Wednesday 

April 22, 1998 

federal register
 Part II 

Department of the 

Treasury 

Fiscal Service 

31 CFR Part 285 

Barring Delinquent Debtors From 

Obtaining Federal Loans or Loan 

Insurance or Guarantees; Proposed Rule 

20005 
20006 Federal Register / Vol. 63, No. 77 / Wednesday, April 22, 199 / Proposed Rules 

DEPARTMENT OF THE TREASURY 

Fiscal Service 

31 CFR Part 285 

RIN 1510–AA71 

Barring Delinquent Debtors From 

Obtaining Federal Loans or Loan 

Insurance or Guarantees 

AGENCY: Financial Management Service, 

Fiscal Service, Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Debt Collection 

Improvement Act of 1996 (DCIA) 

mandated a new eligibility requirement 

for persons seeking Federal financial 

assistance, namely that delinquent 

Federal debtors are ineligible for Federal 

direct and indirect loan assistance 

(other than disaster loans). This 

proposed rule defines when a debt is in 

delinquent status and when a 

delinquency is resolved for purposes of 

determining whether the DCIA bars a 

person from receiving financial 

assistance. In addition, this proposed 

rule prescribes when the Secretary of 

the Treasury may exempt a class of 

delinquent debts from affecting a 

debtor’s loan eligibility. This proposed 

rule also sets forth factors for authorized 

agency officials to consider when 

deciding whether to waive the DCIA 

eligibility requirement. 

DATES: Comments must be received on 

or before May 22, 1998. 

ADDRESSES: All comments should be 

addressed to Gerry Isenberg, Financial 

Program Specialist, Debt Management 

Services, Financial Management 

Service, 401 14th Street SW, Room 151, 

Washington, D.C. 20227. 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, at (202) 874–6859; or Ellen 

Neubauer or Ronda Kent, Senior 

Attorneys, at (202) 874–6680. 

SUPPLEMENTARY INFORMATION: 

Background 

Section 31001(j)(1) of the Debt 

Collection Improvement Act of 1996 

(DCIA), Pub. L. 104–134, 110 Stat. 

1321–358 (Apr. 26, 1996), codified at 31 

U.S.C. 3720B (section 3720B), provides 

that a person owing a delinquent nontax 

debt to the Federal Government is 

ineligible for Federal financial 

assistance in the form of a loan (other 

than a disaster loan) or loan insurance 

or guarantee. The head of an agency that 

administers a Federal financial 

assistance program may waive this 

provision. The waiver authority may be 

delegated only to the agency’s Chief 

Financial Officer or Deputy Chief 

Financial Officer. In addition, the 

Secretary of the Treasury may exempt 

any class of debts from affecting a 

person’s eligibility for receiving 

financial assistance. 

The DCIA requires the Secretary of 

the Treasury to prescribe standards 

under which agencies will determine 

whether a person has an outstanding 

delinquent debt that would trigger the 

DCIA bar to Federal financial assistance. 

As the lead agency for the collection of 

nontax debt in the Federal Government, 

the Financial Management Service 

(FMS), a bureau of the Department of 

the Treasury, is responsible for 

promulgating the regulations governing 

this and other provisions of the DCIA. 

This proposed rule defines when a debt 

is in delinquent status and when the 

delinquency is resolved for purposes of 

determining whether the DCIA bars a 

person from receiving financial 

assistance. This proposed rule also 

prescribes standards under which a 

Treasury exemption may be granted and 

sets forth factors for an agency to 

consider when deciding whether an 

agency waiver is appropriate. 

Section Analysis 

(a) Definitions 

The intent of section 3720B is to 

prevent persons owing delinquent 

nontax obligations to the Government 

from receiving Federal financial 

assistance. The definition of the term 

‘‘debt’’ in paragraph (a)(3) is intended to 

cover all amounts owed to the United 

States, including debts administered by 

a third party as an agent for the Federal 

Government, and has the same meaning 

as set forth in 31 U.S.C. 3701(b)(1). 

As stated in paragraph (a)(4), the term 

‘‘Federal financial assistance’’ or 

‘‘financial assistance’’ as defined in 

section 3720B means any Federal loan 

(other than a disaster loan), loan 

insurance, or loan guarantee. Although 

disaster loans are not covered by section 

3720B and this proposed rule, nothing 

in this proposed rule is intended to 

suggest that a delinquent debtor is 

eligible for a disaster loan unless he or 

she meets all eligibility requirements 

under applicable law. 

In paragraph (a)(7), the term person is 

defined to include all individuals and 

organizations, including state and local 

governments, but does not include 

Federal agencies. FMS requests 

comments on the extent to which 

foreign entities are barred from 

obtaining Federal financial assistance 

under the DCIA (31 U.S.C. 3720B). 

(b) Purpose and Scope 

The purpose and scope of this 

proposed rule are described in 

paragraph (b) of this section. Section 

3720B and this proposed rule apply to 

persons owing delinquent nontax debt 

to the Government. This proposed rule 

sets forth the standards for determining 

whether a debt is in delinquent status 

for the purpose of barring a debtor from 

receiving Federal financial assistance as 

required by section 3720B. In addition, 

the proposed rule addresses when an 

agency waiver or Treasury exemption is 

appropriate. Nothing in this proposed 

rule is intended to define the term 

‘‘delinquent’’ for purposes other than 

the application of section 3720B. 

As stated in paragraph (b)(3), this 

proposed rule is not intended to replace 

agency policies or procedures for 

determining whether a person is eligible 

for financial assistance or for agency 

review of denials of such assistance. For 

example, although the DCIA bar does 

not apply to a person owing delinquent 

Federal tax debt, nothing in this 

proposed rule precludes an agency from 

denying financial assistance to such a 

person under other applicable eligibility 

requirements. The fact that a debtor has 

had debts discharged in bankruptcy also 

may be a factor that agencies consider 

in assessing creditworthiness although 

the DCIA and this proposed rule do not 

bar the extension of credit. Similarly, 

the granting of a waiver or an exemption 

under this section does not mean that a 

loan application must be approved. For 

example, a waiver of this rule by the 

head of an agency under the provisions 

of section 3720B does not prohibit the 

agency from denying credit to a person 

based on general creditworthiness 

requirements, such as repayment ability 

or failure to pay obligations when they 

become due. 

As stated in paragraph (b)(4), this 

proposed rule does not confer any new 

rights or benefits on persons seeking 

Federal financial assistance. The DCIA 

mandated a new eligibility requirement 

for persons seeking financial assistance, 

namely that delinquent Federal debtors 

are ineligible for Federal direct and 

indirect loan assistance (other than 

disaster loans). Agencies are not 

required to add new review procedures 

for persons who do not qualify for or are 

denied financial assistance based on the 

DCIA eligibility requirement. Those 

persons who are denied financial 

assistance based on the DCIA 

requirement are entitled to the same 
Federal Register / Vol. 63, No. 77 / Wednesday, April 22, 199 / Proposed Rules 20007 

opportunities for review, if any, as those 

who are denied financial assistance 

based on other applicable eligibility 

requirements. 

(c) General Rule 

Paragraph (c) of this section states the 

general rule contained in the DCIA that 

a person is ineligible for a Federal direct 

loan (other than disaster loans), loan 

insurance or loan guarantee if that 

person owes a delinquent nontax debt to 

the Federal Government. The DCIA 

eligibility requirement applies to all 

persons seeking Federal financial 

assistance and owing an outstanding 

nontax debt in delinquent status, 

including, but not limited to, 

guarantors. The DCIA eligibility 

requirement applies to all Federal loans 

(other than disaster loans) including 

those loans for which creditworthiness 

or credit history is not otherwise a factor 

for eligibility purposes, e.g., student 

loans. Since there are many ways in 

which agencies may obtain delinquent 

debt information, this proposed rule 

does not mandate a particular method of 

collecting such information. Agencies 

may request delinquent debt 

information on loan applications, obtain 

credit reports, and use the Department 

of Housing and Urban Development’s 

Credit Alert Interactive Voice Response 

System (CAIVRS) to determine whether 

a person seeking financial assistance 

owes a delinquent nontax debt to the 

Federal Government. For information 

about the CAIVRS program, agencies 

should contact the Director of 

Information Technology, Department of 

Housing and Urban Development, 451 

7th Street, S.W., Washington, DC 20410. 

This proposed rule encourages 

persons seeking financial assistance to 

resolve their delinquent debt. Therefore, 

after a person’s delinquency is resolved 

in accordance with the provisions of 

paragraph (e)(1) of this section, the 

DCIA and this proposed rule no longer 

provide a basis for denying financial 

assistance to that person. As noted 

above, a credit-granting agency may use 

other factors in determining whether to 

grant or deny credit based on other 

applicable eligibility requirements. 

The DCIA authorizes the head of the 

agency to waive the application of the 

general rule. The head of the agency 

may delegate the waiver authority only 

to the Chief Financial Officer of the 

agency who may redelegate the 

authority only to the Deputy Chief 

Financial Officer. Paragraph (g) of this 

section, discussed below, prescribes the 

factors that authorized agency officials 

should consider when deciding whether 

to waive the DCIA requirement. 

(d) Delinquent status 

Paragraph (d) defines when a debt is 

in delinquent status for purposes of 

section 3720B. As noted above, this 

proposed rule does not define the term 

‘‘delinquent’’ for any purpose other than 

the application of section 3720B. 

As stated in paragraph (d)(2)(i), a debt 

is not in delinquent status if the creditor 

agency has released the person seeking 

Federal financial assistance from the 

obligation to pay the debt. A creditor 

agency may release a person from an 

obligation because the person has paid 

the debt in an amount acceptable to the 

creditor agency, the debt was 

determined not to be owed, or for other 

reasons. The release of an individual 

obligor does not mean that all obligors 

on the debt have been released. In 

addition, as stated in paragraph (d)(2)(i), 

a debt is not in delinquent status if an 

adjudication or determination has been 

made that the person does not owe or 

does not have to pay the debt. 

As stated in paragraph (d)(2)(ii), a 

debt is not in delinquent status for 

purposes of this proposed rule if the 

debtor is the subject of a bankruptcy 

proceeding or has been discharged in 

bankruptcy. In this circumstance the 

debt is not in delinquent status so long 

as the debtor is current on any 

applicable court authorized repayment 

plan. 

Nothing in this proposed rule is 

intended to deny persons seeking 

financial assistance the opportunity to 

contest a creditor agency’s 

determination that a debt is owed. 

Therefore, as stated in paragraph 

(d)(2)(iii), for purposes of this proposed 

rule a debt is not considered to be in 

‘‘delinquent status’’ if a timely-filed 

appeal challenging the creditor agency’s 

determination that the debt exists or is 

delinquent is pending. The purpose of 

requiring that an appeal be filed timely 

is to prevent debtors from appealing an 

agency’s determination solely to avoid 

the application of section 3720B. To the 

extent permissible, agencies should 

defer making a determination as to 

whether or not to extend credit until the 

appeal process is completed. 

(e) Delinquency resolution 

A person may remove the bar to 

financial assistance mandated by the 

DCIA by resolving a delinquency in 

accordance with the provisions of 

paragraph (e)(1). The debtor must 

resolve the debt with the creditor 

agency responsible for the collection of 

the debt or with the agency to which the 

creditor agency has referred the debt for 

collection. For purposes of this 

proposed rule, the debt is ‘‘resolved’’ if 

the debtor pays the debt in full, pays a 

compromise amount agreed to by the 

creditor agency, brings the debt current 

i.e., makes up all past due monthly 

payments, including interest, fees, and 

penalties, or enters into a written 

agreement with the creditor agency to 

pay the debt under terms acceptable to 

the creditor agency. The fact that the 

creditor agency has ceased its collection 

efforts for a reason other than one set 

forth in paragraph (e)(1) of this section 

does not mean that the delinquency has 

been resolved. For example, unless one 

of the provisions of paragraph (e)(1) 

apply, a delinquent nontax debt that has 

been written off the books of the 

creditor agency or reported to the 

Internal Revenue Service as discharged 

(i.e., cancelled) would not be deemed 

‘‘resolved.’’ 

(f) Exemptions by the Secretary 

Upon the written request and 

recommendation of the head of an 

agency, the Secretary of the Treasury 

may exempt any class of delinquent 

debt from affecting a debtor’s eligibility 

for financial assistance based on Section 

3720B. Paragraph (f)(2) specifies the 

information that an agency should 

provide when recommending an 

exemption. Generally, an exemption 

will not be granted unless compelling 

reasons justify the elimination of the bar 

to Federal financial assistance for a class 

of delinquent debtors. Paragraph (f)(3) 

contains the circumstances under which 

Treasury may grant an exemption. 

(g) Waivers by the Agency 

The DCIA authorizes the head of the 

agency, on a person by person basis, to 

grant a waiver of the DCIA eligibility 

requirement. The head of the agency 

may delegate the waiver authority only 

to the Chief Financial Officer of the 

agency who may redelegate the 

authority only to the Deputy Chief 

Financial Officer. Paragraph (g) 

prescribes factors that an agency official 

should consider when deciding whether 

to grant a waiver of the DCIA 

requirement that financial assistance be 

denied. A waiver will be granted only 

when compelling circumstances require. 

(h) Effect of Denial of Federal Financial 

Assistance 

Paragraph (h) states that nothing in 

this proposed rule precludes a person 

from obtaining Federal financial 

assistance after a delinquent debt has 

been resolved. 

Regulatory Analysis 

This proposed rule is not a significant 

regulatory action as defined in 

Executive Order 12866. It is hereby 
20008 Federal Register / Vol. 63, No. 77 / Wednesday, April 22, 199 / Proposed Rules 

certified that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The basis for this certification is that the 

DCIA provides that entities owing 

delinquent debt to the Federal 

Government are ineligible for Federal 

direct and indirect loan assistance 

(other than disaster loans). This 

proposed rule provides definitions for 

purposes of determining whether the 

DCIA mandate applies. Therefore a 

regulatory flexibility analysis is not 

required. 

List of Subjects in 31 CFR Part 285 

Administrative practice and 

procedure, Credit, Debt, Loan programs. 

Authority and Issuance 

For the reasons set forth in the 

preamble, 31 CFR Part 285 is proposed 

to be amended as follows: 

1. The authority citation for Part 285 

is proposed to be revised to read as 

follows: 

Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 

3701, 3711, 3716, 3720A, 3720B, 3720D; E.O. 

13019; 3 CFR, 1996 Comp., p. 216. 

2. Section 285.13 is proposed to be 

added to Subpart B to read as follows: 

§ 285.13 Barring delinquent debtors from 

obtaining federal loans or loan insurance or 

guarantees. 

(a) Definitions. For purposes of this 

section: 

Agency means a department, agency, 

court, court administrative office, or 

instrumentality in the executive, 

judicial, or legislative branch of the 

Federal Government, including 

government corporations. 

Creditor agency means any Federal 

agency that is owed a debt. 

Debt means any amount of money, 

funds or property that has been 

determined by an appropriate official of 

the Federal Government to be owed to 

the United States or an agency thereof 

by a person, including debt 

administered by a third party as an 

agent for the Federal Government. 

Federal financial assistance or 

financial assistance means any Federal 

loan (other than a disaster loan), loan 

insurance, or loan guarantee. 

FMS means the Financial 

Management Service, a bureau of the 

Department of the Treasury. 

Nontax debt means any debt other 

than a debt under the Internal Revenue 

Code of 1986 (26 U.S.C.). 

Person means an individual, 

corporation, partnership, association, 

organization, State or local government, 

or any other type of entity other than a 

Federal agency. 

Secretary means the Secretary of the 

Treasury. 

(b) Purpose and scope. (1) This 

section prescribes standards for 

determining whether an outstanding 

nontax debt owed to the Federal 

Government is in delinquent status and 

whether such delinquency is resolved 

for the purpose of denying Federal 

financial assistance to a debtor. In 

addition, this section prescribes the 

circumstances under which the 

Secretary may exempt a class of debts 

from affecting a debtor’s loan eligibility. 

This section also outlines the factors an 

agency should consider when 

determining whether waiver of the 

general rule in paragraph (c) of this 

section is appropriate. 

(2) FMS may provide additional 

guidance in ‘‘Managing Federal 

Receivables’’ and other FMS 

publications concerning debt collection 

and debt management. 

(3) Nothing in this section requires an 

agency to grant Federal financial 

assistance if denial otherwise is 

authorized by statute, regulation, or 

agency policies and procedures. For 

example, if an agency requires 

borrowers to have a satisfactory credit 

history, the agency may deny financial 

assistance even if a delinquent debt has 

been resolved. 

(4) This section does not confer any 

new rights or benefits on persons 

seeking Federal financial assistance. 

(5) This section applies to any person 

owing delinquent nontax debt and to 

any agency that administers a program 

that grants Federal financial assistance. 

(c) General rule. As required by the 

provisions of 31 U.S.C. 3720B, a person 

owing an outstanding nontax debt that 

is in delinquent status shall not be 

eligible for Federal financial assistance. 

This eligibility requirement applies to 

all persons seeking Federal financial 

assistance and owing an outstanding 

nontax debt in delinquent status, 

including, but not limited to, 

guarantors. This eligibility requirement 

applies to all Federal financial 

assistance even if creditworthiness or 

credit history is not otherwise a factor 

for eligibility purposes, e.g., student 

loans. A person may be eligible for 

Federal financial assistance only after 

the delinquency is resolved in 

accordance with this section. An agency 

may waive this eligibility requirement 

in accordance with paragraph (g) of this 

section. 

(d) Delinquent status. (1) Except as 

otherwise provided in paragraph (d)(2) 

of this section, a debt is in ‘‘delinquent 

status’’ for purposes of this section if the 

debt has not been paid by the payment 

due date or by the end of any grace 

period provided by statute, regulation, 

contract, or agreement. The payment 

due date is the date specified in the 

creditor agency’s initial written demand 

for payment or applicable agreement or 

instrument (including a postdelinquency repayment agreement). 

(2) For purposes of this section, a debt 

is not in delinquent status if: 

(i) The person seeking Federal 

financial assistance has been released by 

the creditor agency from any obligation 

to pay the debt, or there has been an 

adjudication or determination that such 

person does not owe or does not have 

to pay the debt; 

(ii) The debtor is the subject of, or has 

been discharged in, a bankruptcy 

proceeding, and if applicable, the 

person seeking Federal financial 

assistance is current on any court 

authorized repayment plan; or 

(iii) The existence of the debt or the 

agency’s determination that the debt is 

delinquent is being challenged under an 

ongoing administrative appeal or 

contested judicial proceeding and the 

appeal was filed by the debtor in a 

timely manner. Unless otherwise 

prohibited, an agency may defer making 

a determination as to whether or not to 

extend credit until the appeal process is 

completed. 

(3) Unless the provisions of paragraph 

(d)(2) apply, a debt is in delinquent 

status even if the creditor agency has 

suspended or terminated collection 

activity with respect to such debt. For 

example, a delinquent nontax debt that 

has been written off the books of the 

creditor agency or reported to the 

Internal Revenue Service as discharged 

(i.e., canceled) is in delinquent status 

for purposes of this section. 

(e) Delinquency resolution. (1) For 

purposes of this section, a person’s 

delinquent debt is resolved only if the 

person: 

(i) Pays or otherwise satisfies the 

delinquent debt in full; 

(ii) Pays the delinquent debt in part if 

the creditor agency accepts such part 

payment as a compromise in lieu of 

payment in full; 

(iii) Cures the delinquency under 

terms acceptable to the creditor agency 

in that the person pays any overdue 

payments, plus all interest, penalties, 

late charges, and administrative charges 

assessed by the creditor agency as a 

result of the delinquency; or 

(iv) Enters into a written repayment 

agreement with the creditor agency to 

pay the debt, in whole or in part, under 

terms and conditions acceptable to the 

creditor agency. 

(2) Unless the provisions of paragraph 

(e)(1) apply, a delinquent debt is not 

resolved even if the creditor agency has 
Federal Register / Vol. 63, No. 77 / Wednesday, April 22, 199 / Proposed Rules 20009 

suspended or terminated collection 

activity with respect to such debt. For 

example, a delinquent nontax debt that 

has been written off the books of the 

creditor agency or reported to the 

Internal Revenue Service as discharged 

(i.e., cancelled) would not be 

‘‘resolved.’’ 

(f) Exemptions by the Secretary. (1) 

Upon the written request and 

recommendation of an agency, the 

Secretary may exempt any class of debts 

from affecting a debtor’s eligibility for 

Federal financial assistance based on 

the provisions of 31 U.S.C. 3720B and 

this section. 

(2) The agency recommending an 

exemption for a class of debts will 

provide the Secretary with information 

about: 

(i) The nature of the program under 

which the delinquencies have arisen; 

(ii) The number, dollar amount, and 

age of the debts in the program for 

which exemption is recommended; 

(iii) The reasons why an exemption is 

justified, including why the granting of 

financial assistance to persons owing 

the type of debt for which exemption is 

requested would not be contrary to the 

Government’s goal to reduce losses by 

requiring proper screening of potential 

borrowers; and, 

(iv) Other information the Secretary 

deems necessary to consider the 

exemption request. 

(3) The Secretary may exempt a class 

of debts if exemption is in the best 

interests of the Federal Government. 

(g) Waivers by the agency. (1) The 

head of an agency from which a person 

seeks to obtain Federal financial 

assistance may waive the eligibility 

requirement described in paragraph (c) 

of this section. Waivers shall be granted 

only on a person by person basis. The 

head of the agency may delegate the 

waiver authority only to the Chief 

Financial Officer of the agency. The 

Chief Financial Officer may redelegate 

the authority only to the Deputy Chief 

Financial Officer of the agency. 

(2) The authorized agency official 

should balance the following factors 

when deciding whether to grant a 

waiver under paragraph (g)(1) of this 

section: 

(i) Whether the denial of the financial 

assistance to the person would tend to 

interfere substantially with or defeat the 

purposes of the financial assistance 

program or otherwise would not be in 

the best interests of the Federal 

Government; and 

(ii) Whether the agency’s granting of 

the financial assistance to the person is 

contrary to the Government’s goal to 

reduce losses from debt management 

activities by requiring proper screening 

of potential borrowers. 

(3) When balancing the factors 

described in paragraph (d)(2) of this 

section, the authorized agency official 

should consider: 

(i) The age, amount, and cause(s) of 

the delinquency and the likelihood that 

the person will resolve the delinquent 

debt; and 

(ii) The amount of total debt, 

delinquent or otherwise, owed by the 

person and the person’s credit history 

with respect to repayment of debt. 

(4) Each agency shall retain a 

centralized record of the number and 

type of waivers granted under this 

section. 

(h) Effect of denial of Federal 

financial assistance. Nothing contained 

in this section precludes a person who 

has been denied Federal financial 

assistance from obtaining such 

assistance after that person’s delinquent 

debt has been resolved in accordance 

with paragraph (e)(1) of this section. 

Dated: April 16, 1998. 

Richard L. Gregg, 

Commissioner. 

[FR Doc. 98–10588 Filed 4–21–98; 8:45 am] 

BILLING CODE 4810–35–P