federal register

25135

Wednesday

May 6, 1998

Part II

Department of the

Treasury

Fiscal Service

31 CFR Part 285

Administrative Wage Garnishment; Final

Rule
25136 Federal Register / Vol. 63, No. 87 /Wednesday, May 6, 1998 /Rules and Regulations

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510–AA67

Administrative Wage Garnishment

AGENCY: Financial Management Service,

Fiscal Service, Treasury.

ACTION: Final rule.

SUMMARY: This final rule implements

the administrative wage garnishment

provisions contained in the Debt

Collection Improvement Act of 1996

(DCIA). Wage garnishment is a process

whereby an employer withholds

amounts from an employee’s wages and

pays those amounts to the employee’s

creditor in satisfaction of a withholding

order. The DCIA authorizes Federal

agencies administratively to garnish the

disposable pay of an individual to

collect delinquent nontax debts owed to

the United States in accordance with

regulations issued by the Secretary of

the Treasury.

DATES: This rule is effective June 5,

1998.

FOR FURTHER INFORMATION CONTACT:

Gerry Isenberg, Financial Program

Specialist, Debt Management Services,

at (202) 874–6660 or James Regan,

Attorney-Advisor, at (202) 874–6680,

Financial Management Service,

Department of the Treasury, 401 14th

Street SW, Washington, DC 20227. This

document is available for downloading

from the Financial Management Service

web site at the following address: http:/

/www.fms.treas.gov.

SUPPLEMENTARY INFORMATION:

Background

This final rule implements the wage

garnishment provision in section

31001(o) 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. 3720D.

Wage garnishment is a process whereby

an employer withholds amounts from

an employee’s wages and pays those

amounts to the employee’s creditor in

satisfaction of a withholding order. The

DCIA authorizes Federal agencies

administratively to garnish up to 15% of

the disposable pay of a debtor to satisfy

delinquent nontax debt owed to the

United States. Prior to the enactment of

the DCIA, agencies were required to

obtain a court judgment before

garnishing the wages of non-Federal

employees. Section 31001(o) of the

DCIA preempts State laws that prohibit

wage garnishment or otherwise govern

wage garnishment procedures.

As authorized by the DCIA, a Federal

agency collecting delinquent nontax

debt may garnish administratively a

delinquent debtor’s wages in accordance

with regulations promulgated by the

Secretary of the Treasury. The Financial

Management Service (FMS), a bureau of

the Department of the Treasury, is

responsible for promulgating the

regulations implementing this and other

debt collection tools established by the

DCIA.

In accordance with the requirements

of the DCIA, this final rule establishes

the following rules and procedures:

1. Notice

At least 30 days before an agency

initiates garnishment proceedings, the

agency will give the debtor written

notice informing him or her of the

nature and amount of the debt, the

intention of the agency to collect the

debt through deductions from pay, and

an explanation of the debtor’s rights

regarding the proposed action.

2. Rights of the Debtor

The agency will provide the debtor

with an opportunity to inspect and copy

records related to the debt, to establish

a repayment agreement, and to receive

a hearing concerning the existence or

amount of the debt and the terms of a

repayment schedule. A hearing must be

held prior to the issuance of a

withholding order if the debtor’s request

is timely received. For hearing requests

that are not received in the specified

time frame, an agency need not delay

issuance of the withholding order prior

to conducting a hearing. An agency may

not garnish the wages of a debtor who

has been involuntarily separated from

employment until that individual has

been reemployed continuously for at

least 12 months. The debtor bears the

burden of informing the agency of the

circumstances surrounding an

involuntary separation from

employment.

3. Employer’s Responsibilities

The agency will send to the employer

of a delinquent debtor a wage

garnishment order directing that the

employer pay a portion of the debtor’s

wages to the Federal Government. This

final rule requires the debtor’s employer

to certify certain payment information

about the debtor. Employers will not be

required to vary their normal pay cycles

in order to comply with the garnishment

order.

The DCIA prohibits employers from

taking disciplinary actions against the

debtor based on the fact that the debtor’s

wages are subject to administrative

garnishment. In addition, the DCIA

authorizes an agency to sue an employer

for amounts not properly withheld from

the wages payable to the debtor.

Discussion of Comments

General

In response to its Notice of Proposed

Rulemaking (NPRM) concerning

Administrative Wage Garnishment (62

FR 62458, Nov. 21, 1997), FMS received

comments from Federal agencies,

private collection agencies, an umbrella

organization for organizations that

support the activities of the Federal

Family Education Loan Programs, and a

private citizen. Many of the commenters

have been involved in implementing a

similar administrative wage

garnishment provision that authorizes

the U.S. Department of Education

(Education) to garnish 10% of the

disposable pay of employed individuals

who have defaulted on their student

loan obligations. See 20 U.S.C. 1095a;

34 CFR 682.410. FMS drafted the NPRM

after consultation with the Departments

of Education and Justice about their

experience implementing wage

garnishment to collect student loans.

The comments received in response to

the NPRM based on the commenters’

experience with Education’s program

have been helpful in drafting the final

rule. It is important to note that

Education’s wage garnishment program

is applicable to the collection of one

type of debt subject to a single statutory

scheme. The DCIA wage garnishment

provision and this rule, on the other

hand, are applicable to all Federal

agencies collecting all types of debt, the

collection of which is subject to a

variety of statutory provisions.

Therefore, as explained below, while

some of the suggestions have been

incorporated into the final rule, others

do not apply to a government-wide

wage garnishment program involving all

Federal agencies with various types of

debts.

A review of the comments is provided

in the following Comment Analysis

which includes a discussion of FMS’

determination whether to incorporate

specific suggestions in the final rule.

The Comment Analysis is organized by

reference to the paragraphs in the

NPRM.

NPRM § 285.11(a) Purpose

No changes were made to NPRM

§ 285.11(a). FMS did not receive any

comments applicable to this paragraph.

NPRM § 285.11(b) Scope

One commenter suggested that FMS

incorrectly interpreted the DCIA in the

NPRM by not limiting the applicability
Federal Register / Vol. 63, No. 87 /Wednesday, May 6, 1998 /Rules and Regulations 25137

of administrative wage garnishment to

the collection of only those debts

evidenced by written agreements. The

commenter believes that the language

contained in 31 U.S.C. 3720D(a)

authorizing wage garnishment ‘‘if the

individual is not currently making

required repayment in accordance with

any agreement between the agency head

and the individual’’ so limits the use of

wage garnishment. FMS disagrees with

the commenter. There is nothing in the

plain language of the statute to indicate

that the referenced phrase limits the

applicability of wage garnishment to

debts evidenced by a written agreement.

The term ‘‘debt,’’ as defined in 31 U.S.C.

3701(b)(1), as amended by the DCIA, is

not limited to debts evidenced by a

written agreement between the debtor

and the Government.

One commenter suggested that the

rule establish a minimum threshold

amount for garnishment based on a cost

estimate of the garnishment procedure.

This is unnecessary since the use of the

administrative wage garnishment tool

by agencies is voluntary and should be

used by agencies in appropriate

situations. Agencies may set their own

policies regarding minimum thresholds.

NPRM § 285.11(c) Definitions

One commenter suggested that the

definition of agency under NPRM

§ 285.11(c) be expanded to authorize

agents or vendors of Federal agencies to

garnish debtors’ wages in accordance

with this rule. Whether or not an agent

or vendor can perform a particular

function on behalf of a Federal agency

is beyond the scope of this rule. While

the use of contractors for the collection

of debt generally is authorized by law,

agencies may not contract out

‘‘inherently governmental functions.’’

See Office of Management and Budget

(OMB) Circular A–76. This is not to say

that contractors cannot assist agencies

in conducting administrative wage

garnishment. For example, contractors

could be hired to mail notices and

garnishment orders authorized by the

agency, receive documents from the

debtor and the employer, and document

agency-approved repayment agreements

with the debtor.

NPRM § 285.11(d) General Rule

One commenter suggested that FMS

clarify a statement in the NPRM

preamble concerning NPRM § 285.11(d)

involving the use of wage garnishment

by Treasury-designated debt collection

centers. In addition to agencies that

administer the program that gives rise to

the debt, agencies that pursue the

recovery of the debt for those agencies,

such as the Department of the Treasury,

Treasury-designated debt collection

centers, and the Department of Justice,

are authorized to conduct

administrative wage garnishment. See,

e.g., the definition of ‘‘agency’’ in NPRM

§ 285.11(c), unchanged in the final rule.

NPRM § 285.11(e) Notice

Requirements

The suggestion by one commenter

that the rule specifically prohibit the

combination of an agency’s notice of

intention to garnish a debtor’s wages

with other notices to the debtor has not

been incorporated into this rule. The

rule gives agencies the flexibility to

combine notices where appropriate. In

many circumstances, the debtor can be

informed clearly in a single

communication of all debt collection

remedies available to the Federal agency

and the opportunities available to the

debtor to be heard concerning the

existence or amount of the debt.

One commenter’s suggestion that FMS

develop a standard administrative wage

garnishment notice for governmentwide use has not been incorporated in

the final rule. Because agency-specific

laws applicable to debt collection have

to be considered in drafting a notice, a

standard government-wide form would

not be appropriate.

One commenter suggested that the

rule exempt private collection

professionals acting on behalf of

agencies from the liability provisions of

the Fair Debt Collection Practices Act

(FDCPA), 15 U.S.C. 1692 et seq.,

provided that such entities comply with

the terms of this rule and use notices

and forms developed by Treasury or

other agencies. The extent to which the

FDCPA may apply to any entity,

particularly private collection agencies,

is outside the scope of this rule.

Several commenters suggested that

the rule should clearly state that the

certificate of service may be retained

electronically. Other commenters

suggested that a certificate of service is

unnecessary. The final rule retains the

requirement that an agency keep a

certificate of service as evidence of

mailing. However, NPRM

§§ 285.11(e)(3) and 285.11(g)(3) have

been amended to indicate more clearly

that the certificate of service may be

retained electronically so long as the

manner of retention is sufficient for

evidentiary purposes.

NPRM § 285.11(f) Hearing

One Federal agency asked that the

rule address whether an agency needs to

publish its own regulation before it can

engage in administrative wage

garnishment under the DCIA. Another

commenter questioned how an agency’s

existing hearing procedures for debt

determination relate to the wage

garnishment requirements contained in

the DCIA and NPRM. The phrase

‘‘consistent with this section’’ was

added to NPRM § 285.11(f)(1) in this

final rule to clarify that agency

regulations must follow the minimum

requirements for wage garnishment

hearings as set forth in this rule. Each

agency is responsible for prescribing

hearing procedures in accordance with

the statutory and regulatory

requirements of this rule and other

requirements applicable to that agency’s

debt collection hearing procedures.

Those agencies with hearings

procedures which meet the

requirements established under this rule

and agency-specific statutory and other

requirements need not develop new

hearing procedures. Agencies should

seek legal advice from their agency

counsel to determine whether existing

agency procedures meet the

requirements established under this rule

and whether the agency is required to

publish new or amended regulations.

Section 285.11(b)(6) has been added to

the final rule to further clarify that

‘‘(n)othing in this section requires

agencies to duplicate notices or

administrative proceedings required by

contract or other laws or regulations.’’

The final rule does not incorporate

one commenter’s suggestion that the

Department of the Treasury or the

Department of Justice be required to

review agencies’ wage garnishment

procedures and regulations prior to

allowing an agency to initiate a wage

garnishment program. Unique statutory

requirements apply to every Federal

program that gives rise to delinquent

debt. Thus, the agency administering

the program that gives rise to the debt

is in the best position to know what is

required. The Departments of Treasury

and Justice will continue, however, to

provide guidance to agencies

concerning debt collection practices and

procedures.

One commenter recommended

amending NPRM § 285.11(f)(4) by

establishing that a debtor has 15

‘‘calendar’’ days, rather than 15

‘‘business’’ days, to request a hearing.

FMS was concerned that 15 calendar

days would not allow sufficient time for

a debtor to request a hearing prior to the

issuance of a garnishment order given

that 15 calendar days could include four

to seven weekend days or holidays. For

this reason, NPRM § 285.11(f)(4) has not

been changed.

Several comments addressed the

hearing procedures proposed in the

NPRM. The final rule incorporates the

comment from two commenters
25138 Federal Register / Vol. 63, No. 87 /Wednesday, May 6, 1998 /Rules and Regulations

suggesting that the requirement in

NPRM § 285.11(f)(8)(ii) that a debtor

prove by ‘‘clear and convincing

evidence’’ that no debt exists or that the

amount of the debt is incorrect is too

burdensome. In the final rule at

§ 285.11(f)(8)(ii), FMS replaced the

‘‘clear and convincing’’ standard with

the less burdensome ‘‘preponderance of

the evidence’’ standard.

One commenter suggested that

proving the terms of the repayment

schedule are ‘‘unreasonable,’’ as

required at NPRM § 285.11(f)(8)(ii), is

too vague and that the debtor should be

required to show that the terms of the

repayment schedule would cause a

‘‘financial hardship’’ to the debtor. The

final rule incorporates this suggestion.

In response to a commenter’s

suggestion, NPRM § 285.11(f)(8)(ii) has

been amended to clarify that the debtor

may present evidence that collection of

the debt may not be pursued due to

operation of law, e.g., enforcement of

the order is subject to the automatic stay

imposed at the time of a bankruptcy

filing pursuant to 11 U.S.C. 362.

Two commenters suggested that this

rule restrict hearing officials to those

individuals not under the supervision or

control of the head of the agency. The

commenters suggested that the rule,

without such a change, could result in

inequitable wage garnishment hearing

decisions since an agency, and its

qualified hearing officer, have a vested

interest in the outcome. FMS disagrees

for three reasons. First, Congress did not

intend to require that hearing officials

be independent. Unlike other statutes,

see, e.g., 5 U.S.C. 5514(a)(2) (concerning

Federal salary offset), the DCIA does not

require an independent hearing official.

Second, the rule explicitly sets forth

minimum hearing procedures that

ensure the debtor has a meaningful

opportunity to be heard and minimize

the risk of erroneous deprivation of the

debtor’s property interest in his or her

wages. Finally, any final hearing

decision by the agency on wage

garnishment is subject to judicial review

under the Administrative Procedure

Act. See, e.g., 5 U.S.C. 706 (concerning

judicial review of an agency’s actions).

NPRM § 285.11(g) Wage Garnishment

Order

One commenter noted that the

provision under NPRM § 285.11(g)

requiring agencies to submit a wage

garnishment order to a debtor’s

employer within 30 days of a hearing

decision (or within 30 days after the

debtor fails to make a timely request for

a hearing) should be reconciled with the

20 day period provided under

Education’s wage garnishment

regulation at 34 CFR 682.410(b)(10)(H).

Such a reconciliation with Education’s

rule is not warranted or necessary. The

time period in this rule accommodates

a broad range of agencies’ requirements

and is consistent with the goal of

issuing a wage garnishment order

promptly after notice and an

opportunity to be heard have been

provided to the debtor.

The final rule does not incorporate

one commenter’s suggestion that NPRM

§ 285.11(g)(2) be amended to delete the

requirement that the wage garnishment

order be signed by the head of the

agency or his/her designee. The

commenter suggested that issuance of

the wage garnishment order on agency

letterhead including the agency’s seal is

sufficient to demonstrate official

issuance. This rule requires a signature

to authenticate a wage withholding

order. Failure to include a signature on

a wage withholding order could result

in employer uncertainty as to the

validity of the order and could result in

delay, and possible loss, of garnishment

payments to which the Government is

entitled.

As noted in the NPRM and as

suggested by a commenter, FMS is

developing a wage garnishment order

form. It is anticipated that the use of a

standard wage garnishment order form

by agencies will make it easier for

private sector employers to recognize

and comply with agency wage

garnishment order requirements. This

form will be available from FMS at the

address listed above and will be

available for downloading from the FMS

web site at the following address:

www.fms.treas.gov.

One commenter suggested that rather

than require the agency to keep a

certificate of service indicating the date

of the mailing of a garnishment order,

the rule should require the debtor’s

employer to verify receipt. The

commenter’s rationale is that the DCIA

(31 U.S.C. 3720D(f)(2)(A)) and NPRM

§ 285.11(o) authorize the agency to sue

the employer for noncompliance with

the wage garnishment order. The final

rule does not incorporate this comment

because the Government need only

show that the order was mailed, not

whether it actually was received. Nelson

v. Diversified Collection Services, 961

F.Supp. 863, 868–69 (D. Md. 1997). By

requiring an agency to retain a copy of

the certificate of service, the agency can

produce evidence that the order was

mailed without having to place an

additional burden on the employer.

One commenter suggested that the

requirement to comply with the wage

garnishment order should be waived

under circumstances when a small

employer (with less than five

employees) would be subject to a major

hardship (financial or otherwise) as a

result of complying with the order. Such

a change to the rule is unnecessary since

the use of the wage garnishment

collection tool by agencies is not

mandated under the DCIA. Agencies can

set their own policies on when it is

appropriate to utilize the administrative

wage garnishment process.

NPRM § 285.11(h) Certification by

Employer

The final rule did not incorporate the

recommendation of two commenters to

delete the requirement under NPRM

§ 285.11(h) requiring the debtor’s

employer to complete and return a

certification form to the agency. The

commenters suggested this provision is

unduly burdensome and that an

employer’s failure to complete and

return the form could unnecessarily

delay the garnishment process. The

certification form serves multiple

purposes. One, the form provides the

agency with information necessary to

monitor the employer’s compliance

with the wage garnishment order in

accordance with the requirements of the

DCIA and applicable laws. The form

also will provide information so the

agency can calculate anticipated

collection amounts to determine

whether to pursue other collection tools.

Finally, the form will assist the

employer in calculating the amount to

be garnished from the debtor’s

disposable pay. It is noted that the

employer’s failure to complete the

certification form as required does not

affect the employer’s responsibility to

withhold the appropriate garnishment

amount within a ‘‘reasonable time’’ in

accordance with this rule. See NPRM

§ 285.11(i)(7), renumbered as

§ 285.11(i)(8) in the final rule.

NPRM § 285.11(i) Amounts Withheld

Two commenters recommended

clarifying the impact of the Consumer

Credit Protection Act’s (CCPA)

minimum disposable pay requirement

on the wage garnishment provisions of

the DCIA and this rule. See CCPA,

§ 303(a)(2), codified at 15 U.S.C.

1673(a)(2) (maximum allowable

garnishment). NPRM § 285.11(i) has

been amended to clarify that the amount

of garnishment is limited by the CCPA.

Under section 285.11(i) of the final rule,

the amount of garnishment is the lesser

of the amount indicated on the

garnishment order up to 15% of the

debtor’s disposable pay or the amount

set forth in 15 U.S.C. 1673(a)(2). The

amount set forth in 15 U.S.C. 1673(a)(2)

is the amount by which a debtor’s
Federal Register / Vol. 63, No. 87 /Wednesday, May 6, 1998 /Rules and Regulations 25139

disposable pay exceeds an amount

equivalent to thirty times the minimum

wage. For example, if a debtor receives

disposable pay of $160.00 per week and

thirty times the minimum wage is

$154.50, the amount that may be

garnished weekly is the lesser of $24.00

(15% of $160) or $5.50 ($160.00–

$154.40 = $5.50). See 29 CFR

870.10(b)(1) for information on

calculating an amount equivalent to

thirty times the minimum wage.

Section 285.11(i)(3) of the final rule is

the same as NPRM § 285.11(i)(2) except

that § 285.11(i)(3)(iii) has been added to

clarify the amount of garnishment for a

debtor who owes multiple debts to a

single creditor agency. Under section

285(i)(3)(iii) of the final rule, an agency

may issue multiple withholding orders

so long as the total amount garnished

from the debtor’s pay for such orders

does not exceed the garnishment

amount permitted under § 285.11(i)(2).

For purposes of § 285.11(i)(3)(iii), the

term ‘‘agency’’ refers to the agency that

is owed the debt.

One commenter suggested deleting

the language in NPRM § 285.11(i)(7)

(renumbered as § 285.11(i)(8) in the

final rule) requiring that the wage

garnishment order ‘‘indicate a

reasonable period of time within which

the employer is required to commence

wage withholding’’ because

garnishment orders in all other contexts

typically require immediate compliance.

This suggestion was not incorporated

into the final rule. The ‘‘reasonable

period of time’’ given to employers

allows employers adequate time to

calculate garnishment withholding

payroll data involving a debtor

employee without disrupting the normal

payroll cycle. It is anticipated that a

‘‘reasonable period of time’’ generally

will mean that the employer will

commence withholdings within two pay

cycles following receipt of the

garnishment order. This may vary given

an employer’s circumstances.

NPRM § 285.11(j) Exclusions From

Garnishment.

No changes were made to the NPRM

§ 285.11(n). FMS did not receive any

comments applicable to this paragraph.

NPRM § 285.11(k) Financial Hardship

The final rule does not incorporate

one commenter’s suggestion that NPRM

§ 285.11(k) be amended further to define

the standards for agency review of a

debtor’s request for an adjustment in the

amount withheld under a wage

garnishment order due to ‘‘financial

hardship’’ based on ‘‘materially changed

circumstances.’’ NPRM § 285.11(k),

unchanged in the final rule, provides

illustrative examples of the type of

events which may give rise to financial

hardship due to ‘‘materially changed

circumstances,’’ such as disability,

divorce, or catastrophic illness.

However, whether financial hardship

exists must be determined by an

agency’s review of the particular facts

and circumstances of a given case.

NPRM § 285.11(l) Ending Garnishment

The final rule does not incorporate a

commenter’s suggestion that the rule

clarify whether collection costs need to

be collected before terminating the

garnishment action. NPRM § 285.11(l),

unchanged in the final rule, clearly

requires termination of garnishment

only after the agency ‘‘has fully

recovered the amounts owed by the

debtor, including interest, penalties and

administrative costs consistent with the

FCCS (Federal Claims Collection

Standards).’’ See 31 U.S.C. 3717(e) and

4 CFR 102.13 regarding the collection of

administrative costs associated with a

debt.

NPRM § 285.11(m) Actions Prohibited

by the Employer

No changes were made to NPRM

§ 285.11(m). FMS did not receive any

comments applicable to this paragraph.

NPRM § 285.11(n) Refunds

No changes were made to NPRM

§ 285.11(n). FMS did not receive any

comments applicable to this paragraph.

NPRM § 285.11(o) Right of Action.

The final rule does not incorporate a

commenter’s suggestion that NPRM

§ 285.11(o) be amended to remove the

requirement that a Federal agency must

‘‘terminate collection action’’ as a

prerequisite to commencing suit against

a debtor’s employer for failure to

withhold amounts from wages pursuant

to a wage garnishment order. The DCIA

specifically provides that ‘‘suit (against

an employer) may not be filed before the

termination of the collection action,

unless earlier filing is necessary to avoid

expiration of any applicable statute of

limitations period.’’ 31 U.S.C.

3720D(f)(2)(B).

However, FMS has amended NPRM

§ 285.11(o) in the final rule to

incorporate a suggestion by another

commenter that the rule be changed to

clarify that ‘‘termination of the

collection action’’ merely refers to the

particular debtor/employee, rather than

the debt. This change gives agencies

flexibility to terminate collection action

against one of the debtors and file suit

against that debtor’s employer for failing

to withhold that debtor’s wages

pursuant to a wage garnishment order.

At the same time, the agency could

continue collection efforts involving the

other debtors who are jointly and

severally liable to the agency on the

debt.

Regulatory Analysis

This rule is not a significant

regulatory action as defined in

Executive Order 12866. It is hereby

certified that this regulation, including

the certification referenced in this final

rule (see paragraph (h) of this section),

will not have a significant economic

impact on a substantial number of small

entities. Although a substantial number

of small entities will be subject to this

regulation and to the certification

requirement in this rule, the

requirements will not have a significant

economic impact on these entities.

Employers of delinquent debtors must

certify certain information about the

debtor such as the debtor’s employment

status and earnings. This information is

contained in the employer’s payroll

records. Therefore, it will not take a

significant amount of time or result in

a significant cost for an employer to

complete the certification form. Even if

an employer is served withholding

orders on several employees over the

course of a year, the cost imposed on the

employer to complete the certifications

would not have a significant economic

impact on that entity. Employers are not

required to vary their normal pay cycles

in order to comply with a withholding

order issued pursuant to this rule.

List of Subjects in 31 CFR Part 285

Administrative practice and

procedure, Claims, Debts, Garnishment

of wages, Hearing and appeal

procedures, Salaries, Wages.

Authority and Issuance

For the reasons set forth in the

preamble, 31 CFR part 285 is amended

as follows:

PART 285—DEBT COLLECTION

AUTHORITIES UNDER THE DEBT

COLLECTION IMPROVEMENT ACT OF

1996

1. The authority citation for part 285

is revised to read as follows:

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

3701, 3711, 3716, 3720A, 3720D; E.O. 13019;

3 CFR, 1996 Comp., p. 216.

2. Section 285.11 is added to Subpart

B to read as follows:

§ 285.11 Administrative wage

garnishment.

(a) Purpose. This section provides

procedures for Federal agencies to

collect money from a debtor’s
25140 Federal Register / Vol. 63, No. 87 /Wednesday, May 6, 1998 /Rules and Regulations

disposable pay by means of

administrative wage garnishment to

satisfy delinquent nontax debt owed to

the United States.

(b) Scope. (1) This section applies to

any Federal agency that administers a

program that gives rise to a delinquent

nontax debt owed to the United States

and to any agency that pursues recovery

of such debt.

(2) This section shall apply

notwithstanding any provision of State

law.

(3) Nothing in this section precludes

the compromise of a debt or the

suspension or termination of collection

action in accordance with applicable

law. See, for example, the Federal

Claims Collection Standards (FCCS), 4

CFR parts 101–105.

(4) The receipt of payments pursuant

to this section does not preclude a

Federal agency from pursuing other debt

collection remedies, including the offset

of Federal payments to satisfy

delinquent nontax debt owed to the

United States. A Federal agency may

pursue such debt collection remedies

separately or in conjunction with

administrative wage garnishment.

(5) This section does not apply to the

collection of delinquent nontax debt

owed to the United States from the

wages of Federal employees from their

Federal employment. Federal pay is

subject to the Federal salary offset

procedures set forth in 5 U.S.C. 5514

and other applicable laws.

(6) Nothing in this section requires

agencies to duplicate notices or

administrative proceedings required by

contract or other laws or regulations.

(c) Definitions. As used in this section

the following definitions shall apply:

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. For purposes

of this section, agency means either the

agency that administers the program

that gave rise to the debt or the agency

that pursues recovery of the debt.

Business day means Monday through

Friday. For purposes of computation,

the last day of the period will be

included unless it is a Federal legal

holiday.

Certificate of service means a

certificate signed by an agency official

indicating the nature of the document to

which it pertains, the date of mailing of

the document, and to whom the

document is being sent.

Day means calendar day. For

purposes of computation, the last day of

the period will be included unless it is

a Saturday, a Sunday, or a Federal legal

holiday.

Debt or claim 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 an individual,

including debt administered by a third

party as an agent for the Federal

Government. Delinquent nontax debt

means any nontax debt that has not

been paid by the date specified in the

agency’s initial written demand for

payment, or applicable agreement,

unless other satisfactory payment

arrangements have been made. For

purposes of this section, the terms

‘‘debt’’ and ‘‘claim’’ are synonymous

and refer to delinquent nontax debt.

Debtor means an individual who owes

a delinquent nontax debt to the United

States.

Disposable pay means that part of the

debtor’s compensation (including, but

not limited to, salary, bonuses,

commissions, and vacation pay) from an

employer remaining after the deduction

of health insurance premiums and any

amounts required by law to be withheld.

For purposes of this section, ‘‘amounts

required by law to be withheld’’ include

amounts for deductions such as social

security taxes and withholding taxes,

but do not include any amount withheld

pursuant to a court order.

Employer means a person or entity

that employs the services of others and

that pays their wages or salaries. The

term employer includes, but is not

limited to, State and local Governments,

but does not include an agency of the

Federal Government.

Garnishment means the process of

withholding amounts from an

employee’s disposable pay and the

paying of those amounts to a creditor in

satisfaction of a withholding order.

Withholding order means any order

for withholding or garnishment of pay

issued by an agency, or judicial or

administrative body. For purposes of

this section, the terms ‘‘wage

garnishment order’’ and ‘‘garnishment

order’’ have the same meaning as

‘‘withholding order.’’

(d) General rule. Whenever an agency

determines that a delinquent debt is

owed by an individual, the agency may

initiate proceedings administratively to

garnish the wages of the delinquent

debtor.

(e) Notice requirements. (1) At least 30

days before the initiation of garnishment

proceedings, the agency shall mail, by

first class mail, to the debtor’s last

known address a written notice

informing the debtor of:

(i) The nature and amount of the debt;

(ii) The intention of the agency to

initiate proceedings to collect the debt

through deductions from pay until the

debt and all accumulated interest,

penalties and administrative costs are

paid in full; and

(iii) An explanation of the debtor’s

rights, including those set forth in

paragraph (e)(2) of this section, and the

time frame within which the debtor may

exercise his or her rights.

(2) The debtor shall be afforded the

opportunity:

(i) To inspect and copy agency

records related to the debt;

(ii) To enter into a written repayment

agreement with the agency under terms

agreeable to the agency; and

(iii) For a hearing in accordance with

paragraph (f) of this section concerning

the existence or the amount of the debt

or the terms of the proposed repayment

schedule under the garnishment order.

However, the debtor is not entitled to a

hearing concerning the terms of the

proposed repayment schedule if these

terms have been established by written

agreement under paragraph (e)(2)(ii) of

this section.

(3) The agency will keep a copy of a

certificate of service indicating the date

of mailing of the notice. The certificate

of service may be retained electronically

so long as the manner of retention is

sufficient for evidentiary purposes.

(f) Hearing—(1) In general. Agencies

shall prescribe regulations for the

conduct of administrative wage

garnishment hearings consistent with

this section or shall adopt this section

without change by reference.

(2) Request for hearing. The agency

shall provide a hearing, which at the

agency’s option may be oral or written,

if the debtor submits a written request

for a hearing concerning the existence or

amount of the debt or the terms of the

repayment schedule (for repayment

schedules established other than by

written agreement under paragraph

(e)(2)(ii)) of this section.

(3) Type of hearing or review. (i) For

purposes of this section, whenever an

agency is required to afford a debtor a

hearing, the agency shall provide the

debtor with a reasonable opportunity for

an oral hearing when the agency

determines that the issues in dispute

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) If the agency determines that an

oral hearing is appropriate, the time and

location of the hearing shall be

established by the agency. An oral

hearing may, at the debtor’s option, be

conducted either in-person or by

telephone conference. All travel
Federal Register / Vol. 63, No. 87 /Wednesday, May 6, 1998 /Rules and Regulations 25141

expenses incurred by the debtor in

connection with an in-person hearing

will be borne by the debtor. All

telephonic charges incurred during the

hearing will be the responsibility of the

agency.

(iii) 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, an

agency will decide the issues in dispute

based upon a review of the written

record. The agency will establish a

reasonable deadline for the submission

of evidence.

(4) Effect of timely request. Subject to

paragraph (f)(13) of this section, if the

debtor’s written request is received by

the agency on or before the 15th

business day following the mailing of

the notice described in paragraph (e)(1)

of this section, the agency shall not

issue a withholding order under

paragraph (g) of this section until the

debtor has been provided the requested

hearing and a decision in accordance

with paragraphs (f)(10) and (f)(11) of

this section has been rendered.

(5) Failure to timely request a hearing.

If the debtor’s written request is

received by the agency after the 15th

business day following the mailing of

the notice described in paragraph (e)(1)

of this section, the agency shall provide

a hearing to the debtor. However, the

agency will not delay issuance of a

withholding order unless the agency

determines that the delay in filing the

request was caused by factors over

which the debtor had no control, or the

agency receives information that the

agency believes justifies a delay or

cancellation of the withholding order.

(6) Hearing official. A hearing official

may be any qualified individual, as

determined by the head of the agency,

including an administrative law judge.

(7) Procedure. After the debtor

requests a hearing, the hearing official

shall notify the debtor of:

(i) The date and time of a telephonic

hearing;

(ii) The date, time, and location of an

in-person oral hearing; or

(iii) The deadline for the submission

of evidence for a written hearing.

(8) Burden of proof. (i) The agency

will have the burden of going forward

to prove the existence or amount of the

debt.

(ii) Thereafter, if the debtor disputes

the existence or amount of the debt, the

debtor must present by a preponderance

of the evidence that no debt exists or

that the amount of the debt is incorrect.

In addition, the debtor may present

evidence that the terms of the

repayment schedule are unlawful,

would cause a financial hardship to the

debtor, or that collection of the debt

may not be pursued due to operation of

law.

(9) Record. The hearing official must

maintain a summary record of any

hearing provided under this section. A

hearing is not required to be a formal

evidentiary-type hearing, however,

witnesses who testify in oral hearings

will do so under oath or affirmation.

(10) Date of decision. The hearing

official shall issue a written opinion

stating his or her decision, as soon as

practicable, but not later than sixty (60)

days after the date on which the request

for such hearing was received by the

agency. If an agency is unable to provide

the debtor with a hearing and render a

decision within 60 days after the receipt

of the request for such hearing:

(i) The agency may not issue a

withholding order until the hearing is

held and a decision rendered; or

(ii) If the agency had previously

issued a withholding order to the

debtor’s employer, the agency must

suspend the withholding order

beginning on the 61st day after the

receipt of the hearing request and

continuing until a hearing is held and

a decision is rendered.

(11) Content of decision. The written

decision shall include:

(i) A summary of the facts presented;

(ii) The hearing official’s findings,

analysis and conclusions; and

(iii) The terms of any repayment

schedules, if applicable.

(12) Final agency action. The hearing

official’s decision will be the final

agency action for the purposes of

judicial review under the

Administrative Procedure Act (5 U.S.C.

701 et seq.).

(13) Failure to appear. In the absence

of good cause shown, a debtor who fails

to appear at a hearing scheduled

pursuant to paragraph (f)(4) of this

section will be deemed as not having

timely filed a request for a hearing.

(g) Wage garnishment order. (1)

Unless the agency receives information

that the agency believes justifies a delay

or cancellation of the withholding order,

the agency shall send, by first class

mail, a withholding order to the debtor’s

employer within 30 days after the

debtor fails to make a timely request for

a hearing (i.e., within 15 business days

after the mailing of the notice described

in paragraph (e)(1) of this section), or, if

a timely request for a hearing is made

by the debtor, within 30 days after a

final decision is made by the agency to

proceed with garnishment.

(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 on the

agency’s letterhead 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) The agency will keep a copy of a

certificate of service indicating the date

of mailing of the order. The certificate

of service may be retained electronically

so long as the manner of retention is

sufficient for evidentiary purposes.

(h) Certification by employer. Along

with the withholding order, the agency

shall send to the employer a

certification in a form prescribed by the

Secretary of the Treasury. The employer

shall complete and return the

certification to the agency within the

time frame prescribed in the

instructions to the form. The

certification will address matters such

as information about the debtor’s

employment status and disposable pay

available for withholding.

(i) Amounts withheld. (1) After receipt

of the garnishment order issued under

this section, the employer shall deduct

from all disposable pay paid to the

applicable debtor during each pay

period the amount of garnishment

described in paragraph (i)(2) of this

section.

(2)(i) Subject to the provisions of

paragraphs (i)(3) and (i)(4) of this

section, the amount of garnishment

shall be the lesser of:

(A) The amount indicated on the

garnishment order up to 15% of the

debtor’s disposable pay; or

(B) The amount set forth in 15 U.S.C.

1673(a)(2) (Restriction on Garnishment).

The amount set forth at 15 U.S.C.

1673(a)(2) is the amount by which a

debtor’s disposable pay exceeds an

amount equivalent to thirty times the

minimum wage. See 29 CFR 870.10.

(3) When a debtor’s pay is subject to

withholding orders with priority the

following shall apply:

(i) Unless otherwise provided by

Federal law, withholding orders issued

under this section shall be paid in the

amounts set forth under paragraph (i)(2)

of this section and shall have priority

over other withholding orders which are

served later in time. Notwithstanding

the foregoing, withholding orders for

family support shall have priority over

withholding orders issued under this

section.

(ii) If amounts are being withheld

from a debtor’s pay pursuant to a

withholding order served on an

employer before a withholding order
25142 Federal Register / Vol. 63, No. 87 /Wednesday, May 6, 1998 /Rules and Regulations

issued pursuant to this section, or if a

withholding order for family support is

served on an employer at any time, the

amounts withheld pursuant to the

withholding order issued under this

section shall be the lesser of:

(A) The amount calculated under

paragraph (i)(2) of this section, or

(B) An amount equal to 25% of the

debtor’s disposable pay less the

amount(s) withheld under the

withholding order(s) with priority.

(iii) If a debtor owes more than one

debt to an agency, the agency may issue

multiple withholding orders provided

that the total amount garnished from the

debtor’s pay for such orders does not

exceed the amount set forth in

paragraph (i)(2) of this section. For

purposes of this paragraph (i)(3)(iii), the

term agency refers to the agency that is

owed the debt.

(4) An amount greater than that set

forth in paragraphs (i)(2) and (i)(3) of

this section may be withheld upon the

written consent of debtor.

(5) The employer shall promptly pay

to the agency all amounts withheld in

accordance with the withholding order

issued pursuant to this section.

(6) An employer shall not be required

to vary its normal pay and disbursement

cycles in order to comply with the

withholding order.

(7) Any assignment or allotment by an

employee of his earnings shall be void

to the extent it interferes with or

prohibits execution of the withholding

order issued under this section, except

for any assignment or allotment made

pursuant to a family support judgment

or order.

(8) The employer shall withhold the

appropriate amount from the debtor’s

wages for each pay period until the

employer receives notification from the

agency to discontinue wage

withholding. The garnishment order

shall indicate a reasonable period of

time within which the employer is

required to commence wage

withholding.

(j) Exclusions from garnishment. The

agency may not garnish the wages of a

debtor who it knows has been

involuntarily separated from

employment until the debtor has been

reemployed continuously for at least 12

months. The debtor has the burden of

informing the agency of the

circumstances surrounding an

involuntary separation from

employment.

(k) Financial hardship. (1) A debtor

whose wages are subject to a wage

withholding order under this section,

may, at any time, request a review by

the agency of the amount garnished,

based on materially changed

circumstances such as disability,

divorce, or catastrophic illness which

result in financial hardship.

(2) A debtor requesting a review

under paragraph (k)(1) of this section

shall submit the basis for claiming that

the current amount of garnishment

results in a financial hardship to the

debtor, along with supporting

documentation. Agencies shall consider

any information submitted in

accordance with procedures and

standards established by the agency.

(3) If a financial hardship is found,

the agency shall downwardly adjust, by

an amount and for a period of time

agreeable to the agency, the amount

garnished to reflect the debtor’s

financial condition. The agency will

notify the employer of any adjustments

to the amounts to be withheld.

(l) Ending garnishment. (1) Once the

agency has fully recovered the amounts

owed by the debtor, including interest,

penalties, and administrative costs

consistent with the FCCS, the agency

shall send the debtor’s employer

notification to discontinue wage

withholding.

(2) At least annually, an agency shall

review its debtors’ accounts to ensure

that garnishment has been terminated

for accounts that have been paid in full.

(m) Actions prohibited by the

employer. An employer may not

discharge, refuse to employ, or take

disciplinary action against the debtor

due to the issuance of a withholding

order under this section.

(n) Refunds. (1) If a hearing official, at

a hearing held pursuant to paragraph

(f)(3) of this section, determines that a

debt is not legally due and owing to the

United States, the agency shall promptly

refund any amount collected by means

of administrative wage garnishment.

(2) Unless required by Federal law or

contract, refunds under this section

shall not bear interest.

(o) Right of action. The agency may

sue any employer for any amount that

the employer fails to withhold from

wages owed and payable to an employee

in accordance with paragraphs (g) and

(i) of this section. However, a suit may

not be filed before the termination of the

collection action involving a particular

debtor, unless earlier filing is necessary

to avoid expiration of any applicable

statute of limitations period. For

purposes of this section, ‘‘termination of

the collection action’’ occurs when the

agency has terminated collection action

in accordance with the FCCS or other

applicable standards. In any event,

termination of the collection action will

have been deemed to occur if the agency

has not received any payments to satisfy

the debt from the particular debtor

whose wages were subject to

garnishment, in whole or in part, for a

period of one (1) year.

Dated: April 30, 1998.

Richard L. Gregg,

Commissioner.

[FR Doc. 98–11966 Filed 5–5–98; 8:45 am]

BILLING CODE 4810–35–P