[Federal Register: April 28, 1999 (Volume 64, Number 81)]
[Rules and Regulations]               
[Page 22905-22909]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ap99-14]


[[Page 22905]]

_______________________________________________________________________

Part II





Department of the Treasury





_______________________________________________________________________



Fiscal Service



_______________________________________________________________________



31 CFR Part 285



Transfer of Debts to Treasury for Collection; Final Rule


[[Page 22906]]



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.

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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 
cross-servicing, 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 government-wide debt is known as ``cross-servicing.'' 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

[[Page 22907]]

contracts (a process known as ``pass-through''). 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 cost-effective. 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 past-due 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

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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:


Sec. 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:


Sec. 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 post-delinquency 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

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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 Treasury-designated 
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