Wednesday 

April 28, 1999 

federal register
 Part II 

Department of the 

Treasury 

Fiscal Service 

31 CFR Part 285 

Transfer of Debts to Treasury for 

Collection; Final Rule 
22906 Federal Register / Vol. 64, No. 81 / Wednesday, April 28, 1999 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Fiscal Service 

31 CFR Part 285 

RIN 1510–AA68 

Transfer of Debts to Treasury for 

Collection 

AGENCY: Financial Management Service, 

Fiscal Service, Treasury. 

ACTION: Final rule; adoption of interim 

rule with changes. 

SUMMARY: The Debt Collection 

Improvement Act of 1996 (DCIA) 

requires Federal agencies to transfer any 

nontax debt that is over 180 days 

delinquent to the Department of the 

Treasury for debt collection action. This 

is known as ‘‘cross-servicing.’’ On April 

2, 1998, the Financial Management 

Service (FMS) published an interim 

rule, with request for comments, which 

established the procedures and criteria 

for transferring delinquent debt to the 

Department of the Treasury for crossservicing, explained the statutory 

exceptions to this requirement, and 

established standards by which the 

Secretary of the Treasury will determine 

whether to grant exemptions. The 

interim rule also required that agencies 

refer debts to private collection 

contractors and to debt collection 

centers in accordance with procedures 

established by the FMS. This final rule 

adopts the interim rule, with changes, 

and addresses issues raised in the 

comments received in response to the 

interim rule. In addition, this rule 

includes a technical amendment to the 

final rule published on May 6, 1998 

concerning administrative wage 

garnishment. 

EFFECTIVE DATE: May 28, 1999. 

FOR FURTHER INFORMATION CONTACT: 

Gerry Isenberg, Financial Program 

Specialist, at (202) 874–6859; or James 

J. Regan, Attorney-Advisor, at (202) 

874–6680. A copy of this rule is being 

made available for downloading from 

the Financial Management Service web 

site at the following address: http:// 

www.fms.treas.gov/debt. 

SUPPLEMENTARY INFORMATION: 

Background 

Section 31001(m)(1) of the Debt 

Collection Improvement Act of 1996 

(DCIA), Pub. L. 104–134, 110 Stat. 

1321–358 (1996), codified at 31 U.S.C. 

3711(g), requires Federal agencies to 

transfer to the Secretary of the Treasury 

any nontax debt that has been 

delinquent for a period of 180 days, 

subject to certain exemptions. This 

centralized collection of governmentwide debt is known as ‘‘crossservicing.’’ Under the DCIA, the 

Secretary is authorized to prescribe 

regulations to carry out this 

requirement. Additionally, the DCIA 

authorizes the Secretary to designate 

other Federal agencies as debt collection 

centers, and to maintain a schedule of 

private collection contractors eligible for 

referral of debts owed to the United 

States. 

On April 2, 1998, the Financial 

Management Service (FMS), a bureau of 

the Department of the Treasury 

responsible for promulgating the 

regulations governing this and other 

provisions of the DCIA, issued an 

interim rule, with a request for 

comments, governing the transfer of 

debts to Treasury for collection (63 FR 

16354). 

Summary of Comments 

FMS received comments from five (5) 

Federal agencies (executive 

departments). Following is a discussion 

of the substantive issues raised in the 

comments. 

Relationship Between Cross-Servicing 

and Administrative Offset 

Several of the commenters failed to 

differentiate between (1) the 

requirement that agencies transfer debts 

for general collection purposes (referred 

to as ‘‘cross-servicing’’) under this rule 

and (2) the requirement that agencies 

notify Treasury of delinquent debts for 

the limited purpose of administrative 

offset. 

The DCIA includes separate 

provisions governing the requirements 

that agencies (1) transfer delinquent 

debts to Treasury for general collection 

purposes (cross-servicing) in accordance 

with 31 U.S.C. 3711(g)(1), and (2) notify 

Treasury of delinquent debts for the 

purpose of administrative offset in 

accordance with 31 U.S.C. 3716(c)(6). 

Section 3711(g)(1) requires an agency to 

transfer to Treasury all collection 

activity for a given debt. Under section 

3711(g), Treasury will use all 

appropriate debt collection tools to 

collect the debt including referral to a 

designated debt collection center or 

private collection agency and 

administrative offset. Once a debt has 

been transferred to Treasury the creditor 

agency must cease all collection activity 

related to that debt. This rule specifies 

when creditor agencies are required to 

transfer debts and when debts are 

exempt from the general transfer 

requirement. 

In contrast, administrative offset is 

one of many debt collection tools 

available to Federal agencies for the 

collection of delinquent debt. Under 

section 3716(c)(6), creditor agencies are 

required to notify Treasury of debts that 

are over 180 days delinquent for 

purposes of administrative offset. As a 

practical matter, agencies are required to 

notify Treasury of such debts for 

administrative offset only when a debt 

has not been transferred to Treasury 

pursuant to section 3711(g)(1), i.e., 

when a debt is exempt from transfer to 

Treasury under section 3711(g)(1) and 

this rule. Since offset is one of the 

collection tools used by Treasury for all 

eligible debts referred to Treasury 

pursuant to section 3711(g)(1), referral 

of a debt to Treasury for cross-servicing 

also satisfies the requirement under 

section 3716(c)(6). With respect to debts 

that are not referred to Treasury 

pursuant to section 3711(g)(1), creditor 

agencies are required to continue to 

collect the delinquent debts using all 

appropriate debt collection tools, 

including administrative offset. Rules 

governing the use of administrative 

offset are being published in separate 

regulations in this part, and, as a 

consequence, questions regarding 

administrative offset are not addressed 

in this rule. 

Section 285.12(a)—Definitions 

In response to a comment by one 

agency, a definition for the term ‘‘debt 

collection center’’ was moved to section 

285.12(a) from section 285.12(f) of the 

interim rule. 

Section 285.12(c)—Mandatory Transfer 

of Debts to FMS 

FMS received several comments 

regarding the mandatory transfer of 

debts and the use of designated debt 

collection centers (DCCs) and private 

collection agencies (PCAs). In 

particular, the comments related to 

whether, and when, agencies may refer 

debts directly to DCCs and PCAs, and 

whether the debts must be referred to 

such entities through FMS. 

Section 285.12(c) applies only to 

debts that are more than 180 days 

delinquent. Therefore, agencies are not 

required to refer debts to FMS during 

the initial 180 days of delinquency (the 

pre-180 day period). During the pre-180 

day period agencies should take all 

appropriate actions to collect delinquent 

debts, including referring such debts to 

DCCs and PCAs. Agencies may, with the 

consent of FMS, refer debts directly to 

DCCs during the pre-180 day period. 

Similarly, agencies may refer debts to 

PCAs during the pre-180 day period 

either pursuant to a contract entered 

into by the agency directly with a PCA, 

or by referring the debts to FMS for 

referral to PCAs under existing FMS 
Federal Register / Vol. 64, No. 81 / Wednesday, April 28, 1999 / Rules and Regulations 22907 

contracts (a process known as ‘‘passthrough’’). Unlike when debts are 

transferred to Treasury as required by 

section 3711(g)(1), FMS takes no 

collection action when debts are 

referred to FMS for pass-through, other 

than referring the debts to a PCA. The 

pass-through process is necessary to 

allow FMS to assess and monitor fully 

the performance of its PCA contractors. 

FMS will provide additional procedural 

guidance to agencies regarding use of 

the ‘‘pass-through’’ referral process. 

Another agency suggested that section 

285.12(c)(3) be clarified with respect to 

the transfer of debts that are under 

appeal. Specifically, the agency asked 

FMS to define whether the 180 day 

period begins to run on the date the debt 

was originally due prior to the filing of 

the appeal, or the date of the decision 

of the reviewing official at which time 

the amount of the debt is made final. 

Alternatively, the agency suggested that 

the regulation be revised to allow 

agencies 60 days, following the date of 

the appeal decision, to collect a debt 

prior to referring amounts to Treasury 

for cross-servicing. 

FMS agrees that immediate transfer of 

a debt to FMS following a decision on 

an appeal might, in some cases, be 

impractical. Therefore, section 

285.12(c)(3) has been revised to allow 

agencies up to 30 days following a 

decision on an appeal to transfer debts 

over 180 days delinquent to FMS. A 30 

day period provides debtors with an 

opportunity to pay the debt or to enter 

into a repayment plan with the creditor 

agency before further collection action 

is taken. Debts should be transferred to 

FMS immediately following a decision 

on an appeal when the agency 

determines that it is unlikely that the 

debtor will pay or enter into a 

repayment plan within the 30 day 

period. 

In section 285.12(c)(1) of the final 

rule, FMS incorporated a suggestion by 

one agency that the mandatory 

requirement to transfer debts be limited 

to debts having a balance of more than 

$25. The commenter suggested that 

transferring debts having a balance of 

less than $25 would not be costeffective. Under this final rule, agencies 

may, after consulting with FMS, transfer 

debts in amounts less than $25 when 

failure to transfer such debts to FMS for 

collection would weaken the creditor 

agency’s ability to enforce compliance 

with the program (see section 

285.12(c)(4) of the final rule). The final 

rule provides that agencies may 

combine small debts owed by the same 

debtor to meet the $25 threshold, and 

that FMS may change the threshold 

amount from time to time. 

Section 285.12(d)—Exceptions to 

Mandatory Transfer 

One agency questioned whether the 

foreclosure provisions in paragraph 

(d)(2) cover debts referred to private 

counsel (when an agency has specific 

authority to use private counsel) for 

non-judicial foreclosure proceedings. 

The rule has not been revised because 

paragraph (d)(2)(ii)(A)(1) of the rule, 

which provides that a debt is in 

foreclosure if pre-foreclosure notice has 

been issued in a non-judicial 

proceeding, does not exclude notices 

issued by private counsel on behalf of 

an agency. 

One commenter questioned whether 

the recent Supreme Court decision in 

Cohen v. Cruz, 118 S.Ct. 1212 (1998), 

affects this rule. The case holds that 

punitive damages, attorney fees and 

costs related to an amount awarded as 

actual fraud, are not dischargeable 

under the fraud exception of the 

Bankruptcy Code. Since the rule does 

not address whether or not a particular 

debt or class of debts is dischargeable in 

bankruptcy, the Cohen case does not 

affect this rule. Creditor agencies are not 

required to transfer debts to FMS that 

are the subject of pending bankruptcy 

proceedings regardless of whether the 

debt is dischargeable (see section 

285.12(d)(2)(i)(B)). 

In response to a comment, paragraph 

(d)(4) has been revised to clarify that a 

debt is in the process of being collected 

by internal offset (and, therefore, 

exempt from the mandatory transfer 

provisions of the DCIA and this rule) so 

long as the required pre-offset notice has 

been issued by the creditor agency 

whether issued before or after the 180 

day delinquency period. Note, however, 

the creditor agency is required to 

transfer to Treasury for collection debts 

over 180 days delinquent that are not 

subject to collection by internal offset 

(or another exemption). If the creditor 

agency determines that internal offset is 

available after a debt has been 

transferred to Treasury, the debt will be 

returned to the creditor agency for 

collection by internal offset. 

In response to an agency’s request for 

clarification, paragraph (d)(5)(i) has 

been revised. In recognition of the 

Congressional mandate to centralize 

delinquent debt collection at Treasury, 

requests for exemption require 

consideration by a creditor agency’s top 

officials. Under paragraph (d)(5)(i) of the 

final rule, an exemption request will be 

considered only if it is made by the 

head of the creditor agency, the creditor 

agency’s Chief Financial Officer (CFO), 

or the agency’s Deputy CFO. Heads of 

subordinate agencies or organizations, 

such as the head of a bureau within a 

department, are not considered heads of 

agencies for purposes of this paragraph 

(d)(5)(i). 

One commenter suggested that 

agencies be permitted to seek 

exemptions for individual debts or 

small groups of debts within a class of 

debts. The DCIA limits exemptions to 

specific classes of debts or claims (see 

31 U.S.C. 3711(g)(2)(B)). As a 

consequence, requests for the exemption 

of individual debts or claims, or small 

groups of debts or claims within a 

specific program or discrete activity, 

will not be considered. 

Paragraph 285.12(d)(6) was added to 

the final rule to provide additional 

guidance on debts being collected by 

third parties. Several agencies, in 

accordance with statutory or contractual 

requirements, have debts more than 180 

days past due that are being collected by 

third parties such as private lenders or 

guaranty agencies. In accordance with 

the provisions of 31 U.S.C. 3711(g)(2)(B) 

and this rule, the Secretary has 

determined that it is in the best interest 

of the Government that debts being 

collected by third parties be exempt 

from the provisions of paragraph 

285.12(c)(1) because the transfer of such 

debts would interfere with the program 

goals and requirements of the subject 

debts. Debts more than 180 days pastdue must be transferred to FMS for 

collection under paragraph 285.12(c)(1) 

upon their return to a creditor agency by 

a third party. 

Section 285.12(f)—Debt Collection 

Centers 

In response to comments received 

from one agency, paragraph (f) is revised 

to state that debt collection centers may 

charge and collect fees (see 31 U.S.C. 

3711(g)(6)), and to include a reference to 

paragraph (j) which provides additional 

information on fees that may be 

charged. 

Section 285.12(i)—Certification 

One agency asked whether agencies 

are required, under the certification 

provision, to maintain contact with all 

debtors to determine whether the debtor 

has filed a bankruptcy petition. 

Agencies are not required to maintain 

such contact. However, agencies are 

required to notify FMS immediately 

when they receive notice that a debtor 

has filed for bankruptcy protection so 

that FMS can immediately take action to 

stop collection proceedings that would 

be in violation of the automatic stay. 

Section 285.12(j)—Fees 

One agency asked whether FMS or the 

creditor agency will be responsible for 
22908 Federal Register / Vol. 64, No. 81 / Wednesday, April 28, 1999 / Rules and Regulations 

notifying the debtor that fees charged for 

collecting delinquent debt will be 

added, as an administrative cost, to the 

debt balance. Under paragraph (i), 

creditor agencies are required to certify 

to FMS that they have complied with all 

prerequisites to various collection 

actions, including any applicable 

requirements to notify the debtor 

regarding the agency’s policies with 

respect to the addition of interest, 

penalties, and administrative costs to 

the principal amount of the debt if the 

debt is not paid by the due date. 

Technical Amendment to Section 

285.11 (Administrative Wage 

Garnishment) 

On May 6, 1998, FMS published a 

final rule implementing the 

administrative wage garnishment 

provisions of section 31001(o) of the 

DCIA, codified at 31 U.S.C. 3720D. This 

rule amends section 285.11(g)(2) by 

deleting the words ‘‘on the agency’s 

letterhead.’’ This non-substantive, 

technical amendment allows Federal 

agencies to use the form to be prescribed 

by the Secretary for the issuance of an 

administrative wage garnishment order 

without preparing the form on agency 

letterhead. The requirement that 

agencies issue the order on agency 

letterhead was impractical and 

interfered with the requirement that 

agencies use a standard form prescribed 

by Treasury. The agency issuing the 

wage garnishment order will be clearly 

identified on the form without the use 

of agency letterhead. 

Regulatory Analysis 

This final rule is not a significant 

regulatory action as defined in 

Executive Order 12866. It is hereby 

certified that this rule will not have a 

significant impact on a substantial 

number of small entities. The basis for 

this certification is that the DCIA 

requires agencies to transfer debts that 

have been delinquent for more than 180 

days to Treasury for further collection 

action unless the debts have been 

granted an exemption by the Secretary 

of the Treasury. This rule establishes the 

procedures and criteria for transferring 

such debts, explains the statutory 

exceptions to this requirement, and 

establishes the required standards under 

which the Secretary of the Treasury will 

grant exemptions. Therefore a regulatory 

flexibility analysis is not required. 

Authority and Issuance 

Accordingly, the interim rule 

amending 31 CFR part 285 which was 

published at 63 FR 16354 on April 2, 

1998, is adopted as a final rule with the 

following changes: 

PART 285—DEBT COLLECTION 

AUTHORITIES UNDER THE DEBT 

COLLECTION IMPROVEMENT ACT OF 

1996 

1. The authority citation for part 285 

continues 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 285.11 is amended by 

revising paragraph (g)(2) to read as 

follows: 

§ 285.11 Administrative wage 

garnishment. 

* * * * * 

(g) Wage garnishment order. 

* * * * * 

(2) The withholding order sent to the 

employer under paragraph (g)(1) of this 

section shall be in a form prescribed by 

the Secretary of the Treasury and signed 

by the head of the agency or his/her 

delegatee. The order shall contain only 

the information necessary for the 

employer to comply with the 

withholding order. Such information 

includes the debtor’s name, address, 

and social security number, as well as 

instructions for withholding and 

information as to where payments 

should be sent. 

* * * * * 

3. Section 285.12 is amended to 

correct the heading; to revise the 

definition for ‘‘debt’’ and add a 

definition for ‘‘debt collection center’’ in 

paragraph (a); to revise paragraphs (b) 

and (c)(3); to add paragraphs (c)(4), 

(d)(5)(iii) and (d)(6); and to revise 

paragraphs (d)(4), (f), (g), (h), and (j) to 

read as follows: 

§ 285.12 Transfer of debts to Treasury for 

collection. 

(a) * * * 

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 by a person. As used 

in this section, the term ‘‘debt’’ does not 

include debts arising under the Internal 

Revenue Code of 1986. 

Debt collection center means an 

agency or a unit or subagency within an 

agency that has been designated by the 

Secretary of the Treasury to collect debt 

owed to the United States. FMS is a debt 

collection center. 

* * * * * 

(b) In general. Cross-servicing means 

that FMS or another debt collection 

center is taking appropriate debt 

collection action on behalf of one or 

more Federal agencies or a unit or 

subagency thereof. 

(c) * * * 

(3)(i) A debt is considered 180 days 

delinquent for purposes of this section 

if it is 180 days past due and is legally 

enforceable. A debt is past-due 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 postdelinquency payment agreement) unless 

other satisfactory payment arrangements 

have been made. A debt is legally 

enforceable if there has been a final 

agency determination that the debt, in 

the amount stated, is due and there are 

no legal bars to collection action. 

Where, for example, a debt is the subject 

of a pending administrative review 

process required by statute or regulation 

and collection action during the review 

process is prohibited, the debt is not 

considered legally enforceable for 

purposes of mandatory transfer to FMS 

and is not to be transferred even if the 

debt is more than 180 days past-due. 

(ii) When a final agency 

determination is made after an 

administrative appeal or review process, 

the creditor agency must transfer such 

debt to FMS, if more than 180 days 

delinquent, within 30 days after the date 

of the final decision. 

(iii) Nothing in this section is 

intended to impact the date of 

delinquency of a debt for other purposes 

such as for purposes of accruing interest 

and penalties. 

(4) Agencies are not required to 

transfer to FMS debts which are less 

than $25 (including interest, penalties, 

and administrative costs), or such other 

amount as FMS may determine. 

Agencies may transfer debts less than 

$25 to FMS if the creditor agency, in 

consultation with FMS, determines that 

transfer is important to ensure 

compliance with the agency’s policies 

or programs. Agencies may combine 

individual debts of less than $25 owed 

by the same debtor for purposes of 

meeting the $25 threshold. 

(d) * * * 

(4) A debt is being collected by 

internal offset if a creditor agency 

expects the debt to be collected in full 

within three (3) years from the date of 

delinquency through internal offset. A 

debt is being collected by internal offset 

if the creditor agency is withholding 

funds payable to the debtor by the 

creditor agency, or if the creditor agency 

has issued notice to the debtor of the 

creditor agency’s intent to offset such 

funds. 

(5) * * * 

(iii) Requests for exemption must be 

made by the head of the agency 

requesting the exemption, the Chief 

Financial Officer of the agency, or the 

Deputy Chief Financial Officer of the 
Federal Register / Vol. 64, No. 81 / Wednesday, April 28, 1999 / Rules and Regulations 22909 

agency. For purposes of this section, the 

head of an agency does not include the 

head of a subordinate organization 

within a department or agency. 

(6) In accordance with paragraph 

(d)(5)(i) of this section, debts being 

serviced and/or collected in accordance 

with applicable statutes and/or 

regulations by third parties, such as 

private lenders or guaranty agencies are 

exempt from the requirements in 

paragraph (c)(1) of this section. 

* * * * * 

(f) Debt collection centers. A creditor 

agency may transfer debt that has not 

been transferred to FMS, such as debt 

less than 180 days delinquent, to a 

Treasury-designated debt collection 

center, with the consent of, and in 

accordance with procedures established 

by FMS. Debt collection centers will 

take action upon a debt in accordance 

with the statutory or regulatory 

requirements and other authorities that 

apply to the debt or to the particular 

action being taken. Debt collection 

centers may, on behalf of the creditor 

agency and subject to the terms under 

which the debt collection center has 

been designated as such by the 

Secretary, take any action to collect, 

compromise, suspend or terminate 

collection action on debts, in 

accordance with terms and conditions 

agreed upon in writing by the creditor 

agency and the debt collection center or 

FMS. Debt collection centers may 

charge fees for the debt collection 

services in accordance with the 

provisions of paragraph (j) of this 

section. 

(g) Administrative offset. As described 

in paragraph (c) of this section, under 

the DCIA, agencies are required to 

transfer all debts over 180 days 

delinquent to FMS for purposes of debt 

collection (i.e., cross-servicing). 

Agencies are also required, under the 

DCIA, to notify the Secretary of all debts 

over 180 days delinquent for purposes 

of administrative offset. Administrative 

offset is one type of collection tool used 

by FMS and Treasury-designated debt 

collection centers to collect debts 

transferred under this section. Thus, by 

transferring debt to FMS or to a 

Treasury-designated debt collection 

center under this section, Federal 

agencies will satisfy the requirement to 

notify the Secretary of debts for 

purposes of administrative offset and 

duplicate referrals are not required. A 

debt which is not transferred to FMS for 

purposes of debt collection, however, 

such as a debt which falls within one of 

the exempt categories listed in 

paragraph (d) of this section, 

nevertheless may be subject to the DCIA 

requirement of notification to the 

Secretary for purposes of administrative 

offset. 

(h) Voluntary referral of debts less 

than 180 days delinquent. A creditor 

agency may refer any debt that is less 

than 180 days delinquent to FMS or, 

with the consent of FMS, to a Treasurydesignated debt collection center for 

debt collection services. 

* * * * * 

(j) Fees. FMS and other debt 

collection centers (as defined in 

paragraph (a) of this section) may charge 

fees sufficient to cover the full cost of 

providing debt collection services 

authorized by this section. Fees paid to 

recover amounts owed may not exceed 

amounts collected. Nothing in this rule 

precludes a creditor agency from 

agreeing to pay fees for debt collection 

services which are not based on 

amounts collected. FMS and debt 

collection centers are authorized to 

retain fees from amounts collected and 

may deposit and use such fees in 

accordance with 31 U.S.C. 3711(g). Fees 

charged by FMS and other debt 

collection centers may be added to the 

debt as an administrative cost if 

authorized under 31 U.S.C. 3717(e). 

Dated: November 2, 1998. 

Kenneth R. Papaj, 

Acting Commissioner. 

[FR Doc. 99–10136 Filed 4–27–99; 8:45 am] 

BILLING CODE 4810–35–P