Once upon a time thieves stole Social Security checks from mailboxes. That was so 20th century. Now, thieves steal the checks online directly receiving the payment and eliminating the middleman.
Identity thieves obtain the personal information of Social Security beneficiaries and then reroute the victims' direct deposit. Instead of monthly Social Security checks going into a beneficiary's bank account, the electronic payments go on to prepaid debit cards thieves use to get cash or buy merchandise.
This new and disturbing trend targets the 62 million people who each month receive payments from the Social Security Administration. Not only does this scam have the potential to disrupt and even devastate the lives of seniors and disabled workers who depend on the timely arrival of Social Security payments, it is also costing the U.S. taxpayers millions as scammers make off with money Social Security must reimburse victims.
Already there are nearly 40,000 reports of this type of scam. In Florida, 7,721 people have been victims of direct deposit fraud.
Trudie Prevatt, of Fort Myers, Fla., received a letter from the Social Security Administration thanking her for setting up an online account with Social Security.
The problem: "I never set up a Social Security account online," said Prevatt.
Prevatt called Social Security and was asked to verify her address. It didn't match the one her online account listed in Miami, nor did her bank account match where her check was now going. Prevatt went to the local Social Security office the next morning.
"They told me it was too late to stop the check from going to Miami," Prevatt said, but she would get her payment as usual but a few days late.
"This cost the taxpayers the first check and the second check," she said. "The taxpayers have to pay for this."
A potential loss of $17.4 million because of unauthorized direct deposit payments is the current estimate for a nine-month period under review by auditors for the Inspector General's office. And that figure covers a period in 2011 through 2012, prior to the scam picking up steam with the expansion of online services to beneficiaries.
Patrick O'Carroll, inspector general of the Social Security Administration, testified before a congressional committee that as of June 1, his office had received more than 37,000 reports of "questionable changes to a beneficiary's record," and continues to receive about 50 reports each day of unauthorized changes or attempts, most involving redirecting benefits to prepaid debit cards.
In January, the Social Security Administration expanded its online portal, "My Social Security" to allow people to change addresses and direct deposit information, O'Carroll said. "Since then, the SSA reports that more than 22,000 potentially fraudulent My Social Security accounts have been opened," he stated.
Benefit hijacking couldn't exist — or would definitely be made much more difficult — if it weren't for prepaid debit cards.
"Allowing private prepaid debit cards to accept federal benefits just doesn't make sense," U.S. Sen. Bill Nelson, D-Fla., said in an e-mail response to questions from The (Fort Myers, Fla.) News-Press. "Especially when the government has a preferred debit card of its own that folks can use and it generally offers lower fees and greater consumer protections than private prepaid cards."
The government has a contract with Direct Express debit card to receive Social Security payments. But that doesn't mean a consumer can't choose a different brand of a prepaid card.
Prepaid cards can have higher fees and often don't protect consumers when it comes to loss or theft, said Rebecca Vallas, staff attorney/policy advocate with Community Legal Services in Philadelphia. When funds are stolen from a bank debit card, for example, the law requires the consumer be made whole, a private label card doesn't have to.
Jennifer Tramontana, a spokeswoman for the Network Branded Prepaid Card Association, a trade association for the prepaid card industry, said private label cards give consumers more options such as allowing all of their retirement funds to be deposited into the card, not just Social Security payments.
But a crowded field of debit cards obscures the actions of identity thieves, making it difficult for law enforcement to uncover and break up theft rings.
There have however, been several high-profile arrests and convictions. Many of the cases linked to Jamaican telephone marketing scams used to trick vulnerable seniors into disclosing their addresses, Social Security numbers and other personal information identity thieves may use.
In response to the rise in benefit hijacking, Social Security has made it more difficult for an imposter to access and open an online account by requiring more identifying information. And the information received is verified with a credit reporting agency.
Patti Patterson, regional communications director for Social Security, said in an e-mail thieves set up "My Social Security" accounts using personal information of a beneficiary and through the automatic enrollment process at financial institutions. That's one good reason, she said, to set up a "My Social Security" account.
"If a person already has an account, a fraudulent attempt will not be successful," Patterson said.
People also can block direct deposit changes through the automatic enrollment process by contacting Social Security.
Gordon Ramsay, of Fort Myers, contends blocking is what most people should do.
When Ramsay's wife, Audrey, received the letter from Social Security thanking her for setting up an online account, she thought it was a scam.
But everything about the letter looked authentic, Gordon Ramsay said. When the couple visited the local Social Security office, Ramsay said he was told eight or nine people a day come in with the same complaint.
The agent who helped them, Gordon Ramsay said, "appealed to us to notify all of our friends and acquaintances," about the scam.
The Ramsays blocked their Social Security accounts so that no one — not even the Ramsays — can access their account online.
About 5.2 million seniors rely solely on Social Security income, said Sen. Nelson in his opening statement before the Senate's Special Committee on Aging. Nelson also pointed out in the hearing that the problem of thieves redirecting benefits coincided with what he described as the Department of the Treasury's, "aggressive campaign to get people to switch to electronic payments."
Richard L. Gregg, fiscal assistant secretary at the Treasury Department, in that same hearing, lauded direct deposit and electronic transfer.
It costs $1.25 to send a paper check and 9 cents to make an electronic deposit. The push to electronic deposits resulted in an $885 million cost savings, Gregg said.
Even given the thousands of checks stolen electronically, the number pales in comparison to losses when checks were mailed the old fashioned way. According to O'Carroll, the inspector general, in the 2012 fiscal year more than 521,000 Social Security checks were reported lost or stolen.