41794 Federal Register / Vol. 62, No. 148 / Friday August 1, 1997 / Rules and Regulations

DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

CFR Part 1951

RIN 0560–AE93

Handling Payments From the Farm

Service Agency (FSA) to Delinquent

FSA Farm Loan Program Borrowers

AGENCIES: Rural Housing Service, Rural

Business-Cooperative Service, Rural

Utilities Service, Farm Service Agency,

USDA.

ACTION: Interim final rule with request

for comments.

SUMMARY: The issuing USDA agencies

are revising their regulations for the use

of administrative offset to collect

delinquent debts due under programs

formerly administered by the Farmers

Home Administration (FmHA). This

action will eliminate the provisions

currently contained in the regulation

and provide that the Rural Housing

Service, Rural Business-Cooperative

Service, Rural Utilities Service and

Farm Service Agency, Farm Loan

Programs (the Agencies) will instead

adhere to the requirements in the

existing United States Department of

Agriculture administrative offset

regulations. This rule eliminates the

requirement that a borrower’s account

be accelerated prior to offset of

payments from a Federal agency to

delinquent borrowers. This rule will

improve collection procedures through

an increase in the use of administrative

offset to collect delinquent debts owed

the Federal government. However, the

changes primarily affect Farm Loan

Program borrowers of the FSA. The

Agencies Internal Revenue Service (IRS)

and Federal salary offset regulations are

not revised by this rule.

DATES: The effective date of this interim

final rule is August 1, 1997. Comments

on the interim final rule, or comments

on alternatives to this rule, or the

revision and extension of the

information collection requirements

must be received on or before

September 30, 1997.

ADDRESSES: Send comments on the

interim final rule to: Director, Farm

Loan Programs Loan Servicing and

Property Management Division, USDA/

FSA/LSPMD/STOP 0523, 1400

Independence Avenue, SW,

Washington, D.C. 20250–0523. All

written comments received in

connection with this rule will be

available for public inspection during

regular working hours at the above

address.

FOR FURTHER INFORMATION CONTACT: Jerry

P. Wishall, Senior Loan Officer, Farm

Loan Programs Loan Servicing Division,

USDA/FSA/LSPMD/STOP 0523, 1400

Independence Avenue, SW,

Washington, D.C. 20250–0523,

telephone (202) 720–1651, facsimile

(202) 690–0949 or (202) 720–7686, email: jwishall@wdc.usda.fsa.gov

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been reviewed under

Executive Order 12866, has been

determined to be a significant regulatory

action, and has been reviewed by the

Office of Management and Budget.

Executive Order 12372

The programs to which this Executive

Order may apply are listed in the

Catalog of Federal Domestic Assistance

under the following:

10.404 Emergency Loans

10.405 Farm Labor Housing Loans and

Grants

10.406 Farm Operating Loans

10.407 Farm Ownership Loans

10.410 Very Low to Moderate Income

Housing Loans

10.411 Rural Housing Site Loans and SelfHelp Housing Land Development Loans

10.415 Rural Rental Housing Loans

10.416 Soil and Water Loans

10.417 Very Low-Income Housing Repair

Loans and Grants

10.420 Rural Self-Help Housing Technical

Assistance

10.421 Indian Tribes and Tribal

Corporation Loans

10.427 Rural Rental Assistance Payments

10.433 Rural Housing Preservation Grants

10.435 Certified Mediation Program

Programs listed under the numbers

10.405, 10.411, 10.415, 10.416, 10.420,

10.427, and 10.433 are subject to and

have complied with the provisions of

Executive Order 12372. (See the notices

related to 7 CFR 3015, subpart V, at 48

FR 29112, June 24, 1983; 49 FR 22675,

May 31, 1984; 50 FR 14088, April 10,

1985.)

Environmental Impact Statement

It is the determination of the issuing

agencies that this action is not a major

Federal action significantly affecting the

environment and, in accordance with

the National Environmental Policy Act

of 1969, Pub. L. 91–190, an

Environmental Impact Statement has

not been prepared.

Executive Order 12988

This rule has been reviewed in

accordance with Executive Order 12988,

Civil Justice Reform. In accordance with

this rule: (1) All State and local laws

and regulations that are in conflict with

this rule will be preempted; (2) no

retroactive effect will be given to this

rule: and (3) administrative proceedings

in accordance with 7 CFR parts 11 and

780, as applicable, must be exhausted

before bringing suit in court challenging

action taken under this rule unless those

regulations specifically allow bringing

suit at an earlier time.

Regulatory Flexibility Act

The Farm Service Agency (FSA)

certifies that this rule will not have a

significant impact on a substantial

number of small entities as defined

under the Regulatory Flexibility Act,

Pub. L. 96–534, as amended (5 U.S.C.

601). No actions are being taken under

this rule that would favor large entities

over small entities. According to the

1992 Census of Agriculture, 1.9 million

farmers or over 99 percent of all farms

in the United States are small entities as

defined by the Small Business

Administration (SBA). Under the SBA

definition, few if any large entities are

operators of family-sized farms who

would be eligible for FSA credit. This

rule is expected to result in the offset of

payments from an average of

approximately 4,000 borrowers per year

which is less than 1 percent of 1.9

million farmers. Also, this rule requires

small entities to do no more than large

entities to participate in the affected

programs. Therefore, a Regulatory

Flexibility Analysis has not been

prepared.

Paperwork Reduction Act

The amendments to 7 CFR part 1951

contained in this rule involve a change

in existing information collection

requirements that were previously

approved by OMB under the provisions

of 44 U.S.C. chapter 35 and assigned

OMB control number 0575–0119.

Emergency clearance for revision and

extension of the information collection

has been approved. In the proposed rule

published on August 30, 1996, FSA

provided notice of its intent to request

approval of the information collection

under a new OMB control number in

order to accommodate the separation of

programs resulting from the

reorganization of USDA. FSA however

continues to share 7 CFR 1951–C with

Rural Development and therefore is now

providing notice of the intent to request

approval of the revision and extension

of information collected under OMB

control number 0575–0119.

OMB Control Number 0575–0119.

Title: Offset of Federal Payments to

USDA Agency Borrowers.
Federal Register / Vol. 62, No. 148 / Friday August 1, 1997 / Rules and Regulations 41795

Type of Request: Revision and

extension of Currently Approved

Information Collection.

Abstract: 7 CFR part 1951, subpart C,

requires that a borrower’s account be

accelerated and the borrower’s appeal

rights be exhausted before offsetting any

payments to be received by the

borrower. The Department of

Agriculture Reorganization Act

combined the farm loan program

functions of FmHA and the former

Agricultural Stabilization and

Conservation Service (ASCS), into the

Farm Service Agency (FSA). This results

in FSA making payments generated

from participation in the former ASCS

programs to the same farmer or rancher

that is delinquent on his debts to the

Agency. Acceleration of a borrower’s

account is one of the last steps FSA

takes before liquidating the account.

This process may take years while the

borrower continues to receive payments

from FSA.

This rule removes the existing

administrative offset regulation which

was used by the Agencies when they

were a part of the former Farmers Home

Administration (FmHA). The

Department of Agriculture has a existing

administrative offset regulation at 7 CFR

subpart 3, subpart B and the

administrative offset regulation of the

former FmHA in 7 CFR part 1951,

subpart C is redundant. The Department

of Agriculture regulation complies with

the requirements of 31 U.S.C. 3716, as

amended by the Debt Collection

Improvement of 1996, ch. 10 of Pub. L.

104–134 (April 26, 1996).

One intended effect of using the

existing Department of Agriculture

administrative offset procedure is that

the Department procedure does not

contain the restrictive provision of the

former FmHA offset regulation which

requires the account to have been

accelerated prior to using administrative

offset. There is no statutory basis for

delaying offset until after a loan has

been accelerated and the Department

administrative offset procedure will

permit offset to be utilized for debts

which are past due. The information

collection requirements for this type of

internal agency offset will decrease, due

to the development of a shortened

notification letter, streamlining of the

offset process, and the reduction of the

number of notices and number of

meetings offered. However, the easing of

the offset procedures will greatly

increase the number of FSA borrowers

that receive notices and accounts that

are offset. For example as of March 30,

1996, 1,588 FSA borrowers were

accelerated, whereas 27,180 borrowers

were past due.

Estimate of Burden: Public reporting

burden for this information collection is

expected to average .6 hours per

response.

Respondents: Program borrowers that

are over 30 days past due.

Estimated Number of Respondents:

9,350.

Estimated Number of Responses per

Respondent: .6.

Estimated Total Annual Burden on

Respondents: 5,493 hours.

The subject regulation is published

for public review and comment.

Additional copies of the interim final

rule or copies of the referenced forms

may be obtained from Barbara Williams,

Regulations and Paperwork

Management Branch, Support Services

Division at (202) 720–9734. Comments

are invited on: (a) Whether the proposed

collection of information is necessary

for the proper performance of the

functions of the Agency, including

whether the information will have

practical utility; (b) the accuracy of the

Agency’s estimate of the burden of the

proposed collection of information,

including the validity of the

methodology and assumptions used; (c)

ways to enhance the quality, utility, and

clarity of the information to be

collected; and (d) ways to minimize the

burden of the collection of information

on those who are to respond, including

through the use of appropriate

automated, electronic, mechanical or

other technological collection

techniques or other forms of information

technology.

All responses to this notice will be

summarized, included in the request for

OMB approval, and will become a

matter of public record. Comments

should be submitted to the Desk Officer

for Agriculture, Office of Information

and Regulatory Affairs, Office of

Management and Budget, Washington,

D.C. 20503, and to Barbara Williams,

Regulations and Paperwork

Management Branch, Support Services

Division, U.S. Department of

Agriculture, Rural Housing Service,

STOP 0743, 1400 Independence

Avenue, SW., Washington, D.C. 20250–

0743. A comment to OMB is best

assured of having its full effect if OMB

receives it within 30 days of publication

of this rule.

Unfunded Mandates

Title II of the Unfunded Mandates

Reform Act of 1995 (UMRA), Pub. L.

104–4, establishes requirements for

Federal agencies to assess the effects of

their regulatory actions on State, local,

and tribal governments or the private

sector. Under section 202 of the UMRA,

agencies must prepare a written

statement, including a cost benefit

assessment, before promulgating a

notice of proposed rule making that

includes any Federal mandates that may

result in expenditures to State, local,

and tribal governments, in the aggregate,

or to the private sector, of $100 million

or more in any 1 year. When such a

statement is needed for a rule, section

205 of the UMRA generally requires

agencies to identify and consider a

reasonable number of regulatory

alternatives and adopt the least costly,

more cost affective or least burdensome

alternative that achieves the objectives

of the rule.

The rule contains no Federal

mandates (under the regulatory

provisions of Title II of the UMRA) for

State, local, and tribal governments or

the private sector. Thus, today’s rule is

not subject to the requirements of

sections 202 and 205 of the UMRA.

Discussion of the Interim Final Rule

This rule involves the credit programs

formerly administered by FmHA. The

Department of Agriculture

Reorganization Act of 1994, Pub. L.

103–354, abolished FmHA on October

20, 1994, and its functions were

transferred to the Agencies.

FSA is taking this action for several

reasons. Most importantly, this change

is being made to increase the tools

available to the Agency to collect

delinquent debts to the government.

Administrative offset is currently underutilized because Agency administrative

offset regulations require that a

borrower’s promissory notes be

accelerated before offset can be used to

collect the debt. This restricts the

Agency s ability to collect from

producers that have defaulted on a debt

to the Agency by delaying the offset of

FSA program payments such as those

derived from the Conservation Reserve

Program (CRP) or Production Flexibility

Contracts (PFC). Due to the procedures

required for FSA to accelerate notes, an

account may have been in default for

many months while the borrower

continues to receive income from the

Agency. For example, FSA records

indicate that in the Agency’s fiscal years

1994 and 1995, 711 CRP contract

payments totaling over $5.5 million

were made to seriously delinquent

borrowers that were not subject to offset.

It is fiscally irresponsible for a Federal

agency to continue making substantial

contract payments to someone who is

seriously delinquent on his or her

government debts.

Also, the Agency must make this

change because Congress has amended

the Federal Claims Collection Act (31

U.S.C. 3716) through passage of the Debt
41796 Federal Register / Vol. 62, No. 148 / Friday August 1, 1997 / Rules and Regulations

Collection Improvement Act of 1996

(DCIA) (Chapter 10 of Pub. L. 104–134,

April 26, 1996). This Act requires

Federal agencies to attempt

administrative offset before making

Federal payments to someone that has

defaulted on a government debt. Under

the current constraints of 7 CFR part

1951, subpart C, FSA cannot consider

offsets and must continue to make

payments to a defaulted borrower in

violation of DCIA until the account is

accelerated.

The Agency is making this change by

removing the existing administrative

offset regulation used by the Agencies

when they were a part of FmHA. The

Department of Agriculture has an

existing administrative offset regulation

at 7 CFR part 3, subpart B that satisfies

the administrative offset needs of the

Agencies and is consistent with the

requirements of DCIA. This subpart

contains provisions that are very similar

to the administrative offset regulation of

the former FmHA contained in 7 CFR

part 1951, subpart C, except it does not

require a borrower’s account to have

been accelerated. Adoption of the

Departmental Regulations and removal

of Agency regulations will also assist in

the Agency s efforts to streamline

regulations and reduce FSA paperwork

by removing several pages of

unnecessary regulations from Chapter

XVIII of the CFR. This amendment also

makes the administrative offset process

for FSA Farm Loan Programs more

consistent with the collection

procedures of the remainder of FSA.

Discussion of Comments Received

This interim rule implements the

changes proposed in a rule published on

August 30, 1996, (61 FR 45907) with a

comment period ending September 16,

1996. Comments were received from 72

parties prior to expiration of the

comment period. Nine comments were

received after the deadline and were not

considered. However, their comments

and recommendations were very similar

to others received and are probably

addressed in this discussion. Comments

were received from several groups

representing the government, the

farming community and the agricultural

lending community. Comments were

received from two United States

Senators, two United States

Representatives, 21 banks, two State

banking organizations, the National

Farmers Union, an FSA State office, a

rural electric cooperative, six family

farmer advocacy organizations, a State

department of agriculture, eight State

rural rehabilitation corporations and

two State development authorities.

Several commenters praised the

Agency’s efforts to collect from

delinquent borrowers; however, every

commenting party expressed concerns

about possible negative impacts of the

rule and requested that this rule not go

forward as planned.

The respondents comments are

addressed as follows in an order based

on volume of responses received.

Comments of a similar topic were

grouped, paraphrased and addressed as

one. General comments received

regarding constitutionality, ethics,

fairness and the general mission of the

Agency’s loan programs were not

specifically addressed, but may be

addressed in context.

Extend the Comment Period

The Agency received 44 requests for

an extension of the 15-day comment

period on the proposed rule. That was

the only comment from 32 respondents,

and 28 of these were identical form

letters. The requested extensions ranged

from 60 days to 6 months. Many of the

commenters noted that the comment

period on the proposed rule was

shortened in an attempt to offset the

September AMTA checks and that is

now impossible. In conjunction with a

request for a comment period extension,

many of these parties also requested

Congressional hearings, public meetings

and other means to conduct a broader

study of the potential impacts of this

regulation change. In response to these

comments, the Agency has decided to

implement this change through

publication of an interim final rule and

request for additional comments. This

method will allow further opportunity

for public comment while allowing FSA

to begin administrative offset of program

payments due to be paid to delinquent

borrowers in 1997.

Adverse Effect on Agriculture Lending

Community and Restriction of Credit

Many comments were received from

private lenders and banking

organizations expressing concern about

the potential negative impact of this

rule. These commenters indicated that

this rule will result in a restriction on

loans to farmers for the production of

crops because many of these loans are

dependent upon FSA program payments

for repayment. The respondents suggest

that a lender will deny credit to a farm

borrower due to inadequate cash flow as

a result of not being able to include FSA

program payments in their annual cash

flow projections. Several commenters

also stated that bank rating agencies,

such as the Federal Deposit Insurance

Corporation (FDIC) or the Office of the

Comptroller of the Currency (OCC)

would rate as adverse any loans that

were dependent upon program

payments for repayment. Similarly,

several respondents commented that

this rule may make it difficult for a

borrower to pay irrigation accounts,

credit accounts at farm supply dealers,

and other debts. Commenters requested

that the Agency honor an assignment or

abide by Uniform Commercial Code

(UCC) lien priorities on payments,

regardless of the status of the borrower’s

government loan. Respondents

suggested if the Agency proceeds with

this change, FSA should inform

creditors and suppliers of the status of

an FSA borrower’s loans.

As stated earlier, the intention of this

rule is to increase the use of

administrative offset to pay Federal

debt. The Agency does not expect the

availability of credit in rural areas to

decrease as a result. Generally, credit

decisions are based on an analysis of the

total quality of an applicant’s business,

including the status of their government

loans. A prospective borrower’s cash

flow projections for the upcoming

production cycle are typically based on

proven performance capabilities and

includes all income, expenses and debt

payments. Since this projection would

include planned receipts from FSA

program payments and payments on

FSA loans, a positive projection will

likely result in loan approval. If

repayment is dependent on FSA

program payments, it may result in the

denial of an annual operating loan to a

producer who is delinquent on his or

her FSA farm credit loan if

administrative offset is a certainty. If a

borrower is delinquent on his or her

loan with the Government, to the extent

that offset may be made, the availability

of credit from commercial sources is

doubtful in any event.

FSA is in the process of amending its

credit reporting procedures to conform

more closely to those in the commercial

and consumer lending community by

reporting delinquent farm loan program

borrowers to credit reporting bureaus in

accordance with the requirements of

DCIA. This will reduce the likelihood of

a lender extending credit without

knowledge of the status of a borrower’s

FSA loan. In the case of a borrower who

is current on their FSA loan, this rule

is not likely to affect their ability to

obtain credit. As far as lender regulatory

agencies are concerned, they are likely

to view an annual production loan that

was approved by a lender without a

complete business projection as a

potential problem loan and request

appropriate corrective action, regardless

of the potential for administrative offset.

As one commenter indicated, OCC bases

their standards on the borrower’s ability
Federal Register / Vol. 62, No. 148 / Friday August 1, 1997 / Rules and Regulations 41797

to pay and this includes all income and

all debt payments. Also, the Agency’s

guaranteed loan program, which

guarantees a lender against up to 90

percent of any loss of principal and

interest, may be used by lenders to

reduce their risk. This program requires

a positive cash flow considering all

income sources and debt payments. As

stated by several commenters, FSA

typically requires lenders to take an

assignment of farm program payments;

but we expect few if any loans to be

approved with FSA income

enhancement program payments as the

sole planned source of repayment. If the

borrower becomes delinquent on the

borrower’s direct loans and this

payment is offset, it may be necessary to

service the guaranteed loan under one

or more of the authorities contained in

7 CFR part 1980, subpart B.

With regard to assignments, lien

position, and bankruptcy this rule

changes little. Administrative offset has

been available and utilized for many

years and a lien or assignment has had

no effect when a debtor owes money to

a Federal agency. As stated earlier, this

rule will increase the use of

administrative offset and lenders will

have to factor this into their loan

making decisions. Nevertheless, when

the Agency assigns the FSA program

payments that are to be paid to a

borrower that is current on his or her

farm loan program loan at the time of

the assignment, the Agency expects the

large majority of these assignments to be

honored. If default occurs, the Agency

will do what it can to assist the

borrower in maintaining a viable

operation, while taking the necessary

actions to protect the government’s

interests. However, there is no

assurance that administrative offset

would not be used. In the case of

bankruptcy, FSA and all creditor

collection actions cease and the court

will determine the uses of income,

distribution of security and disposition

of debt.

Aside from reporting to credit

bureaus, FSA will not automatically

inform another lender that a borrower

has become delinquent on a loan as

requested by commenters. This

notification would be inconsistent with

the requirements of the Privacy Act.

However, as a result of farm visits and

other normal servicing of the loan, it is

likely that a lender that has extended

operating credit will likely be aware of

repayment problems that may result

from a decline in production and the

related risk of administrative offset. A

natural disaster or unforeseen drop in

sales would require a joint effort from

all creditors and possibly the use of

other FSA loan servicing authorities to

correct the delinquency and maintain

the operation. If the borrower becomes

delinquent but can work out an

agreement with the Agency to make the

payment, any assignment that was

provided will be honored.

Furthermore, under the DCIA, a

person is precluded from obtaining any

Federal financial assistance in the form

of a loan (other than a disaster loan),

loan insurance, or a loan guarantee,

while that person is delinquent on a

Federal debt, unless the head of the

Agency waives this prohibition.

Therefore, the commenters’

recommendations were not adopted. If

the Agency finds that the increased use

of administrative offset results in

difficulty for agricultural producers to

obtain loans, FSA will consider taking

actions to rectify any such problems.

Several commenters addressed the

Agency’s plans to issue internal

instructions for field office use in

connection with this interim final rule.

The respondents indicated that the

proposed rule was vague regarding

FSA’s intentions to administratively

allow waiver of the offset. These

instructions are to provide a consistent

definition of delinquency and timing of

notification, a guide letter containing

the requirements of 7 CFR 3.25, and the

national policy regarding the

documentation necessary to fulfill the

requirements for a written repayment

agreement under 7 CFR 3.28. This is

intended to ensure that policies and

paperwork requirements are uniformly

applied nationwide. These instructions

will be available from local FSA offices

upon request.

Violation of the Agriculture Credit Act

of 1987 (7 U.S.C. 1985)

Several commenters stated that this

rule would violate the Agricultural

Credit Act of 1987 (Ag Credit Act) as

amended by the Food, Agriculture,

Conservation, and Trade Act of 1990

and the Federal Agricultural

Improvement and Reform Act of 1996

(1996 Act). This Act provides that ‘‘the

Secretary shall release from the normal

income security provided for such loan

an amount sufficient to pay for the

essential household and farm operating

expenses of the borrower, until such

time as the Secretary accelerates such

loan.’’ The Agency has promulgated

regulations at 7 CFR 1962.17 to

implement this requirement.

Administrative offset and releases for

essential expenses are separate issues

and the requirements of 7 CFR 1962.17

are not affected by this change. FSA

program payments will be

administratively offset prior to

acceleration of the loan. However, offset

is not the exercise of collection from

security. Offset is the administrative

collection of a debt due from funds due

under another Government program.

FSA may not have a security interest in

that payment or may have or may not

have a first security interest therein.

FSA payments are not subject to

attachment, garnishment or lien interest

until paid. Offset intercepts these

payments before they are made. The

amounts obtained are not normal

income security and under DCIA may

not be payable at all.

In another comment a respondent

noted that the Agency has notified many

delinquent borrowers by sending exhibit

A of 7 CFR part 1951, subpart S that

they would not be subject to

administrative offset until their account

is accelerated. Therefore, they suggested

that offsets could not be employed to

collect from these borrowers. This

comment was not adopted by the

Agency. Notification to the borrower

that offset will not be used prior to

acceleration does not create a binding

obligation by FSA to waive the offset

forever. The Agency has determined

that the notification procedures under 7

CFR part 3, subpart B, will provide the

borrower with adequate notice of the

intent to offset and will specifically

terminate the previous advice. The

language informing delinquent

borrowers that FSA may offset only after

acceleration has been removed from the

notices.

Several respondents stated that if the

Agency had agreed to release program

payments on Form FmHA 1962–1,

Agreement for the Use of Proceeds/

Release of Chattel Security, the Agency

cannot alter this agreement. In addition

to the fact that these funds are not

security (as set out above), the Agency

has authority to revise this agreement.

Form FmHA 1962–1 is based on the

upcoming year’s projections contained

on a Form FmHA 431–2, Farm and

Home Plan, (farm plan) that was

completed by the borrower in

accordance with 7 CFR part 1924,

subpart B. If the actual proceeds from

the sale of chattel security are

substantially different from the plan,

then the Form FmHA 1962–1 may be

revised. This form is revised whenever

significant changes occur during the

year that will affect a borrower’s

repayment ability. If the borrower and

Agency cannot reach an agreement on

revisions to the farm plan, the borrower

may appeal. If the borrower refuses to

execute Form FmHA 1962–1 as

developed by the Agency after an

appeal, the account will be serviced

under 7 CFR 1962.18. If the borrower
41798 Federal Register / Vol. 62, No. 148 / Friday August 1, 1997 / Rules and Regulations

does not appeal, the planned releases

documented on the revised Form FmHA

1962–1 are binding.

Effect of National Appeals Division

Several commenters indicated that the

proposed rule violated the National

Appeals Division (NAD) provisions of

the Department of Agriculture

Reorganization Act of 1994 (1994 Act).

Appeals of Agency decisions to collect

by offset will be heard and decided by

NAD in accordance with the offset

regulations in 7 CFR part 3, subpart B,

and NAD regulations at 7 CFR part 11.

Effect of Federal Court Ruling

Several respondents commented that

this rule violated the Federal court

ruling against USDA in the case of

Coleman v. Block (562 F. Supp. 1353

(D.N.D. 1983); 580 F. Supp. 192 (D.N.D.

1983); 580 F. Supp. 194 (D.N.D. 1984)).

This ruling requires FSA to give farmers

sufficient due process notification prior

to taking forced collection actions.

Similarly, several commenters felt that

the proposed rule was unconstitutional

because it deprived borrowers of their

constitutional rights of due process. The

Agency agrees with the commenters that

notification is required before

administrative offset. We disagree that

this rule violates due process provisions

since under this regulation all borrowers

will receive notice of, and an

opportunity to, challenge the impending

offset. The due process considerations

required under Coleman and the Ag

Credit Act are contained in 7 CFR part

1951, subpart S. The Coleman decision

did not involve the Agency’s

administrative offset regulations and the

acceleration requirement contained in 7

CFR 1951.103 was not added as a result

of the subject litigation or the

subsequent Ag Credit Act. In addition,

7 CFR part 3, subpart B contains certain

due process requirements that must be

followed before offset may be initiated.

Regardless, the DCIA applies to all

Federal loan programs and contains no

exceptions for the loans of the former

FmHA. This Act supersedes current

regulations and any requirement that is

legally inconsistent is rendered

obsolete.

The Departmental Regulation at 7 CFR

part 3, subpart B, contains similar

protections for the borrower as the

regulation that is being deleted, except

for the acceleration requirement. The

feasibility of an offset must be

determined on a case by case basis; the

practicality of the offset must be

determined; borrowers must be given 30

days notice prior to offset; a borrower

has 20 days to request a meeting after

receiving notice; the borrower may

request a review of the offset by an

Agency official, the borrower may

review the Agency’s records; and the

borrower may reach a payment

agreement with the Agency in lieu of

the offset.

At least six respondents commented

that the Agency should attempt to

correct a delinquency under 7 CFR part

1951, subpart S, prior to administrative

offset. This comment is related to that

of others who suggested that the Agency

more clearly define past due and not

send the notice of intent to collect by

administrative offset until the borrower

is at least 90 days or up to 180 days past

due. Notification requirements for

administrative offset are separate from

those of debt restructuring. When the

necessary procedure has been

completed, administrative offset will be

taken regardless of the status of any

request for servicing under the

provisions of 7 CFR part 1951, subpart

S.

The comment that requested that

borrowers be allowed to become at least

90 days or up to 180 days past due

before offsetting a payment was

considered. Due to the notification

requirements discussed above, and the

statute, the application of these

procedures will correspond to the

request for at least a 90 day delay.

Notice of offset may not occur until

notice under § 331D of the Consolidated

Farm and Rural Development Act has

been provided. The Agency’s

administrative requirements will

provide for the Notice of Intent to

Collect By Administrative Offset

simultaneously with or subsequent to

the notice required by § 331D. Due to

most FSA loan payments being due

annually from January to May, if the

recommendation that the Agency not

begin offset procedures until the

borrower is 180 days past due were

adopted, any FSA program payments

made through at least June of every year

would not be subject to offset on newly

delinquent accounts. Therefore, this

recommendation was not adopted in

this rule.

Other miscellaneous comments were

received that could be paraphrased as

general opposition to the proposal. At

least four commenters suggested that

this change is not required to expedite

administrative offset. They indicated

that the Agency’s loan servicing and

appeal regulations have required time

frames for actions that, if properly

followed, would result in account

acceleration much earlier than the

months or years cited in the proposed

rule. The Agency agrees that employee

oversight may result in cases of

extended loan servicing. However, even

if every time frame contained in

regulations is precisely followed, it may

result in acceleration taking long

enough to allow a seriously delinquent

borrower to obtain several payments

before offset could be put into place.

The Agency did not adopt this

comment.

Immediate implementation of the rule

is needed to comply with the

requirements of 31 U.S.C. 3716 as

amended by the Debt Collection

Improvement Act of 1996, ch. 10 of Pub.

L. 104–134 (April 26, 1996). The

changes are needed because as pointed

out by a recent OIG Management Alert

over $65 million was paid out to

delinquent farm borrowers in 1995 and

1996. Of the $30.5 million paid to the

4,015 delinquent borrowers in calendar

year 1996, $22 million were AMTA

(also known as PFC) payments and $5.5

million were CRP payments. The

Agency could collect several million

dollars on delinquent farm loans if this

request is approved and the new

regulation is in place prior to these

payments being made provided the rule

is implemented immediately. The next

round of FSA payments to farmers will

occur in September 1997, therefore it is

critical that this rule be published

immediately.

List of Subjects in 7 CFR Part 1951

Accounting, Accounting servicing,

Credit, Disaster assistance, Loan

programs—Agriculture, Low and

moderate income housing.

Accordingly, part 1951 of Chapter

XVIII of Title 7 of the Code of Federal

Regulations is amended as follows:

PART 1951—SERVICING AND

COLLECTIONS

1. The authority citation for part 1951

is revised to read as follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31

U.S.C. 3716; and 42 U.S.C. 1480.

2. Section 1951.101 is revised to read

as follows:

§ 1951.101 General.

The Federal Claims Collection Act of

1966 as amended by the Debt Collection

Act of 1982, the Deficit Reduction Act

of 1984, and the Debt Collection

Amendments Act of 1996 provides for

the use of administrative, salary, and

Internal Revenue Service (IRS) offsets by

government agencies, including the

Farm Service Agency (FSA), Rural

Housing Service (RHS), Rural Utility

Service (RUS) for its water and waste

programs, and Rural BusinessCooperative Service (RBS), herein

referred to collectively as ‘‘USDA

Agency,’’ to collect delinquent debts.
Federal Register / Vol. 62, No. 148 / Friday August 1, 1997 / Rules and Regulations 41799

Any money that is or may become

payable from the United States to a

individual or entity indebted to a USDA

Agency or other individual or entity

indebted to a USDA Agency may be

subject to offset for the collection of a

debt owed to a USDA Agency. In

addition, money may be collected from

the debtor’s retirement payments for

delinquent amounts owed to the USDA

Agency if the debtor is an employee or

retiree of a Federal agency, the U.S.

Postal Service, the Postal Rate

Commission, or a member of the U.S.

Armed Forces or the Reserve. Amounts

collected will be processed as regular

payments and credited to the borrower’s

account. USDA Agencies will process

requests by other Federal agencies for

offset in accordance with §1951.102 of

this subpart. This subpart does not

apply to direct single family housing

loans.

3. Section 1951.102 is revised to read

as follows:

§ 1951.102 Administrative offset.

Action to effect administrative offset

to recover delinquent claims may be

taken in accordance with the procedures

in 7 CFR part 3, subpart B.

§§ 1951.103–1951.105 [Removed and

Reserved]

4. Sections 1951.103 through

1951.105 are removed and reserved.

5. Section 1951.111 is amended in

introductory text paragraph (a) and

(a)(2) by changing the words ‘‘FmHA or

its successor agency under Public Law

103–354’’ to read ‘‘USDA Agency’’; by

revising the phrase ‘‘FmHA or its

successor agency under Public Law

103–354’s’’ in paragraph (a)(1) to read

‘‘USDA Agency’’; by amending

paragraph (b)(1) by adding the words

‘‘State Executive Directors;’’ after the

words ‘‘State Directors;’’ and by revising

the introductory text to read as follows:

§1951.111 Salary offset.

Salary offset may be used to collect

debts arising from delinquent USDA

Agency loans and other debts which

arise through such activities as theft,

embezzlement, fraud, salary

overpayments, under withholding of

amounts payable for life and health

insurance, and any amount owed by

former employees from loss of federal

funds through negligence and other

matters. Salary offset may also be used

by other Federal agencies to collect

delinquencies or debts owed to them by

employees of the USDA Agency,

excluding County Committee members.

Administrative offset, rather than salary

offset, will be used to collect money

from federal employee retirement

benefits. Salary offset will not be

initiated until after other servicing

options available to the borrower have

been utilized. In addition, for Farm

Loan Programs loans, salary offset will

not be instituted if the federal salary has

been considered on the Farm and Home

Plan, and it was determined the funds

were to be used for another purpose

other than payment on the USDA

Agency loan. When salary offset is used,

payment for the debt will be deducted

from the employee’s pay and sent

directly to the creditor agency. Not more

than 15 percent of the employee’s

disposable pay can be offset per pay

period, unless the employee agrees to a

larger amount. The debt does not have

to be reduced to judgment or be

undisputed, and the payment does not

have to be covered by a security

instrument. This section describes the

procedures which must be followed

before the USDA Agency can ask a

Federal agency to offset any amount.

Decisions made under this section are

subject to the appeal procedures of 7

CFR part 11.

* * * * *

Signed in Washington, D.C., on July 25,

1997.

Dated: July 25, 1997.

James W. Schroeder,

Acting Under Secretary for Farm and Foreign

Agricultural Services.

Jill Long Thompson,

Under Secretary for Rural Development.

[FR Doc. 97–20395 Filed 7–31–97; 8:45 am]

BILLING CODE 3410–05–P