[Federal Register: December 31, 1997 (Volume 62, Number 250)]
[Proposed Rules]
[Page 68475-68487]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31de97-43]

[[Page 68475]]

_______________________________________________________________________

Part VII

Department of The Treasury

_______________________________________________________________________

Department of Justice

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31 CFR Chapter IX and Parts 900, 901, 902, 903, and 904

Federal Claims Collection Standards; Proposed Rule

[[Page 68476]]

DEPARTMENT OF THE TREASURY

DEPARTMENT OF JUSTICE

31 CFR Chapter IX and Parts 900, 901, 902, 903, and 904

[A.G. Order No. 2135-97]
RIN 1510-AA57 and 1105-AA31


Federal Claims Collection Standards

AGENCIES: Department of the Treasury; Department of Justice.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to revise the Federal Claims Collection
Standards issued by the Department of Justice and the General
Accounting Office on March 9, 1984. The proposed revisions clarify and
simplify Federal debt collection standards contained in the Federal
Claims Collection Standards and reflect changes to Federal debt
collection procedures under the Debt Collection Improvement Act of 1996
and the General Accounting Office Act of 1996.

DATES: Comments must be received on or before March 2, 1998.

ADDRESSES: All comments should be addressed to Gerry Isenberg,
Financial Program Specialist, Debt Management Services, Financial
Management Service, Department of the Treasury, 401 14th Street S.W.,
Room 151, Washington, D.C. 20227; or John W. Showalter, Assistant
Director, Commercial Litigation Branch, Civil Division, Department of
Justice, P.O. Box 875, Ben Franklin Station, Washington, D.C. 20044. A
copy of this proposed rule is being made available for downloading from
the Financial Management Service web site at the following address:
http://www.fms.treas.gov.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program
Specialist, Financial Management Service, Department of the Treasury,
at (202) 874-6660; Ronda L. Kent or Ellen Neubauer, Senior Attorneys,
Financial Management Service, Department of the Treasury, at (202) 874-
6680; or John W. Showalter, Assistant Director, Commercial Litigation
Branch, Civil Division, Department of Justice, at (202) 307-0244.

SUPPLEMENTARY INFORMATION: The Federal Claims Collection Standards
(FCCS) are being revised for two primary reasons: (1) to clarify and
simplify the Federal debt collection standards contained in the FCCS;
and (2) to reflect changes to Federal debt collection procedures under
the Debt Collection Improvement Act of 1996 (DCIA), Pub. L. 104-134,
110 Stat. 1321, 1358 (Apr. 26, 1996), as part of the Omnibus
Consolidated Rescissions and Appropriations Act of 1996.
    Some of the changes made to clarify and simplify the FCCS were
suggested by Federal officials in numerous Government agencies in the
five years prior to the enactment of the DCIA. We appreciate their
substantial efforts toward this revision. The revised FCCS provide
agencies with greater latitude to adopt agency specific regulations
considering the legal and policy requirements applicable to the various
types of Federal debt and maximize the effectiveness of Federal debt
collection procedures.
    The DCIA is the most significant legislation for the administrative
collection of Federal debt since the Debt Collection Act of 1982, Pub.
L. 97-365, 96 Stat. 1749 (Oct. 25, 1982). The revised FCCS conform with
relevant statutory changes to Federal debt collection procedures under
the DCIA. The DCIA authorizes the issuance of rules concerning new debt
collection procedures, including centralized administrative offset, the
transfer or referral of delinquent debt to Treasury or Treasury-
designated debt collection centers for collection (cross-servicing),
administrative wage garnishment, and publication of debtor information.
Additional rules concerning these new debt collection procedures will
be issued separately in accordance with the DCIA.
    While this revision of the FCCS is being issued as a proposed rule,
readers are reminded that most of the provisions of the DCIA became
effective upon enactment on April 26, 1996. Publication of this
proposed rule does not delay the effective date of the DCIA, nor does
it postpone the duty of Federal agencies to comply with the provisions
of the DCIA.
    The Secretary of the Treasury has been added as a co-promulgator of
the FCCS in accordance with section 31001(g)(1)(C) of the DCIA. The
Comptroller General has been removed as a co-promulgator in accordance
with section 115(g) of the General Accounting Office Act of 1996 (GAO
Act), Pub. L. 104-316, 110 Stat. 3826 (Oct. 19, 1996). The Department
of the Treasury and the Department of Justice are establishing a new
joint chapter IX in Title 31 of the Code of Federal Regulations. The
Department of the Treasury and the Department of Justice will publish
the revised FCCS as a joint rule in this new chapter. The current FCCS
are found at 4 CFR parts 101-105.

Discussion of Major Changes

    The revised FCCS contain numerous changes and amendments throughout
the rule. Major changes contained in these revised FCCS are highlighted
below. The various provisions of the FCCS that have been redrafted for
clarity but that do not substantively change debt collection procedures
are not discussed here. A detailed section-by-section analysis
comparing the revised FCCS to the current FCCS is available at the
addresses noted above. Readers are encouraged to read the revised FCCS
carefully to assure knowledge and understanding of all the changes and
not rely solely on the changes highlighted in this discussion.
    The following major changes to the FCCS have been incorporated into
these revised FCCS:
    1. The Comptroller General was removed as a co-promulgator of the
FCCS. The revised FCCS will be published in parts 900-904 of chapter IX
of Title 31 of the Code of Federal Regulations because the Secretary of
the Treasury was added as a co-promulgator of the FCCS. See 4 CFR
101.1.
    2. The revised FCCS reflect the elimination of the Comptroller
General's role in Federal debt collection.
    3. The revised FCCS provide agencies with greater latitude to
streamline and customize debt collection procedures to accommodate
agency specific requirements or unique circumstances.
    4. The revised FCCS reflect the requirement that agencies use
government-wide debt collection contracts (with certain exceptions) for
referrals to private collection contractors.
    5. The revised FCCS contain a new requirement that agencies and
debtors exchange mutual releases of non-tax liabilities, in all
appropriate instances, when a claim is compromised.
    6. The revised FCCS reflect the increase in the principal claim
amount, from $20,000 to $100,000, that agencies are authorized to
compromise or to suspend or terminate collection activity thereon,
without concurrence by the Department of Justice. In addition, the
minimum amount of a claim that may be referred to the Department of
Justice is increased from $600 to $2,500. The circumstances under which
the Department of Justice will litigate when the claim amount does not
meet the minimum threshold have not been changed.
    7. The revised FCCS reflect several new debt collection procedures
under the DCIA, including, but not limited to:
    (a) transfer or referral of delinquent debt to the Department of
the Treasury

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or Treasury-designated debt collection centers for collection, known as
``cross-servicing;''
    (b) mandatory, centralized administrative offset by disbursing
officials;
    (c) mandatory credit bureau reporting; and
    (d) mandatory prohibition against extending Federal financial
assistance in the form of a loan or loan guarantee to delinquent
debtors.
    The Department of the Treasury and the Department of Justice have
determined that this regulation is not a significant regulatory action
as defined in Executive Order 12866 and accordingly this regulation has
not been reviewed by the Office of Management and Budget. It is hereby
certified that this regulation will not have a significant economic
impact on a substantial number of small entities because the regulation
either (1) results in greater flexibility for Federal agencies to
streamline their own debt collection regulations, or (2) reflects the
statutory language contained in the DCIA. Accordingly, a Regulatory
Flexibility Analysis is not required.
    This regulation will not have a substantial direct effect on the
states, on the relationship between the national government and the
states, or on distribution of power and responsibilities among the
various levels of government. Therefore, in accordance with Executive
Order 12612, it is determined that this regulation does not have
sufficient federalism implications to warrant the preparation of a
Federalism Assessment.
    This regulation will not result in the expenditure by state, local
and tribal governments, in the aggregate, or by the private sector, of
$100,000,000 or more in any one year, and it will not significantly or
uniquely affect small governments. Therefore, no actions were deemed
necessary under the provisions of the Unfunded Mandates Reform Act of
1995.

List of Subjects

31 CFR Part 900

    Antitrust, Claims, Fraud, Taxes.

31 CFR Part 901

    Administrative practice and procedure, Claims, Federal Employees,
Penalties, Privacy.

31 CFR Part 902

    Claims.

31 CFR Part 903

    Claims.

31 CFR Part 904

    Claims.

    For the reasons set out in the preamble, chapter IX, consisting of
parts 900 through 904, is proposed to be established in title 31 of the
Code of Federal Regulations to read as follows:

CHAPTER IX--FEDERAL CLAIMS COLLECTION STANDARDS

(DEPARTMENT OF THE TREASURY--DEPARTMENT OF JUSTICE)

Part
900  Scope of standards
901  Standards for the administrative collection of claims
902  Standards for the compromise of claims
903  Standards for suspending or terminating collection activity
904  Referrals to the Department of Justice

PART 900--SCOPE OF STANDARDS

Sec.
900.1  Prescription of standards.
900.2  Definitions and construction.
900.3  Antitrust, fraud, and tax and interagency claims excluded.
900.4  Compromise, waiver, or disposition under other statutes not
precluded.
900.5  Form of payment.
900.6  Subdivision of claims not authorized.
900.7  Required administrative proceedings.
900.8  No private rights created.

    Authority: 31 U.S.C. 3711.

Sec. 900.1  Prescription of standards.

    (a) The Secretary of the Treasury and the Attorney General of the
United States are issuing the regulations in parts 900-904 of this
chapter under 31 U.S.C. 3711(d)(2). The regulations in this chapter
prescribe standards for Federal agency use in the administrative
collection, offset, compromise, and the suspension or termination of
collection activity for civil claims for money, funds, or property, as
defined by 31 U.S.C. 3701(b), unless specific agency statutes or
regulations apply to such activities or, as provided for by Title 11 of
the United States Code, when the claims involve bankruptcy. Federal
agencies include agencies of the executive, legislative, and judicial
branches of the Government, including Government corporations. These
regulations in this chapter also prescribe standards for referring
claims to the Department of Justice for litigation. Additional guidance
is contained in the Office of Management and Budget's Circular A-129
(Revised) ``Policies for Federal Credit Programs and Non-Tax
Receivables,'' the Department of the Treasury's ``Managing Federal
Receivables,'' and other publications concerning debt collection and
debt management. These publications are available from the Debt
Management Services, Financial Management Service, Department of the
Treasury, 401 14th Street S.W., Room 151, Washington, D.C. 20227.
    (b) Additional rules governing disbursing official administrative
offset and the transfer of delinquent debt to the Department of the
Treasury or Treasury-designated debt collection centers for collection
(cross-servicing) under the Debt Collection Improvement Act of 1996,
Pub. L. 104-134, 110 Stat. 1321, 1358 (Apr. 26, 1996), are issued in
separate regulations by the Department of the Treasury. Rules governing
the use of certain debt collection tools created under the Debt
Collection Improvement Act of 1996, such as administrative wage
garnishment and dissemination of information regarding delinquent
debtors, also are issued in separate regulations by the Department of
the Treasury.
    (c) Agencies are not limited to the remedies contained in parts
900-904 of this chapter and are encouraged to use all authorized
remedies, including alternative dispute resolution and arbitration, to
collect civil claims, to the extent that such remedies are not
inconsistent with the Federal Claims Collection Act, as amended, Pub.
L. 89-508, 80 Stat. 308 (July 19, 1966), the Debt Collection Act of
1982, Pub. L. 97-365, 96 Stat. 1749 (Oct. 25, 1982), the Debt
Collection Improvement Act of 1996, or other relevant statutes. These
regulations in this chapter are not intended to impair agencies' common
law rights to collect claims.

Sec. 900.2  Definitions and construction.

    (a) For the purposes of the standards in this chapter, the terms
``claim'' and ``debt'' are synonymous and inter-changeable. They refer
to an amount of money, funds, or property that has been determined by
an agency official to be due the United States from any person,
organization, or entity, except another Federal agency. For the
purposes of administrative offset under 31 U.S.C. 3716, the terms
``claim'' and ``debt'' include an amount of money, funds, or property
owed by a person to a State (including past-due support being enforced
by a State), the District of Columbia, American Samoa, Guam, the United
States Virgin Islands, the Commonwealth of the Northern Mariana
Islands, or the Commonwealth of Puerto Rico.
    (b) A claim is ``delinquent'' if it has not been paid by the date
specified in the agency's initial written demand for payment or
applicable agreement or instrument (including a post-delinquency
payment agreement),

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unless other satisfactory payment arrangements have been made.
    (c) In parts 900-904 of this chapter, words in the plural form
shall include the singular and vice versa, and words signifying the
masculine gender shall include the feminine and vice versa. The terms
``includes'' and ``including'' do not exclude matters not listed but do
include matters that are in the same general class.
    (d) Recoupment is a special method for adjusting claims arising
under the same transaction or occurrence. For example, obligations
arising under the same contract are generally subject to recoupment.
    (e) For purposes of the standards in this chapter, unless otherwise
stated, ``Secretary'' means the Secretary of the Treasury or the
Secretary's delegate.

Sec. 900.3  Antitrust, fraud, and tax and interagency claims excluded.

    (a) The standards in parts 900-904 of this chapter relating to
compromise, suspension, and termination of collection activity do not
apply to any claim based in whole or in part on conduct in violation of
the antitrust laws or to any claim involving fraud, the presentation of
a false claim, or misrepresentation on the part of the debtor or any
party having an interest in the claim. Only the Department of Justice
has the authority to compromise, suspend, or terminate collection
activity on such claims. The standards in parts 900-904 of this chapter
relating to the administrative collection of claims do apply, but only
to the extent authorized by the Department of Justice in a particular
case. Upon identification of a claim based in whole or in part on
conduct in violation of the antitrust laws or any claim involving
fraud, the presentation of a false claim, or misrepresentation on the
part of the debtor or any party having an interest in the claim,
agencies shall promptly refer the case to the Department of Justice for
action. At its discretion, the Department of Justice may return the
claim to the forwarding agency for further handling in accordance with
the standards in parts 900-904 of this chapter.
    (b) Parts 900-904 of this chapter do not cover tax claims.
    (c) Parts 900-904 of this chapter do not apply to claims between
Federal agencies. Federal agencies should attempt to resolve
interagency claims by negotiation in accordance with Executive Order
12146 (3 CFR, 1980 Comp., pp. 409-412).

Sec. 900.4  Compromise, waiver, or disposition under other statutes not
precluded.

    Nothing in parts 900-904 of this chapter precludes agency
disposition of any claim under statutes and implementing regulations
other than subchapter II of chapter 37 of Title 31 of the United States
Code (Claims of the United States Government) and these standards. See,
e.g., the Federal Medical Care Recovery Act, Pub. L. 87-693, 76 Stat.
593 (Sept. 25, 1962) (codified at 42 U.S.C. 2651 et seq.), and
applicable regulations, 28 CFR part 43. In such cases, the laws and
regulations that are specifically applicable to claims collection
activities of a particular agency generally take precedence over parts
900-904 of this chapter.

Sec. 900.5  Form of payment.

    Claims may be paid in the form of money or, when a contractual
basis exists, the Government may demand the return of specific property
or the performance of specific services.

Sec. 900.6  Subdivision of claims not authorized.

    Claims may not be subdivided to avoid the monetary ceiling
established by 31 U.S.C. 3711(a)(2). A debtor's liability arising from
a particular transaction or contract shall be considered a single claim
in determining whether the claim is one of less than $100,000
(excluding interest, penalties, or administrative costs) or such higher
amount as the Attorney General shall from time to time prescribe for
purposes of compromise or suspension or termination of collection
activity.

Sec. 900.7  Required administrative proceedings.

    Agencies are not required to omit, foreclose, or duplicate
administrative proceedings required by contract or other laws or
regulations.

Sec. 900.8  No private rights created.

    The standards in this chapter do not create any right or benefit,
substantive or procedural, enforceable at law or in equity by a party
against the United States, its agencies, its officers, or any other
person, nor shall the failure of an agency to comply with any of the
provisions of parts 900-904 of this chapter be available to any debtor
as a defense.

PART 901--STANDARDS FOR THE ADMINISTRATIVE COLLECTION OF CLAIMS

Sec.
901.1  Aggressive agency collection activity.
901.2  Demand for payment.
901.3  Collection by administrative offset.
901.4  Administrative offset against amounts payable from Civil
Service Retirement and Disability Fund and the Federal Employee
Retirement System.
901.5  Reporting claims.
901.6  Contracting for debt collection agencies and to locate and
recover unclaimed assets.
901.7  Suspension or revocation of eligibility for loans and loan
guaranties, licenses, permits, or privileges.
901.8  Liquidation of collateral.
901.9  Collection in installments.
901.10  Interest, penalties, and administrative costs.
901.11  Analysis of costs.
901.12  Use and disclosure of mailing addresses.
901.13  Exemptions.

    Authority: 31 U.S.C. 3701, 3711, 3716, 3717, 3718, and 3720B.

Sec. 901.1  Aggressive agency collection activity.

    (a) Federal agencies shall aggressively collect all claims arising
out of activities of, or referred or transferred for collection
services to, that agency. Collection activities shall be undertaken
promptly with follow-up action taken as necessary depending upon the
circumstances. Nothing contained in parts 900-904 of this chapter
requires the Department of Justice, the Department of the Treasury, or
other Treasury-designated debt collection center, to duplicate
collection activities previously undertaken by other agencies or to
perform collection activities that other agencies should have
undertaken.
    (b) Claims referred or transferred shall be serviced, collected, or
compromised, or the collection action will be suspended or terminated,
in accordance with the statutory requirements and authorities otherwise
applicable to the collection of such claims.
    (c) Agencies shall cooperate with one another in their debt
collection activities.
    (d) Agencies should consider referring claims that are less than
180 days delinquent to ``debt collection centers'' of the Federal
Government to accomplish efficient, cost effective debt collection. The
Department of the Treasury is a debt collection center, is authorized
to designate other debt collection centers within the Federal
Government based on the debt collection centers' performance in
collecting delinquent claims owed to the Government, and may withdraw
such designations. Referrals to debt collection centers shall be at the
discretion of, and for a time period acceptable to, the Secretary.
Referrals may be for servicing, collection, compromise, suspension, or
termination of collection action.

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    (e) Agencies shall transfer to the Secretary any claim that has
been delinquent for a period of 180 days or more so that the Secretary
may take appropriate action to collect the claim or terminate
collection action. This requirement does not apply to any claim that:
    (1) Is in litigation or foreclosure;
    (2) Will be disposed of under an approved asset sale program;
    (3) Has been referred to a private collection contractor for a
period of time acceptable to the Secretary;
    (4) Is at a debt collection center for a period of time acceptable
to the Secretary (see paragraph (d) of this section);
    (5) Will be collected under internal offset procedures within three
years after the debt first became delinquent; or
    (6) To other classes of claims for which the Secretary has
determined that an exemption from this requirement is in the best
interest of the Government. Agencies may request that the Secretary
exempt specific classes of claims.
    (f) Agencies operating debt collection centers are authorized to
charge a fee for services rendered regarding referred or transferred
claims. The fee may be paid out of amounts collected and may be added
on the claim as an administrative cost (see Sec. 901.10).

Sec. 901.2  Demand for payment.

    (a) Written demand as described in paragraph (b) of this section
shall be made promptly upon a debtor of the United States in terms that
inform the debtor of the consequences of failing to cooperate with the
agency to resolve the claim. The specific content, timing, and number
of demand letters shall depend upon the type and amount of the claim
and the debtor's response, if any, to the agency's letters or calls.
Generally, one demand letter should suffice. In determining the timing
of the demand letter or letters, agencies should give due regard to the
need to refer claims promptly to the Department of Justice for
litigation, in accordance with Sec. 904.1 of this chapter or otherwise.
When necessary to protect the Government's interest (for example, to
prevent the running of a statute of limitations), written demand may be
preceded by other appropriate actions under parts 900-904 of this
chapter, including immediate referral for litigation.
    (b) Demand letters shall inform the debtor of:
    (1) The basis for the indebtedness and the rights, if any, the
debtor may have to seek review within the agency;
    (2) The applicable standards for imposing any interest, penalties,
or administrative costs;
    (3) The date by which payment should be made to avoid late charges
and enforced collection, which generally should not be more than 30
days from the date that the demand letter is mailed or hand-delivered;
and
    (4) The name, address, and phone number of a contact person or
office within the agency.
    (c) Agencies should exercise care to ensure that demand letters are
mailed or hand-delivered on the same day that they are dated. There is
no prescribed format for demand letters. Agencies should utilize demand
letters and procedures that will lead to the earliest practicable
determination of whether the claim can be resolved administratively or
must be referred for litigation.
    (d) Agencies should include in demand letters such items as the
agency's willingness to discuss alternative methods of payment; its
policies with respect to the use of credit bureaus, debt collection
centers, and collection agencies; the agency's remedies to enforce
payment of the claim (including assessment of interest, administrative
costs and penalties, administrative garnishment, the use of collection
agencies, Federal salary offset, tax refund offset, administrative
offset, and litigation); the requirement that any debt delinquent for
more than 180 days be transferred to the Department of the Treasury for
collection; and, depending on applicable statutory authority, the
debtor's entitlement to consideration of a waiver.
    (e) Agencies should respond promptly to communications from
debtors, within 30 days whenever feasible, and should advise debtors
who dispute claims to furnish available evidence to support their
contentions.
    (f) Prior to the initiation of the demand process or at any time
during or after completion of the demand process, if an agency
determines to pursue or is required to pursue offset, the procedures
applicable to offset should be followed (see Sec. 901.3). The
availability of funds or money for debt satisfaction by offset and the
agency's determination to pursue collection by offset shall release the
agency from the necessity of further compliance with paragraphs (a),
(b), (c), and (d) of this section.
    (g) Prior to referring a claim for litigation, agencies should
advise each person determined to be liable for the claim that, unless
the claim can be collected administratively, litigation may be
initiated. This notification should comply with Executive Order 12988
and may be given as part of a demand letter under paragraph (b) of this
section or in a separate document. Litigation counsel for the
Government should be advised that this notice has been given.
    (h) When an agency learns that a bankruptcy petition has been filed
with respect to a debtor, before proceeding with further collection
action, the agency should immediately seek legal advice from its agency
counsel concerning the impact of the Bankruptcy Code on any pending or
contemplated collection activities. Unless the agency determines that
the automatic stay imposed at the time of filing pursuant to 11 U.S.C.
362 has been lifted or is no longer in effect, in most cases collection
activity against the debtor should stop immediately.
    (1) After seeking legal advice, a proof of claim should be filed in
most cases with the bankruptcy court or the Trustee. Agencies should
refer to the provisions of 11 U.S.C. 106 relating to the consequences
on sovereign immunity of filing a proof of claim.
    (2) If the agency is a secured creditor, it may seek relief from
the automatic stay regarding its security, subject to the provisions
and requirements of 11 U.S.C. 362.
    (3) Offset is stayed in most cases by the automatic stay. However,
agencies should seek legal advice from their agency counsel to
determine whether their payments to the debtor and payments of other
agencies available for offset may be frozen by the agency until relief
from the automatic stay can be obtained from the bankruptcy court.
Agencies also should seek legal advice from their agency counsel to
determine whether recoupment is available.

Sec. 901.3  Collection by administrative offset.

    (a) In general. Two types of administrative offset exist under this
section: Administrative offset by non-disbursing officials and
administrative offset by disbursing officials. The standards contained
in paragraph (a) apply to both types of administrative offset. The
standards contained in paragraph (b) of this section apply solely to
non-disbursing official offset, and the standards contained in
paragraph (c) of this section apply solely to disbursing official
offset. Collection by administrative offset shall be undertaken in
accordance with Secs. 901.3 and 901.4 and implementing regulations
established by each agency on all claims where such collection is
determined to be feasible and not otherwise prohibited.
    (1) Agencies shall prescribe regulations for the exercise of
administrative offset consistent with

[[Page 68480]]

this section or adopt this section without change by cross-reference.
    (2) For purposes of this section, the term ``administrative
offset'' has the meaning provided in 31 U.S.C. 3701(a)(1).
    (3) This section applies to administrative offsets undertaken by
agencies pursuant to 31 U.S.C. 3716 against funds or money payable to,
or held for, a debtor. It does not apply to:
    (i) Claims arising under the Social Security Act, except as
provided in 42 U.S.C. 404;
    (ii) Payments made under the Social Security Act, except as
provided for in 31 U.S.C. 3716(c);
    (iii) Claims arising under or payments made under the Internal
Revenue Code or the tariff laws of the United States;
    (iv) Offsets against Federal salaries, to the extent these
standards are inconsistent with regulations published to implement such
offsets under 5 U.S.C. 5514;
    (v) Offsets under 31 U.S.C. 3728 against a judgment obtained by a
debtor against the United States;
    (vi) Offsets or recoupments under common law, State law, or Federal
statutes specifically prohibiting offsets or recoupments of particular
types of claims; or
    (vii) Offsets in the course of judicial proceedings, including
bankruptcy.
    (4) Unless otherwise provided for by contract or law, claims or
payments that are not subject to administrative offset under 31 U.S.C.
3716 may be collected by administrative offset under the common law or
other applicable statutory authority.
    (5) Agency regulations for offsets pursuant to 31 U.S.C. 3716 shall
provide also that, except as is provided in paragraph (b)(2) of this
section, offsets may be initiated only after the debtor has received:
    (i) Written notice of the type and amount of the claim and that the
agency intends to use administrative offset to collect the claim;
    (ii) An opportunity to inspect and copy agency records related to
the claim;
    (iii) An opportunity for a hearing or review within the agency of
the determination of indebtedness; and
    (iv) An opportunity to make a written agreement to repay the claim.
    (6) When an agency previously has given a debtor any of the
required notice and review opportunities with respect to a particular
claim, the agency need not give notice and review opportunities
duplicating those previously given before initiating administrative
offset with respect to that claim.
    (7) (i) For purposes of this section, whenever an agency is
required to afford a debtor a hearing or review within the agency, the
agency shall provide the debtor with a reasonable opportunity for an
oral hearing when:
    (A) An applicable statute authorizes or requires the agency to
consider waiver of the indebtedness involved, the debtor requests
waiver of the indebtedness, and the waiver determination turns on an
issue of credibility or veracity; or
    (B) The debtor requests reconsideration of the claim and the agency
determines that the question of the indebtedness cannot be resolved by
review of the documentary evidence, for example, when the validity of
the claim turns on the issue of credibility or veracity.
    (ii) Unless otherwise required by law, an oral hearing under this
section is not required to be a formal evidentiary-type hearing,
although the agency should carefully document all significant matters
discussed at the hearing.
    (iii) This section does not require an oral hearing with respect to
debt collection systems in which a determination of indebtedness or
waiver rarely involves issues of credibility or veracity and the agency
has determined that review of the written record is ordinarily an
adequate means to correct prior mistakes.
    (iv) In those cases when an oral hearing is not required by this
section, an agency shall nevertheless accord the debtor a ``paper
hearing,'' that is, a determination of the request for waiver or
reconsideration based upon a review of the written record.
    (8) Unless otherwise provided by law, agencies may not initiate
administrative offset to collect a claim under 31 U.S.C. 3716 more than
10 years after the Government's right to collect the claim first
accrued, unless facts material to the Government's right to collect the
claim were not known and could not reasonably have been known by the
official or officials of the Government who were charged with the
responsibility to discover and collect such claims.
    (b) Administrative offset by non-disbursing officials. Generally,
administrative offsets by non-disbursing officials are offsets that an
agency conducts internally or in cooperation with the agency certifying
or authorizing payments to the debtor. Disbursing agencies also are
authorized to conduct offsets in accordance with this paragraph on a
case-by-case basis.
    (1) The creditor agency is responsible for determining, in its
discretion on a case-by-case basis, whether collection by
administrative offset under this subsection is feasible. Creditor
agencies should consider whether administrative offset may be
accomplished practically and legally and whether offset furthers and
protects the Government's interests. In appropriate circumstances, such
as when a debtor is unable to pay the full amount that could be
collected by offset (see Sec. 902.2(b) of this chapter), the agency may
consider the debtor's financial condition and is not required to use
offset in every instance in which there is an available source of funds
or money. Agencies also may consider whether offset would tend to
interfere substantially with, or defeat the purposes of, the program
authorizing the payments against which offset is contem plated. For
example, under a grant program in which payments are made in advance of
the grantee's performance, offset may be inappropriate. This concept
generally does not apply, however, when payment is in the form of
reimbursement.
    (2) Agency regulations may provide for the omission of the
procedures set forth in paragraph (a)(5) of this section when:
    (i) The offset is in the nature of a recoupment;
    (ii) The claim arises under a contract as set forth in Cecile
Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993); or
    (iii) The agency first learns of the existence of the amount owed
by the debtor when there is insufficient time before payment would be
made to the debtor to allow for prior notice and an opportunity for
review. When prior notice and an opportunity for review are omitted,
the agency shall give the debtor such notice and an opportunity for
review as soon as practicable and shall promptly refund any money
ultimately found not to have been owed to the Government.
    (3) Agencies shall comply with requests from other agencies to
collect claims owed to the United States by administrative offset,
unless the offset would not be in the best interests of the Government
with respect to the program of the agency conducting the offset as
determined by the head of the agency, or would be otherwise contrary to
law. Appropriate use should be made of the cooperative efforts of other
agencies in effecting collection by administrative offset.
    (4) Agency regulations shall provide that the agency making a
payment against which administrative offset is sought should not make
the requested offset until it has been provided with a written
certification by the creditor agency that the debtor owes the claim in
the amount specified and that the creditor agency has fully complied
with

[[Page 68481]]

its regulations concerning administrative offset.
    (5) When collecting multiple claims by administrative offset,
agencies should apply the recovered amounts to those claims in
accordance with the best interests of the United States, as determined
by the facts and circumstances of the particular case, particularly the
applicable statutes of limitation.
    (c) Administrative offset by disbursing officials. Disbursing
officials of the Department of the Treasury, the Department of Defense,
the United States Postal Service, other Government corporations, and
disbursing officials of the United States designated by the Secretary
are required to conduct administrative offset to collect claims that
agencies have certified to the Secretary for collection by
administrative offset. Agencies shall certify claims to the Secretary
and the Secretary shall share information concerning delinquent claims
with the aforesaid disbursing officials so that offsets may occur
government-wide. If an agency has not certified a specific claim to the
Secretary, an agency still may collect the claim by administrative
offset in accordance with paragraph (b) of this section by contacting
the payment certifying agency or the disbursing agency directly.
    (1) Certification of claims to the Secretary shall be in a form
acceptable to the Secretary and shall include, at a minimum:
    (i) A statement that the claim(s) is past due and legally
enforceable; and
    (ii) A statement that the agency certifying the claim has complied
with all the due process requirements enumerated in 31 U.S.C. 3716(a)
and the agency's regulations.
    (2) Federal agencies that are owed past due, legally enforceable
claims over 180 days delinquent shall certify those claims to the
Secretary for collection through the disbursing official offset
program. In addition to claims that, by law, may not be collected by
administrative offset, the Secretary may exempt any claim or class of
claims from this requirement if the Secretary determines exemption is
in the best interest of the United States.
    (3) Payments that are prohibited by law from being offset are
exempt from offset by disbursing officials. Means-tested benefit
payments shall be exempted from offset by the Secretary at the request
of the head of the agency administering the means-tested benefit
program. For the purposes of this section, ``means-tested benefit
payments'' are payments made to an individual under a program where
eligibility is based on a determination that the income, assets, and/or
resources of the beneficiary are inadequate to provide the beneficiary
with an adequate standard of living without program assistance. The
Secretary may exempt other classes of payments upon the written request
of the head of the payment certifying or authorizing agency. Such
requests may be granted if the Secretary determines that exemption is
in the best interests of the Government. For example, offsets that
would tend to interfere substantially with, or defeat the purposes of,
the payment agency's program may qualify for an exemption.
    (4) Benefit payments made under the Social Security Act (42 U.S.C.
301 et seq.), part B of the Black Lung Benefits Act (30 U.S.C. 921 et
seq.), and any law administered by the Railroad Retirement Board (other
than tier 2 benefits) may be offset only in accordance with Department
of the Treasury regulations, issued in consultation with the Social
Security Administration, the Railroad Retirement Board, and the Office
of Management and Budget.
    (5) The disbursing official shall notify the debtor/payee in
writing that an offset has occurred. The notice shall include a
description of the payment from which the offset was taken, the amount
of offset that was taken, the identity of the creditor agency
requesting the offset, and a contact point within the creditor agency
who will respond to questions regarding the offset.
    (6) If more than one claim is owed by a debtor, funds or money
collected by offset shall be applied to the claims in an order that is
in the best interests of the United States as determined by the
Secretary.
    (7) In accordance with 31 U.S.C. 3716(f), the Secretary may waive
the provisions in the Computer Matching and Privacy Protection Act of
1988 concerning matching agreements and post-match notification and
verification (5 U.S.C. 552a(o) and (p)) for administrative offset under
paragraph (c) of this section upon receipt of a certification from a
creditor agency that the due process requirements enumerated in 31
U.S.C. 3716(a) have been met. The certification of a claim in
accordance with paragraph (c)(1) of this section will satisfy this
requirement. If such a waiver is granted, only the Data Integrity Board
of the Department of the Treasury is required to oversee any matching
activities, in accordance with 31 U.S.C. 3716(g).
    (8) Under 31 U.S.C. 3716(h), the Secretary may enter into
reciprocal agreements with states for Federal disbursing officials to
collect state debts through offset of Federal payments and for state
disbursing officials to collect Federal debts through offset of state
payments. States shall have regulations or procedures concerning
offsets consistent with those contained in these standards. This
section shall not apply to claims or payments that are not subject to
offset by Federal law. The Secretary may exempt additional claims and/
or payments from these reciprocal agreements if the Secretary
determines such exemptions are in the best interest of the Federal
Government.
    (d) In bankruptcy cases, agencies should seek legal advice from
their agency counsel concerning the impact of the Bankruptcy Code,
particularly 11 U.S.C. 106, 362, and 553, on pending or contemplated
collections by offset.

Sec. 901.4  Administrative offset against amounts payable from Civil
Service Retirement and Disability Fund and the Federal Employee
Retirement System.

    (a) For claims that have not been certified to the Secretary for
administrative offset by disbursing officials, unless otherwise
prohibited by law, agencies may request that moneys that are due and
payable to a debtor from the Civil Service Retirement and Disability
Fund (CSRD) or the Federal Employee Retirement System (FERS) be
administratively offset, in amounts authorized under 5 CFR 831.1807, to
collect claims owed to the United States by the debtor. Because
disbursing officials of the Department of the Treasury are authorized
to offset these payments under Sec. 901.3, requests under this section
should be limited to those instances in which offset cannot be
accomplished by certification to the Secretary. Requests under this
section shall be made to appropriate officials of the Office of
Personnel Management (OPM) in accordance with such regula tions as are
prescribed by the Director of that office at 5 CFR 831.1801-831.1808.
    (b) Agencies that decide to request administrative offset under
paragraph (a) of this section should make the request as soon as
practical after completion of the applicable procedures. Unless the
debtor has filed for a refund, there is no specific time period for
filing an offset request (see 5 CFR 831.1805), other than the 10-year
limitation period described in Sec. 901.3(a)(6). The filing of the
request for offset within the 10-year period shall satisfy any
requirement that offset be initiated prior to expiration of the statute
of limitations. The OPM shall retain the claim for future recovery and
make the collection when the debtor

[[Page 68482]]

applies for a refund or benefits from the retirement fund. The OPM
shall notify the agency if it does not have an application for a refund
or benefits from the debtor so that the agency may continue to attempt
recovery using other collection mechanisms. The agency shall notify the
OPM if it collects the claim using alternative means and wishes to
modify or terminate its offset request.
    (c) If the offset request has been pending for a year or more when
the debtor files an application for a refund or benefits, the OPM shall
contact the agency to determine if the claim is still due and the
current balance of the claim. If the claim is still due, the agency
shall allow the debtor to offer a satisfactory repayment plan in lieu
of the offset, upon establishing that changes in the debtor's financial
condition would render the offset unjust (see Sec. 901.9 and
Sec. 902.2(b) of this chapter).
    (d) This section does not authorize the OPM or the Merit Systems
Protection Board to review the merits of the requesting agency's
determination with respect to the amount and validity of the claim, its
determination as to waiver under an applicable statute, or its
determination whether to provide a hearing. The Merit Systems
Protection Board or any other review panel is not precluded from
providing hearing officials, on a reimbursable basis, to other Federal
agencies where hearing officials are required by law.
    (e) In bankruptcy cases, agencies should seek legal advice from
their agency counsel concerning the impact of the Bankruptcy Code,
particularly 11 U.S.C. 106, 362 and 553, on pending or contemplated
collections by offset.

Sec. 901.5  Reporting claims.

    (a) Agencies shall develop and implement procedures for reporting
delinquent claims to credit bureaus and other automated databases.
Agencies also may develop procedures to report non-delinquent claims to
credit bureaus.
    (1) In developing procedures for reporting claims to credit
bureaus, agencies shall comply with the Bankruptcy Code and the Privacy
Act of 1974, 5 U.S.C. 552a, as amended. Credit bureaus are not subject
to the Privacy Act.
    (2) Agency procedures for reporting consumer claims to credit
bureaus shall be consistent with the due process and other requirements
contained in 31 U.S.C. 3711(e). When an agency has given a debtor any
of the required notice and review opportunities with respect to a
particular claim, the agency need not give notice and review
opportunities duplicating those previously given before reporting that
consumer claim to credit bureaus.
    (b) Agencies should report delinquent claims to the Department of
Housing and Urban Development's Credit Alert Interactive Voice Response
System (CAIVRS). For information about participating in the CAIVRS
program, agencies should contact the Director of Information Resources
Management Policy and Management Division, Office of Information
Technology, Department of Housing and Urban Development, 451 7th
Street, S.W., Washington, DC 20410.

Sec. 901.6  Contracting for debt collection agencies and to locate and
recover unclaimed assets.

    (a) Agencies may contract with collection agencies to recover
delinquent claims provided that:
    (1) Agencies retain the authority to resolve disputes, compromise
claims, suspend or terminate collection activity, and refer claims for
litigation;
    (2) The collection agency is not allowed to offer the debtor, as an
incentive for payment, the opportunity to pay the claim less the
collection agency's fee unless the agency has granted such authority
prior to the offer;
    (3) The collection agency is subject to the Privacy Act of 1974 to
the extent specified in 5 U.S.C. 552a(m) and to applicable Federal and
state laws and regulations pertaining to debt collection practices,
including but not limited to the Fair Debt Collection Practices Act, 15
U.S.C. 1692; and
    (4) The collection agency is required to account for all amounts
collected.
    (b) Except for those agencies specifically exempted by procurement
statutes or with collection contracts in effect prior to the award of
the government-wide contracts, agencies shall use government-wide debt
collection contracts to obtain debt collection services provided by
collection agencies.
    (c) Agencies may fund collection agency contracts on a fixed-fee
basis, that is, by providing for payment of a fixed fee determined
without regard to the amount actually collected under the contract,
provided that the payment of the fee under this type of contract shall
be charged to available agency appropriations or funds.
    (d) Unless prohibited by statute, agencies may fund collection
agency contracts on a contingent-fee basis, that is, by including a
provision in the contract permitting the collection agency to deduct a
fee, consistent with prevailing commercial practice, based on a
percentage of the amount collected under the contract.
    (e) Agencies also may enter into contracts for locating and
recovering unclaimed assets of the United States. Agencies must
establish procedures that are acceptable to the Secretary before
entering into contracts to recover assets of the United States held by
a state government or a financial institution.

Sec. 901.7  Suspension or revocation of eligibility for loans and loan
guaranties, licenses, permits, or privileges.

    (a) Unless waived by the head of the agency, agencies are not
permitted to extend financial assistance in the form of a loan, loan
guarantee, or loan insurance to any person delinquent on a non-tax
claim owed to a Federal agency. This prohibition does not apply to
disaster loans. The authority to waive the application of this section
may be delegated to the Chief Financial Officer and redelegated only to
the Deputy Chief Financial Officer of the agency. Agencies may extend
credit after the delinquency has been resolved. The Secretary may
exempt classes of claims from this prohibition and shall prescribe
standards defining when a ``delinquency'' is ``resolved'' for purposes
of this prohibition.
    (b) In non-bankruptcy cases, agencies seeking the collection of
statutory penalties, forfeitures, or other types of claims should give
serious consideration to the suspension or revocation of licenses,
permits, or other privileges for any inexcusable or willful failure of
a debtor to pay such a claim in accordance with the agency's
regulations or governing procedures. The debtor should be advised in
the agency's written demand for payment of the agency's ability to
suspend or revoke licenses, permits, or privileges. Any agency making,
guaranteeing, insuring, acquiring, or participating in loans should
give consideration to suspending or disqualifying any lender,
contractor, or broker from doing further business with it or engaging
in programs sponsored by it if such a debtor fails to pay its claims to
the Government within a reasonable time or if such debtor has been
suspended, debarred, or disqualified from participation in a program or
activity by another Federal agency. The failure of any surety to honor
its obligations in accordance with 31 U.S.C. 9305 should be reported to
the Department of the Treasury. The Department of the Treasury shall
forward to all interested agencies notification that a surety's
certificate of authority to do business with the Government has been
revoked or forfeited by the Department.

[[Page 68483]]

    (c) The suspension or revocation of licenses, permits, or
privileges should also extend to Federal programs or activities that
are administered by the states on behalf of the Federal Government, to
the extent that they affect the Government's ability to collect money
or funds owed by debtors. Therefore, states that manage Federal
activities, pursuant to approval from the agencies, should ensure that
appropriate steps are taken to safeguard against issuing licenses,
permits, or privileges to debtors who fail to pay their claims to the
Government.
    (d) In bankruptcy cases, before advising the debtor of an agency's
intention to suspend or revoke licenses, permits, or privileges,
agencies should seek legal advice from their agency counsel concerning
the impact of the Bankruptcy Code, particularly 11 U.S.C. 362 and 525,
which may restrict such action by the Government.

Sec. 901.8  Liquidation of collateral.

    (a) Agencies should liquidate security or collateral and apply the
proceeds to the applicable claim(s) due through the exercise of a power
of sale in the security instrument or a nonjudicial foreclosure if
debtors fail to pay the claim(s) within a reasonable time after demand
and such action is in the Government's best interest. Collection from
other sources, including liquidation of security or collateral, is not
a prerequisite to requiring payment by a surety, insurer, or guarantor
unless such action is expressly required by statute or contract.
    (b) When an agency learns that a bankruptcy petition has been filed
with respect to a debtor, the agency should seek legal advice from
their agency counsel concerning the impact of the Bankruptcy Code,
including, but not limited to, 11 U.S.C. 362, to determine
applicability of the automatic stay and the procedures for obtaining
relief from such stay prior to proceeding under paragraph (a) of this
section.

Sec. 901.9  Collection in installments.

    (a) Whenever feasible, agencies shall collect the total amount of a
claim in one lump sum regardless of the collection mechanism being
used. If a debtor is financially unable to pay a claim in one lump sum,
agencies may accept payment in regular installments. Agencies should
obtain financial statements from debtors who represent that they are
unable to pay in one lump sum and independently verify such
representations whenever possible (see Sec. 902.2(g) of this chapter).
Agencies that agree to accept payments in regular installments should
obtain a legally enforceable written agreement from the debtor that
specifies all of the terms of the arrangement and that contains a
provision accelerating the claim in the event of default.
    (b) The size and frequency of installment payments should bear a
reasonable relation to the size of the claim and the debtor's ability
to pay. If possible, the installment payments should be sufficient in
size and frequency to liquidate the Government's claim in three years
or less.
    (c) Security for deferred payments should be obtained in
appropriate cases. Agencies may accept installment payments
notwithstanding the refusal of the debtor to execute a written
agreement or to give security, at the agency's option.

Sec. 901.10  Interest, penalties, and administrative costs.

    (a) Except as provided in paragraphs (g), (h), and (i) of this
section, agencies shall charge interest, penalties, and administrative
costs on claims owed to the United States pursuant to 31 U.S.C. 3717.
An agency shall mail or hand-deliver a written notice to the debtor, at
the debtor's most recent address available to the agency, explaining
the agency's requirements concerning these charges except where these
requirements are included in a contractual or repayment agreement.
These charges shall continue to accrue until the claim is paid in full
or otherwise resolved through compromise, termination, or waiver of the
charges.
    (b) Agencies shall charge interest on claims owed the United States
as follows:
    (1) Interest shall accrue from the date of delinquency when all
circumstances have occurred to give rise to the claim or as otherwise
provided by law.
    (2) Unless otherwise established in a contract, repayment
agreement, or by statute, the rate of interest charged shall be the
rate established annually by the Secretary in accordance with 31 U.S.C.
3717. Pursuant to 31 U.S.C. 3717, an agency may charge a higher rate of
interest if it reasonably determines that a higher rate is necessary to
protect the rights of the United States. The agency should document the
reasons for its determination that the higher rate is necessary.
    (3) The rate of interest, as initially charged, shall remain fixed
for the duration of the indebtedness. When a debtor has defaulted on a
repayment agreement and seeks to enter into a new agreement, the agency
may require payment of interest at a new rate that reflects the current
value of funds to the Treasury at the time the new agreement is
executed. Interest shall not be compounded, that is, interest shall not
be charged on interest, penalties, or administrative costs required by
this section. If, however, a debtor defaults on a previous repayment
agreement, charges that accrued but were not collected under the
defaulted agreement shall be added to the principal to be paid under
the new repayment agreement.
    (c) Agencies shall assess administrative costs incurred for
processing and handling delinquent claims. The calculation of
administrative costs should be based on actual costs incurred or upon
estimated costs as determined by the assessing agency.
    (d) Unless otherwise established in a contract, repayment
agreement, or by statute, agencies shall charge a penalty, pursuant to
31 U.S.C. 3717(e)(2), not to exceed six percent a year on the amount
due on a claim that is delinquent for more than 90 days. This charge
shall accrue from the date of delinquency.
    (e) Agencies may increase an ``administrative claim'' by the cost
of living adjustment in lieu of charging interest and penalties under
this section. Such increases shall be computed annually. Agencies
should use this alternative only when there is a legitimate reason to
do so, such as when calculating interest and penalties on a claim would
be extremely difficult because of the age of the claim.
``Administrative claim'' includes, but is not limited to, a claim based
on fines, penalties, and overpayments, but does not include a claim
based on the extension of Government credit, such as those arising from
loans and loan guaranties. The cost of living adjustment is the
percentage by which the Consumer Price Index for the month of June of
the calendar year preceding the adjustment exceeds the Consumer Price
Index for the month of June of the calendar year in which the claim was
determined or last adjusted.
    (f) When a claim is paid in partial or installment payments,
amounts received by the agency shall be applied first to outstanding
penalties, second to administrative charges, third to interest, and
lastly to principal.
    (g) Agencies shall waive the collection of interest and
administrative charges imposed pursuant to this section on the portion
of the claim that is paid within 30 days after the date on which
interest began to accrue. Agencies may extend this 30-day period on a
case-by-case basis. In addition, agencies may waive interest,
penalties, and administrative costs charged under this section, in

[[Page 68484]]

whole or in part, without regard to the amount of the claim, either
under the criteria set forth in these standards for the compromise of
claims, or if the agency determines that collection of these charges is
against equity and good conscience or is not in the best interests of
the United States.
    (h) Agencies shall set forth in their regulations the circumstances
under which interest and related charges will not be imposed for
periods during which collection activity has been suspended pending
agency review.
    (i) Agencies are authorized to impose interest and related charges
on claims not subject to 31 U.S.C. 3717 in accordance with the
applicable common law.

Sec. 901.11  Analysis of costs.

    Agency collection procedures should provide for periodic comparison
of costs incurred and amounts collected. Data on costs and
corresponding recovery rates for claims of different types and in
various dollar ranges should be used to compare the cost effectiveness
of alternative collection techniques, establish guidelines with respect
to points at which costs of further collection efforts are likely to
exceed recoveries, assist in evaluating offers in compromise, and
establish minimum claim amounts below which collection efforts need not
be taken.

Sec. 901.12  Use and disclosure of mailing addresses.

    (a) When attempting to locate a debtor in order to collect or
compromise a claim under parts 900-904 of this chapter or other
authority, agencies may send a request to the Secretary of the Treasury
(or designee) to obtain a debtor's mailing address from the records of
the Internal Revenue Service.
    (b) Agencies are authorized to use mailing addresses obtained under
paragraph (a) of this section to enforce collection of a delinquent
claim and may disclose such mailing addresses to other agencies and to
collection agencies for collection purposes.

Sec. 901.13  Exemptions.

    (a) The preceding sections of this part, to the extent they reflect
remedies or procedures prescribed by the Debt Collection Act of 1982
and the Debt Collection Improvement Act of 1996, such as administrative
offset, use of credit bureaus, contracting for collection agencies, and
interest and related charges, do not apply to claims arising under, or
payments made under, the Internal Revenue Code of 1986 as amended (26
U.S.C. 1 et seq.); the Social Security Act (42 U.S.C. 301 et seq.),
except to the extent provided under 42 U.S.C. 404 and 31 U.S.C.
3716(c); or the tariff laws of the United States. These remedies and
procedures, however, may be authorized with respect to claims that are
exempt from the Debt Collection Act of 1982 and the Debt Collection
Improvement Act of 1996, to the extent that they are authorized under
some other statute or the common law.
    (b) This section should not be construed as prohibiting the use of
these authorities or requirements when collecting claims owed by
persons employed by agencies administering the laws cited in paragraph
(a) of this section unless the claim arose under those laws.

PART 902--STANDARDS FOR THE COMPROMISE OF CLAIMS

Sec.
902.1--Scope and application.
902.2--Bases for compromise.
902.3--Enforcement policy.
902.4--Joint and several liability.
902.5--Further review of compromise offers.
902.6--Consideration of tax consequences to the Government.
902.7--Mutual releases of debtor and the Government.

    Authority: 31 U.S.C. 3711.

Sec. 902.1  Scope and application.

    (a) The standards set forth in this part apply to the compromise of
claims pursuant to 31 U.S.C. 3711. An agency may exercise such
compromise authority for claims arising out of activities of, or
referred or transferred for collection services to, that agency when
the amount of the claim then due, exclusive of interest, penalties, and
administrative costs, does not exceed $100,000 or any higher amount
authorized by the Attorney General. Agency heads may designate
officials within their respective agencies to exercise the authorities
referred to in this section.
    (b) Unless otherwise provided by law, when the principal balance of
a claim, exclusive of interest, penalties, and administrative costs,
exceeds $100,000 or any higher amount authorized by the Attorney
General, the authority to accept the compromise rests with the
Department of Justice. The agency should evaluate the offer, using the
factors set forth in this part. If the agency decides that an offer to
compromise any claim in excess of $100,000 is acceptable to the agency,
it shall refer the claim to the appropriate litigating division in the
Department of Justice using a Claims Collection Litigation Report
(CCLR). Agencies may obtain the CCLR from the Department of Justice or
local United States Attorney's Office. The referral shall include
appropriate financial information and a recommendation for the
acceptance of the compromise offer. Justice Department approval is not
required if the agency decides to reject a compromise offer.

Sec. 902.2  Bases for compromise.

    (a) Agencies may compromise a claim if the Government cannot
collect the full amount because:
    (1) The debtor is unable to pay the full amount in a reasonable
time, as verified through credit reports or other financial
information;
    (2) The Government is unable to collect the claim in full within a
reasonable time by enforced collection proceedings;
    (3) The cost of collecting the claim does not justify the enforced
collection of the full amount; or
    (4) There is significant doubt concerning the Government's ability
to prove its case in court.
    (b) In determining the debtor's inability to pay, among other
relevant factors, agencies should consider the following:
    (1) Age and health of the debtor;
    (2) Present and potential income;
    (3) Inheritance prospects;
    (4) The possibility that assets have been concealed or improperly
transferred by the debtor; and
    (5) The availability of assets or income that may be realized by
enforced collection proceedings.
    (c) Agencies should verify the debtor's claim of inability to pay
by using a credit report and other financial information as provided in
paragraph (g) of this section. Agencies may use their own financial
information form or may request suitable forms from the Department of
Justice or local United States Attorney's Office. Agencies should
consider the applicable exemptions available to the debtor under state
and Federal law in determining the Government's ability to enforce
collection. Agencies also may consider uncertainty as to the price that
collateral or other property will bring at forced sale in determining
the Government's ability to enforce collection. A compromise effected
under this section should be for an amount that bears a reasonable
relation to the amount that can be recovered by enforced collection
procedures, with regard to the exemptions available to the debtor and
the time that collection will take.
    (d) If there is significant doubt concerning the Government's
ability to prove its case in court for the full amount claimed, either
because of the

[[Page 68485]]

legal issues involved or because of a bona fide dispute as to the
facts, then the amount accepted in compromise of such cases should
fairly reflect the probabilities of successful prosecution to judgment,
with due regard given to the availability of witnesses and other
evidentiary support for the Government's claim. In determining the
litigative risks involved, agencies should consider the probable amount
of court costs and attorney fees pursuant to the Equal Access to
Justice Act, 28 U.S.C. 2412, that may be imposed against the Government
if it is unsuccessful in litigation.
    (e) Agencies may compromise a claim if the cost of collecting the
claim does not justify the enforced collection of the full amount. The
amount accepted in compromise in such cases may reflect an appropriate
discount for the administrative and litigative costs of collection,
with consideration given to the time it will take to effect collection.
Collection costs may be a substantial factor in the settlement of small
claims. In determining whether the cost of collecting justifies
enforced collection of the full amount, agencies should consider
whether continued collection of the claim, regardless of cost, is
necessary to further an enforcement principle, such as the Government's
willingness to pursue aggressively defaulting and uncooperative
debtors.
    (f) Agencies generally should not accept compromises payable in
installments. This is not an advantageous form of compromise in terms
of time and administrative expense. If, however, payment of a
compromise in installments is necessary, agencies should obtain a
legally enforceable written agreement providing that, in the event of
default in payment of the compromise, the full original principal
balance of the claim prior to compromise, less sums paid thereon, is
reinstated. Whenever possible, agencies should also obtain security for
repayment in the manner set forth in part 901 of this title.
    (g) Agencies should obtain a current financial statement from the
debtor, executed under penalty of perjury, showing the debtor's assets
and liabilities, income and expenses, as a basis for assessing the
merits of a compromise proposal. Agencies also may obtain credit
reports or other financial information to assess compromise offers.
Agencies may use their own financial information form or may request
suitable forms from the Department of Justice or the local United
States Attorney's Office.

Sec. 902.3  Enforcement policy.

    Agencies may compromise statutory penalties, forfeitures, or claims
established as an aid to enforcement and to compel compliance, pursuant
to this part, if the agency's enforcement policy in terms of deterrence
and securing compliance, present and future, will be adequately served
by the agency's acceptance of the sum to be agreed upon. Accidental or
technical violations may be dealt with less severely than willful and
substantial violations.

Sec. 902.4  Joint and several liability.

    (a) When two or more debtors are jointly and severally liable,
agencies should pursue collection activity against all debtors, as
appropriate. Agencies should not attempt to allocate the burden of
payment between the debtors but should proceed to liquidate the
indebtedness as quickly as possible.
    (b) Agencies should ensure that a compromise agreement with one
debtor does not release the agency's claim against the remaining
debtors. The amount of a compromise with one debtor shall not be
considered a precedent or binding in determining the amount that will
be required from other debtors jointly and severally liable on the
claim.

Sec. 902.5  Further review of compromise offers.

    If an agency receives a firm, written, substantive compromise offer
on a claim that comes within its own delegated compromise authority,
but is uncertain whether the offer should be accepted, it may refer the
offer, using a CCLR accompanied by supporting data and particulars
concerning the claim, to the appropriate litigating division in the
Department of Justice. The Department of Justice may act upon such an
offer or return it to the agency with instructions or advice.

Sec. 902.6  Consideration of tax consequences to the Government.

    In negotiating a compromise with a business concern, agencies
should consider the tax consequences to the Government. In particular,
agencies should consider requiring a waiver of tax-loss-carry-forward
and tax-loss-carry-back rights of the debtor.

Sec. 902.7  Mutual releases of debtor and the Government.

    In all appropriate instances, a compromise that is accepted by an
agency should be implemented by means of a mutual release, whereby the
debtor is released from further non-tax liability on the compromised
claim in consideration of payment in full of the compromise amount. The
Government and its officials, past and present, are released and
discharged from any and all claims arising from the same transaction
the debtor may have against them.

PART 903--STANDARDS FOR SUSPENDING OR TERMINATING COLLECTION
ACTIVITY

Sec.
903.1 Scope and application.
903.2 Suspension of collection activity.
903.3 Termination of collection activity.
903.4 Exception to termination.

    Authority: 31 U.S.C. 3711.

Sec. 903.1  Scope and application.

    (a) The standards set forth in this part apply to the suspension or
termination of collection activity pursuant to 31 U.S.C. 3711 on claims
that do not exceed $100,000, or such other amount as the Attorney
General may direct, ex-clusive of interest, penalties, and
administrative costs, after deducting the amount of partial payments or
collec-tions, if any. Prior to referring a claim to the Department of
Justice for litigation, agencies may suspend or terminate collection
under this part with respect to claims arising out of activities of, or
referred or transferred for collection services to, that agency.
    (b) If, after deducting the amount of any partial payments or
collections, the principal amount of a claim exceeds $100,000, or such
other amount as the Attorney General may direct, exclusive of interest,
penalties, and administrative costs, the authority to suspend or
terminate rests solely with the Department of Justice. If the agency
believes that suspension or termination of any claim in excess of
$100,000 may be appropriate, it shall refer the claim to the
appropriate litigating division in the Department of Justice, using the
Claims Collection Litigation Report. The referral should specify the
reasons for the agency's recommendation. If, prior to referral to the
Department of Justice, an agency determines that a claim is plainly
erroneous or clearly without legal merit, the agency may terminate
collection activity regardless of the amount involved without obtaining
Department of Justice concurrence.

Sec. 903.2  Suspension of collection activity.

    (a) Agencies may suspend collection activity on a claim when:
    (1) The agency cannot locate the debtor;
    (2) The debtor's financial condition is expected to improve; or
    (3) The debtor has requested a waiver or review of the claim.
    (b) Based on the current financial condition of the debtor,
agencies may

[[Page 68486]]

suspend collection activity on a claim when the debtor's future
prospects justify retention of the claim for periodic review and
collection activity and:
    (1) The applicable statute of limitations has not expired; or
    (2) Future collection can be effected by administrative offset,
notwithstanding the expiration of the applicable statute of limitations
for litigation of claims, with due regard to the 10-year limitation for
administrative offset prescribed by 31 U.S.C. 3716(e)(1); or
    (3) The debtor agrees to pay interest on the amount of the claim on
which collection will be suspended, and such suspension is likely to
enhance the debtor's ability to pay the full amount of the principal of
the claim with interest at a later date.
    (c) (1) Agencies shall suspend collection activity during the time
required for consideration of the debtor's request for waiver or
administrative review of the claim if the statute under which the
request is sought prohibits the agency from collecting the debt during
that time.
    (2) If the statute under which the request is sought does not
prohibit collection activity pending consideration of the request,
agencies may use discretion, on a case-by-case basis, to suspend
collection. Further, an agency ordinarily should suspend collection
action upon a request for waiver or review if the agency is prohibited
by statute or regulation from issuing a refund of amounts collected
prior to agency consideration of the debtor's request. However, an
agency should not suspend collection when the agency determines that
the request for waiver or review is frivolous or was made primarily to
delay collection.
    (d) When an agency learns that a bankruptcy petition has been filed
with respect to a debtor, in most cases the collection activity on a
claim must be suspended, pursuant to the provisions of 11 U.S.C. 362,
1201, and 1301, unless the agency can clearly establish that the
automatic stay has been lifted or is no longer in effect. Agencies
should seek legal advice immediately from their agency counsel and, if
legally permitted, take the necessary legal steps to ensure that no
funds or money are paid by the agency to the debtor until relief from
the automatic stay is obtained.

Sec. 903.3  Termination of collection activity.

    (a) Agencies may terminate collection activity when:
    (1) The agency is unable to collect any substantial amount through
its own efforts or through the efforts of a debt collection center;
    (2) The agency is unable to locate the debtor;
    (3) Costs of collection are anticipated to exceed the amount
recoverable;
    (4) The claim is legally without merit or enforcement of the claim
is barred by any applicable statute of limitations;
    (5) The claim cannot be substantiated; or
    (6) The claim against the debtor has been discharged in bankruptcy.
    (b) Before terminating collection activity, the agency should have
pursued all appropriate means of collection and determined, based upon
the results of the collection activity, that the claim is
uncollectible. Termination of collection activity ceases active
collection of the claim. The termination of collection activity does
not preclude the agency from retaining a record of the account for
purposes of:
    (1) Selling the debt, if the Secretary determines that such sale is
in the best interests of the United States;
    (2) Pursuing collection at a subsequent date in the event there is
a change in the debtor's status or a new collection tool becomes
available;
    (3) Offsetting against future income or assets not available at the
time of termination of collection activity; or
    (4) Screening future applicants for prior indebtedness.
    (c) Generally, agencies shall terminate collection activity on a
claim that has been discharged in bankruptcy, regardless of the amount.
Agencies may continue collection activity, however, subject to the
provisions of the Bankruptcy Code, for any payments provided under a
plan of reorganization. Offset and recoupment rights may survive the
discharge of the debtor in bankruptcy and, under some circumstances,
claims also may survive the discharge. For example, the claims of an
agency that is a known creditor of a debtor may survive a discharge if
the agency did not receive formal notice of the proceedings. Agencies
should seek legal advice from their agency counsel if they believe they
have claims or offsets that may survive the discharge of a debtor.

Sec. 903.4  Exception to termination.

    When a significant enforcement policy is involved, or recovery of a
judgment is a prerequisite to the imposition of administrative
sanctions, agencies may refer such a claim for litigation even though
termination of collection activity might otherwise be appropriate.

PART 904--REFERRALS TO THE DEPARTMENT OF JUSTICE

Sec.
904.1  Prompt referral.
904.2  Claims Collection Litigation Report.
904.3  Preservation of evidence.
904.4  Minimum amount of referrals to the Department of Justice.

    Authority: 31 U.S.C. 3711.

Sec. 904.1  Prompt referral.

    (a) Agencies promptly shall refer to the Department of Justice for
litigation claims on which aggressive collection activity has been
taken in accordance with part 901 of this title and that cannot be
compromised, or on which collection activity cannot be suspended or
terminated, in accordance with parts 902 and 903 of this chapter.
Agencies may refer those claims arising out of activities of, or
referred or transferred for collection services to, that agency. Claims
for which the principal amount is over $1,000,000, or such other amount
as the Attorney General may direct, exclusive of interest and
penalties, shall be referred to the division responsible for litigating
such claims at the Department of Justice, Washington, D.C. Claims for
which the principal amount is $1,000,000, or less, or such other amount
as the Attorney General may direct, exclusive of interest or penalties,
shall be referred to the Department of Justice's Nationwide Central
Intake Facility as required by the CCLR instructions. Claims should be
referred as early as possible, consistent with aggressive agency
collection activity and the observance of the standards contained in
parts 900-904 of this chapter, and, in any event, well within the
period for initiating timely lawsuits against the debtors. Agencies
shall make every effort to refer delinquent claims to the Department of
Justice for litigation within one year of the date such claims last
became delinquent. In the case of guaranteed or insured loans, agencies
should make every effort to refer these delinquent claims to the
Department of Justice for litigation within one year from the date the
loan was presented to the agency for payment or re-insurance.
    (b) The Department of Justice has exclusive jurisdiction over the
claims referred to it pursuant to this section. The referring agency
shall refrain from having any contact with the debtor and shall direct
all debtor inquiries concerning the claim to the Department of Justice.
The referring agency shall notify immediately the Department of Justice
of any payments credited by the agency to the debtor's account after
referral of a claim under this section.

[[Page 68487]]

The Department of Justice shall notify the referring agency, in a
timely manner, of any payments it receives from the debtor.

Sec. 904.2  Claims Collection Litigation Report.

    (a) Unless excepted by the Department of Justice, agencies shall
complete the Claims Collection Litigation Report (CCLR) (See
Sec. 902.1(b) of this chapter.), accompanied by a signed Certificate of
Indebtedness, to refer all administratively uncollectible claims to the
Department of Justice for litigation. Referring agencies shall complete
all of the sections of the CCLR appropriate to each claim as required
by the CCLR instructions and furnish such other information as may be
required in specific cases.
    (b) Agencies shall indicate clearly on the CCLR the actions they
wish the Department of Justice to take with respect to the referred
claim. The CCLR permits the agency to indicate specifically any of a
number of litigative activities which the Department of Justice may
pursue, including enforced collection, judgment lien only, renew
judgment lien only, renew judgment lien and enforce collection, program
enforcement, foreclosure only, and foreclosure and deficiency judgment.
    (c) Agencies also shall use the CCLR to refer claims to the
Department of Justice to obtain that Department's approval of any
proposals to compromise the claims or to suspend or terminate agency
collection activity.

Sec. 904.3  Preservation of evidence.

    Referring agencies must take care to preserve all files and records
that may be needed by the Department of Justice to prove their claims
in court. Agencies ordinarily should include certified copies of the
documents that form the basis for the claim in the packages referring
their claims to the Department of Justice for litigation. Agencies
shall provide originals of such documents immediately upon request by
the Department of Justice.

Sec. 904.4  Minimum amount of referrals to the Department of Justice.

    (a) Agencies shall not refer for litigation claims of less than
$2,500, exclusive of interest, penalties, and administrative costs, or
such other amount as the Attorney General shall from time to time
prescribe. The Department of Justice promptly shall notify referring
agencies if the Attorney General changes this minimum amount.
    (b) Agencies shall not refer claims of less than the minimum amount
unless:
    (1) Litigation to collect such smaller claims is important to
ensure compliance with the agency's policies or programs;
    (2) The claim is being referred solely for the purpose of securing
a judgment against the debtor, which will be filed as a lien against
the debtor's property pursuant to 28 U.S.C. 3201 and returned to the
referring agency for enforcement; or
    (3) The debtor has the clear ability to pay the claim and the
Government effectively can enforce payment, with due regard for the
exemptions available to the debtor under state and Federal law and the
judicial remedies available to the Government. Agencies should consult
with the Financial Litigation Staff of the Executive Office for United
States Attorneys in the Department of Justice prior to referring claims
valued at less than the minimum amount.

    Dated: December 16, 1997.
Robert E. Rubin,
Secretary of the Treasury.
    Dated: November 28, 1997.
Janet Reno,
Attorney General of the United States.
[FR Doc. 97-33338 Filed 12-30-97; 8:45 am]
BILLING CODE 4810-35-P, 4410-26-P