To amend titles 10 and 37, United States Code, to provide a more equitable process by which the military departments may recover overpayments of military pay and allowances erroneously paid to a member of the Armed Forces when the overpayment is due to no fault of the member, to expand Department discretion regarding remission or cancellation of indebtedness, and for other purposes.

Summary: Military Overpayment Fairness Act of 2009 - Reduces the maximum amount that may be deducted from the pay of a member of the Armed Forces for recovery of an overpayment of military pay paid to the member from 20% to 10% of the member's pay for that month (unless such member requests collection at an accelerated rate). Requires the Secretary of the military department concerned to consult with the member regarding the repayment rate, taking into account the financial ability of the member to pay and avoiding the imposition of undue hardship on the member and his or her dependents. Provides specified delays in collection of overpayments from members injured or wounded during hostile action or incurring a wound, injury, or illness during active duty in a combat operation or combat zone. Imposes a five-year statute of limitations on the collection of overpayments.

Allows for the cancellation of repayment when the Secretary concerned determines that the person: (1) relies on social security benefits or disability compensation for more than half the person's annual income; or (2) would suffer undue hardship in repaying the indebtedness.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Military Overpayment Fairness Act of 
2009''.

SEC. 2. LIMITATIONS ON COLLECTION OF OVERPAYMENTS OF PAY AND ALLOWANCES 
              ERRONEOUSLY PAID TO MEMBERS.

    (a) Maximum Monthly Percentage of Member's Pay Authorized for 
Deduction.--Paragraph (3) of subsection (c) of section 1007 of title 
37, United States Code, is amended by striking ``20 percent'' and 
inserting ``10 percent''.
    (b) Consultation Regarding Deduction or Repayment Terms.--Such 
paragraph is further amended--
            (1) by inserting ``(A)'' after ``(3)''; and
            (2) by adding at the end the following new subparagraph:
    ``(B) In all cases described in subparagraph (A), the Secretary 
concerned shall consult with the member regarding the repayment rate to 
be imposed under such subparagraph to recover the indebtedness, taking 
into account the financial ability of the member to pay and avoiding 
the imposition of an undue hardship on the member and the member's 
dependents.''.
    (c) Delay in Instituting Collections From Wounded or Injured 
Members.--Paragraph (4) of such subsection is amended to read as 
follows:
    ``(4) Unless a member of the uniformed services requests or 
consents to initiation of the collection of an overpayment of pay or 
allowances made to the member at an earlier date, if a member is 
injured or wounded by hostile fire, explosion of a hostile mine, or any 
other hostile action or, while in the line of duty, otherwise incurs a 
wound, injury, or illness in a combat operation or combat zone 
designated by the Secretary of Defense, any overpayment of pay or 
allowances made to the member while the member recovers from the wound, 
injury, or illness may not be deducted from the member's pay until the 
later of--
            ``(A) the end of the 180-day period beginning on the date 
        of the completion of the tour of duty of the member in the 
        combat operation or combat zone, if the member is not removed 
        from the theater of operations for medical treatment; or
            ``(B) the end of the 90-day period beginning on the date of 
        the reassignment of the member from a military treatment 
        facility or other medical unit, if the member is removed from 
        the theater of operations for treatment.''.
    (d) Imposition of Statute of Limitations on Seeking Repayment.--
Such subsection is further amended by adding at the end the following 
new paragraph:
    ``(5) The Secretary concerned may not deduct from the pay of a 
member of the uniformed services or otherwise recover, seek to recover, 
or assist in the recovery from a member or former member any 
overpayment of pay or allowances made to the member through no fault of 
the member unless the Secretary notifies the member of the indebtedness 
before the end of the five-year period beginning on the date on which 
the overpayment was made. If the notice is not provided before the end 
of such period, the Secretary concerned shall cancel the indebtedness 
of the member to the United States.''.
    (e) Expanded Discretion Regarding Remission or Cancellation of 
Indebtedness.--
            (1) Army.--Section 4837(a) of title 10, United States Code, 
        is amended by striking ``, but only if the Secretary considers 
        such action to be in the best interest of the United States.'' 
        and inserting ``if the Secretary determines that the person--
            ``(1) relies on social security benefits or disability 
        compensation under title 38 (or a combination thereof) for more 
        than half of the person's annual income; or
            ``(2) would suffer an undue hardship in repaying the 
        indebtedness.''.
            (2) Naval service.--Section 6161(a) of such title is 
        amended by striking ``, but only if the Secretary considers 
        such action to be in the best interest of the United States.'' 
        and inserting ``if the Secretary determines that the person--
            ``(1) relies on social security benefits or disability 
        compensation under title 38 (or a combination thereof) for more 
        than half of the person's annual income; or
            ``(2) would suffer an undue hardship in repaying the 
        indebtedness.''.
            (3) Air force.--Section 9837(a) of such title is amended by 
        striking ``, but only if the Secretary considers such action to 
        be in the best interest of the United States.'' and inserting 
        ``if the Secretary determines that the person--
            ``(1) relies on social security benefits or disability 
        compensation under title 38 (or a combination thereof) for more 
        than half of the person's annual income; or
            ``(2) would suffer an undue hardship in repaying the 
        indebtedness.''.
    (f) Effective Dates.--
            (1) Reduced payment rate.--The amendment made by subsection 
        (a) shall take effect on the first day of the first month 
        beginning on or after the date of the enactment of this Act and 
        apply to deductions made from the pay of members of the 
        uniformed services for that month and subsequent months.
            (2) Other amendments.--The other amendments made by this 
        section shall apply with respect to any indebtedness of a 
        member of the uniformed services for the overpayment of pay or 
        allowances made to the member through no fault of the member, 
        whether incurred before, on, or after the date of the enactment 
        of this Act.