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80–440 2013

HEARING ON THE DIRECT DEPOSIT OF SOCIAL 

SECURITY BENEFITS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SOCIAL SECURITY 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

SEPTEMBER 12, 2012

Serial No. 112–SS20 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

JENNIFER M. SAFAVIAN, Staff Director 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON SOCIAL SECURITY 

SAM JOHNSON, Texas, Chairman 

KEVIN BRADY, Texas 

PATRICK J. TIBERI, Ohio 

AARON SCHOCK, Illinois 

RICK BERG, North Dakota 

ADRIAN SMITH, Nebraska 

KENNY MARCHANT, Texas 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

SHELLEY BERKLEY, Nevada 

FORTNEY PETE STARK, California 

iii 

C O N T E N T S 

Page 

Advisory of September 12, 2012 announcing the hearing .................................... 2 

WITNESSES 

Richard Gregg, Fiscal Assistant Secretary, Department of the Treasury .......... 6 

Theresa Gruber, Assistant Deputy Commissioner for Operations, Social Security Administration .............................................................................................. 14 

Patrick P. O’Carroll, Jr., Inspector General, Social Security Administration .... 19 

Margot Saunders, Counsel, National Consumer Law Center .............................. 27 

(1) 

HEARING ON THE DIRECT DEPOSIT OF 

SOCIAL SECURITY BENEFITS 

WEDNESDAY, SEPTEMBER 12, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:08 a.m., in Room 

B–318, Rayburn House Office Building, the Honorable Sam Johnson [chairman of the subcommittee] presiding. 

[The advisory of the hearing follows:] 

2 

HEARING ADVISORY 

Chairman Johnson Announces Hearing on the 

Direct Deposit of Social Security Benefits 

Wednesday, September 5, 2012 

U.S. Congressman Sam Johnson (R–TX), Chairman of the House Committee on 

Ways and Means Subcommittee on Social Security, announced today that the Subcommittee will hold a hearing to examine the impact on beneficiaries of direct deposit of Social Security benefits. The hearing will take place on Wednesday, 

September 12, 2012 in B–318 Rayburn House Office Building, beginning at 

9:00 a.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Subcommittee for inclusion in the printed record of the hearing. A list 

of invited witnesses will follow. 

BACKGROUND: 

The Debt Collection Improvement Act (DCIA) of 1996 (P.L. 104–134) required all 

federal payments, including Social Security benefits, to be made through electronic 

funds transfer (EFT) beginning in January 1999. In order to mitigate the hardships 

this mandate would impose on those who lacked access to accounts at financial institutions, the law provided the U.S. Department of the Treasury (Treasury Department) with broad authority to define exception categories and grant waivers from 

this requirement. The Financial Management Service (FMS) at the Treasury Department, responsible for disbursing federal benefits (of which Social Security and 

Supplemental Security Income (SSI) benefits account for approximately 89 percent 

of all benefit payments), issued agency rules and implemented several initiatives to 

encourage greater use of EFT. 

In 2005, FMS launched the ‘‘Go Direct’’ campaign targeted at paper check recipients to emphasize the benefits of electronic payment. Following pilot testing, in 

2008, FMS launched the Direct Express® Debit MasterCard®, a reloadable, low-fee 

debit card that allows recipients to receive benefits on an electronic card without 

having a bank account. The card allows recipients to use the card wherever 

MasterCard® is accepted and to obtain cash at an Automated Teller Machine or 

through cash-back purchases. Benefits may also be disbursed onto private label 

reloadable debit cards, if they meet certain Treasury requirements. Since the DCIA 

was signed into law, the volume of all Social Security benefits disbursed electronically has grown from 56 percent to over 90 percent today. 

To advance the goal of disbursing 100 percent of benefits through EFT, Treasury 

issued a final amended rule (31 CFR Part 208) in 2010, requiring all new beneficiaries to receive their benefits via electronic payment, with limited exceptions, beginning May 1, 2011. In addition, by March 1, 2013, the rule requires all individuals 

receiving paper payments to choose an electronic payment option, such as direct deposit, a Direct Express® card, or another reloadable debit card. At the time of the 

final rule, Treasury estimated that mandatory electronic benefit payments would 

save the Social Security Administration (SSA) $1 billion over the next 10 years. 

Payment by EFT is not mandatory for anyone who was older than 90 years of 

age before May 1, 2011, or for anyone who is ineligible for a Direct Express® card 

because the card has been suspended or cancelled. In addition, limited waivers are 

available to anyone who submits to FMS a written, notarized request for a waiver 

due to a mental impairment or because they are living in a remote geographic location. How FMS and the SSA implement the waiver process will have a significant 

impact on affected beneficiaries and agency operations. 

3 

In October 2011, after receiving allegations that thieves were redirecting benefit 

payments away from owners’ bank accounts to accounts they controlled, the SSA Inspector General (IG) began conducting several investigations regarding electronic 

payment fraud, including both direct deposit and reloadable debit cards. In the report, ‘‘Direct Deposit Changes Initiated by the Social Security Administration’s National 800-Number Staff,’’ the IG found that the SSA’s national 800-number service 

lacks the policies and system checks to prevent wrongful redirection of payments. 

In announcing the hearing, Subcommittee Chairman Sam Johnson (R–TX) stated, 

‘‘Millions of hard working Americans rely on Social Security and deserve 

the peace of mind that their benefits will arrive safely and on time. We 

need to determine the flaws in the electronic payment system, protect 

those who receive their benefits electronically, and make sure that Treasury and Social Security are taking all necessary steps to guard innocent 

seniors against fraudsters trying to steal their benefits.’’ 

FOCUS OF THE HEARING: 

The hearing will examine the impact on beneficiaries of electronic payment of Social Security benefits; including exceptions to electronic payment requirements and 

the effectiveness of efforts to educate beneficiaries about these changes. The hearing 

will also focus on the degree to which electronic payments are subject to fraud and 

the actions the SSA and FMS are taking to prevent this fraud. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word or WordPerfect document, in compliance with the formatting requirements listed below, by the close 

of business on Wednesday, September 26, 2012. Finally, please note that due 

to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

4 

3411 TTD/TTY in advance of the event (four business days’ notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov/. 

f 

Chairman JOHNSON. Good morning. 

Welcome to the hearing on ‘‘Direct Deposit of Social Security 

Benefits.’’ I appreciate all of you all being here. 

Back in 1996, Congress passed the Debt Collection Improvement 

Act, which required electronic payment of Federal benefits, including Social Security benefits. Not only does the direct deposit of benefits help seniors avoid delayed, lost, or stolen checks, it saves taxpayers money. Taxpayers save 90 cents for every check the Treasury Department doesn’t have to send. That doesn’t sound like a lot, 

but it is probably enough to keep the Metro going until 1 o’clock 

in the morning here. 

In addition to direct deposit, Treasury also supports the delivery 

of Federal benefits through two other electronic fund transfer 

methods: the Direct Express MasterCard debit card, along with 

other private-label reloadable debit cards if they meet certain 

Treasury requirements. 

Efforts to end paper checks have been under way for over 16 

years. The good news is that the percent of all Social Security benefits paid electronically has grown significantly, from 56 to over 94 

percent today. 

In a 2010 rule, Treasury mandated the use of direct deposit for 

all new Social Security beneficiaries beginning May 1, 2011. Those 

already receiving benefits are required to sign up for electronic 

payment by March 1st next year. That is just less than 6 months 

from now. 

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

the next 10 years. 

But as usual, we have to worry about ID thieves, as we will hear 

from the Social Security Inspector General today. Increasingly, ID 

thieves have been able to obtain beneficiaries’ personal information 

and use it to redirect benefit payments to their own accounts— 

without the beneficiary knowing it, in a lot of cases. 

It is simply unacceptable that Social Security can’t put a stop to 

it. While delivering benefits on time and at a lower cost than paper 

checks makes sense, at the same time millions of seniors and those 

with disabilities deserve the peace of mind to know their benefits 

will arrive safely and on time. We need to determine the flaws in 

the electronic payment system, protect those who receive their benefits electronically, and make sure Treasury and Social Security 

are taking all necessary steps to guard beneficiaries against those 

trying to steal their benefits. 

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

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

5 

This is a more particular hearing, as it is specifically focused on 

an issue within the Social Security Administration, but it is a very 

important issue because this does affect the day-to-day lives of millions of Americans who receive their Social Security benefits. 

I want to start by first saying that I support electronic benefit 

payments for many of the reasons, Mr. Chairman, that you just articulated. But our number-one goal should be to make sure that 

every single American receives the Social Security benefits that he 

or she earned on time and in full. 

And so, as we go about the process of transitioning to these electronic benefit payments, we have to make sure that we are doing 

it in a way that doesn’t affect those Americans who worked for a 

long time to earn these benefits. And we don’t want any of them 

to find themselves in a situation where they are the victims or they 

are losing out because we haven’t done something right. 

So I hope we move forward with examining how SSA has been 

able to implement this proposal. We know we have a deadline coming up next year that requires SSA to move 100 percent toward 

electronic benefit payments, but there are some questions about 

how equipped SSA is to really deal with this in a way that makes 

sure that beneficiaries continue to receive their benefits on time 

and in full. 

Now, I agree with you; every time we move to electronic benefit 

payments, SSA saves money. That means the taxpayers are saving 

money. And as you mentioned, it is close to a dollar for every one 

of these transactions that is done electronically instead of through 

a paper check. But we do need better information on why a significant number of current and new beneficiaries are not getting their 

benefits electronically. 

March of 2013 is a sort of magical date in that that is when we 

are supposed to require all benefits to be paid electronically. But 

some 6 million Americans, including many who have just started 

receiving their benefits, still get paper checks. We know broadly 

that some people don’t have bank accounts, and some people just 

don’t like electronic payment, and that is why they don’t go towards the newer system of electronic payment. 

My understanding is that Treasury and the Social Security Administration are not collecting information on this group of folks, 

of applicants who are not receiving their payments electronically, 

and we are not yet sure why they continue to want paper checks. 

We also know that a small but significant number of very vulnerable Americans have had trouble accessing their benefits after 

switching to electronic payment. We have heard from beneficiary 

advocates, from the staff from the SSA itself, and from the beneficiaries themselves, as well, who report significant problems reaching the customer service office that services Direct Express, which 

is the Treasury-sponsored debit card program. 

About 3 percent of Direct Express cards were reported lost or stolen in 2011. Now, there is an issue here. If you lose a check or if 

a check is stolen, a paper check is stolen, it is a lot easier, my 

sense is, for SSA to quickly get you back on your feet and get you 

the benefits that you were supposed to receive. When you have an 

electronic payment through one of these debit cards, the beneficiary 

can’t access his or her money until the Treasury Department elecVerDate Mar 15 2010 00:36 Jun 04, 2013 Jkt 080440 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80440.XXX 80440
6 

tronically traces the original payment, a process which I am told 

can take several weeks. 

Just mailing these Americans who are receiving benefits a debit 

card for their benefits is clearly not the right answer, but we don’t 

have enough information to know what is. We need that information, and we need it soon. 

As I said, Mr. Chairman, I support electronic benefit payments, 

but our number-one goal has to be making sure that every single 

American who receives Social Security benefits receives them on 

time and in full. 

We take our responsibility here on this subcommittee to make 

sure that we are protecting Social Security and strengthening it 

very responsibly. And I hope that what we do now is figure out a 

way to work with SSA to make sure that as we transition toward 

electronic benefit payments, we do so in a way that not only saves 

us money but makes every American who worked very hard to earn 

those benefits very comfortable that this is the right way to go. 

And so, with that, Mr. Chairman, I yield back my time, and look 

forward to the testimony of our witnesses. 

Chairman JOHNSON. Thank you. 

As is customary, any Member is welcome to submit a statement 

for the hearing. 

Before we move on to our testimony, I want to remind our witnesses to try to limit your oral statement to 5 minutes. However, 

without objection, all the written testimony will be made part of 

the hearing record. 

We have one witness panel today. And seated at the table are 

Richard Gregg, Fiscal Assistant Secretary of the Department of 

Treasury—I am glad to see Treasury participating. 

Mr. GREGG. Thank you, Mr. Chairman. 

Chairman JOHNSON. You work for a tough group. 

Theresa Gruber, Assistant Deputy Commissioner for Operations, 

Social Security Administration; Patrick O’Carroll, Inspector General, Social Security Administration—welcome back, sir; and Margot Saunders, Counsel, National Consumer Law Center. 

Thank you for being here. Welcome. 

Mr. Gregg, please go ahead. 

STATEMENT OF RICHARD L. GREGG, FISCAL ASSISTANT 

SECRETARY, U.S. DEPARTMENT OF THE TREASURY 

Mr. GREGG. Thank you, Mr. Chairman, Ranking Member 

Becerra, Members of the Subcommittee, for inviting me to testify 

on a very important issue this morning. 

First and foremost, Treasury is dedicated to make all payments, 

including Social Security payments, accurately and timely. 

And over the years, we have done just that. Treasury and Social 

Security Administration have also made excellent progress in moving from paper to electronic payments. Most individuals have payments credited directly to their bank account. 

Until fairly recently, we did not have a good electronic option for 

those who are unbanked. In 2008, Treasury solved the problem by 

introducing the Direct Express card. Direct Express is the prepaid 

debit card on which benefits are loaded each month. 

7 

In December of 2010, Treasury issued regulations to have all 

benefit payments, with limited exceptions, made electronically. Beginning May of 2011, anyone applying for Social Security, Veterans, or other Federal benefits is required to choose an electronic 

payment option. By March 2013, existing beneficiaries who receive 

their Federal benefits by paper check are required to switch to electronic payments. 

The Direct Express card has significantly benefited the unbanked 

population. For the first time, Treasury is able to offer the 

unbanked an option that is convenient, safe, and inexpensive. The 

Direct Express card provides excellent consumer protections, and 

most fees can be avoided by using the card wisely. The card enables cardholders to make purchases, pay bills, and get cash at 

thousands of ATMs and retail locations without having to pay a 

check-cashing fee, which can range from 2 percent to 6 percent for 

the check amount. 

As of June 2012, more than 3.6 million payment recipients have 

signed up for a Direct Express card, approximately two-thirds of 

whom did not have a traditional bank account. According to a June 

2012 survey, 95 percent of individuals who use Direct Express 

cards to receive their monthly Social Security benefits are satisfied 

with the card. I think that speaks well for the Direct Express card. 

In December 2010, when Treasury issued its rule on electronic 

payments, we were issuing over 125 million benefit checks each 

year. As of July of 2012, we have almost cut that number in half, 

with 92.3 percent of the benefit payments being electronic. 

Through Treasury’s longstanding push toward electronic payments, rather than paper check, Treasury achieved government 

savings of $600 million in fiscal 2011 alone because spending for 

payment electronically is 9 cents, compared to $1.05 per check payment. As the number of Social Security recipients increase, the savings will also increase. 

With the current initiative to have all benefit payments made electronically, an additional $1 billion in taxpayer money will be 

saved over the next 10 years. 

In addition, electronic payments provide beneficiaries with a 

safer, more reliable, and convenient way to receive their payments. 

Paper checks can be and are lost, stolen, or delayed. Electronic payments are reliable, as people would attest who had to leave their 

homes from Hurricane Isaac. 

Let me address the issue of fraud. Treasury has taken aggressive 

measures, working with Social Security, to combat fraud even 

though the scale of fraud on Direct Express cards is not large. 

There is far less fraud in electronic payments than in check payments. In fiscal 2011, there were over 1 million Direct Express enrollments and 6,691 attempts of fraudulent enrollments, of which 

2,411 were successful. 

This year, to further tighten our enrollment process, we have 

suspended Direct Express enrollment through the Web site. And, 

most importantly, we verify all new enrollments by using Treasury’s payment database to cross-check identity on the enrollment 

process. This database has information that is very unlikely that 

anyone other than the rightful owner would have. We have also developed a fraud alert system to flag suspicious activity, and we 

8 

have customer service representatives who specialize in fraud mitigation. Finally, we are working closely with Treasury’s Do Not Pay 

fraud detection and data analytics service. 

Treasury is also working with the prepaid card industry to prevent fraud from occurring when benefit payments are deposited on 

those cards. The debit card industry has been very responsive to 

our request for them to review the enrollment process to help reduce the potential for fraud. Treasury and Social Security are also 

working very closely together on this issue, along with the IGs 

from Social Security and Treasury IG. 

Treasury regulations provide that, beginning in March 2013, all 

benefit payments will be made electronically, except for individuals 

who qualify for a waiver. Treasury is aware that there will still be 

some recipients that have not converted to electronic options by 

that date, and we will continue to encourage people to comply with 

the regulation. In the meantime, those individuals will continue to 

receive their payments. 

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

questions. 

Chairman JOHNSON. Thank you, sir. 

[The prepared statement of Mr. Gregg follows:] 

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f 

Chairman JOHNSON. What does it cost Treasury to make those 

kind of payments instead of sending checks out? 

Mr. GREGG. Pardon me? 

Chairman JOHNSON. Does it cost Treasury to do that? 

Mr. GREGG. Yeah—— 


Insert offset folio 5 here 80440.005
14 

Chairman JOHNSON. Do you keep the savings yourself? 

Mr. GREGG. But all of the costs that we have on what it costs 

us to issue a check, what it costs us to make electronic payments, 

all the costs that we incur on both those programs are fully loaded. 

In other words, we calculate everything it costs us to issue a check 

to do the accounting for that. And the same thing with the electronic—— 

Chairman JOHNSON. So what you are telling me is there is no 

additional cost. Either way—— 

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

payment, and that is a fully loaded cost. 

Chairman JOHNSON. Okay. Thank you. 

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

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

Ms. GRUBER. Thank you. 

Chairman Johnson, Ranking Member Becerra, and Members of 

the Subcommittee, thank you for inviting me to discuss Social Security’s efforts to support the Department of the Treasury’s all-electronic initiative. My name is Theresa Gruber, and I am the Assistant Deputy Commissioner for Operations at the Social Security Administration. 

I want to make it clear that the agency places a paramount concern on the issue of fraud against our beneficiaries. We worked 

with our Inspector General on this from day one, and it has helped 

us to be able to combat these issues the moment we became aware 

of them. 

Clearly, fraud in electronic payments is a very serious matter, 

particularly for those affected. However, we agree with the Department of Treasury that, to date, because of our efforts, the incidence 

of fraud related to electronic payments is relatively low, particularly with regard to fraud related to paper checks. 

It is important to understand that people have always preyed on 

the vulnerable elderly, and we are hopeful that direct deposits will 

create identity trails that will make it easier to fight fraud. 

Our employees in local Social Security offices have the responsibility of determining benefit eligibility and the amount of those 

benefits. We pass that payment information to Treasury, and 

Treasury, in turn, delivers the payment. Our employees routinely 

interact with beneficiaries, taking applications for benefits and collecting bank information that allows Treasury to deposit checks 

electronically. They also explain the rules about how Treasury can 

deliver payments. 

Treasury has allowed direct deposit of Social Security and Supplemental Security Income, or SSI, since 1975. We agree that electronic payments are beneficial for the public and more efficient for 

the agency. They are significantly cheaper and less likely to be lost 

or stolen when compared to a paper check. 

They also allow us and the beneficiary to track payments more 

easily. We know when a beneficiary receives an electronic payment, 

15 

therefore reducing the replacement payments we must make if a 

beneficiary reports that their check has gone missing. 

Severe weather events have perhaps demonstrated one of the primary advantages of electronic payments. We can get payments to 

beneficiaries despite the challenges that natural disasters bring. 

After Hurricane Katrina, the number of beneficiaries along the 

Gulf Coast who signed up for direct deposit increased dramatically. 

Last month, in preparation for Hurricane Isaac, we worked with 

the Postal Service and Treasury to make special arrangements for 

about 150,000 paper checks, to make sure that they were shipped 

early and in the area on time. By contrast, we did not have to take 

any special action for the nearly 1.5 million beneficiaries who received electronic payments in the same storm track area. 

We also are working to make sure our beneficiaries understand 

the requirement for direct deposit. For example, we include direct 

deposit information in our cost-of-living notices. We display information in our field offices. We created our ‘‘No Check, Go Direct’’ 

public service campaign, starring our spokespersons Patty Duke 

and George Takei. And our Internet site contains a wealth of information about Treasury’s electronic payment program. 

As I mentioned, much of our employees’ day-to-day work involves 

public interaction. Treasury has the lead for developing and implementing the regulation, but our employees often explain it to beneficiaries. We ask all new beneficiaries to provide us with the information necessary to sign up for electronic payment. If they decline 

the electronic payment option because they do not have a bank account, we tell them about Treasury’s Direct Express card. Our employees emphasize that electronic payments are a Treasury requirement and that all beneficiaries must receive electronic payment by March 2013. 

For a variety of reasons, some individuals are averse to switching 

to electronic payment. If new beneficiaries request a waiver, we inform them that they must contact Treasury, and we provide them 

with the information to do so. 

We are proud of our success in signing people up for direct deposit. We believe that the overall participation rate in direct deposit is the best indicator of success, because it not only measures 

initial enrollment, but it also measures those who convert from 

paper to electronic payment sometime after receiving their first 

check. 

Currently, over 94 percent of Social Security beneficiaries and 

nearly 83 percent of SSI beneficiaries receive their payment electronically. In fact, the regulation itself allows for some people to 

have an exception, such as anyone age 90 or older as of May 1, 

2011. 

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

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

any questions. 

Chairman JOHNSON. Thank you for being here. 

[The prepared statement of Ms. Gruber follows:] 

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f 

Chairman JOHNSON. Mr. O’Carroll, welcome back. Give us the 

straight skinny. You are recognized. 

Mr. O’CARROLL. I will try. 

Chairman JOHNSON. All right. 


Insert offset folio 8 here 80440.008
19 

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

GENERAL, SOCIAL SECURITY ADMINISTRATION 

Mr. O’CARROLL. Good morning, Chairman Johnson, Ranking 

Member Becerra, and Members of the Subcommittee. Thank you 

for the invitation to testify today. 

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

scheme affecting the direct deposit process. 

In October 2011, my office began tracking allegations indicating 

that individuals other than Social Security beneficiaries or their 

representatives had made changes to direct deposit information 

and redirected the beneficiary payments. We have determined that 

the suspects generally target senior citizens’ personally identifiable 

information through social engineering methods, like telemarketing 

and lottery schemes as well as other sources. 

For example, last year, an 86-year-old Social Security beneficiary 

received a letter indicating that he had won $3.5 million. The man 

called the phone number in the letter and was asked to provide 

some personal information so that he could collect his winnings. 

Within days, someone had changed the man’s direct deposit information with SSA, and his monthly payment went to a different 

bank account. Before the issue was resolved, the senior citizen had 

missed several payments, and he had to obtain a bank loan to pay 

his rent. 

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

My office has responded on multiple fronts. First, we have 

partnered with Treasury OIG to investigate these schemes, some of 

which have roots in Jamaica but stretch across the United States. 

In June, our special agents, along with Treasury OIG, met with 

law enforcement and other U.S. officials in Jamaica, and at home 

we are working with U.S. attorneys across the country to combat 

these schemes and pursue the people responsible. We have executed search warrants, made arrests, and worked with prosecutors 

to charge several individuals. In July, a U.S. citizen and a Jamaican national residing in St. Louis pled guilty to Federal charges, 

including identity theft and wire fraud. 

We believe these criminals target beneficiaries throughout the 

country, deceiving them into sending money through wire transfer 

companies and prepaid debit cards. They allegedly sent the beneficiaries’ money to another Jamaican national in Montego Bay, Jamaica. That person faces similar charges but has not been arrested 

to date. 

We also have done and continue to do significant audit work on 

this issue. There are several controls SSA could quickly implement 

to reduce fraudulent changes to beneficiaries’ records. They can 

continue the planned implementation to block auto-enrollment for 

individuals who express concerns about fraudulent attempts to 

change direct deposit information. And SSA has reported to us that 

they plan to implement an auto-enrollment block next month. 

20 

SSA could develop an automated notification system to alert 

beneficiaries of changes made to their direct deposit information. 

This could occur through email or mobile phone alert or a mailer. 

And SSA could delay implementation of direct deposit changes 

until it is sure they are authorized. This could help identify improper payments before they are made. 

Finally, my office continues to urge all individuals, especially 

older beneficiaries, to take basic preventive steps to protect their 

personal information from improper use. We urge everyone to recognize phishing and lottery schemes and to exercise caution and 

sound judgment when they are asked for personal information from 

any source. 

In conclusion, the recent rash of unauthorized direct deposit 

changes to Social Security records is a significant issue. SSA, with 

its partners in government and the financial industry, must act 

swiftly to protect beneficiary payments and taxpayer dollars. We 

will continue to provide information to your subcommittee and 

agency decision-makers as we confront this issue. 

Again, thank you for the offer to testify today, and I am happy 

to answer any questions. 

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

[The prepared statement of O’Carroll follows:] 

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f 

Chairman JOHNSON. I hear what you are saying. And you guys 

over at Social Security need to figure out how to check with people 

when they get indications like that—I must get two or three a 

week, for crying out loud, where, you know, ‘‘You won a billion dollars! All you have to do is call us.’’ Well, that is baloney. 

And you can probably stop a lot of that illegal transfer if you 

work with him and figure out how, when somebody gets a message 

like that, whether it is on a cell phone or a whatever, have them 


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27 

call you and tell you about it, and you can run it down and see 

whether it is real or not. And 100 percent of them aren’t real, just 

about. 

Thank you for your information. 

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

STATEMENT OF MARGOT FREEMAN SAUNDERS, COUNSEL, 

NATIONAL CONSUMER LAW CENTER 

Ms. SAUNDERS. Thank you. 

Mr. Chairman, Members of the Committee, the National Consumer Law Center thanks you for inviting us today to testify on 

behalf of our low-income recipients of Social Security benefits. We 

also offer our testimony today on behalf of three other national 

groups representing low- and moderate-income consumers. 

We support Treasury’s proposal to substantially increase the 

number of recipients of Federal benefits receiving payments electronically. We agree that the 2010 rule will likely save a substantial amount of money the Treasury says that it currently spends 

mailing checks to Federal beneficiaries. We agree that there are 

numerous advantages to electronic deposit. 

However, even while electronic deposit is right for most recipients, it is not right for all recipients. There must be a better-articulated waiver procedure disclosed and accessible to that minority of 

recipients for whom direct deposit into a bank account or the Direct 

Express card will not work because of factors such as disability or 

geography. 

We are concerned that as Treasury pushes the most vulnerable 

of Federal recipients into the arms of banks and prepaid card providers, that Treasury must adhere to its obligation to make sure 

that these accounts are safe for people to use. 

In my written testimony, I have covered five topics in depth. In 

my oral testimony, I will try to touch on three topics quickly. 

First, I would like to ask you to imagine that you are an 88-yearold retiree collecting Social Security benefits as your sole source of 

income. You have received your benefits by check for years. You 

have never had a bank account because you don’t trust banks. You 

have a 6th-grade education and you aren’t good at reading. Your 

checks have served you well for years. You are comfortable cashing 

a check and paying your rent and monthly bills with money orders 

and cash. 

All of a sudden, you start to receive monthly notices in the mail 

from the United States Treasury Department. You can’t really understand them because they are complicated and they contain a lot 

of legalese. You call the toll-free number and ask for information. 

You are told you can no longer get your trusted paper check as you 

have for all these years. Panic and confusion sets in. 

This example describes some real people—not many people, not 

a huge percentage of the Social Security population, but a substantial and an important subset. The current regulatory structure for 

direct deposit does not include a reasonable way for this subset to 

protect themselves from this panic and confusion. 

Treasury has set out three waivers, essentially three reasons for 

a waiver: one, if you are over 92 and have received a check all 

along; two, if you have a mental impairment; or, three, if you live 

28 

in a remote geographic region lacking the infrastructure to support 

electronic transactions. 

The problem is that, while these criteria are appropriate, the actual procedure for obtaining a waiver is far too onerous. In order 

to obtain a waiver, someone has to call Treasury, have a conversation about their eligibility, use the right language to request the 

waiver, fill out the waiver form once you receive it, have it notarized, and send it back to Treasury. 

I understand that Treasury has received over 72,000 calls relating to a waiver, 14,000 people were sent out a waiver packet, and 

there have been 281 notarized responses received back. That is far 

too great a difference. And we strongly recommend that the procedure simply be changed to allow that the Social Security Administration be the determiners of whether a waiver should be permitted. 

We also want to point out to you that there are three ways to 

receive Social Security benefits: direct deposit into an existing bank 

account, the very good Direct Express card that was established by 

Treasury, and the private-label prepaid cards that anybody can 

provide to Social Security recipients. And we are seeing substantial 

problems with these prepaid cards. In my testimony, I have laid 

out examples in illustration of the confusion, the high costs, and 

the predatory loans that are often attached to these private-label 

prepaid cards. And we urge Treasury to continue closing the loop 

on these problems. 

We want to extend our congratulations and our thanks to both 

Treasury and Social Security for addressing the many problems we 

have already brought to them. And they have really been very responsive. We just want them to keep being responsive to the remaining problems. 

Thank you. 

Chairman JOHNSON. Thank you, ma’am. I appreciate your testimony. 

[The prepared statement of Ms. Saunders follows:] 

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f 

Chairman JOHNSON. You guys are going to be responsive, 

aren’t you? 

Thank you. We will turn to questions. As is customary, for each 

round of questions I will limit my time to 5 minutes and ask my 

colleagues to also limit their questioning to 5 minutes, as well. 


Insert offset folio 27 here 80440.027
42 

Mr. Gregg, I want to make sure that we are all completely clear. 

Come March the 1st, if a beneficiary is not signed up for direct deposit or another form of electronic payment and has not applied for 

a waiver, will they still continue to receive a paper check? I believe 

you said they would. 

Mr. GREGG. They will. 

Chairman JOHNSON. Mr. Gregg, in 2011 Treasury initiated a 

pilot project to encourage low- and moderate-income taxpayers to 

receive their refunds on prepaid debit cards. The project was a 

spectacular failure, according to the people we talked to. 

Worse, over the past 2 years, this committee, led by Chairman 

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

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

Mr. GREGG. What I would say, Mr. Chairman, is that I don’t 

think the way that that pilot was structured was the best way. I 

mean, what we are seeing across—not only in the Direct Express 

card, which over 55 percent of the people who are getting Direct 

Express are unbanked. And I think many other States and other 

programs are moving to electronic payments. 

I think the structure of that pilot was not a good structure, and 

if I was sitting in the position I am today and someone asked me 

to repeat that, I wouldn’t do it because of the way it was structured. I think we obtained some useful information, but sending 

out a letter under my signature saying, ‘‘Here is a way to get a 

card so you can have your tax refund loaded onto it,’’ is really not 

the way to go. 

The savings—as we continue to work with Social Security and 

other benefit areas, the one remaining area of substantial checks 

is still in the tax refunds. We have to figure out, working with the 

IRS, how to address that. But the structure of that pilot was not 

the way to go. 

Chairman JOHNSON. But it has been overhauled, correct? 

Mr. GREGG. Well, we are not sure we are going forward with 

anything, at this point. But as far as I am concerned, we won’t follow that same structure if we do pursue something along those 

lines. 

If I was doing it today, I would go out with a very limited pilot, 

like, a few hundred, and see what the response rate was, rather 

than—that pilot was really structured to kind of gauge the receptivity to whether fees would make a difference whether someone 

signed up, whether or not a loan. And I would narrow it considerably, much like a pilot that we have working right now with Direct 

Express, to very narrowly structure it and see what the response 

rate is. 

Chairman JOHNSON. Thank you, sir. 

Has the Urban Institute study affected your thinking in that? 

Mr. GREGG. Well, I think it reinforced my thinking. You know, 

they did a lot of analysis for it, and some of the information was 

useful, but the basic structure, I think, was flawed. 

43 

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

Mr. GREGG. Pardon me? 

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

you—— 

Mr. GREGG. We are not—— 

Chairman JOHNSON. You are not doing anything? 

Mr. GREGG. We are not doing really anything in that area right 

now. I am focusing pretty heavily on—— 

Chairman JOHNSON. I probably shouldn’t have said that about 

Treasury, you guys not doing anything, huh? Okay. 

Mr. O’Carroll, direct deposit helps avoid benefit delays and lost 

checks while also saving taxpayer money. And I support that. But 

I am concerned about ID thieves taking advantage of some of our 

seniors who get caught in scams. 

And what are the types of scams seniors need to know about? 

And how can we pass that kind of information to them to make 

sure they know what is going on? 

Mr. O’CARROLL. Well, Mr. Chairman, as we have discussed, 

just as you said in the opening on it, a lot of senior citizens and 

citizens in general are being, you know, scammed over the telephone now, where people are calling up, telling them that they won 

a lottery, told them that they won money, they have won other 

types of things, and then for them to get it, that they have to provide personal information. 

And that is probably the biggest scam that is out there now, is 

where they are out there trying to get personal information. And 

then the other one on it is that sometimes people are being called 

up by people impersonating government officials and asking for 

personal information. 

And what we are trying to do is to get the word out, and that 

is a good reason for this hearing, is for the protection of the personal information of people that are out there. 

And one of the things that we have done along those lines, and 

it is on our Web site, is we have a video that we are putting out 

for anyone who comes to the IG Web site, as an example. And it 

is telling senior citizens and all citizens, ‘‘Don’t give up your personal information. When somebody calls you and asks for this information, don’t give up your information on it. If somebody calls 

up and says that they are a government official asking for your information, Social Security never does it, other government agencies 

don’t do it. Don’t give out your personal information.’’ 

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

scams. 

Chairman JOHNSON. Well, do you get law enforcement after 

those guys? Isn’t it fraud? 

Mr. O’CARROLL. Absolutely. We are comparing the information 

that we get with the other government agencies that are affected 

and also with local law enforcement on when we are coming up 

with these scams and different ways to stop it. 

Chairman JOHNSON. Thank you, sir. 

Mr. Becerra, you are recognized. 

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

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

44 

Mr. Gregg, let me begin with you. March 2013, that is 5, 6 

months away. For any senior who may be watching who may be 

concerned about electronic payment or who may have tried by contacting the correct office to get information about a waiver, what 

assurances can we give to that person that, come March, April 

2013, that he or she will still be getting his or her benefit checks 

on time and in full, regardless of whether it is electronic or otherwise? 

Mr. GREGG. You can give them the full assurance, we are going 

to continue to—and we understand, Social Security understands 

that we are not going to be at 100 percent by March 1st of 2013. 

Mr. BECERRA. Okay. 

Mr. GREGG. We are tracking it very closely. And our goal is to 

have as many people as possible convert, but at the same time— 

and we are doing that for the reasons I articulated earlier: because 

it is actually safer, and it is reliable, and it saves the government 

money. But they are going to continue to get paid. 

The thing that I just want to stress—and the woman who is in 

charge of all Treasury payments is sitting behind me. The commitment that Treasury and Social Security have to making these payments on time is first and foremost what we are about. 

Mr. BECERRA. Excellent. 

Mr. GREGG. I mean, during Katrina, we had the director of the 

Austin center driving down to Houston every morning with checks 

for people who had been dislocated so they could get their payments at a location. They had moved out of their home. And—— 

Mr. BECERRA. Well, that is probably one of the most important 

things that can come out of this hearing, is an assurance that, one 

way or the other, as we move forward on this transition, that no 

American is going to be left behind. And so I thank you for that. 

Let me ask a second question. And also, Ms. Gruber, if you could 

respond, as well as Mr. Gregg. 

We know that 1 in 10 folks are still saying, you know, I am applying for benefits; no, I don’t want electronic payment. And so we 

still have a substantial number of folks who are saying ‘‘no.’’ For 

some reason, they are saying ‘‘no,’’ even though all the numbers 

show that it is probably safer, easier, and it certainly saves all of 

us, as taxpayers, money. 

What are we doing, or what can you tell us you will do to try 

to collect the information that gives us a better sense of why some 

people aren’t doing it? There is probably a universe out there that 

just is reluctant to change. But there is also a universe that may, 

as Ms. Saunders said, have legitimate reasons to be concerned. 

So can you tell us, can you give us any assurances that you will 

try to collect the information on this universe of people so we can 

figure out how best to make sure we can transition them or, if we 

can’t, why we can’t? 

Mr. GREGG. We have conducted surveys and focus groups over 

the last 4 or 5, 6 years, and you get a range of responses—— 

Mr. BECERRA. Right. And I understand you have done some of 

that. I am just trying to find out, right now, can you give us some 

assurances that Treasury and Social Security will make every effort to try to better home in on why some of these folks are not 

wanting to go into electronic benefit payments? 

45 

Mr. GREGG. Yeah, and I think the initial sign-up rate is a little 

bit misleading because—— 

Mr. BECERRA. Okay, Mr. Gregg, all I am trying to find out 

right now is, can you give us an assurance? I am not saying you 

are committing to any one particular activity, but can you give us 

an assurance here, the members of this committee, that you are 

going to do more to try to home in on why some of those folks 

aren’t moving toward electronic benefit payments? 

Mr. GREGG. Yes. 

Mr. BECERRA. Ms. Gruber? 

Ms. GRUBER. Yes, we can. 

Mr. BECERRA. That is great. 

46 

[Transcript Insert #1 Gruber] 


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47 

f 

And, again, we understand, this is a smaller universe and probably a tougher universe to quite understand. But so long as we 

have your assurance that next time we come and talk about this 

you will have more data to give us a better sense of how you have 

tackled this issue and move folks who can move and explained how 

those who can’t, what we are doing to try to help them as best as 

possible. 

Mr. Gregg, Ms. Saunders mentioned a number which was somewhat troubling to me. She said, out of more than 70,000 people who 

had contacted the agencies or the folks in charge of the direct debit 

and so forth about seeking a waiver, less than 300 or so had actually followed through and gotten a waiver. That is a really slim 

number. Of more than 70,000 inquiring, to only have 300 to actually get the waiver, something is going on. And it sounds like 

maybe the process is a little too complicated or too cumbersome. 

Not that you can answer the question today, and not that I have 

time to have you give me the answer, but can you give us some assurances that you will delve further into those numbers to figure 

out why all those folks who did make the effort to contact you all 

about seeking a waiver from the electronic benefit payments, why 

so few actually ended up getting it? Maybe you resolved their problems. 

But can you give us some assurance, both Treasury and Ms. 

Gruber with SSA, that you will further dig into that to give us a 

response? 

Mr. GREGG. I can. The only thing I would add is, about 24,000 

of them actually making the call converted to electronic payment. 

Mr. BECERRA. Okay. 

And, Mr. Chairman, maybe in writing, if they can also give us 

a response, if Treasury could give us a response about who they 

think—and SSA—who they believe should be the person or the 

agency that determines whether a beneficiary should receive a 

waiver. Ms. Saunders mentioned that perhaps Treasury should 

shift that over to SSA since SSA deals with these folks all the time. 

But I would love to hear your response on who really should 

make that determination. 

Mr. BECERRA. Thank you. 

Chairman JOHNSON. Thank you. 

Mr. Smith, you are recognized, 5 minutes. 

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

Mr. Gregg, could you reiterate the savings again that occurs 

through the electronic payments? 


Insert offset folio 29 here 80440.029
48 

Mr. GREGG. Yeah. The savings, you know, over—we have been 

working on this for a long time. But the savings in 2011 alone were 

over $600 million by getting to the point where we were at, at that 

time, by having electronic rather than making all check payments. 

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

years. 

Mr. SMITH. Okay. Now, I understand that there would be a 

waiver for those wishing for a waiver in remote geographic locations. Could you define what that would be? 

Mr. GREGG. Yeah. And, you know, I grew up in a rural area, 

South Dakota. You drive 35 miles from my little town, but when 

you get there, you get to Pierre, and, actually, they have—you 

know, you can use your debit card and all that. But some of the 

comments we got in were from some areas in Alaska, for example, 

and I think maybe an Indian reservation in the States, where one 

individual goes in for a group every week or every month and takes 

checks along. 

So that is really why we had that, where it is very remote and 

they didn’t have the infrastructure to support a debit card. 

Mr. SMITH. So would you say that anyone who could prove a 

hardship would probably have access to a waiver? 

Mr. GREGG. You know, we don’t look behind the statement. And 

I will say that the form for the waiver is very straightforward. If 

someone comes in and basically makes any kind of reasonable case 

for geographic hardship, then we haven’t turned those down. We 

haven’t tried to investigate, and we didn’t plan to do that, going 

into it. 

We said basically, hey, we think most people, given the experience we have had since 2008 with the Direct Express card, we 

think that actually serves people better than checks. But if there 

is some exception, then the waiver process is there. 

Mr. SMITH. Ms. Saunders? 

Ms. SAUNDERS. If I might respond, the people who do not have 

access to debit card machines because they live in such a remote 

geographic area are unlikely to have access to notary publics. And 

signing your waiver request form by a notary is a prerequisite to 

getting a waiver. So that, in itself, is a catch-22 that we are concerned about. 

Mr. SMITH. Okay. 

Anyone else wishing to comment? 

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

Chairman JOHNSON. Thank you. 

Mr. Berg, you are recognized. 

Mr. BERG. Thank you, Mr. Chairman. 

Thank you to the panel for being here and obviously discussing 

this ongoing process here and how to hit the right thing. 

You know, the two things that I am concerned about, of course, 

are fraud and theft. And, you know, I can’t imagine how many new 

scams kind of come up every single day. I was checking into a hotel 

in North Dakota about 2 weeks ago, and at the front desk, they 

said, if someone calls you—you know, every time you check in, you 

give them your driver’s license, you give them a credit card. They 

said, if someone calls you claiming they are from the front desk 

49 

and your credit card didn’t go through or there is a problem, don’t 

give them any information. And I thought about it, and I thought, 

you know, you just check into a hotel, an hour later someone calls 

and says, ‘‘Hey, the card doesn’t work,’’ I mean, you would assume 

it is the front desk. 

Also, I mean, what is happening—obviously, this has been a 

huge area in the credit card industry, when I first—well, I 

shouldn’t say when I first, but after I had been out here for about 

6 months, you know, I got a call back home saying, ‘‘Hey, this credit card is being used in D.C. What is the situation?’’ It was a credit 

card that hadn’t been used in D.C. for a while. And so within 24 

hours, you know, there was a hold on that credit card. 

And so I guess I kind of look at all the technology that is out 

there and the practices that are being used, if you will, in the private sector to kind of catch these things, and, you know, I would 

think—you know, so the first thing, if someone has their account 

that is set up, and through scam artists, whatever, they are trying 

to change that address or are doing some different things—and it 

seems to me when there are so many checks and balances that are 

being used out there, and so, you know, my question, Ms. Gruber, 

is really, what do we have for notification now? 

So someone has their account set up with a bank, and there is 

some call or request to change it to a different location or do something that is out of the normal, do we have some checks and balances now? Or are there things we could be doing? 

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

We do have some checks and balances. One of the things that 

happens right now, if somebody makes a direct deposit change, we 

actually send a notice to the address of record to say that the 

change had been made. 

In fact, as Mr. O’Carroll had said in his testimony, a lot of the 

reports of fraud or suspected fraud come from our frontline employees. And our frontline employees have reported that they have gotten calls from members of the public who received that notice to 

their address of record. 

I think that there are some areas, as Mr. O’Carroll had suggested in some of their ongoing audits, that we can continue to look 

at and explore, are there additional measures that we can take 

with respect to trying to put an end to the fraud? 

You know, one of the keys for us is to continue to work with Mr. 

O’Carroll and his staff on learning what the facts are of their ongoing investigation, because that is the biggest tool we can have to 

try to identify what are the right measures to take to really, you 

know, put an end to it. 

One of the things that we have done over the course of the 

year—and I don’t want to talk about specific measures we have 

taken to combat fraud in this kind of open setting. 

Mr. BERG. Sure. 

Ms. GRUBER. I don’t want to, certainly, provide a how-to manual, if you will. But those measures have also been quite effective 

in catching some folks I think that were trying to perpetrate a 

fraud. 

50 

So, in answer to your question, yes, we have some checks and 

balances, but there are other things that we are willing to look to 

do. 

Mr. BERG. Just quickly, are there any high-level numbers that 

would relate to the people that we have caught committing fraud 

and/or prosecuting? 

Mr. O’Carroll? 

Mr. O’CARROLL. I will take that one, Mr. Berg. 

Two things on it. One is, one of the problems with this is that— 

we are calling it a cottage industry. So the word is getting out 

there. You know, and as Ms. Gruber said, we don’t want to give 

out any of the technical terms, questions that are being asked. But 

the bad guys are out there and the fraudsters are passing these 

around, and they are saying, this is the way to circumvent it to get 

it out there. 

So what we are finding is that it is out there, it is so much, we 

are making arrests, we are making convictions, but we are not 

making a lot of them, to be really truthful, because it is a systemic 

problem at the top that needs to be corrected. We can’t correct it 

from the bottom by just doing arrests and as a deterrent on it. 

So I have to say, in our cases on it, we have about three major 

investigations with convictions on it. And we have quite a few 

where we are working with local law enforcement, but they are 

small cases, very infrequent. And I guess we can’t arrest our way 

out of this problem. 

One other thing just to talk about, when we were talking about 

one of the safeguards that SSA is doing of notifying to the address 

of record, the problem with it is, what the fraudsters have figured 

out is that when you change a person’s direct deposit information 

on it, you also change the address. So when it goes out to the address of record, it is oftentimes the fraudster’s address getting the 

information rather than the address of the actual beneficiary. 

So we are working with SSA on that as another one of the ways 

that we are trying to say, maybe send it to the old address as well 

as the new address to let people know that something has happened. 

Mr. BERG. Thank you. I yield back. 

Mr. GREGG. Congressman Berg, if I could make one comment 

if you have time? 

For the people that are interested in Direct Express, as I mentioned in my oral statement, we have a Treasury database that has 

a record of the checks that we have been issuing. So when the person calls, the person that is at our Dallas call center calls up that 

database—and, again, I don’t want to get into the specifics—but 

asks that person questions that is unlikely that anyone but the 

rightful owner would have. It is more detailed than kind of the regular, you know, address and Social Security number. 

So I think we have gone a long way to really reduce it at that 

end. But any time there is a change, if someone is changing from 

a direct deposit to Direct Express or an address, flags need to go 

up. Because, you know, in some cases that is legitimate, in other 

cases you really have to be alert to that. 

Mr. BERG. Thank you. 

51 

Chairman JOHNSON. You know, it seems to me that Social Security has an address; otherwise, you wouldn’t be able to send 

checks out. Are you telling me, Mr. O’Carroll, that the addresses 

aren’t correct in a lot of cases? 

Mr. O’CARROLL. Well, what we are concerned with, Mr. Chairman, is that when a fraudster gets your information, they then go 

and they change the direct deposit information to their dummy account or whatever account that they are using. At the same time, 

a lot of times they will say, we also want to change our address. 

So then when the claims representative gets the information, they 

are copying down the new address, the new account number on it, 

and then that becomes the address of record for any correspondence. 

So our concern on it is that is what the fraudsters have figured 

out, is that: change the address at the time you are doing your direct deposit changes, and the notification will be just sent to the 

new address, not the old one. 

So it is a good address that the SSA has on it for everybody that, 

you know, as the beneficiary. It is just that when the fraudster 

changes it. 

Chairman JOHNSON. But the fraud guys are actually calling for 

a change of address? 

Mr. O’CARROLL. Yeah. 

Chairman JOHNSON. Garbage. 

Mr. Brady, you are recognized. 

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

And whenever we do, it is just so disturbing to hear those who 

rip off seniors, especially those with limited education or limited 

mental capacity. We have to do everything we can to put these people behind bars. And I personally hope there is a special place in 

hell reserved for those who prey on our seniors. 

A question for Ms. Gruber and Mr. O’Carroll: You said that when 

there is a request for a change for the beneficiary, you send out a 

letter to confirm it. What is the result of that? What percentage are 

responded to? What percentage confirm that they have made a 

change? And which ones raise a red flag that there is fraud likely 

or possible? 

Ms. GRUBER. Thank you, Mr. Brady. 

So, just to make sure that everyone has the same context, as Mr. 

O’Carroll had said, you know, when you make an address change 

at the same time that you are making a direct deposit change, a 

notice goes out to the new address. And we agree that that is something that we need to explore and look at how we can button that 

up. 

When you make just a direct deposit change, we do send a notice 

to the address of record. And that has been one of the primary 

ways that our frontline staff have received reports of fraud. 

I don’t have hard numbers, but it is something that we can take 

a look at and see what we can get our hands on. 

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

Ms. GRUBER. Sure. 

Mr. BRADY. Because, really, it may be the most effective way, 

but it may not be effective overall in both those instances. 

Ms. GRUBER. Sure. 

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Mr. BRADY. Mr. O’Carroll, I was reading in the preparation that 

most wrongful beneficiary direct deposit changes are initiated by financial institutions and are made to prepaid debit cards. 

So what can be done to ensure that this is accurate, that this is 

verified, that Social Security, working with Treasury, can help to 

make sure—you know, if that is the initiator of much of the fraud 

in that area, how do we address it better? 

Mr. O’CARROLL. Well, I guess the biggest thing to take away 

from this, our concern is just to authenticate and to verify. And 

what we are finding with the financial institutions on it—and when 

you think of financial institutions, Mr. Brady, we are thinking, one, 

I always think in terms of the bank on the corner of a financial 

institution. But what we are not realizing is that, with a lot of 

these prepaid debit cards, there isn’t an actual bank there; it is 

usually an entity. And they change quite frequently, you know, 

with the different requirements that they have. 

So what we are finding with the financial institutions, for the 

most part—and it is probably through work with Treasury Department, FDIC, and other agencies—a lot of the information that a financial institution asks for and gets from a person who is trying 

to, you know, either set up an account or change an account is fairly good, but it varies from bank to bank, from institution to institution. 

But we are finding with the prepaid debit cards that there is not 

a lot of information required, there is not a lot of verification done 

on it, and that does seem to be the area that is the biggest vulnerability on it, is that there is so many of them out there and there 

are so many different requirements, that the safety features aren’t 

built into it. 

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

Mr. O’CARROLL. Absolutely. 


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[Transcript Insert #3 O’Carroll] 

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Mr. BRADY.—you know, in volume or percentage, so that we can 

sort of shine a light on where we are having some of those issues 

and maybe address them? 

Mr. O’CARROLL. That would be very good because, in some 

cases, some of the other benefit agencies have found, you know, the 

most susceptible of the financial institutions on it and are not allowing those institutions to deal with them for direct deposit. 

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

Ms. Saunders, you make a great point about the waivers and 

some of the challenges there. You have to confirm this is accurate 


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information by a real, live person seeking the waiver. If a notary 

public is too much of a challenge, how else would you accurately 

confirm it, in remote areas especially? 

Ms. SAUNDERS. Well, the notary public only confirms that you 

are the person who has signed it. The notary does not confirm that 

you really live in a remote geographic area or that you have a mental impairment. That is beyond what a notary can do. 

Mr. BRADY. So how would you do that? 

Ms. SAUNDERS. We would suggest that the agency make the 

determination. They are making other determinations; they are the 

ones who are dealing day-to-day with the Social Security. 

Mr. BRADY. I am not picking on you, but how would they do 

that? 

Ms. SAUNDERS. So when someone comes in and says, ‘‘I don’t 

want a direct deposit because I don’t have a bank account, and I 

don’t have access to the Internet, so I don’t want a prepaid card; 

I don’t understand, how can a card have money on it,’’ then the Social Security representative asks a few questions and makes the 

determination right then and there. 

Mr. BRADY. But if you are in a remote area, you are not likely 

to be walking into a Social Security office. 

Ms. SAUNDERS. Then however it is that you apply for Social 

Security, if you make the phone call and you apply that way, then 

that recipient of that phone call at the agency makes that determination. 

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

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

Mr. BRADY. But to verify, wouldn’t you—I am not picking on 

you. I am just trying to figure out what is a better way. 

Ms. SAUNDERS. So when the recipient goes in to apply for benefits—— 

Mr. BRADY. They are in a remote area. They are not walking 

into anything. They are sending a letter back. 

Ms. SAUNDERS. So they call for benefits. They have to have a 

conversation at some point with the Social Security Administration, 

don’t they? To apply for benefits initially, isn’t there—— 

Ms. GRUBER. Correct. Correct. 

Ms. SAUNDERS. There is some conversation that occurs at some 

point. 

Mr. BRADY. But we are talking about the waiver. You are already getting benefits; you are asking for a waiver. How do you 

confirm that, in fact, is the person you wanted? 

Ms. SAUNDERS. At that point, the recipient calls Social—either 

they go into a Social Security office or they call the 800 number 

that is the Social Security Administration’s office and are sent to 

the appropriate avenue that knows how to ask the questions and 

determine the answer. 

I am sure the Social Security Administration is quite familiar 

with how to deal with people of limited mental capacity. As they 

process their applications originally, they would process these applications for waivers in the same way. 

55 

Mr. BRADY. It seems ripe for fraud. But let’s keep pursuing 

that. I think the points you raise are good ones. 

Thanks, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

Mr. Marchant, you are recognized. 

Mr. MARCHANT. Thank you, Mr. Chairman. 

I have a question for Mr. Gregg. 

In your testimony, you discussed a pilot project to determine 

whether people will sign up for direct deposit if they are sent an 

unactivated Direct Express card. 

Are only SSI beneficiaries in the pilot? And tell me more about 

the pilot and how it is proceeding and its results so far. 

Mr. GREGG. Yes, only SSI. And, to date, it is very limited. We 

sent out 400 cards about 3 weeks ago, and so far we have had a 

30 percent rate of people signing up, which is much higher than 

I would have expected, actually. 

We are going to continue to test this in limited bites to see. I 

mean, there is no money on the card. All they have to do, however, 

is call our number to activate it and get signed up for the Direct 

Express. 

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

Mr. MARCHANT. And is there any security as to who is actually 

calling in and activating the card? 

Mr. GREGG. Well, there is a specific number in the information 

that we send out there, and we have people at our Dallas call center that handle those calls specifically. 

Mr. MARCHANT. So a person that goes to an ATM machine that 

has possession of the card and actually has possession—— 

Mr. GREGG. They have the card, but unless they activate it and 

go through—you know, we know who they are, obviously, because 

we have gone through our enrollment procedures before we send 

them out. So when they call to activate it, we do some double 

checking. But no money is on it until we turn the switch. 

Mr. MARCHANT. Right, but someone could get the number and 

someone could call and say, ‘‘I am James Jones, and here is my 

number, and I need this money moved.’’ 

Mr. GREGG. That is potentially an issue, but we are looking at 

that very closely, and we haven’t seen any cases of that so far. 

Mr. MARCHANT. And you don’t have some kind of a bat-code or 

pin number that only him and his wife or him and you know, that 

if either of you don’t know that number, then it has to be a scam? 

Mr. GREGG. Well, we are sending it to an address that we are 

very confident about. 

Mr. MARCHANT. Even the credit card companies now have put 

us through quite a strenuous process, and then they say, what are 

these last two numbers that you should know? If you don’t have 

possession of the card, actually, you probably won’t have those 

numbers. 

Mr. GREGG. Right. 

Mr. MARCHANT. I would suggest that, as this matures, that 

you work closely with the credit card people to see what they might 

be able to offer you as far as ideas as far as how you can take one 

more step toward making sure that the card goes to those that we 

intend it to go. 

56 

To activate the direct card, the recipient will have to call the go 

line. What safeguards do you have in place to make sure the caller 

is who they say they are? I assume the person that calls has to be 

the person who is on the card. 

Mr. GREGG. Yes. 

Mr. MARCHANT. Are you coordinating efforts on this pilot with 

Social Security? 

And to Mr. O’Carroll, have you looked into this pilot? And if so, 

what are the frauds, and what are the acceptable frauds? 

Mr. O’CARROLL. Mr. Marchant, to be truthful, we are aware of 

this pilot, but we haven’t done any work on it. So I really can’t 

comment on it. 

We are working closely with the Treasury IG, and I am sure they 

are monitoring it too. And we can get back to you on that one, but 

we haven’t done any work on it at all. 

Mr. MARCHANT. Well, we have had quite a bit of experience in 

this. Both when Sam and I were both in the State legislature, we 

began to go from the food stamp program to the debit card program, and it was mailed out. I see Brady down there; he probably 

masterminded the whole thing. 

But it worked. I mean, after we discovered the avenues of fraud 

that could be used, and we solicited the expertise of the companies 

that had been doing this forever, I think we have it down now to 

where the fraud is a very small instance. And it is probably the 

most successful program, as far as efficiency, in the country. 

So I would encourage you to talk to the Texas guys and see—it 

would take a very short phone call to see if there is something they 

used that is effective, or any State, that you could incorporate into 

your program where there will be less fraud. 

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

Mr. MARCHANT. Yeah. Thank you. 

Chairman JOHNSON. No income taxes in Texas. 

Mr. Becerra, you are recognized for 1 minute. 

Mr. BECERRA. Mr. Chairman, thank you for allowing me to try 

to get some clarification. Mr. Brady actually raised some good 

points that I would like to just better understand on this, the issue 

of waiver. 

Ms. Saunders, my sense was from your testimony that the waiver process which requires the notary public to ascertain something 

is for the purpose of ascertaining that the beneficiary wants to 

waive the requirement to have electronic benefit payments but not 

to ascertain the beneficiary’s identity? 

Ms. SAUNDERS. The notary public has the capacity to do one 

thing under every State law, and that is to identify that the person 

signing the piece of paper is that person. That is all a notary public 

does. 

It is beyond the capacity or the authority of a notary public to 

ascertain that what is on the piece of paper that the person signs 

is true. 

Mr. BECERRA. Right. And so what you are saying is that—well, 

let me ask you. Are you saying that we could bypass the notary 

public and allow SSA, which has information on these individual 

beneficiaries, to try to do the ascertainment of that person’s idenVerDate Mar 15 2010 00:36 Jun 04, 2013 Jkt 080440 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80440.XXX 80440
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tity as it normally would through the regular process of applying 

for benefits? 

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

The purpose of the notary does not seem to be so much to determine that the person is actually authentically the person, but to set 

up a hurdle to make it more difficult for people to apply for the 

waiver, for the understandable reason that Treasury wants fewer 

people to apply for the waiver. 

And what we are saying is we are fully supportive of the electronic transition, but there are some people who need the waiver, 

and it shouldn’t be denied to them because they cannot access a notary public or make their way through this complicated procedure. 

Mr. BECERRA. Mr. Chairman, maybe it would be better to get 

a written response than to just ask both Treasury and SSA today 

for a reaction response to Ms. Saunders, but maybe we should try 

to find out, what value is the notary public? 

Especially for folks who are in rural areas, I think what we want 

to do is make sure that there isn’t any identity fraud that occurs 

in the process of applying for a waiver. And so I certainly would 

think that we would have some concern if we remove one step that 

tries to give us a better sense that the person that is applying for 

this is actually the person who is indicated. 

And so, Mr. Chairman, maybe we could just ask both Treasury 

and Social Security to give us a written response to the issue 

raised by Ms. Saunders about the actual value and necessity of 

having a notary public be part of that process to seek a waiver. 

Chairman JOHNSON. There should be another way to do it, and 

Mr. O’Carroll can probably figure that out. 

Mr. BECERRA. So if you all perhaps could respond to that question about the waiver process and the value of having a notary 

public participate in that, that would be helpful. 

Mr. O’CARROLL. I would be happy to. 

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[Transcript Insert #5—Gregg] 

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[Transcript Insert #6—Gruber] 

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Mr. BECERRA. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

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

presence. 

And we trust Treasury and Social Security will continue to work 

together to protect seniors while ensuring that their benefits arrive 

safely and on time. 


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

Mr. O’CARROLL. Yes, sir. 

Chairman JOHNSON. The meeting stands adjourned. Thank 

you. 

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

Public Submissions For The Record 

Alan Feiertag 


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Consumers For Paper Options 


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FISCA 


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Jerry Deckard 

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Mastercard 


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NBPCA 


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Æ 


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