My (general) contacts with Treasury Direct re loss & liability

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beardsworth
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My (general) contacts with Treasury Direct re loss & liability

Post by beardsworth » Thu Aug 10, 2017 8:47 am

I’m posting this in order to share information which may be of interest to other forum participants who buy securities, in particular I Bonds (U.S. Savings Bonds, Series I) through Treasury Direct. And the story is rather long because it involved multiple rounds of communication with Treasury.

I would appreciate it if any posted replies did not speculate on the actual likelihood of theft at Treasury Direct; or whether I myself “worry too much” about losing money there; or whether I Bonds themselves are a worthwhile investment. That’s not the point of my post. I do buy securities through Treasury Direct. But it also somewhat creeps me out, because it seems uncomfortably “virtual,” i.e., it’s the only financial entity I’ve ever dealt with that never self–initiates any communication with me, for the record, about activity in the account, or even about the existence of my holdings.

I began this correspondence, which would eventually spread over many months, by sending an e-mail to Treasury Direct itself. I quoted a statement previously made on this forum by Mel Lindauer, a Bogleheads book author, forum moderator, and probably the forum’s main popularizer of, and educator about, I Bonds:
Mel Lindauer wrote:with paper Savings Bonds, if they're lost [or] stolen . . . Treasury will make you whole, but if someone cleans out your TD account, you're simply out of luck and have no recourse.
And I asked Treasury Direct: “Is this true?” I said I was referring specifically to a situation in which a loss occurred in a customer account due to some breach or hacking or other shortcoming in Treasury Direct’s own systems but which the customer did absolutely nothing to permit or enable through any compromise of his/her log-in credentials, i.e., there was no way in which the customer could be viewed as at-fault in the loss. I also noted that, because Treasury Direct itself does not issue any direct account communications to the customer (no purchase or redemption confirmations, no periodic statements, no year–end tax forms)(i.e., the burden is on the customer to print all of these from the website), a Treasury Direct customer wouldn’t even have a way, other than compulsive online account-checking, of knowing, in real time, when any strange activity on the account was even occurring.

I received a form reply stating that the customer was responsible for the use made of his log-in credentials and for safeguarding them.

I e-mailed again and said this was not responsive to the question asked; that I had never doubted the customer’s obligation to do everything possible to protect his credentials; that I'd already made clear that I was asking about a situation in which the customer bore no fault or responsibility; and that I was asking about Treasury Direct’s liability for losses caused, or not prevented, by Treasury Direct itself. I repeated the Lindauer quote above and again asked “Is this true?” I then rephrased it in the opposite way and asked if there were any circumstances under which Treasury Direct would make a customer whole for losses which were in no way the customer’s fault––and, if so, what were those circumstances?

I received another form e-mail assuring me that customer security was of the utmost importance to Treasury, and that the institution regularly looked for ways to make its site even more secure.

Well, that wasn’t responsive to the specific question, either.

I decided to “go to the top.” I sent a postal letter to the Secretary of the Treasury. I noted the previous e-mail correspondence, then repeated the Lindauer quote and my own would-Treasury-ever-make-a-customer-whole follow-up question, and I emphasized that These are yes-or-no questions. Please answer “yes” or “no.”

Months passed, during which, following a change of administrations, I also sent that letter to more than one Treasury Secretary.

Finally I received a form postal letter from Treasury Securities Services in Minneapolis. It said: “The Government Loss in Shipment Act (GLSA) covers the loss/theft of United States Savings Bonds, whether in paper form or electronic form. If a Treasury Direct owner has his/her savings bonds stolen out of his/her account (and the claim is examined, validated, and approved for relief) the Treasury Department will compensate him/her for the loss. Please let us know if we can be of further service.”

I'd never heard of that law. As its name suggests, its language pertains to securities and other valuables lost or stolen while being shipped.

http://uscode.house.gov/view.xhtml?path ... ion=prelim

https://www.treasurydirect.gov/faq_glsf.htm

So, while Treasury Direct assures users that this law applies, which is good to know, it still seems a bizarre outcome, since statement-less electronic Savings Bonds are the very opposite of physical items being "shipped." And while it’s only reasonable to expect a government agency, or any business, to pay only those loss claims which are legitimate, the requirement that a claim concerning almost–virtual electronic Savings Bonds must be “examined, validated, and approved for relief,” by the Treasury, seems to provide a very large amount of wiggle room.

So, there you have it. Knowing that Treasury Direct procedures and security issues have been the subjects of other threads on this forum, I just offer the results of my own correspondence for anyone else interested.

lazyday
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by lazyday » Thu Aug 10, 2017 9:11 am

Thanks for sharing this.
When valuables that have been shipped in accordance with regulations are lost, destroyed, or damaged a claim in writing for replacement shall be made on the Secretary of the Treasury.
(2) Shipment.—The term "shipment"—
(A) means the transportation, or the effecting of transportation, of valuables, without limitation as to the means or facilities used or by which the transportation is effected or the person to whom it is made; and
(B) includes shipments made to any executive department, independent establishment, agency, wholly owned or mixed-ownership Government corporation, officer, or employee of the Federal Government, or any person acting on behalf of, or at the direction of, the executive department, independent establishment, agency, wholly or partly owned Government corporation, officer, or employee.
hmmm

So if someone fraudulently clears the account, does that effect transportation of your valuables in accordance with regulations?

Mel, did you have a source on this issue? I couldn't find any with a quick google.

Grt2bOutdoors
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by Grt2bOutdoors » Thu Aug 10, 2017 9:16 am

As of June 30, 2017 there is approximately $520,826,995 in various series of Savings Bonds outstanding. Of those outstanding, $384,367,775 were of the EE series and $106,859,564 were of the I series, the remaining amounts outstanding are of various series. I would find it hard to believe that the US Treasury would not make a legal, valid account holder of securities "whole" if things were found to be in proper order and theft/fraud was through no fault of their own. Not doing so, would subject the US Treasury to difficulty in raising funds through public debt issuances that are by and large made via book-entry system. The Treasury Direct portal is one such "book-entry" system.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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flamesabers
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by flamesabers » Thu Aug 10, 2017 9:34 am

Could you not use FS Form 1048 to claim the loss of electronic savings bonds? The title of the form is Claim for Lost, Stolen, or Destroyed United States Savings Bonds. Granted, the form was intended for paper savings bonds, but I don't see anywhere on the form that precludes using the form to reclaim the loss of electronic savings bonds.

Nate79
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by Nate79 » Thu Aug 10, 2017 9:57 am

Perhaps transportation includes electric form as well?

Osp62
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by Osp62 » Sat Aug 12, 2017 9:40 pm

Brardsworth, Until fall 2016, I used to have almost one third my assets at Treasury Direct and started getting concerned about their willingness to make you whole in the event of some online hacking or fraud. I read the account agreement, then talked to several customer support representatives and then was also connected to a lawyer. They all essentially said that the account agreement clearly states that TD is not responsible for any online hacking or fraud. Had three or four discussions with these people and the more I talked to them, esp. the lawyer, the more uncomfortable I got. Around that time there were also media stories about hacking of private companies and I realized that the online hacking risk was too high for an entity like TD when much more sophisticated private companies were getting hacked. Given there complete refusal to even discuss the possibility of TD compensating a customer in the event of any type of online fraud, I did not see why I should keep any assets with them.

I decided to transfer all my Treasuries to another entity and now I definitely feel much more comfortable not having any assets with TD.

Dead Man Walking
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by Dead Man Walking » Sun Aug 13, 2017 12:22 am

I read the terms of a Treasury Direct account when the Treasury stopped issuing paper bonds. I decided that a TD account was too risky for me. Mel's comments reinforced my decision. My younger friends and relatives think that I am paranoid.

DMW

lazyday
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by lazyday » Sun Aug 13, 2017 5:56 am

Osp62 wrote:
Sat Aug 12, 2017 9:40 pm
I read the account agreement, then talked to several customer support representatives and then was also connected to a lawyer. They all essentially said that the account agreement clearly states that TD is not responsible for any online hacking or fraud.
https://www.treasurydirect.gov/terms.htm

My bold:
5. YOUR ACCOUNT

If you use this site, you are responsible for maintaining the confidentiality of your account, password and for restricting access to your computer. You also agree to assume responsibility for all activities that occur under any account or password that you maintain for electronic commerce with Treasury or Fiscal Service. TreasuryDirect.gov, fiscal.treasury.gov and all other websites operated by Fiscal Service do not sell products to minors. If you are under 18, you may use TreasuryDirect.gov only with involvement of a parent or guardian. TreasuryDirect.gov, fiscal.treasury.gov, and all other websites operated by Fiscal Service reserve the right to refuse service, terminate accounts, remove or edit content, or cancel purchases in their sole discretion.
Also see "3. DISCLAIMER OF LIABILITY AND WARRANTIES". I'm not a lawyer, can't say if it means that the site doesn't have to protect against hackers.

lazyday
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by lazyday » Sun Aug 13, 2017 6:12 am

For PAPER savings bonds:

https://www.treasurydirect.gov/indiv/re ... q.htm#lost
We can replace your savings bonds if we can establish that a person entitled to cash the bonds hasn't done so.
There may be a better source, found that one quickly.

beardsworth
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by beardsworth » Sun Aug 13, 2017 7:30 am

The language quoted by lazyday, two posts above, concerning the Treasury Direct customer's responsibility for the use of his/her log-in credentials, is plain in the site's terms of use. That's why, as noted in my original post which started this thread, my inquiries to Treasury specified a loss situation in which the customer bore no fault for compromising access to the account but a loss was nevertheless suffered by the customer as a result of hacking or other failure or shortcoming in Treasury's own systems which allowed, or at least failed to prevent, a loss.

As I've pondered the answer Treasury finally sent me, i.e., that an obscure law about the "shipping" of federal securities and valuables applies to electronic I Bonds which haven't actually been "shipped" anywhere at all, the following questions continue to bother me:

•Why aren't the existence of that law, and that recourse for losses, ever mentioned in Treasury Direct's online terms of use?

•Why did I have to "pull teeth," corresponding with Treasury four times, before that law was ever mentioned? The applicability of that law could, after all, have been revealed in the very first e-mail reply I got from Treasury, so let's say, charitably, that Treasury was not exactly eager to be forthcoming about it.

•Assuming that there are customers who have suffered losses from their Treasury Direct accounts (and this may or may not be the case), has this law ever been used successfully by a customer who suffered a Treasury Direct account loss which was in no way his/her fault but who nevertheless managed to find out about the law through no help from Treasury Direct? Since this law puts the burden on the customer to file a loss claim, and then gives Treasury the authority to determine whether a claim against Treasury itself is valid, has it ever done so? Of course, I have no answer.

In both psychological and financial terms, I'm still where I was in the opening paragraph of the thread, and also where I was before I ever wrote to Treasury: Other than the small exception for getting up to $5,000 of federal tax refund in the form of paper I Bonds, an electronic account is currently the only way to buy them. My wife and I both have Treasury Direct accounts, but it creeps us out, and we have an ongoing debate over whether we should get out, precisely because of such loss liability concerns and the obligation placed on the customer to create a paper trail (for the benefit of heirs or an executor, for example) documenting that the bond holdings even exist.

One thing is clear to me: The publicly stated reason for Treasury's switch from paper to electronic was to save tax money spent on printing, storing, and mailing paper bonds. And I'm sure it did so. But, to whatever extent Treasury does not make the customer whole for account losses of electronic bonds in the same way as for loss or theft of paper bonds, then a second effect of the paper-to-electronic switch was also to offload that degree of liability from the issuer to the buyer. And it seems quite bizarre that paper bonds, which are in the physical possession of the buyer, will be replaced by Treasury if lost or stolen, while electronic bonds, which are actually in the custody of Treasury itself, may or may not.

* * *
Edited to correct proofreading error.
Last edited by beardsworth on Thu Sep 28, 2017 1:31 am, edited 1 time in total.

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FIREchief
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by FIREchief » Sun Aug 13, 2017 4:15 pm

OP - thanks for starting this thread. I'm shocked by what I've read so far. Fortunately, I no longer hold any EE or I bonds, and my individual treasuries are held at my brokerage. Scary stuff.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: My (general) contacts with Treasury Direct re loss & liability

Post by Avo » Sun Aug 13, 2017 5:11 pm

beardsworth wrote:
Thu Aug 10, 2017 8:47 am
Treasury Direct itself does not issue any direct account communications to the customer (no purchase or redemption confirmations, no periodic statements, no year–end tax forms)
I receive an email from them whenever one of my EE bonds matures.

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weltschmerz
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by weltschmerz » Sun Aug 13, 2017 7:06 pm

Osp62 wrote:
Sat Aug 12, 2017 9:40 pm
I decided to transfer all my Treasuries to another entity and now I definitely feel much more comfortable not having any assets with TD.
I did something similar earlier this year. Sold my meager TD holdings and transferred them out. It's not that I ever had any problems with TD, I just wanted to simplify my assets, and so that account went on the chopping block. I prefer to keep my assets with actual businesses that issue account statements and value me as a customer. TD is a government service, I'm sure they don't even miss me.

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friar1610
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by friar1610 » Sun Aug 13, 2017 8:57 pm

Beardsworth,

Thank you for starting this thread. This week I plan to go through the thread in more detail, copy TD's rules, etc. and put together a letter to one of my senators asking why TD is able to exempt itself from any responsibility for our money if their site gets hacked. She is supposed to be a big-time consumer advocate and champion of financial reform so it will be interesting to see what she has to say. I don't really expect anything to come of it but it will make me, with a big chunk of electronic I-Bonds, feel better.
Friar1610

lazyday
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Re: My (general) contacts with Treasury Direct re loss & liability

Post by lazyday » Mon Aug 14, 2017 3:11 am

beardsworth wrote:
Sun Aug 13, 2017 7:30 am
My wife and I both have Treasury Direct accounts, but it creeps us out, and we have an ongoing debate over whether we should get out, precisely because of such loss liability concerns and the obligation placed on the customer to create a paper trail (for the benefit of heirs or an executor, for example) documenting that the bond holdings even exist.
The problem for heirs is another issue with TD, though I suppose it can be reduced with an In Case of Death folder that they know about. If you pay taxes on TD holdings, it would also appear in your returns. Of course, as you say, they will not get any statements by snail mail, including tax statements.

On your concern for loss: I view this as one of many risks in investing. It would be convenient to convert my paper savings bonds to electronic, but I don't because of this risk. Others might find the risk so insignificant that it's worth converting to make things simpler. I do purchase the max amount of I bonds each year, in spite of this risk.

If you log in to TD and try to link a new bank account, I think you'll find it a bit of a challenge. If either someone you know or an unknown hacker tries to steal your bonds, they will probably have difficulty getting the cash, unless they also have access to your linked bank. So I view the risk as quite small.

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