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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 

( 

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 

ROBERT P. CASEY JR, Pennsylvania 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

KIRSTEN E. GILLIBRAND, New York 

JOE MANCHIN III, West Virginia 

RICHARD BLUMENTHAL, Connecticut 

TAMMY BALDWIN, Wisconsin 

JOE DONNELLY Indiana 

ELIZABETH WARREN, Massachusetts 

SUSAN M. COLLINS, Maine 

BOB CORKER, Tennessee 

ORRIN HATCH, Utah 

MARK KIRK, Illinois 

DEAN HELLER, Nevada 

JEFF FLAKE, Arizona 

KELLY AYOTTE, New Hampshire 

TIM SCOTT, South Carolina 

TED CRUZ, Texas 

KIM LIPSKY, Majority Staff Director 

PRISCILLA HANLEY, Minority Staff Director 

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CONTENTS 

Page 

Opening Statement of Chairman Senator Bill Nelson ......................................... 1 

Prepared statement .......................................................................................... 8 

Statement of Ranking Member Susan M. Collins ................................................. 5 

PANEL OF WITNESSES 

Alexandra Lane, Victim of Social Security Fraud ................................................. 11 

Rebecca Vallas, Staff Attorney and Policy Advocate, Community League Services of Philadelphia .............................................................................................. 16 

Theresa L. Gruber, Assistant Deputy Commissioner of Operations, Social 

Security Administration ...................................................................................... 31 

Richard Gregg, Fiscal Assistant Secretary, U.S. Department of Treasury ......... 38 

The Honorable Patrick P. O’Carroll, Jr., Inspector General, Social Security 

Administration ..................................................................................................... 45 

APPENDIX 

PREPARED WITNESS STATEMENTS AND DELIVERABLES

Alexandra Lane, Victim of Social Security Fraud ................................................. 14 

Rebecca Vallas, Staff Attorney and Policy Advocate, Community League Services of Philadelphia .............................................................................................. 19 

Theresa L. Gruber, Assistant Deputy Commissioner of Operations, Social 

Security Administration ...................................................................................... 33 

Richard Gregg, Fiscal Assistant Secretary, U.S. Department of Treasury ......... 40 

Deliverables submitted for Secretary Gregg .................................................. 73 

The Honorable Patrick P. O’Carroll, Jr., Inspector General, Social Security 

Administration ..................................................................................................... 47 

ADDITIONAL STATEMENTS FOR THE RECORD

Alastair M. Fitzpayne, Assistant secretary for Legislative Affairs, U.S. Department of Treasury ........................................................................................... 80 

John Runyan, Executive Director, Consumers for Paper Options ....................... 82 

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SOCIAL SECURITY PAYMENTS GO 

PAPERLESS: PROTECTING SENIORS 

FROM FRAUD AND CONFUSION 

WEDNESDAY, JUNE 19, 2013 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The Committee met, pursuant to notice, 1:57 p.m., in Room SD– 

366, Dirksen Senate Office Building, Hon. Bill Nelson, Chairman 

of the Committee, presiding. 

Present: Senators Nelson, Blumenthal, Donnelly, and Warren. 

OPENING STATEMENT OF SENATOR BILL NELSON, CHAIRMAN 

The CHAIRMAN. Well, good afternoon, everyone, and thank you 

for being here to discuss a very important topic, identity theft-related Social Security fraud. 

Today is the third in a series of investigations into fraudulent 

schemes that target senior citizens. In March, we examined the Jamaican phone scams. A month later, we took on tax refund fraud. 

Today, we are going to get into Social Security fraud. 

The Social Security Inspector General is here and he has graciously agreed to bat cleanup for us this afternoon, and he is going 

to tell us about how these fraud criminals are able to divert people’s hard-earned Social Security benefits from their bank account 

to the criminal’s bank account or debit card. 

And aside from the financial cost to taxpayers, the worst thing 

about stolen Social Security benefits is the human cost. Five-pointtwo 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 

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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 govDeShaun on LAP51NQ082 with DISTILLER

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ernment 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 

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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 

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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 

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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:] 

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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 

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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? 

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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:] 

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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 

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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 longterm 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. 

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Based on comments we received in the regulatory process, Treasury provided three waivers from the electronic option. Waivers are 

granted automatically to anyone 90 years of age or older as of May 

1, 2011. Treasury will also grant waivers for individuals living in 

remote locations that lack the infrastructure to support the receipt 

and use of electronic payments. In addition, waivers will be granted to individuals who lack the mental capacity to handle their own 

affairs. It is likely that individuals who might qualify for the last 

waiver will instead choose to have a representative payee manage 

their finances. 

As we have increased electronic payments, Treasury has given 

much attention to the potential for fraud, particularly through 

identity theft. Compared to paper checks, the proportion of fraud 

in the Direct Express card payment is significantly lower. While 

the scale of fraud on the Direct Express card remains low, Treasury has taken aggressive measures to verify individuals who are 

signing up. We do that through checking with our own internal 

database to ensure that the right person is getting a Direct Express card. We also have a fraud alert system. 

Treasury, in partnership with Social Security, has been extremely successful in increasing the use of electronic payments. 

Since December of 2010, the percentage of Federal benefit payments made electronically has increased from 85 percent to 96.6 

percent. Since that date, almost eight million monthly benefit payments have been converted to an electronic option. Since it costs 

$1.16 more to make a check payment compared to an electronic 

payment, Treasury will save the taxpayers more than $1 billion 

over the next ten years as a result of this switch. These savings 

will only increase as the number of individuals receiving Social Security benefits and receiving them electronically increases. 

In conclusion, let me reiterate that Treasury is deeply committed 

to making sure that Social Security recipients receive their payments in a timely and accurate manner. We also know from long 

experience that the best way to make payments is through an electronic payment mechanism. Over the past two-and-a-half years, we 

have achieved our goal of moving to electronic payments, and the 

challenge going forward will be to maintain close to our current 

percentage level. We will do that with sensitivity to payment recipients and in partnership with Social Security and other benefit 

agencies. 

Thank you. I will be happy to answer any questions. 

[The prepared statement of Mr. Gregg follows:] 

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The CHAIRMAN. Thank you, Mr. Gregg. 

General O’Carroll, tell us what Ms. Gruber and Mr. Gregg have 

said, how they can improve. 

STATEMENT OF HON. PATRICK P. O’CARROLL, JR., INSPECTOR 

GENERAL, SOCIAL SECURITY ADMINISTRATION 

Mr. O’CARROLL. Good afternoon, Chairman Nelson, Senator Warren. Thank you very much for the invitation to testify today. 

The phone rang. A Social Security Disability beneficiary answered and he listened to the incredible news. The 55-year-old Wisconsin man won the Jamaican lottery, or so he believed. His 

winnings, he was told, were millions of dollars and several luxury 

vehicles. Those prizes were his, the caller said, if he sent money 

to Jamaica to cover the taxes and other fees. Sadly, over the next 

few months, the man repeatedly sent money to unknown individuals in Jamaica. He depleted his savings in the process. In all, the 

man lost more than $30,000, and he was told he could recover his 

losses if he assisted in a larger scheme to victimize others. 

But his involvement in the scheme, mailing stolen money to Jamaica, led to a recent breakthrough in our efforts to investigate 

identity theft schemes aimed at Social Security beneficiaries. The 

man’s plight led us to a Jamaican national named O’Brain J. 

Lynch, who recently pled guilty to wire fraud in Wisconsin. We believe Lynch coordinated an extensive scheme to steal Social Security benefits. He and others defrauded senior citizens out of hundreds of thousands of dollars. Lynch now faces up to 20 years in 

prison, and he has agreed to repay $100,000 in restitution. 

We have several investigations of similar fraud schemes in 

progress across the country. In October 2011, we began tracking reports from beneficiaries that someone had changed their direct deposit information and redirected their monthly payments. Suspects 

generally target senior citizens’ personal information through social 

engineering methods like telemarketing and lottery scams, as well 

as other sources. Our investigative work has revealed that these 

changes often involve fraudulently directing Social Security benefits onto prepaid debit cards, which are widely available for purchase at retail stores and online. 

As of June 1, we have received more than 37,000 reports of questionable changes to Social Security direct deposit records. We are 

currently receiving about 50 new reports every day. Our auditors 

will soon issue a report that seeks to quantify the cost of replacing 

missing benefit checks due to unauthorized direct deposit changes. 

In that report, we identified over 23,000 beneficiaries who may 

have not received payments of about $28 million for the period of 

review, which ended in June of 2012. 

Over the last year, we have issued audit reports that reviewed 

controls over direct deposit changes through auto-enrollment at financial institutions; through Treasury’s Direct Express program 

and other prepaid cards; in Social Security offices; and through 

SSA’s national 800 telephone number. We found the controls in 

place were not fully effective and authentication methods could be 

improved. We recommended that SSA work with Treasury to improve identity verification for direct deposit changes made through 

financial institutions, particularly to prepaid debit cards. We also 

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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:] 

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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. 

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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 

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quirement, 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 

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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. 

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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 

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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.] 

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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. 

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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 

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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 

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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 

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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. 

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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 

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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. 

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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. 

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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 

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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? 

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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 

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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, ReguDeShaun on LAP51NQ082 with DISTILLER

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lation 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 

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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.] 

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