury and Social Security are also working very closely together on this issue, along with the IGs from Social Security and Treasury IG.  

Treasury regulations provide that, beginning in March 2013, all benefit payments will be made electronically, except for individuals who qualify for a waiver.  Treasury is aware that there will still be some recipients that have not converted to electronic options by that date, and we will continue to encourage people to comply with the regulation.  In the meantime, those individuals will continue to receive their payments. 

Thank you for the opportunity to testify.  I look forward to your questions. 

Chairman Johnson.  Thank you, sir.

[The statement of Mr. Gregg follows:]

Chairman Johnson.  What does it cost Treasury to make those kind of payments instead of sending checks out? 

Mr. Gregg.  Pardon me? 

Chairman Johnson.  Does it cost Treasury to do that? 

Mr. Gregg.  Yeah ‑‑

Chairman Johnson.  Do you keep the savings yourself? 

Mr. Gregg.  But all of the costs that we have on what it costs us to issue a check, what it costs us to make electronic payments, all the costs that we incur on both those programs are fully loaded.  In other words, we calculate everything it costs us to issue a check to do the accounting for that.  And the same thing with the electronic ‑‑

Chairman Johnson.  So what you are telling me is there is no additional cost.  Either way ‑‑

Mr. Gregg.  It is built in.  The comparison is 9 cents for an electronic payment, which is a fully loaded cost, and $1.05 for a check payment, and that is a fully loaded cost. 

Chairman Johnson.  Okay.  Thank you. 

Ms. Gruber, you are welcome to begin.  Please proceed.

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

Ms. Gruber.  Thank you. 

Chairman Johnson, Ranking Member Becerra, and members of the subcommittee, thank you for inviting me to discuss Social Security's efforts to support the Department of the Treasury's all‑electronic initiative.  My name is Theresa Gruber, and I am the Assistant Deputy Commissioner for Operations at the Social Security Administration. 

I want to make it clear that the agency places a paramount concern on the issue of fraud against our beneficiaries.  We worked with our Inspector General on this from day one, and it has helped us to be able to combat these issues the moment we became aware of them. 

Clearly, fraud in electronic payments is a very serious matter, particularly for those affected.  However, we agree with the Department of Treasury that, to date, because of our efforts, the incidence of fraud related to electronic payments is relatively low, particularly with regard to fraud related to paper checks. 

It is important to understand that people have always preyed on the vulnerable elderly, and we are hopeful that direct deposits will create identity trails that will make it easier to fight fraud. 

Our employees in local Social Security offices have the responsibility of determining benefit eligibility and the amount of those benefits.  We pass that payment information to Treasury, and Treasury, in turn, delivers the payment.  Our employees routinely interact with beneficiaries, taking applications for benefits and collecting bank information that allows Treasury to deposit checks electronically.  They also explain the rules about how Treasury can deliver payments. 

Treasury has allowed direct deposit of Social Security and Supplemental Security Income, or SSI, since 1975.  We agree that electronic payments are beneficial for the public and more efficient for the agency.  They are significantly cheaper and less likely to be lost or stolen when compared to a paper check. 

They also allow us and the beneficiary to track payments more easily.  We know when a beneficiary receives an electronic payment, therefore reducing the replacement payments we must make if a beneficiary reports that their check has gone missing. 

Severe weather events have perhaps demonstrated one of the primary advantages of electronic payments.  We can get payments to beneficiaries despite the challenges that natural disasters bring.  After Hurricane Katrina, the number of beneficiaries along the Gulf Coast who signed up for direct deposit increased dramatically.  Last month, in preparation for Hurricane Isaac, we worked with the Postal Service and Treasury to make special arrangements for about 150,000 paper checks, to make sure that they were shipped early and in the area on time.  By contrast, we did not have to take any special action for the nearly 1.5 million beneficiaries who received electronic payments in the same storm track area. 

We also are working to make sure our beneficiaries understand the requirement for direct deposit.  For example, we include direct deposit information in our cost‑of‑living notices.  We display information in our field offices.  We created our "No Check, Go Direct" public service campaign, starring our spokespersons Patty Duke and George Takei.  And our Internet site contains a wealth of information about Treasury's electronic payment program. 

As I mentioned, much of our employees' day‑to‑day work involves public interaction.  Treasury has the lead for developing and implementing the regulation, but our employees often explain it to beneficiaries.  We ask all new beneficiaries to provide us with the information necessary to sign up for electronic payment.  If they decline the electronic payment option because they do not have a bank account, we tell them about Treasury's Direct Express card.  Our employees emphasize that electronic payments are a Treasury requirement and that all beneficiaries must receive electronic payment by March 2013. 

For a variety of reasons, some individuals are averse to switching to electronic payment.  If new beneficiaries request a waiver, we inform them that they must contact Treasury, and we provide them with the information to do so. 

We are proud of our success in signing people up for direct deposit.  We believe that the overall participation rate in direct deposit is the best indicator of success, because it not only measures initial enrollment, but it also measures those who convert from paper to electronic payment sometime after receiving their first check. 

Currently, over 94 percent of Social Security beneficiaries and nearly 83 percent of SSI beneficiaries receive their payment electronically.  In fact, the regulation itself allows for some people to have an exception, such as anyone age 90 or older as of May 1, 2011. 

We will continue our efforts to inform our beneficiaries of the requirement to receive electronic benefit payments, and we will continue to assist Treasury with the requirement. 

Thank you for your time today, and I will do my best to answer any questions. 

Chairman Johnson.  Thank you for being here.

[The statement of Ms. Gruber follows:]

Chairman Johnson.  Mr. O'Carroll, welcome back.  Give us the straight skinny.  You are recognized.

Mr. O'Carroll.  I will try.

Chairman Johnson.  All right. 

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

Mr. O'Carroll.  Good morning, Chairman Johnson, Ranking Member Becerra, and members of the subcommittee.  Thank you for the invitation to testify today. 

My office fully supports SSA's and the Treasury's efforts to implement direct deposit for almost all Social Security benefits.  Nevertheless, we are concerned about an emerging identity theft scheme affecting the direct deposit process. 

In October 2011, my office began tracking allegations indicating that individuals other than Social Security beneficiaries or their representatives had made changes to direct deposit information and redirected the beneficiary payments.  We have determined that the suspects generally target senior citizens' personally identifiable information through social engineering methods, like telemarketing and lottery schemes as well as other sources. 

For example, last year, an 86‑year‑old Social Security beneficiary received a letter indicating that he had won $3.5 million.  The man called the phone number in the letter and was asked to provide some personal information so that he could collect his winnings.  Within days, someone had changed the man's direct deposit information with SSA, and his monthly payment went to a different bank account.  Before the issue was resolved, the senior citizen had missed several payments, and he had to obtain a bank loan to pay his rent. 

We have seen many similar stories.  Through August, we have received more than 19,000 reports of questionable changes to beneficiaries' direct deposits.  We continue to receive about 50 such reports every day. 

My office has responded on multiple fronts.  First, we have partnered with Treasury OIG to investigate these schemes, some of which have roots in Jamaica but stretch across the United States. 

In June, our special agents, along with Treasury OIG, met with law enforcement and other U.S. officials in Jamaica, and at home we are working with U.S. attorneys across the country to combat these schemes and pursue the people responsible.  We have executed search warrants, made arrests, and worked with prosecutors to charge several individuals.  In July, a U.S. citizen and a Jamaican national residing in St. Louis pled guilty to Federal charges, including identity theft and wire fraud. 

We believe these criminals target beneficiaries throughout the country, deceiving them into sending money through wire transfer companies and prepaid debit cards.  They allegedly sent the beneficiaries' money to another Jamaican national in Montego Bay, Jamaica.  That person faces similar charges but has not been arrested to date. 

We also have done and continue to do significant audit work on this issue.  There are several controls SSA could quickly implement to reduce fraudulent changes to beneficiaries' records.  They can continue the planned implementation to block auto‑enrollment for individuals who express concerns about fraudulent attempts to change direct deposit information.  And SSA has reported to us that they plan to implement an auto‑enrollment block next month. 

SSA could develop an automated notification system to alert beneficiaries of changes made to their direct deposit information.  This could occur through email or mobile phone alert or a mailer.  And SSA could delay implementation of direct deposit changes until it is sure they are authorized.  This could help identify improper payments before they are made. 

Finally, my office continues to urge all individuals, especially older beneficiaries, to take basic preventive steps to protect their personal information from improper use.  We urge everyone to recognize phishing and lottery schemes and to exercise caution and sound judgment when they are asked for personal information from any source. 

In conclusion, the recent rash of unauthorized direct deposit changes to Social Security records is a significant issue.  SSA, with its partners in government and the financial industry, must act swiftly to protect beneficiary payments and taxpayer dollars.  We will continue to provide information to your subcommittee and agency decision‑makers as we confront this issue. 

Again, thank you for the offer to testify today, and I am happy to answer any questions. 

Chairman Johnson.  Thank you.  You are always welcome here.

[The statement of Mr. O'Carroll follows:]

Chairman Johnson.  I hear what you are saying.  And you guys over at Social Security need to figure out how to check with people when they get indications like that ‑‑ I must get two or three a week, for crying out loud, where, you know, "You won a billion dollars!  All you have to do is call us."  Well, that is baloney. 

And you can probably stop a lot of that illegal transfer if you work with him and figure out how, when somebody gets a message like that, whether it is on a cell phone or a whatever, have them call you and tell you about it, and you can run it down and see whether it is real or not.  And 100 percent of them aren't real, just about. 

Thank you for your information. 

Ms. Saunders, thank you for being here.  Welcome.  Go ahead. 

STATEMENT OF MARGOT FREEMAN SAUNDERS, COUNSEL, NATIONAL CONSUMER LAW CENTER

Ms. Saunders.  Thank you. 

Mr. Chairman, members of the committee, the National Consumer Law Center thanks you for inviting us today to testify on behalf of our low‑income recipients of Social Security benefits.  We also offer our testimony today on behalf of three other national groups representing low‑ and moderate‑income consumers. 

We support Treasury's proposal to substantially increase the number of recipients of Federal benefits receiving payments electronically.  We agree that the 2010 rule will likely save a substantial amount of money the Treasury says that it currently spends mailing checks to Federal beneficiaries.  We agree that there are numerous advantages to electronic deposit. 

However, even while electronic deposit is right for most recipients, it is not right for all recipients.  There must be a better‑articulated waiver procedure disclosed and accessible to that minority of recipients for whom direct deposit into a bank account or the Direct Express card will not work because of factors such as disability or geography. 

We are concerned that as Treasury pushes the most vulnerable of Federal recipients into the arms of banks and prepaid card providers, that Treasury must adhere to its obligation to make sure that these accounts are safe for people to use. 

In my written testimony, I have covered five topics in depth.  In my oral testimony, I will try to touch on three topics quickly. 

First, I would like to ask you to imagine that you are an 88‑year‑old retiree collecting Social Security benefits as your sole source of income.  You have received your benefits by check for years.  You have never had a bank account because you don't trust banks.  You have a 6th‑grade education and you aren't good at reading.  Your checks have served you well for years.  You are comfortable cashing a check and paying your rent and monthly bills with money orders and cash. 

All of a sudden, you start to receive monthly notices in the mail from the United States Treasury Department.  You can't really understand them because they are complicated and they contain a lot of legalese.  You call the toll‑free number and ask for information.  You are told you can no longer get your trusted paper check as you have for all these years.  Panic and confusion sets in.

This example describes some real people ‑‑ not many people, not a huge percentage of the Social Security population, but a substantial and an important subset.  The current regulatory structure for direct deposit does not include a reasonable way for this subset to protect themselves from this panic and confusion. 

Treasury has set out three waivers, essentially three reasons for a waiver:  one, if you are over 92 and have received a check all along; two, if you have a mental impairment; or, three, if you live in a remote geographic region lacking the infrastructure to support electronic transactions. 

The problem is that, while these criteria are appropriate, the actual procedure for obtaining a waiver is far too onerous.  In order to obtain a waiver, someone has to call Treasury, have a conversation about their eligibility, use the right language to request the waiver, fill out the waiver form once you receive it, have it notarized, and send it back to Treasury. 

I understand that Treasury has received over 72,000 calls relating to a waiver, 14,000 people were sent out a waiver packet, and there have been 281 notarized responses received back.  That is far too great a difference.  And we strongly recommend that the procedure simply be changed to allow that the Social Security Administration be the determiners of whether a waiver should be permitted. 

We also want to point out to you that there are three ways to receive Social Security benefits:  direct deposit into an existing bank account, the very good Direct Express card that was established by Treasury, and the private‑label prepaid cards that anybody can provide to Social Security recipients.  And we are seeing substantial problems with these prepaid cards.  In my testimony, I have laid out examples in illustration of the confusion, the high costs, and the predatory loans that are often attached to these private‑label prepaid cards.  And we urge Treasury to continue closing the loop on these problems. 

We want to extend our congratulations and our thanks to both Treasury and Social Security for addressing the many problems we have already brought to them.  And they have really been very responsive.  We just want them to keep being responsive to the remaining problems. 

Thank you. 

Chairman Johnson.  Thank you, ma'am.  I appreciate your testimony. 

[The statement of Ms. Saunders follows:]

Chairman Johnson.  You guys are going to be responsive, aren't you? 

Thank you.  We will turn to questions.  As is customary, for each round of questions I will limit my time to 5 minutes and ask my colleagues to also limit their questioning to 5 minutes, as well. 

Mr. Gregg, I want to make sure that we are all completely clear.  Come March the 1st, if a beneficiary is not signed up for direct deposit or another form of electronic payment and has not applied for a waiver, will they still continue to receive a paper check?  I believe you said they would. 

Mr. Gregg.  They will. 

Chairman Johnson.  Mr. Gregg, in 2011 Treasury initiated a pilot project to encourage low‑ and moderate‑income taxpayers to receive their refunds on prepaid debit cards.  The project was a spectacular failure, according to the people we talked to. 

Worse, over the past 2 years, this committee, led by Chairman Dave Camp and Dr. Charles Boustany, Chairman of the Subcommittee on Oversight, had to make repeated requests for Treasury to finally release an Urban Institute study of this pilot program paid for by taxpayers. 

Do you agree that the results of this Treasury pilot project failure seem to indicate that many low‑ and moderate‑income individuals are not yet ready to choose debit cards over paper checks? 

Mr. Gregg.  What I would say, Mr. Chairman, is that I don't think the way that that pilot was structured was the best way.  I mean, what we are seeing across ‑‑ not only in the Direct Express card, which over 55 percent of the people who are getting Direct Express are unbanked.  And I think many other States and other programs are moving to electronic payments. 

I think the structure of that pilot was not a good structure, and if I was sitting in the position I am today and someone asked me to repeat that, I wouldn't do it because of the way it was structured.  I think we obtained some useful information, but sending out a letter under my signature saying, "Here is a way to get a card so you can have your tax refund loaded onto it," is really not the way to go. 

The savings ‑‑ as we continue to work with Social Security and other benefit areas, the one remaining area of substantial checks is still in the tax refunds.  We have to figure out, working with the IRS, how to address that.  But the structure of that pilot was not the way to go. 

Chairman Johnson.  But it has been overhauled, correct? 

Mr. Gregg.  Well, we are not sure we are going forward with anything, at this point.  But as far as I am concerned, we won't follow that same structure if we do pursue something along those lines. 

If I was doing it today, I would go out with a very limited pilot, like, a few hundred, and see what the response rate was, rather than ‑‑ that pilot was really structured to kind of gauge the receptivity to whether fees would make a difference whether someone signed up, whether or not a loan.  And I would narrow it considerably, much like a pilot that we have working right now with Direct Express, to very narrowly structure it and see what the response rate is. 

Chairman Johnson.  Thank you, sir. 

Has the Urban Institute study affected your thinking in that? 

Mr. Gregg.  Well, I think it reinforced my thinking.  You know, they did a lot of analysis for it, and some of the information was useful, but the basic structure, I think, was flawed. 

Chairman Johnson.  Well, are you just in a test mode now? 

Mr. Gregg.  Pardon me?

Chairman Johnson.  Are you just in a test mode now, or are you ‑‑

Mr. Gregg.  We are not ‑‑

Chairman Johnson.  You are not doing anything? 

Mr. Gregg.  We are not doing really anything in that area right now.  I am focusing pretty heavily on ‑‑

Chairman Johnson.  I probably shouldn't have said that about Treasury, you guys not doing anything, huh?  Okay. 

Mr. O'Carroll, direct deposit helps avoid benefit delays and lost checks while also saving taxpayer money.  And I support that.  But I am concerned about ID thieves taking advantage of some of our seniors who get caught in scams. 

And what are the types of scams seniors need to know about?  And how can we pass that kind of information to them to make sure they know what is going on? 

Mr. O'Carroll.  Well, Mr. Chairman, as we have discussed, just as you said in the opening on it, a lot of senior citizens and citizens in general are being, you know, scammed over the telephone now, where people are calling up, telling them that they won a lottery, told them that they won money, they have won other types of things, and then for them to get it, that they have to provide personal information. 

And that is probably the biggest scam that is out there now, is where they are out there trying to get personal information.  And then the other one on it is that sometimes people are being called up by people impersonating government officials and asking for personal information. 

And what we are trying to do is to get the word out, and that is a good reason for this hearing, is for the protection of the personal information of people that are out there. 

And one of the things that we have done along those lines, and it is on our Web site, is we have a video that we are putting out for anyone who comes to the IG Web site, as an example.  And it is telling senior citizens and all citizens, "Don't give up your personal information.  When somebody calls you and asks for this information, don't give up your information on it.  If somebody calls up and says that they are a government official asking for your information, Social Security never does it, other government agencies don't do it.  Don't give out your personal information." 

So that is our biggest message to everybody on these types of scams. 

Chairman Johnson.  Well, do you get law enforcement after those guys?  Isn't it fraud? 

Mr. O'Carroll.  Absolutely.  We are comparing the information that we get with the other government agencies that are affected and also with local law enforcement on when we are coming up with these scams and different ways to stop it. 

Chairman Johnson.  Thank you, sir. 

Mr. Becerra, you are recognized. 

Mr. Becerra.  Mr. Chairman, we have had excellent testimony. 

I thank you all for all the information you have provided. 

Mr. Gregg, let me begin with you.  March 2013, that is 5, 6 months away.  For any senior who may be watching who may be concerned about electronic payment or who may have tried by contacting the correct office to get information about a waiver, what assurances can we give to that person that, come March, April 2013, that he or she will still be getting his or her benefit checks on time and in full, regardless of whether it is electronic or otherwise? 

Mr. Gregg.  You can give them the full assurance, we are going to continue to ‑‑ and we understand, Social Security understands that we are not going to be at 100 percent by March 1st of 2013. 

Mr. Becerra.  Okay.

Mr. Gregg.  We are tracking it very closely.  And our goal is to have as many people as possible convert, but at the same time ‑‑ and we are doing that for the reasons I articulated earlier:  because it is actually safer, and it is reliable, and it saves the government money.  But they are going to continue to get paid. 

The thing that I just want to stress ‑‑ and the woman who is in charge of all Treasury payments is sitting behind me.  The commitment that Treasury and Social Security have to making these payments on time is first and foremost what we are about. 

Mr. Becerra.  Excellent.

Mr. Gregg.  I mean, during Katrina, we had the director of the Austin center driving down to Houston every morning with checks for people who had been dislocated so they could get their payments at a location.  They had moved out of their home.  And ‑‑

Mr. Becerra.  Well, that is probably one of the most important things that can come out of this hearing, is an assurance that, one way or the other, as we move forward on this transition, that no American is going to be left behind.  And so I thank you for that. 

Let me ask a second question.  And also, Ms. Gruber, if you could respond, as well as Mr. Gregg. 

We know that 1 in 10 folks are still saying, you know, I am applying for benefits; no, I don't want electronic payment.  And so we still have a substantial number of folks who are saying "no."  For some reason, they are saying "no," even though all the numbers show that it is probably safer, easier, and it certainly saves all of us, as taxpayers, money. 

What are we doing, or what can you tell us you will do to try to collect the information that gives us a better sense of why some people aren't doing it?  There is probably a universe out there that just is reluctant to change.  But there is also a universe that may, as Ms. Saunders said, have legitimate reasons to be concerned. 

So can you tell us, can you give us any assurances that you will try to collect the information on this universe of people so we can figure out how best to make sure we can transition them or, if we can't, why we can't? 

Mr. Gregg.  We have conducted surveys and focus groups over the last 4 or 5, 6 years, and you get a range of responses ‑‑

Mr. Becerra.  Right.  And I understand you have done some of that.  I am just trying to find out, right now, can you give us some assurances that Treasury and Social Security will make every effort to try to better home in on why some of these folks are not wanting to go into electronic benefit payments? 

Mr. Gregg.  Yeah, and I think the initial sign‑up rate is a little bit misleading because ‑‑

Mr. Becerra.  Okay, Mr. Gregg, all I am trying to find out right now is, can you give us an assurance?  I am not saying you are committing to any one particular activity, but can you give us an assurance here, the members of this committee, that you are going to do more to try to home in on why some of those folks aren't moving toward electronic benefit payments? 

Mr. Gregg.  Yes. 

Mr. Becerra.  Ms. Gruber? 

Ms. Gruber.  Yes, we can. 

Mr. Becerra.  That is great. 

[Transcript Insert #1 Gruber]

And, again, we understand, this is a smaller universe and probably a tougher universe to quite understand.  But so long as we have your assurance that next time we come and talk about this you will have more data to give us a better sense of how you have tackled this issue and move folks who can move and explained how those who can't, what we are doing to try to help them as best as possible. 

Mr. Gregg, Ms. Saunders mentioned a number which was somewhat troubling to me.  She said, out of more than 70,000 people who had contacted the agencies or the folks in charge of the direct debit and so forth about seeking a waiver, less than 300 or so had actually followed through and gotten a waiver.  That is a really slim number.  Of more than 70,000 inquiring, to only have 300 to actually get the waiver, something is going on.  And it sounds like maybe the process is a little too complicated or too cumbersome. 

Not that you can answer the question today, and not that I have time to have you give me the answer, but can you give us some assurances that you will delve further into those numbers to figure out why all those folks who did make the effort to contact you all about seeking a waiver from the electronic benefit payments, why so few actually ended up getting it?  Maybe you resolved their problems. 

But can you give us some assurance, both Treasury and Ms. Gruber with SSA, that you will further dig into that to give us a response? 

Mr. Gregg.  I can.  The only thing I would add is, about 24,000 of them actually making the call converted to electronic payment. 

Mr. Becerra.  Okay. 

And, Mr. Chairman, maybe in writing, if they can also give us a response, if Treasury could give us a response about who they think ‑‑ and SSA ‑‑ who they believe should be the person or the agency that determines whether a beneficiary should receive a waiver.  Ms. Saunders mentioned that perhaps Treasury should shift that over to SSA since SSA deals with these folks all the time. 

But I would love to hear your response on who really should make that determination. 

Mr. Becerra.  Thank you. 

Chairman Johnson.  Thank you. 

Mr. Smith, you are recognized, 5 minutes. 

Mr. Smith.  Thank you, Mr. Chairman and to our panel.

Mr. Gregg, could you reiterate the savings again that occurs through the electronic payments? 

Mr. Gregg.  Yeah.  The savings, you know, over ‑‑ we have been working on this for a long time.  But the savings in 2011 alone were over $600 million by getting to the point where we were at, at that time, by having electronic rather than making all check payments. 

The additional savings if we are able to move at or close to 100 percent is going to be an additional $1 billion over the next 10 years. 

Mr. Smith.  Okay.  Now, I understand that there would be a waiver for those wishing for a waiver in remote geographic locations.  Could you define what that would be? 

Mr. Gregg.  Yeah.  And, you know, I grew up in a rural area, South Dakota.  You drive 35 miles from my little town, but when you get there, you get to Pierre, and, actually, they have ‑‑ you know, you can use your debit card and all that.  But some of the comments we got in were from some areas in Alaska, for example, and I think maybe an Indian reservation in the States, where one individual goes in for a group every week or every month and takes checks along. 

So that is really why we had that, where it is very remote and they didn't have the infrastructure to support a debit card. 

Mr. Smith.  So would you say that anyone who could prove a hardship would probably have access to a waiver? 

Mr. Gregg.  You know, we don't look behind the statement.  And I will say that the form for the waiver is very straightforward.  If someone comes in and basically makes any kind of reasonable case for geographic hardship, then we haven't turned those down.  We haven't tried to investigate, and we didn't plan to do that, going into it. 

We said basically, hey, we think most people, given the experience we have had since 2008 with the Direct Express card, we think that actually serves people better than checks.  But if there is some exception, then the waiver process is there. 

Mr. Smith.  Ms. Saunders? 

Ms. Saunders.  If I might respond, the people who do not have access to debit card machines because they live in such a remote geographic area are unlikely to have access to notary publics.  And signing your waiver request form by a notary is a prerequisite to getting a waiver.  So that, in itself, is a catch‑22 that we are concerned about. 

Mr. Smith.  Okay. 

Anyone else wishing to comment? 

Okay.  Thank you, Mr. Chairman.  I yield back. 

Chairman Johnson.  Thank you. 

Mr. Berg, you are recognized. 

Mr. Berg.  Thank you, Mr. Chairman. 

Thank you to the panel for being here and obviously discussing this ongoing process here and how to hit the right thing. 

You know, the two things that I am concerned about, of course, are fraud and theft.  And, you know, I can't imagine how many new scams kind of come up every single day.  I was checking into a hotel in North Dakota about 2 weeks ago, and at the front desk, they said, if someone calls you ‑‑ you know, every time you check in, you give them your driver's license, you give them a credit card.  They said, if someone calls you claiming they are from the front desk and your credit card didn't go through or there is a problem, don't give them any information.  And I thought about it, and I thought, you know, you just check into a hotel, an hour later someone calls and says, "Hey, the card doesn't work," I mean, you would assume it is the front desk. 

Also, I mean, what is happening ‑‑ obviously, this has been a huge area in the credit card industry, when I first ‑‑ well, I shouldn’t say when I first, but after I had been out here for about 6 months, you know, I got a call back home saying, "Hey, this credit card is being used in D.C.  What is the situation?"  It was a credit card that hadn't been used in D.C. for a while.  And so within 24 hours, you know, there was a hold on that credit card. 

And so I guess I kind of look at all the technology that is out there and the practices that are being used, if you will, in the private sector to kind of catch these things, and, you know, I would think ‑‑ you know, so the first thing, if someone has their account that is set up, and through scam artists, whatever, they are trying to change that address or are doing some different things ‑‑ and it seems to me when there are so many checks and balances that are being used out there, and so, you know, my question, Ms. Gruber, is really, what do we have for notification now? 

So someone has their account set up with a bank, and there is some call or request to change it to a different location or do something that is out of the normal, do we have some checks and balances now?  Or are there things we could be doing? 

Ms. Gruber.  Thank you, Mr. Berg, for the questions. 

We do have some checks and balances.  One of the things that happens right now, if somebody makes a direct deposit change, we actually send a notice to the address of record to say that the change had been made. 

In fact, as Mr. O'Carroll had said in his testimony, a lot of the reports of fraud or suspected fraud come from our frontline employees.  And our frontline employees have reported that they have gotten calls from members of the public who received that notice to their address of record. 

I think that there are some areas, as Mr. O'Carroll had suggested in some of their ongoing audits, that we can continue to look at and explore, are there additional measures that we can take with respect to trying to put an end to the fraud? 

You know, one of the keys for us is to continue to work with Mr. O'Carroll and his staff on learning what the facts are of their ongoing investigation, because that is the biggest tool we can have to try to identify what are the right measures to take to really, you know, put an end to it. 

One of the things that we have done over the course of the year ‑‑ and I don't want to talk about specific measures we have taken to combat fraud in this kind of open setting.

Mr. Berg.  Sure.

Ms. Gruber.  I don't want to, certainly, provide a how‑to manual, if you will.  But those measures have also been quite effective in catching some folks I think that were trying to perpetrate a fraud. 

So, in answer to your question, yes, we have some checks and balances, but there are other things that we are willing to look to do. 

Mr. Berg.  Just quickly, are there any high‑level numbers that would relate to the people that we have caught committing fraud and/or prosecuting? 

Mr. O'Carroll? 

Mr. O'Carroll.  I will take that one, Mr. Berg. 

Two things on it.  One is, one of the problems with this is that ‑‑ we are calling it a cottage industry.  So the word is getting out there.  You know, and as Ms. Gruber said, we don't want to give out any of the technical terms, questions that are being asked.  But the bad guys are out there and the fraudsters are passing these around, and they are saying, this is the way to circumvent it to get it out there. 

So what we are finding is that it is out there, it is so much, we are making arrests, we are making convictions, but we are not making a lot of them, to be really truthful, because it is a systemic problem at the top that needs to be corrected.  We can't correct it from the bottom by just doing arrests and as a deterrent on it. 

So I have to say, in our cases on it, we have about three major investigations with convictions on it.  And we have quite a few where we are working with local law enforcement, but they are small cases, very infrequent.  And I guess we can't arrest our way out of this problem. 

One other thing just to talk about, when we were talking about one of the safeguards that SSA is doing of notifying to the address of record, the problem with it is, what the fraudsters have figured out is that when you change a person's direct deposit information on it, you also change the address.  So when it goes out to the address of record, it is oftentimes the fraudster's address getting the information rather than the address of the actual beneficiary. 

So we are working with SSA on that as another one of the ways that we are trying to say, maybe send it to the old address as well as the new address to let people know that something has happened. 

Mr. Berg.  Thank you.  I yield back. 

Mr. Gregg.  Congressman Berg, if I could make one comment if you have time? 

For the people that are interested in Direct Express, as I mentioned in my oral statement, we have a Treasury database that has a record of the checks that we have been issuing.  So when the person calls, the person that is at our Dallas call center calls up that database ‑‑ and, again, I don't want to get into the specifics ‑‑ but asks that person questions that is unlikely that anyone but the rightful owner would have.  It is more detailed than kind of the regular, you know, address and Social Security number. 

So I think we have gone a long way to really reduce it at that end.  But any time there is a change, if someone is changing from a direct deposit to Direct Express or an address, flags need to go up.  Because, you know, in some cases that is legitimate, in other cases you really have to be alert to that. 

Mr. Berg.  Thank you. 

Chairman Johnson.  You know, it seems to me that Social Security has an address; otherwise, you wouldn't be able to send checks out.  Are you telling me, Mr. O'Carroll, that the addresses aren't correct in a lot of cases? 

Mr. O'Carroll.  Well, what we are concerned with, Mr. Chairman, is that when a fraudster gets your information, they then go and they change the direct deposit information to their dummy account or whatever account that they are using.  At the same time, a lot of times they will say, we also want to change our address.  So then when the claims representative gets the information, they are copying down the new address, the new account number on it, and then that becomes the address of record for any correspondence. 

So our concern on it is that is what the fraudsters have figured out, is that:  change the address at the time you are doing your direct deposit changes, and the notification will be just sent to the new address, not the old one. 

So it is a good address that the SSA has on it for everybody that, you know, as the beneficiary.  It is just that when the fraudster changes it. 

Chairman Johnson.  But the fraud guys are actually calling for a change of address? 

Mr. O'Carroll.  Yeah.

Chairman Johnson.  Garbage.

Mr. Brady, you are recognized.

Mr. Brady.  Mr. Chairman, thanks for holding this hearing. 

And whenever we do, it is just so disturbing to hear those who rip off seniors, especially those with limited education or limited mental capacity.  We have to do everything we can to put these people behind bars.  And I personally hope there is a special place in hell reserved for those who prey on our seniors. 

A question for Ms. Gruber and Mr. O'Carroll:  You said that when there is a request for a change for the beneficiary, you send out a letter to confirm it.  What is the result of that?  What percentage are responded to?  What percentage confirm that they have made a change?  And which ones raise a red flag that there is fraud likely or possible? 

Ms. Gruber.  Thank you, Mr. Brady. 

So, just to make sure that everyone has the same context, as Mr. O'Carroll had said, you know, when you make an address change at the same time that you are making a direct deposit change, a notice goes out to the new address.  And we agree that that is something that we need to explore and look at how we can button that up. 

When you make just a direct deposit change, we do send a notice to the address of record.  And that has been one of the primary ways that our frontline staff have received reports of fraud. 

I don't have hard numbers, but it is something that we can take a look at and see what we can get our hands on. 

Mr. Brady.  Could you get the committee the hard numbers? 

Ms. Gruber.  Sure.

Mr. Brady.  Because, really, it may be the most effective way, but it may not be effective overall in both those instances. 

Ms. Gruber.  Sure. 

[Transcript Insert #2 - Gruber]

Mr. Brady.  Mr. O'Carroll, I was reading in the preparation that most wrongful beneficiary direct deposit changes are initiated by financial institutions and are made to prepaid debit cards. 

So what can be done to ensure that this is accurate, that this is verified, that Social Security, working with Treasury, can help to make sure ‑‑ you know, if that is the initiator of much of the fraud in that area, how do we address it better? 

Mr. O'Carroll.  Well, I guess the biggest thing to take away from this, our concern is just to authenticate and to verify.  And what we are finding with the financial institutions on it ‑‑ and when you think of financial institutions, Mr. Brady, we are thinking, one, I always think in terms of the bank on the corner of a financial institution.  But what we are not realizing is that, with a lot of these prepaid debit cards, there isn't an actual bank there; it is usually an entity.  And they change quite frequently, you know, with the different requirements that they have. 

So what we are finding with the financial institutions, for the most part ‑‑ and it is probably through work with Treasury Department, FDIC, and other agencies ‑‑ a lot of the information that a financial institution asks for and gets from a person who is trying to, you know, either set up an account or change an account is fairly good, but it varies from bank to bank, from institution to institution. 

But we are finding with the prepaid debit cards that there is not a lot of information required, there is not a lot of verification done on it, and that does seem to be the area that is the biggest vulnerability on it, is that there is so many of them out there and there are so many different requirements, that the safety features aren't built into it. 

Mr. Brady.  Could your office compile a list of the financial institutions where we are having those problems ‑‑

Mr. O'Carroll.  Absolutely.

[Transcript Insert #3 O'Carroll]

Mr. Brady.  ‑‑ you know, in volume or percentage, so that we can sort of shine a light on where we are having some of those issues and maybe address them? 

Mr. O'Carroll.  That would be very good because, in some cases, some of the other benefit agencies have found, you know, the most susceptible of the financial institutions on it and are not allowing those institutions to deal with them for direct deposit. 

Mr. Brady.  Yeah.  I think we ought to see those. 

Ms. Saunders, you make a great point about the waivers and some of the challenges there.  You have to confirm this is accurate information by a real, live person seeking the waiver.  If a notary public is too much of a challenge, how else would you accurately confirm it, in remote areas especially? 

Ms. Saunders.  Well, the notary public only confirms that you are the person who has signed it.  The notary does not confirm that you really live in a remote geographic area or that you have a mental impairment.  That is beyond what a notary can do. 

Mr. Brady.  So how would you do that? 

Ms. Saunders.  We would suggest that the agency make the determination.  They are making other determinations; they are the ones who are dealing day‑to‑day with the Social Security.

Mr. Brady.  I am not picking on you, but how would they do that? 

Ms. Saunders.  So when someone comes in and says, "I don't want a direct deposit because I don't have a bank account, and I don't have access to the Internet, so I don't want a prepaid card; I don't understand, how can a card have money on it," then the Social Security representative asks a few questions and makes the determination right then and there. 

Mr. Brady.  But if you are in a remote area, you are not likely to be walking into a Social Security office.

Ms. Saunders.  Then however it is that you apply for Social Security, if you make the phone call and you apply that way, then that recipient of that phone call at the agency makes that determination.

Mr. Brady.  But we are telling people not to give their information over the phone call to a government official. 

Ms. Saunders.  No, we are only telling ‑‑ I thought the information was not to give it ‑‑

Mr. Brady.  But to verify, wouldn't you ‑‑ I am not picking on you.  I am just trying to figure out what is a better way. 

Ms. Saunders.  So when the recipient goes in to apply for benefits ‑‑

Mr. Brady.  They are in a remote area.  They are not walking into anything.  They are sending a letter back. 

Ms. Saunders.  So they call for benefits.  They have to have a conversation at some point with the Social Security Administration, don't they?  To apply for benefits initially, isn't there ‑‑

Ms. Gruber.  Correct.  Correct.

Ms. Saunders.  There is some conversation that occurs at some point. 

Mr. Brady.  But we are talking about the waiver.  You are already getting benefits; you are asking for a waiver.  How do you confirm that, in fact, is the person you wanted? 

Ms. Saunders.  At that point, the recipient calls Social ‑‑ either they go into a Social Security office or they call the 800 number that is the Social Security Administration's office and are sent to the appropriate avenue that knows how to ask the questions and determine the answer. 

I am sure the Social Security Administration is quite familiar with how to deal with people of limited mental capacity.  As they process their applications originally, they would process these applications for waivers in the same way. 

Mr. Brady.  It seems ripe for fraud.  But let's keep pursuing that.  I think the points you raise are good ones. 

Thanks, Mr. Chairman. 

Chairman Johnson.  Thank you. 

Mr. Marchant, you are recognized. 

Mr. Marchant.  Thank you, Mr. Chairman. 

I have a question for Mr. Gregg. 

In your testimony, you discussed a pilot project to determine whether people will sign up for direct deposit if they are sent an unactivated Direct Express card. 

Are only SSI beneficiaries in the pilot?  And tell me more about the pilot and how it is proceeding and its results so far. 

Mr. Gregg.  Yes, only SSI.  And, to date, it is very limited.  We sent out 400 cards about 3 weeks ago, and so far we have had a 30 percent rate of people signing up, which is much higher than I would have expected, actually. 

We are going to continue to test this in limited bites to see.  I mean, there is no money on the card.  All they have to do, however, is call our number to activate it and get signed up for the Direct Express. 

So the pick‑up rate so far has been very encouraging. 

Mr. Marchant.  And is there any security as to who is actually calling in and activating the card? 

Mr. Gregg.  Well, there is a specific number in the information that we send out there, and we have people at our Dallas call center that handle those calls specifically. 

Mr. Marchant.  So a person that goes to an ATM machine that has possession of the card and actually has possession ‑‑

Mr. Gregg.  They have the card, but unless they activate it and go through ‑‑ you know, we know who they are, obviously, because we have gone through our enrollment procedures before we send them out.  So when they call to activate it, we do some double checking.  But no money is on it until we turn the switch. 

Mr. Marchant.  Right, but someone could get the number and someone could call and say, "I am James Jones, and here is my number, and I need this money moved." 

Mr. Gregg.  That is potentially an issue, but we are looking at that very closely, and we haven't seen any cases of that so far. 

Mr. Marchant.  And you don't have some kind of a bat‑code or pin number that only him and his wife or him and you know, that if either of you don't know that number, then it has to be a scam? 

Mr. Gregg.  Well, we are sending it to an address that we are very confident about. 

Mr. Marchant.  Even the credit card companies now have put us through quite a strenuous process, and then they say, what are these last two numbers that you should know?  If you don't have possession of the card, actually, you probably won't have those numbers. 

Mr. Gregg.  Right. 

Mr. Marchant.  I would suggest that, as this matures, that you work closely with the credit card people to see what they might be able to offer you as far as ideas as far as how you can take one more step toward making sure that the card goes to those that we intend it to go. 

To activate the direct card, the recipient will have to call the go line.  What safeguards do you have in place to make sure the caller is who they say they are?  I assume the person that calls has to be the person who is on the card. 

Mr. Gregg.  Yes. 

Mr. Marchant.  Are you coordinating efforts on this pilot with Social Security? 

And to Mr. O'Carroll, have you looked into this pilot?  And if so, what are the frauds, and what are the acceptable frauds? 

Mr. O'Carroll.  Mr. Marchant, to be truthful, we are aware of this pilot, but we haven't done any work on it.  So I really can't comment on it. 

We are working closely with the Treasury IG, and I am sure they are monitoring it too.  And we can get back to you on that one, but we haven't done any work on it at all.

Mr. Marchant.  Well, we have had quite a bit of experience in this.  Both when Sam and I were both in the State legislature, we began to go from the food stamp program to the debit card program, and it was mailed out.  I see Brady down there; he probably masterminded the whole thing. 

But it worked.  I mean, after we discovered the avenues of fraud that could be used, and we solicited the expertise of the companies that had been doing this forever, I think we have it down now to where the fraud is a very small instance.  And it is probably the most successful program, as far as efficiency, in the country. 

So I would encourage you to talk to the Texas guys and see ‑‑ it would take a very short phone call to see if there is something they used that is effective, or any State, that you could incorporate into your program where there will be less fraud. 

Mr. Gregg.  We will take a look at that. 

Mr. Marchant.  Yeah.  Thank you. 

Chairman Johnson.  No income taxes in Texas. 

Mr. Becerra, you are recognized for 1 minute. 

Mr. Becerra.  Mr. Chairman, thank you for allowing me to try to get some clarification.  Mr. Brady actually raised some good points that I would like to just better understand on this, the issue of waiver. 

Ms. Saunders, my sense was from your testimony that the waiver process which requires the notary public to ascertain something is for the purpose of ascertaining that the beneficiary wants to waive the requirement to have electronic benefit payments but not to ascertain the beneficiary's identity? 

Ms. Saunders.  The notary public has the capacity to do one thing under every State law, and that is to identify that the person signing the piece of paper is that person.  That is all a notary public does. 

It is beyond the capacity or the authority of a notary public to ascertain that what is on the piece of paper that the person signs is true. 

Mr. Becerra.  Right.  And so what you are saying is that ‑‑ well, let me ask you.  Are you saying that we could bypass the notary public and allow SSA, which has information on these individual beneficiaries, to try to do the ascertainment of that person's identity as it normally would through the regular process of applying for benefits? 

Ms. Saunders.  Yes, sir, that is exactly what I am saying. 

The purpose of the notary does not seem to be so much to determine that the person is actually authentically the person, but to set up a hurdle to make it more difficult for people to apply for the waiver, for the understandable reason that Treasury wants fewer people to apply for the waiver. 

And what we are saying is we are fully supportive of the electronic transition, but there are some people who need the waiver, and it shouldn't be denied to them because they cannot access a notary public or make their way through this complicated procedure. 

Mr. Becerra.  Mr. Chairman, maybe it would be better to get a written response than to just ask both Treasury and SSA today for a reaction response to Ms. Saunders, but maybe we should try to find out, what value is the notary public? 

Especially for folks who are in rural areas, I think what we want to do is make sure that there isn't any identity fraud that occurs in the process of applying for a waiver.  And so I certainly would think that we would have some concern if we remove one step that tries to give us a better sense that the person that is applying for this is actually the person who is indicated. 

And so, Mr. Chairman, maybe we could just ask both Treasury and Social Security to give us a written response to the issue raised by Ms. Saunders about the actual value and necessity of having a notary public be part of that process to seek a waiver. 

Chairman Johnson.  There should be another way to do it, and Mr. O'Carroll can probably figure that out. 

Mr. Becerra.  So if you all perhaps could respond to that question about the waiver process and the value of having a notary public participate in that, that would be helpful. 

Mr. O'Carroll.  I would be happy to.

[Transcript Insert #4 - O'Carroll]
[Transcript Insert #5 - Gregg]
[Transcript Insert #6 - Gruber]

Mr. Becerra.  Thank you, Mr. Chairman.

Chairman Johnson.  Thank you. 

I want to thank you all for being here, and I appreciate your presence. 

And we trust Treasury and Social Security will continue to work together to protect seniors while ensuring that their benefits arrive safely and on time.

And get after those crooks, Mr. O'Carroll. 

Mr. O'Carroll.  Yes, sir. 

Chairman Johnson.  The meeting stands adjourned.  Thank you. 

[Whereupon, at 10:19 a.m., the subcommittee was adjourned.]


Public Submissions For The Record

Alan Feiertag
Consumers For Paper Options
FISCA
Jerry Deckard
Mastercard
NBPCA





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