[Federal Register: April 22, 1998 (Volume 63, Number 77)]
[Proposed Rules]
[Page 20005-20009]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ap98-37]

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_______________________________________________________________________

Part II

Department of the Treasury

_______________________________________________________________________

Fiscal Service

_______________________________________________________________________

31 CFR Part 285

Barring Delinquent Debtors From Obtaining Federal Loans or Loan
Insurance or Guarantees; Proposed Rule

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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510-AA71


Barring Delinquent Debtors From Obtaining Federal Loans or Loan
Insurance or Guarantees

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Debt Collection Improvement Act of 1996 (DCIA) mandated a
new eligibility requirement for persons seeking Federal financial
assistance, namely that delinquent Federal debtors are ineligible for
Federal direct and indirect loan assistance (other than disaster
loans). This proposed rule defines when a debt is in delinquent status
and when a delinquency is resolved for purposes of determining whether
the DCIA bars a person from receiving financial assistance. In
addition, this proposed rule prescribes when the Secretary of the
Treasury may exempt a class of delinquent debts from affecting a
debtor's loan eligibility. This proposed rule also sets forth factors
for authorized agency officials to consider when deciding whether to
waive the DCIA eligibility requirement.

DATES: Comments must be received on or before May 22, 1998.

ADDRESSES: All comments should be addressed to Gerry Isenberg,
Financial Program Specialist, Debt Management Services, Financial
Management Service, 401 14th Street SW, Room 151, Washington, D.C.
20227. A copy of this proposed rule is being made available for
downloading from the Financial Management Service web site at the
following address: http://www.fms.treas.gov.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program
Specialist, at (202) 874-6859; or Ellen Neubauer or Ronda Kent, Senior
Attorneys, at (202) 874-6680.

SUPPLEMENTARY INFORMATION:

Background

    Section 31001(j)(1) of the Debt Collection Improvement Act of 1996
(DCIA), Pub. L. 104-134, 110 Stat. 1321-358 (Apr. 26, 1996), codified
at 31 U.S.C. 3720B (section 3720B), provides that a person owing a
delinquent nontax debt to the Federal Government is ineligible for
Federal financial assistance in the form of a loan (other than a
disaster loan) or loan insurance or guarantee. The head of an agency
that administers a Federal financial assistance program may waive this
provision. The waiver authority may be delegated only to the agency's
Chief Financial Officer or Deputy Chief Financial Officer. In addition,
the Secretary of the Treasury may exempt any class of debts from
affecting a person's eligibility for receiving financial assistance.
    The DCIA requires the Secretary of the Treasury to prescribe
standards under which agencies will determine whether a person has an
outstanding delinquent debt that would trigger the DCIA bar to Federal
financial assistance. As the lead agency for the collection of nontax
debt in the Federal Government, the Financial Management Service (FMS),
a bureau of the Department of the Treasury, is responsible for
promulgating the regulations governing this and other provisions of the
DCIA. This proposed rule defines when a debt is in delinquent status
and when the delinquency is resolved for purposes of determining
whether the DCIA bars a person from receiving financial assistance.
This proposed rule also prescribes standards under which a Treasury
exemption may be granted and sets forth factors for an agency to
consider when deciding whether an agency waiver is appropriate.

Section Analysis

(a) Definitions

    The intent of section 3720B is to prevent persons owing delinquent
nontax obligations to the Government from receiving Federal financial
assistance. The definition of the term ``debt'' in paragraph (a)(3) is
intended to cover all amounts owed to the United States, including
debts administered by a third party as an agent for the Federal
Government, and has the same meaning as set forth in 31 U.S.C.
3701(b)(1).
    As stated in paragraph (a)(4), the term ``Federal financial
assistance'' or ``financial assistance'' as defined in section 3720B
means any Federal loan (other than a disaster loan), loan insurance, or
loan guarantee. Although disaster loans are not covered by section
3720B and this proposed rule, nothing in this proposed rule is intended
to suggest that a delinquent debtor is eligible for a disaster loan
unless he or she meets all eligibility requirements under applicable
law.
    In paragraph (a)(7), the term person is defined to include all
individuals and organizations, including state and local governments,
but does not include Federal agencies. FMS requests comments on the
extent to which foreign entities are barred from obtaining Federal
financial assistance under the DCIA (31 U.S.C. 3720B).

(b) Purpose and Scope

    The purpose and scope of this proposed rule are described in
paragraph (b) of this section. Section 3720B and this proposed rule
apply to persons owing delinquent nontax debt to the Government. This
proposed rule sets forth the standards for determining whether a debt
is in delinquent status for the purpose of barring a debtor from
receiving Federal financial assistance as required by section 3720B. In
addition, the proposed rule addresses when an agency waiver or Treasury
exemption is appropriate. Nothing in this proposed rule is intended to
define the term ``delinquent'' for purposes other than the application
of section 3720B.
    As stated in paragraph (b)(3), this proposed rule is not intended
to replace agency policies or procedures for determining whether a
person is eligible for financial assistance or for agency review of
denials of such assistance. For example, although the DCIA bar does not
apply to a person owing delinquent Federal tax debt, nothing in this
proposed rule precludes an agency from denying financial assistance to
such a person under other applicable eligibility requirements. The fact
that a debtor has had debts discharged in bankruptcy also may be a
factor that agencies consider in assessing creditworthiness although
the DCIA and this proposed rule do not bar the extension of credit.
Similarly, the granting of a waiver or an exemption under this section
does not mean that a loan application must be approved. For example, a
waiver of this rule by the head of an agency under the provisions of
section 3720B does not prohibit the agency from denying credit to a
person based on general creditworthiness requirements, such as
repayment ability or failure to pay obligations when they become due.
    As stated in paragraph (b)(4), this proposed rule does not confer
any new rights or benefits on persons seeking Federal financial
assistance. The DCIA mandated a new eligibility requirement for persons
seeking financial assistance, namely that delinquent Federal debtors
are ineligible for Federal direct and indirect loan assistance (other
than disaster loans). Agencies are not required to add new review
procedures for persons who do not qualify for or are denied financial
assistance based on the DCIA eligibility requirement. Those persons who
are denied financial assistance based on the DCIA requirement are
entitled to the same

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opportunities for review, if any, as those who are denied financial
assistance based on other applicable eligibility requirements.

(c) General Rule

    Paragraph (c) of this section states the general rule contained in
the DCIA that a person is ineligible for a Federal direct loan (other
than disaster loans), loan insurance or loan guarantee if that person
owes a delinquent nontax debt to the Federal Government. The DCIA
eligibility requirement applies to all persons seeking Federal
financial assistance and owing an outstanding nontax debt in delinquent
status, including, but not limited to, guarantors. The DCIA eligibility
requirement applies to all Federal loans (other than disaster loans)
including those loans for which creditworthiness or credit history is
not otherwise a factor for eligibility purposes, e.g., student loans.
Since there are many ways in which agencies may obtain delinquent debt
information, this proposed rule does not mandate a particular method of
collecting such information. Agencies may request delinquent debt
information on loan applications, obtain credit reports, and use the
Department of Housing and Urban Development's Credit Alert Interactive
Voice Response System (CAIVRS) to determine whether a person seeking
financial assistance owes a delinquent nontax debt to the Federal
Government. For information about the CAIVRS program, agencies should
contact the Director of Information Technology, Department of Housing
and Urban Development, 451 7th Street, S.W., Washington, DC 20410.
    This proposed rule encourages persons seeking financial assistance
to resolve their delinquent debt. Therefore, after a person's
delinquency is resolved in accordance with the provisions of paragraph
(e)(1) of this section, the DCIA and this proposed rule no longer
provide a basis for denying financial assistance to that person. As
noted above, a credit-granting agency may use other factors in
determining whether to grant or deny credit based on other applicable
eligibility requirements.
    The DCIA authorizes the head of the agency to waive the application
of the general rule. The head of the agency may delegate the waiver
authority only to the Chief Financial Officer of the agency who may
redelegate the authority only to the Deputy Chief Financial Officer.
Paragraph (g) of this section, discussed below, prescribes the factors
that authorized agency officials should consider when deciding whether
to waive the DCIA requirement.

(d) Delinquent status

    Paragraph (d) defines when a debt is in delinquent status for
purposes of section 3720B. As noted above, this proposed rule does not
define the term ``delinquent'' for any purpose other than the
application of section 3720B.
    As stated in paragraph (d)(2)(i), a debt is not in delinquent
status if the creditor agency has released the person seeking Federal
financial assistance from the obligation to pay the debt. A creditor
agency may release a person from an obligation because the person has
paid the debt in an amount acceptable to the creditor agency, the debt
was determined not to be owed, or for other reasons. The release of an
individual obligor does not mean that all obligors on the debt have
been released. In addition, as stated in paragraph (d)(2)(i), a debt is
not in delinquent status if an adjudication or determination has been
made that the person does not owe or does not have to pay the debt.
    As stated in paragraph (d)(2)(ii), a debt is not in delinquent
status for purposes of this proposed rule if the debtor is the subject
of a bankruptcy proceeding or has been discharged in bankruptcy. In
this circumstance the debt is not in delinquent status so long as the
debtor is current on any applicable court authorized repayment plan.
    Nothing in this proposed rule is intended to deny persons seeking
financial assistance the opportunity to contest a creditor agency's
determination that a debt is owed. Therefore, as stated in paragraph
(d)(2)(iii), for purposes of this proposed rule a debt is not
considered to be in ``delinquent status'' if a timely-filed appeal
challenging the creditor agency's determination that the debt exists or
is delinquent is pending. The purpose of requiring that an appeal be
filed timely is to prevent debtors from appealing an agency's
determination solely to avoid the application of section 3720B. To the
extent permissible, agencies should defer making a determination as to
whether or not to extend credit until the appeal process is completed.

(e) Delinquency resolution

    A person may remove the bar to financial assistance mandated by the
DCIA by resolving a delinquency in accordance with the provisions of
paragraph (e)(1). The debtor must resolve the debt with the creditor
agency responsible for the collection of the debt or with the agency to
which the creditor agency has referred the debt for collection. For
purposes of this proposed rule, the debt is ``resolved'' if the debtor
pays the debt in full, pays a compromise amount agreed to by the
creditor agency, brings the debt current i.e., makes up all past due
monthly payments, including interest, fees, and penalties, or enters
into a written agreement with the creditor agency to pay the debt under
terms acceptable to the creditor agency. The fact that the creditor
agency has ceased its collection efforts for a reason other than one
set forth in paragraph (e)(1) of this section does not mean that the
delinquency has been resolved. For example, unless one of the
provisions of paragraph (e)(1) apply, a delinquent nontax debt that has
been written off the books of the creditor agency or reported to the
Internal Revenue Service as discharged (i.e., cancelled) would not be
deemed ``resolved.''

(f) Exemptions by the Secretary

    Upon the written request and recommendation of the head of an
agency, the Secretary of the Treasury may exempt any class of
delinquent debt from affecting a debtor's eligibility for financial
assistance based on Section 3720B. Paragraph (f)(2) specifies the
information that an agency should provide when recommending an
exemption. Generally, an exemption will not be granted unless
compelling reasons justify the elimination of the bar to Federal
financial assistance for a class of delinquent debtors. Paragraph
(f)(3) contains the circumstances under which Treasury may grant an
exemption.

(g) Waivers by the Agency

    The DCIA authorizes the head of the agency, on a person by person
basis, to grant a waiver of the DCIA eligibility requirement. The head
of the agency may delegate the waiver authority only to the Chief
Financial Officer of the agency who may redelegate the authority only
to the Deputy Chief Financial Officer. Paragraph (g) prescribes factors
that an agency official should consider when deciding whether to grant
a waiver of the DCIA requirement that financial assistance be denied. A
waiver will be granted only when compelling circumstances require.

(h) Effect of Denial of Federal Financial Assistance

    Paragraph (h) states that nothing in this proposed rule precludes a
person from obtaining Federal financial assistance after a delinquent
debt has been resolved.

Regulatory Analysis

    This proposed rule is not a significant regulatory action as
defined in Executive Order 12866. It is hereby

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certified that this rule will not have a significant economic impact on
a substantial number of small entities. The basis for this
certification is that the DCIA provides that entities owing delinquent
debt to the Federal Government are ineligible for Federal direct and
indirect loan assistance (other than disaster loans). This proposed
rule provides definitions for purposes of determining whether the DCIA
mandate applies. Therefore a regulatory flexibility analysis is not
required.

List of Subjects in 31 CFR Part 285

    Administrative practice and procedure, Credit, Debt, Loan programs.

Authority and Issuance

    For the reasons set forth in the preamble, 31 CFR Part 285 is
proposed to be amended as follows:
    1. The authority citation for Part 285 is proposed to be revised to
read as follows:

    Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 3701, 3711, 3716,
3720A, 3720B, 3720D; E.O. 13019; 3 CFR, 1996 Comp., p. 216.

    2. Section 285.13 is proposed to be added to Subpart B to read as
follows:

Sec. 285.13  Barring delinquent debtors from obtaining federal loans or
loan insurance or guarantees.

    (a) Definitions. For purposes of this section:
    Agency means a department, agency, court, court administrative
office, or instrumentality in the executive, judicial, or legislative
branch of the Federal Government, including government corporations.
    Creditor agency means any Federal agency that is owed a debt.
    Debt means any amount of money, funds or property that has been
determined by an appropriate official of the Federal Government to be
owed to the United States or an agency thereof by a person, including
debt administered by a third party as an agent for the Federal
Government.
    Federal financial assistance or financial assistance means any
Federal loan (other than a disaster loan), loan insurance, or loan
guarantee.
    FMS means the Financial Management Service, a bureau of the
Department of the Treasury.
    Nontax debt means any debt other than a debt under the Internal
Revenue Code of 1986 (26 U.S.C.).
    Person means an individual, corporation, partnership, association,
organization, State or local government, or any other type of entity
other than a Federal agency.
    Secretary means the Secretary of the Treasury.
    (b) Purpose and scope. (1) This section prescribes standards for
determining whether an outstanding nontax debt owed to the Federal
Government is in delinquent status and whether such delinquency is
resolved for the purpose of denying Federal financial assistance to a
debtor. In addition, this section prescribes the circumstances under
which the Secretary may exempt a class of debts from affecting a
debtor's loan eligibility. This section also outlines the factors an
agency should consider when determining whether waiver of the general
rule in paragraph (c) of this section is appropriate.
    (2) FMS may provide additional guidance in ``Managing Federal
Receivables'' and other FMS publications concerning debt collection and
debt management.
    (3) Nothing in this section requires an agency to grant Federal
financial assistance if denial otherwise is authorized by statute,
regulation, or agency policies and procedures. For example, if an
agency requires borrowers to have a satisfactory credit history, the
agency may deny financial assistance even if a delinquent debt has been
resolved.
    (4) This section does not confer any new rights or benefits on
persons seeking Federal financial assistance.
    (5) This section applies to any person owing delinquent nontax debt
and to any agency that administers a program that grants Federal
financial assistance.
    (c) General rule. As required by the provisions of 31 U.S.C. 3720B,
a person owing an outstanding nontax debt that is in delinquent status
shall not be eligible for Federal financial assistance. This
eligibility requirement applies to all persons seeking Federal
financial assistance and owing an outstanding nontax debt in delinquent
status, including, but not limited to, guarantors. This eligibility
requirement applies to all Federal financial assistance even if
creditworthiness or credit history is not otherwise a factor for
eligibility purposes, e.g., student loans. A person may be eligible for
Federal financial assistance only after the delinquency is resolved in
accordance with this section. An agency may waive this eligibility
requirement in accordance with paragraph (g) of this section.
    (d) Delinquent status. (1) Except as otherwise provided in
paragraph (d)(2) of this section, a debt is in ``delinquent status''
for purposes of this section if the debt has not been paid by the
payment due date or by the end of any grace period provided by statute,
regulation, contract, or agreement. The payment due date is the date
specified in the creditor agency's initial written demand for payment
or applicable agreement or instrument (including a post-delinquency
repayment agreement).
    (2) For purposes of this section, a debt is not in delinquent
status if:
    (i) The person seeking Federal financial assistance has been
released by the creditor agency from any obligation to pay the debt, or
there has been an adjudication or determination that such person does
not owe or does not have to pay the debt;
    (ii) The debtor is the subject of, or has been discharged in, a
bankruptcy proceeding, and if applicable, the person seeking Federal
financial assistance is current on any court authorized repayment plan;
or
    (iii) The existence of the debt or the agency's determination that
the debt is delinquent is being challenged under an ongoing
administrative appeal or contested judicial proceeding and the appeal
was filed by the debtor in a timely manner. Unless otherwise
prohibited, an agency may defer making a determination as to whether or
not to extend credit until the appeal process is completed.
    (3) Unless the provisions of paragraph (d)(2) apply, a debt is in
delinquent status even if the creditor agency has suspended or
terminated collection activity with respect to such debt. For example,
a delinquent nontax debt that has been written off the books of the
creditor agency or reported to the Internal Revenue Service as
discharged (i.e., canceled) is in delinquent status for purposes of
this section.
    (e) Delinquency resolution. (1) For purposes of this section, a
person's delinquent debt is resolved only if the person:
    (i) Pays or otherwise satisfies the delinquent debt in full;
    (ii) Pays the delinquent debt in part if the creditor agency
accepts such part payment as a compromise in lieu of payment in full;
    (iii) Cures the delinquency under terms acceptable to the creditor
agency in that the person pays any overdue payments, plus all interest,
penalties, late charges, and administrative charges assessed by the
creditor agency as a result of the delinquency; or
    (iv) Enters into a written repayment agreement with the creditor
agency to pay the debt, in whole or in part, under terms and conditions
acceptable to the creditor agency.
    (2) Unless the provisions of paragraph (e)(1) apply, a delinquent
debt is not resolved even if the creditor agency has

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suspended or terminated collection activity with respect to such debt.
For example, a delinquent nontax debt that has been written off the
books of the creditor agency or reported to the Internal Revenue
Service as discharged (i.e., cancelled) would not be ``resolved.''
    (f) Exemptions by the Secretary. (1) Upon the written request and
recommendation of an agency, the Secretary may exempt any class of
debts from affecting a debtor's eligibility for Federal financial
assistance based on the provisions of 31 U.S.C. 3720B and this section.
    (2) The agency recommending an exemption for a class of debts will
provide the Secretary with information about:
    (i) The nature of the program under which the delinquencies have
arisen;
    (ii) The number, dollar amount, and age of the debts in the program
for which exemption is recommended;
    (iii) The reasons why an exemption is justified, including why the
granting of financial assistance to persons owing the type of debt for
which exemption is requested would not be contrary to the Government's
goal to reduce losses by requiring proper screening of potential
borrowers; and,
    (iv) Other information the Secretary deems necessary to consider
the exemption request.
    (3) The Secretary may exempt a class of debts if exemption is in
the best interests of the Federal Government.
    (g) Waivers by the agency. (1) The head of an agency from which a
person seeks to obtain Federal financial assistance may waive the
eligibility requirement described in paragraph (c) of this section.
Waivers shall be granted only on a person by person basis. The head of
the agency may delegate the waiver authority only to the Chief
Financial Officer of the agency. The Chief Financial Officer may
redelegate the authority only to the Deputy Chief Financial Officer of
the agency.
    (2) The authorized agency official should balance the following
factors when deciding whether to grant a waiver under paragraph (g)(1)
of this section:
    (i) Whether the denial of the financial assistance to the person
would tend to interfere substantially with or defeat the purposes of
the financial assistance program or otherwise would not be in the best
interests of the Federal Government; and
    (ii) Whether the agency's granting of the financial assistance to
the person is contrary to the Government's goal to reduce losses from
debt management activities by requiring proper screening of potential
borrowers.
    (3) When balancing the factors described in paragraph (d)(2) of
this section, the authorized agency official should consider:
    (i) The age, amount, and cause(s) of the delinquency and the
likelihood that the person will resolve the delinquent debt; and
    (ii) The amount of total debt, delinquent or otherwise, owed by the
person and the person's credit history with respect to repayment of
debt.
    (4) Each agency shall retain a centralized record of the number and
type of waivers granted under this section.
    (h) Effect of denial of Federal financial assistance. Nothing
contained in this section precludes a person who has been denied
Federal financial assistance from obtaining such assistance after that
person's delinquent debt has been resolved in accordance with paragraph
(e)(1) of this section.

    Dated: April 16, 1998.
Richard L. Gregg,
Commissioner.
[FR Doc. 98-10588 Filed 4-21-98; 8:45 am]
BILLING CODE 4810-35-P