[Federal Register: November 21, 1997 (Volume 62, Number 225)]
[Proposed Rules]
[Page 62457-62464]

Part III

Department of the Treasury
Fiscal Service
_______________________________________________________________________

31 CFR Part 285

Administrative Wage Garnishment; Proposed Rule

[[Page 62458]]

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

[Docket No. FMS-285.11]
RIN 1510-AA67


Administrative Wage Garnishment

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule implements the administrative wage
garnishment provisions contained in the Debt Collection Improvement Act
of 1996 (DCIA). The DCIA authorizes Federal agencies 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.

DATE: Comments must be received by December 22, 1997.

ADDRESSES: Comments should be sent to Gerry Isenberg, Financial Program
Specialist, Debt Management Services, Financial Management Service,
Department of the Treasury, 401 14th Street, S.W., Room 151,
Washington, D.C. 20227.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program
Specialist, at (202) 874-6660; Ronda Kent or Ellen Neubauer, Senior
Attorneys, or Laurie Levin, Attorney-Advisor, at (202) 874-6680. 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 proposed regulation 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. Under this provision Federal agencies may
administratively garnish up to 15 percent of the wages 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 which is collecting
delinquent nontax debt may administratively garnish a delinquent
debtor's wages in accordance with regulations promulgated by the
Secretary of the Treasury. As the lead agency for the collection of
nontax debt in the Federal Government, the Financial Management Service
(FMS), a bureau of the Department of the Treasury, is responsible for
promulgating the regulations implementing this and other debt
collection tools established by the DCIA.
    In accordance with the requirements of the DCIA, this proposed 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. The hearing will 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.
    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 proposed regulation 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.

Section Analysis

(a) Purpose

    The purpose of this section is to implement the wage garnishment
provision in the DCIA, codified at 31 U.S.C. 3720D, under which Federal
agencies may administratively garnish up to 15% of the wages of a
debtor to satisfy delinquent nontax debt owed to the United States.

(b) Scope

    Paragraph (b)(1) states that all Federal agencies are authorized to
utilize this collection tool to collect delinquent nontax debt owed to
the United States. The term ``agency'' is defined in paragraph (c).
    As provided in the DCIA, paragraph (b)(2) explains that State law
does not apply to the withholding of an employee's wages under this
section to the extent that such State law conflicts or interferes with
the procedures and requirements of this section.
    Paragraph (b)(3) explains that an agency's use of this collection
tool does not interfere with an agency's discretion to compromise a
debt, or to suspend or terminate collection action of the debt.
    Paragraph (b)(4) explains that administrative wage garnishment is
one of many debt collection tools available to an agency. An agency may
use administrative wage garnishment concurrently with other collection
tools, even if an agency receives payments through the use of wage
garnishment.
    Paragraph (b)(5) distinguishes Federal salary offset from
administrative wage garnishment. Federal salary offset procedures,
whereby Federal salary payments payable to Federal employees who owe
debt to the United States are withheld to satisfy the outstanding
obligations, are set forth in 5 U.S.C. 5514 and the implementing
regulations.

(c) Definitions

    Agency. The term ``agency'' has the same meaning as found in 31
U.S.C. 3701(a)(4). The term refers to an agency in the executive,
judicial or legislative branches of the Government, including
government corporations, that either administers the program that gave
rise to the debt or pursues recovery of the debt. For example, the
Department of the Treasury and Treasury-designated debt collection
centers may collect debts by administrative wage garnishment in
accordance with the provisions of this rule when collecting debts for
other agencies.
    Business day. The term ``business day'' means Monday through Friday
and shall be calculated consistent with Rule

[[Page 62459]]

6(a) of the Federal Rules of Civil Procedure.
    Certificate of service. A ``certificate of service'' refers to a
signed certificate that an agency is required to retain as evidence of
mailing of a document. A certificate may be retained electronically and
may contain a computer generated signature.
    Day. Unless otherwise indicated, the term ``day'' means calendar
day and shall be calculated consistent with Rule 6(a) of the Federal
Rules of Civil Procedure.
    Debt or claim. For the purposes of this rule, the terms ``debt''
and ``claim'' refer to delinquent nontax debt. The term ``delinquent
nontax debt'' refers to debt that is past-due.
    Debtor. The term ``debtor'' refers to an individual who owes a
delinquent nontax debt to the United States.
    Disposable pay. ``Disposable pay'' is all of a debtor's
compensation except health insurance premiums and those amounts
required to be withheld by law, such as social security taxes. Lump sum
payments, such as bonuses and back pay, are included in disposable pay.
For purposes of calculating disposable pay, voluntary withholdings,
such as savings allotments, are not deducted from a debtor's
compensation.
    Employer. The term ``employer'' refers to a person or entity that
employs the services of others and includes State and local
Governments. For purposes of this section, however, the Federal
Government is not an ``employer'' because debts owed by Federal
employees are collected in accordance with the Federal salary offset
procedures.
    Garnishment. The term ``garnishment'' refers to the process of
withholding amounts from an employee's pay and forwarding those amounts
to a creditor in satisfaction of a withholding order.
    Withholding order. The term ``withholding order'' refers to any
order for withholding or garnishment of pay, whether issued under the
provisions of this section or otherwise. A withholding order may be
issued by an agency, or a judicial or administrative body. For purposes
of this proposed rule, the terms ``wage garnishment order'' and
``garnishment order'' have the same meaning as ``withholding order.''

(d) General Rule

    Paragraph (d) sets forth the authority contained in the DCIA that
authorizes an agency to administratively garnish the wages of a
delinquent debtor. Agencies authorized to administratively garnish the
wages of a delinquent debtor include the Department of the Treasury and
Treasury-designated debt collection centers when collecting debt for
other agencies.

(e) Notice Requirements

    Paragraph (e)(1) contains the DCIA requirement that the agency give
the debtor written notice at least 30 days before initiating
garnishment proceedings. The notice will inform the debtor 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. The notice will include
the time frame within which a debtor may exercise his or her rights.
This notice may be combined with and made a part of any notice of
intent to use other collection tools that an agency sends to the
debtor.
    Paragraph (e)(2) contains the DCIA requirement that the agency
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. Agencies should review a debtor's request to establish a
repayment agreement under paragraph (e)(2)(ii) of this section in
accordance with the requirements of the Federal Claims Collection
Standards (4 CFR Parts 101-105), or other applicable standards, to
ensure that the debtor's ability to pay is considered. The debtor is
entitled to a hearing only with respect to (1) the existence of the
debt; (2) the amount of the debt; or, (3) the terms of the proposed
repayment schedule under the garnishment order, e.g., that the amount
withheld would create a financial hardship. 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
between the debtor and the agency. As discussed below, a debtor who is
subject to a wage garnishment order may request a review by the agency
of the amount garnished based on materially changed circumstances that
result in financial hardship. See paragraph (k) of this section.
    Paragraph (e)(3) requires that the agency keep a copy of the
certificate of service indicating the date of mailing of the notice
required by this section as evidence of the agency having provided the
debtor with notice and the opportunity for review. This regulation does
not specify how the certificate should be retained by the agency, and
accordingly the certificate may be retained electronically. However,
agencies are advised to consult with the Department of Justice as to
the adequacy of computer generated records for evidentiary purposes.

(f) Hearing

    The DCIA requires agencies to promulgate regulations concerning
procedures for the conduct of administrative wage garnishment hearings.
Agencies may use established hearing procedures so long as they meet
the requirements of this section. Paragraph (f)(1) allows agencies
either to prescribe their own regulations for this purpose or adopt
this section without change.
    Under paragraph (f)(2), agencies may decide whether to hold an oral
or written hearing. The subject matter of the hearing is limited to the
existence or amount of the debt or the terms of an involuntary
repayment schedule as described under paragraph (e) of this section.
    Paragraph (f)(3) sets forth factors an agency should consider in
determining the type of hearing or review to provide. If an agency
determines that an oral hearing is appropriate, the debtor may choose
an in-person hearing or a hearing by telephone conference.
    As required by the DCIA, paragraph (f)(4) provides that a hearing
will be held prior to the issuance of a withholding order if the
debtor's request for a hearing is timely received by the agency. Timely
received means that the request for a hearing 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. Agencies are required to
inform the debtor of the deadline for requesting a hearing prior to the
issuance of a withholding order.
    Paragraph (f)(5) addresses hearing requests received after the 15th
business day following the mailing of the notice described in paragraph
(e)(1) of this section. As provided in the DCIA, an agency need not
delay issuance of the withholding order prior to conducting a hearing
if the request for a hearing is not timely received.
    Paragraph (f)(6) authorizes the head of the agency to designate any
qualified individual as a hearing official.
    Paragraph (f)(7) requires an agency to notify the debtor about the
hearing, including the date and time of the hearing or the deadlines
for the submission of evidence.
    Paragraph (f)(8) describes the burden of proof on the respective
parties to a hearing. The agency must present evidence as to the
existence or amount of the debt. To dispute the debt, the debtor must
present clear and convincing evidence that no debt exists or that the
amount of the debt is

[[Page 62460]]

incorrect. If the terms of the repayment schedule are an issue, the
debtor must show that such terms are unreasonable or unlawful.
    Paragraph (f)(9) describes the type of record required for a
hearing provided under this section.
    As required by the DCIA, under paragraph (f)(10), the hearing
official is required to issue a written decision no later than sixty
(60) days after the request for a hearing was made. Thus, a hearing
must be held and a decision rendered within 60 days after the receipt
of a hearing request by the debtor. The agency may not issue a
withholding order until a hearing is held and a decision rendered. If
an agency has previously issued a withholding order and the agency is
unable to hold a hearing and issue a decision within the 60-day time
period, the agency must suspend the withholding order until a hearing
and a decision have been provided to the debtor. The provisions of this
paragraph (f)(10) do not apply to financial hardship reviews under the
provisions of paragraph (k) of this section.
    Paragraph (f)(11) sets forth the information that must be included
in the hearing official's written decision.
    Paragraph (f)(12) states that the hearing official's decision is
the final agency action for appeal purposes.
    Paragraph (f)(13) provides that if a debtor, without good cause
shown, fails to appear at a scheduled hearing, an agency may issue a
withholding order prior to rescheduling or holding a subsequent
hearing.

(g) Wage Garnishment Order

    In accordance with the provisions of the DCIA, paragraph (g)(1)
requires agencies to send to employers of delinquent debtors a wage
garnishment order directing the employer to pay a portion of the
debtor's wages to the Federal Government. The agency is required to
send the order within 30 days after the debtor fails to make a timely
request for a hearing, or if a timely request is made, within 30 days
after a final decision is made to proceed with the garnishment.
    Paragraph (g)(2) describes the format and content of a withholding
order. A withholding order may contain a computer generated signature.
    Paragraph (g)(3) requires that the agency retain a copy of the
certificate of service indicating the date of mailing of the
withholding order as evidence of the agency having served the employer
with the order. While a copy of the certificate may be retained
electronically, agencies are advised to consult with the Department of
Justice as to the adequacy of computer generated records for
evidentiary purposes.

(h) Certification by Employer

    When a debtor's employer receives a withholding order, paragraph
(h) requires the employer to complete a certification in a form
prescribed by the Secretary of the Treasury. The certification will
address matters such as information about the debtor's employment
status and disposable pay available for withholding.

(i) Amounts Withheld

    Paragraphs (i)(1), (i)(2), and (i)(3) describe the restrictions on
the amounts that can be withheld from an employee's pay to satisfy a
withholding order issued pursuant to this proposed rule. As provided in
the DCIA, under paragraph (i)(1) no more than 15% of the debtor's
disposable pay for each pay period may be garnished.
    Special rules apply to calculating the amount to be withheld from a
debtor's pay that is subject to multiple withholding orders. Paragraph
(i)(2) describes the amount that may be garnished from a debtor's
disposable pay if, at the time of the withholding, the debtor's pay is
subject to other wage garnishment orders, whether issued under this
section or otherwise, e.g., a wage garnishment order issued pursuant to
the provisions of 28 U.S.C. 3205 (Garnishment) or a commercial wage
garnishment.
    For garnishments issued under this section, an employer is required
to withhold from a debtor's pay the amounts set forth in paragraph
(i)(1). However, when the employee's pay is subject to multiple
withholding orders that would result in the withholding of more than
25% of a debtor's disposable pay, this proposed rule requires that the
amounts withheld under this section be reduced if the other withholding
orders are for family support or were served on the employer prior in
time. For example, if the employer is withholding 15% of a debtor's
disposable pay for a family support or prior withholding order, the
amount withheld for the subsequent withholding order issued under this
section is limited to 10% of the debtor's disposable pay. When the
family support or prior withholding order terminates, the amount
withheld for the subsequent withholding order issued under this section
may be increased to the maximum 15% allowed under (i)(1).
    The following examples illustrate how the rules described in
paragraphs (i)(1) and (i)(2) work.

    Examples: An agency issues a garnishment order under this
section setting the amount of garnishment at 15% of the debtor's
disposable pay.
    (A) If the debtor's disposable pay is $200 weekly and is not
subject to other garnishment orders with priority, then the amount
of the garnishment under this section will be $30 weekly, 15% of
disposable pay (15% x $200=$30).
    (B) If the debtor's disposable pay is $200 weekly and is subject
to a prior garnishment order in the amount of $40 weekly, then the
amount of the garnishment under this section will be $10 weekly. The
$10 amount is the lesser of 15% of disposable pay (15% x $200=$30)
or the maximum amount to be garnished where a debtor's pay is
subject to withholding orders with priority (25% x $200=$50;
$50-$40=$10). When the prior garnishment order terminates, the
amount of the garnishment shall be increased to $30 weekly because
the calculation regarding the prior withholding orders is no longer
necessary.
    (C) If the debtor's disposable pay is $200 weekly and is subject
to a garnishment order with priority in the amount of $100 weekly,
then the amount of the garnishment under this section will be $0.
The $0 amount is the lesser of 15% of disposable pay
(15% x $200=$30) or the maximum amount to be garnished where a
debtor's pay is subject to withholding orders with priority
(25% x $200=$50; $50--$100<SUP></SUP>$0). When the prior
garnishment order terminates, the amount of the garnishment shall be
increased to $30 weekly because the calculation regarding the prior
withholding orders is no longer necessary.

    Paragraph (i)(3) allows the debtor to consent in writing to
withholding a greater amount than provided in paragraphs (i)(1) and
(i)(2).
    Under paragraph (i)(4), the employer is required to promptly pay to
the agency amounts withheld under the garnishment order, generally
within 10 days.
    As provided in the DCIA, under paragraph (i)(5) an employer is not
required to vary its pay cycle or disbursement cycle to comply with a
withholding order issued pursuant to this section.
    Paragraph (i)(6) provides that a withholding order issued under
this section will take priority over any assignment or allotment by an
employee of his wages, except for an assignment or allotment made
pursuant to a family support judgment or order.
    Paragraph (i)(7) requires the employer to continue to garnish an
employee's wages until the agency notifies the employer that
garnishment is no longer appropriate.

(j) Exclusions From Garnishment

    As required by the DCIA, paragraph (j) provides that no withholding
of a debtor's wages may occur in the case of an individual who has been
involuntarily separated from

[[Page 62461]]

employment until that individual has been reemployed continuously for
at least 12 months. The debtor bears the burden of notifying the agency
of an involuntary separation and the circumstances surrounding any
separation from employment to avoid wage withholding based on this
provision.

(k) Financial Hardship

    Paragraph (k)(1) allows a debtor to request a review by the agency
of the amount being garnished under a wage garnishment order based on
materially changed circumstances which result in a financial hardship.
    Paragraph (k)(2) requires the debtor to explain and submit evidence
of the materially changed circumstances and the effect of the change on
the debtor's ability to pay.
    Paragraph (k)(3) explains that an agency is required to adjust the
amounts withheld under the garnishment order if a financial hardship is
found to exist.

(l) Ending Garnishment

    Paragraph (l)(1) requires an agency to instruct the employer to
discontinue garnishment upon its receipt of the full amount of the
debt, including interest, penalties, and administrative costs.
    Paragraph (l)(2) requires an agency to review its debtors'
accounts, at least annually, to ensure that garnishment has been
terminated for accounts that have been paid in full.

(m) Actions Prohibited by the Employer

    As mandated by the DCIA, paragraph (m) prohibits employers from
taking disciplinary actions against a debtor based on the fact that the
debtor's wages are subject to administrative garnishment.

(n) Refunds

    Paragraph (n)(1) requires an agency to refund promptly to a debtor
amounts improperly withheld from wages.
    Paragraph (n)(2) provides that, unless required by law or contract,
refunds shall not bear interest.

(o) Right of Action

    As authorized by the DCIA, paragraph (o) provides that an agency
may sue an employer for the amounts that were not properly withheld
from the wages payable to the debtor. The agency may initiate action
against an employer only after terminating its collection efforts
against the debtor. For purposes of this section, this occurs when an
agency (1) has terminated collection action in accordance with the
Federal Claims Collection Standards or other applicable standards, or
(2) has not received any payments for the debt from any source for at
least one year.

Regulatory Analyses

    This proposed rule is not a significant regulatory action as
defined in Executive Order 12866.
    It is hereby certified that this proposed regulation, including the
certification referenced in this notice of proposed rulemaking (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 proposed
regulation and to the certification requirement in this proposed 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 proposed 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
proposed to be amended to read 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, 3716, 3720A,
3720D; E.O. 13019

    2. Subpart B consisting of Sec. 285.11 is added to Part 285 to read
as follows:

Subpart B--Authorities Other Than Offset

Sec. 285.11  Administrative wage garnishment.

    (a) Purpose. This regulation provides procedures for Federal
agencies to collect money from a debtor's disposable pay by means of
administrative wage garnishment to satisfy delinquent nontax debt owed
to the United States.
    (b) Scope. (1) This regulation 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 regulation shall apply notwithstanding any provision of
State law.
    (3) Nothing in this regulation 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 regulation 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 regulation 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 the
implementing 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 regulation, 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

[[Page 62462]]

determined by an appropriate official of the Federal Government to be
owed to the United States by an individual. 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 to
administratively 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.
    (f) Hearing.--(1) In general. Agencies shall prescribe regulations
for the conduct of administrative wage garnishment hearings 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 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) This section does not require an oral hearing with respect to
debt collection systems in which a determination of indebtedness rarely
involves issues of credibility or veracity and the agency has
determined that review of the written record is ordinarily an adequate
means to correct prior mistakes.
    (iv) In those cases when an oral hearing is not required by this
section, an agency shall nevertheless accord the debtor a ``paper
hearing,'' that is, 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 but 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 clear and convincing 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 unreasonable or unlawful.

[[Page 62463]]

    (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 Procedures 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 as may be 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.
    (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) Subject to the provisions of paragraph
(i)(3), 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 indicated on the
garnishment order up to 15% of the debtor's disposable pay.
    (2) 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)(1) 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
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)(1) 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.
    (3) An amount greater than that set forth in paragraphs (i)(1) and
(i)(2) of this section may be withheld upon the written consent of
debtor.
    (4) The employer shall promptly pay to the agency all amounts
withheld in accordance with the withholding order issued pursuant to
this section.
    (5) An employer shall not be required to vary its normal pay and
disbursement cycles in order to comply with the withholding order.
    (6) 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 part, except for any
assignment or allotment made pursuant to a family support judgment or
order.
    (7) 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 bears 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

[[Page 62464]]

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, after receipt of the garnishment order provided by
the agency under paragraph (g) of this section, fails to withhold from
wages owed and payable to an employee. However, a suit 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. 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, in whole or in part, from any source for a period of one (1)
year.

    Dated: November 17, 1997.
Russell D. Morris,
Commissioner.
[FR Doc. 97-30611 Filed 11-20-97; 8:45 am]
BILLING CODE 4810-35-P