[Federal Register Volume 62, Number 250 (Wednesday, December 31, 1997)]
[Proposed Rules]
[Pages 68476-68487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33338]



[[Page 68475]]

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Part VII





Department of The Treasury





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Department of Justice





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31 CFR Chapter IX and Parts 900, 901, 902, 903, and 904



Federal Claims Collection Standards; Proposed Rule

Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / 
Proposed Rules

[[Page 68476]]



DEPARTMENT OF THE TREASURY

DEPARTMENT OF JUSTICE

31 CFR Chapter IX and Parts 900, 901, 902, 903, and 904

[A.G. Order No. 2135-97]
RIN 1510-AA57 and 1105-AA31


Federal Claims Collection Standards

AGENCIES: Department of the Treasury; Department of Justice.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to revise the Federal Claims Collection 
Standards issued by the Department of Justice and the General 
Accounting Office on March 9, 1984. The proposed revisions clarify and 
simplify Federal debt collection standards contained in the Federal 
Claims Collection Standards and reflect changes to Federal debt 
collection procedures under the Debt Collection Improvement Act of 1996 
and the General Accounting Office Act of 1996.

DATES: Comments must be received on or before March 2, 1998.

ADDRESSES: All comments should be addressed 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; or John W. Showalter, Assistant 
Director, Commercial Litigation Branch, Civil Division, Department of 
Justice, P.O. Box 875, Ben Franklin Station, Washington, D.C. 20044. 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, Financial Management Service, Department of the Treasury, 
at (202) 874-6660; Ronda L. Kent or Ellen Neubauer, Senior Attorneys, 
Financial Management Service, Department of the Treasury, at (202) 874-
6680; or John W. Showalter, Assistant Director, Commercial Litigation 
Branch, Civil Division, Department of Justice, at (202) 307-0244.

SUPPLEMENTARY INFORMATION: The Federal Claims Collection Standards 
(FCCS) are being revised for two primary reasons: (1) to clarify and 
simplify the Federal debt collection standards contained in the FCCS; 
and (2) to reflect changes to Federal debt collection procedures under 
the Debt Collection Improvement Act of 1996 (DCIA), Pub. L. 104-134, 
110 Stat. 1321, 1358 (Apr. 26, 1996), as part of the Omnibus 
Consolidated Rescissions and Appropriations Act of 1996.
    Some of the changes made to clarify and simplify the FCCS were 
suggested by Federal officials in numerous Government agencies in the 
five years prior to the enactment of the DCIA. We appreciate their 
substantial efforts toward this revision. The revised FCCS provide 
agencies with greater latitude to adopt agency specific regulations 
considering the legal and policy requirements applicable to the various 
types of Federal debt and maximize the effectiveness of Federal debt 
collection procedures.
    The DCIA is the most significant legislation for the administrative 
collection of Federal debt since the Debt Collection Act of 1982, Pub. 
L. 97-365, 96 Stat. 1749 (Oct. 25, 1982). The revised FCCS conform with 
relevant statutory changes to Federal debt collection procedures under 
the DCIA. The DCIA authorizes the issuance of rules concerning new debt 
collection procedures, including centralized administrative offset, the 
transfer or referral of delinquent debt to Treasury or Treasury-
designated debt collection centers for collection (cross-servicing), 
administrative wage garnishment, and publication of debtor information. 
Additional rules concerning these new debt collection procedures will 
be issued separately in accordance with the DCIA.
    While this revision of the FCCS is being issued as a proposed rule, 
readers are reminded that most of the provisions of the DCIA became 
effective upon enactment on April 26, 1996. Publication of this 
proposed rule does not delay the effective date of the DCIA, nor does 
it postpone the duty of Federal agencies to comply with the provisions 
of the DCIA.
    The Secretary of the Treasury has been added as a co-promulgator of 
the FCCS in accordance with section 31001(g)(1)(C) of the DCIA. The 
Comptroller General has been removed as a co-promulgator in accordance 
with section 115(g) of the General Accounting Office Act of 1996 (GAO 
Act), Pub. L. 104-316, 110 Stat. 3826 (Oct. 19, 1996). The Department 
of the Treasury and the Department of Justice are establishing a new 
joint chapter IX in Title 31 of the Code of Federal Regulations. The 
Department of the Treasury and the Department of Justice will publish 
the revised FCCS as a joint rule in this new chapter. The current FCCS 
are found at 4 CFR parts 101-105.

Discussion of Major Changes

    The revised FCCS contain numerous changes and amendments throughout 
the rule. Major changes contained in these revised FCCS are highlighted 
below. The various provisions of the FCCS that have been redrafted for 
clarity but that do not substantively change debt collection procedures 
are not discussed here. A detailed section-by-section analysis 
comparing the revised FCCS to the current FCCS is available at the 
addresses noted above. Readers are encouraged to read the revised FCCS 
carefully to assure knowledge and understanding of all the changes and 
not rely solely on the changes highlighted in this discussion.
    The following major changes to the FCCS have been incorporated into 
these revised FCCS:
    1. The Comptroller General was removed as a co-promulgator of the 
FCCS. The revised FCCS will be published in parts 900-904 of chapter IX 
of Title 31 of the Code of Federal Regulations because the Secretary of 
the Treasury was added as a co-promulgator of the FCCS. See 4 CFR 
101.1.
    2. The revised FCCS reflect the elimination of the Comptroller 
General's role in Federal debt collection.
    3. The revised FCCS provide agencies with greater latitude to 
streamline and customize debt collection procedures to accommodate 
agency specific requirements or unique circumstances.
    4. The revised FCCS reflect the requirement that agencies use 
government-wide debt collection contracts (with certain exceptions) for 
referrals to private collection contractors.
    5. The revised FCCS contain a new requirement that agencies and 
debtors exchange mutual releases of non-tax liabilities, in all 
appropriate instances, when a claim is compromised.
    6. The revised FCCS reflect the increase in the principal claim 
amount, from $20,000 to $100,000, that agencies are authorized to 
compromise or to suspend or terminate collection activity thereon, 
without concurrence by the Department of Justice. In addition, the 
minimum amount of a claim that may be referred to the Department of 
Justice is increased from $600 to $2,500. The circumstances under which 
the Department of Justice will litigate when the claim amount does not 
meet the minimum threshold have not been changed.
    7. The revised FCCS reflect several new debt collection procedures 
under the DCIA, including, but not limited to:
    (a) transfer or referral of delinquent debt to the Department of 
the Treasury

[[Page 68477]]

or Treasury-designated debt collection centers for collection, known as 
``cross-servicing;''
    (b) mandatory, centralized administrative offset by disbursing 
officials;
    (c) mandatory credit bureau reporting; and
    (d) mandatory prohibition against extending Federal financial 
assistance in the form of a loan or loan guarantee to delinquent 
debtors.
    The Department of the Treasury and the Department of Justice have 
determined that this regulation is not a significant regulatory action 
as defined in Executive Order 12866 and accordingly this regulation has 
not been reviewed by the Office of Management and Budget. It is hereby 
certified that this regulation will not have a significant economic 
impact on a substantial number of small entities because the regulation 
either (1) results in greater flexibility for Federal agencies to 
streamline their own debt collection regulations, or (2) reflects the 
statutory language contained in the DCIA. Accordingly, a Regulatory 
Flexibility Analysis is not required.
    This regulation will not have a substantial direct effect on the 
states, on the relationship between the national government and the 
states, or on distribution of power and responsibilities among the 
various levels of government. Therefore, in accordance with Executive 
Order 12612, it is determined that this regulation does not have 
sufficient federalism implications to warrant the preparation of a 
Federalism Assessment.
    This regulation will not result in the expenditure by state, local 
and tribal governments, in the aggregate, or by the private sector, of 
$100,000,000 or more in any one year, and it will not significantly or 
uniquely affect small governments. Therefore, no actions were deemed 
necessary under the provisions of the Unfunded Mandates Reform Act of 
1995.

List of Subjects

31 CFR Part 900

    Antitrust, Claims, Fraud, Taxes.

31 CFR Part 901

    Administrative practice and procedure, Claims, Federal Employees, 
Penalties, Privacy.

31 CFR Part 902

    Claims.

31 CFR Part 903

    Claims.

31 CFR Part 904

    Claims.

    For the reasons set out in the preamble, chapter IX, consisting of 
parts 900 through 904, is proposed to be established in title 31 of the 
Code of Federal Regulations to read as follows:

CHAPTER IX--FEDERAL CLAIMS COLLECTION STANDARDS

(DEPARTMENT OF THE TREASURY--DEPARTMENT OF JUSTICE)

Part
900  Scope of standards
901  Standards for the administrative collection of claims
902  Standards for the compromise of claims
903  Standards for suspending or terminating collection activity
904  Referrals to the Department of Justice

PART 900--SCOPE OF STANDARDS

Sec.
900.1  Prescription of standards.
900.2  Definitions and construction.
900.3  Antitrust, fraud, and tax and interagency claims excluded.
900.4  Compromise, waiver, or disposition under other statutes not 
precluded.
900.5  Form of payment.
900.6  Subdivision of claims not authorized.
900.7  Required administrative proceedings.
900.8  No private rights created.

    Authority: 31 U.S.C. 3711.


Sec. 900.1  Prescription of standards.

    (a) The Secretary of the Treasury and the Attorney General of the 
United States are issuing the regulations in parts 900-904 of this 
chapter under 31 U.S.C. 3711(d)(2). The regulations in this chapter 
prescribe standards for Federal agency use in the administrative 
collection, offset, compromise, and the suspension or termination of 
collection activity for civil claims for money, funds, or property, as 
defined by 31 U.S.C. 3701(b), unless specific agency statutes or 
regulations apply to such activities or, as provided for by Title 11 of 
the United States Code, when the claims involve bankruptcy. Federal 
agencies include agencies of the executive, legislative, and judicial 
branches of the Government, including Government corporations. These 
regulations in this chapter also prescribe standards for referring 
claims to the Department of Justice for litigation. Additional guidance 
is contained in the Office of Management and Budget's Circular A-129 
(Revised) ``Policies for Federal Credit Programs and Non-Tax 
Receivables,'' the Department of the Treasury's ``Managing Federal 
Receivables,'' and other publications concerning debt collection and 
debt management. These publications are available from the Debt 
Management Services, Financial Management Service, Department of the 
Treasury, 401 14th Street S.W., Room 151, Washington, D.C. 20227.
    (b) Additional rules governing disbursing official administrative 
offset and the transfer of delinquent debt to the Department of the 
Treasury or Treasury-designated debt collection centers for collection 
(cross-servicing) under the Debt Collection Improvement Act of 1996, 
Pub. L. 104-134, 110 Stat. 1321, 1358 (Apr. 26, 1996), are issued in 
separate regulations by the Department of the Treasury. Rules governing 
the use of certain debt collection tools created under the Debt 
Collection Improvement Act of 1996, such as administrative wage 
garnishment and dissemination of information regarding delinquent 
debtors, also are issued in separate regulations by the Department of 
the Treasury.
    (c) Agencies are not limited to the remedies contained in parts 
900-904 of this chapter and are encouraged to use all authorized 
remedies, including alternative dispute resolution and arbitration, to 
collect civil claims, to the extent that such remedies are not 
inconsistent with the Federal Claims Collection Act, as amended, Pub. 
L. 89-508, 80 Stat. 308 (July 19, 1966), the Debt Collection Act of 
1982, Pub. L. 97-365, 96 Stat. 1749 (Oct. 25, 1982), the Debt 
Collection Improvement Act of 1996, or other relevant statutes. These 
regulations in this chapter are not intended to impair agencies' common 
law rights to collect claims.


Sec. 900.2  Definitions and construction.

    (a) For the purposes of the standards in this chapter, the terms 
``claim'' and ``debt'' are synonymous and inter-changeable. They refer 
to an amount of money, funds, or property that has been determined by 
an agency official to be due the United States from any person, 
organization, or entity, except another Federal agency. For the 
purposes of administrative offset under 31 U.S.C. 3716, the terms 
``claim'' and ``debt'' include an amount of money, funds, or property 
owed by a person to a State (including past-due support being enforced 
by a State), the District of Columbia, American Samoa, Guam, the United 
States Virgin Islands, the Commonwealth of the Northern Mariana 
Islands, or the Commonwealth of Puerto Rico.
    (b) A claim is ``delinquent'' if it has not been paid by the date 
specified in the agency's initial written demand for payment or 
applicable agreement or instrument (including a post-delinquency 
payment agreement),

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unless other satisfactory payment arrangements have been made.
    (c) In parts 900-904 of this chapter, words in the plural form 
shall include the singular and vice versa, and words signifying the 
masculine gender shall include the feminine and vice versa. The terms 
``includes'' and ``including'' do not exclude matters not listed but do 
include matters that are in the same general class.
    (d) Recoupment is a special method for adjusting claims arising 
under the same transaction or occurrence. For example, obligations 
arising under the same contract are generally subject to recoupment.
    (e) For purposes of the standards in this chapter, unless otherwise 
stated, ``Secretary'' means the Secretary of the Treasury or the 
Secretary's delegate.


Sec. 900.3  Antitrust, fraud, and tax and interagency claims excluded.

    (a) The standards in parts 900-904 of this chapter relating to 
compromise, suspension, and termination of collection activity do not 
apply to any claim based in whole or in part on conduct in violation of 
the antitrust laws or to any claim involving fraud, the presentation of 
a false claim, or misrepresentation on the part of the debtor or any 
party having an interest in the claim. Only the Department of Justice 
has the authority to compromise, suspend, or terminate collection 
activity on such claims. The standards in parts 900-904 of this chapter 
relating to the administrative collection of claims do apply, but only 
to the extent authorized by the Department of Justice in a particular 
case. Upon identification of a claim based in whole or in part on 
conduct in violation of the antitrust laws or any claim involving 
fraud, the presentation of a false claim, or misrepresentation on the 
part of the debtor or any party having an interest in the claim, 
agencies shall promptly refer the case to the Department of Justice for 
action. At its discretion, the Department of Justice may return the 
claim to the forwarding agency for further handling in accordance with 
the standards in parts 900-904 of this chapter.
    (b) Parts 900-904 of this chapter do not cover tax claims.
    (c) Parts 900-904 of this chapter do not apply to claims between 
Federal agencies. Federal agencies should attempt to resolve 
interagency claims by negotiation in accordance with Executive Order 
12146 (3 CFR, 1980 Comp., pp. 409-412).


Sec. 900.4  Compromise, waiver, or disposition under other statutes not 
precluded.

    Nothing in parts 900-904 of this chapter precludes agency 
disposition of any claim under statutes and implementing regulations 
other than subchapter II of chapter 37 of Title 31 of the United States 
Code (Claims of the United States Government) and these standards. See, 
e.g., the Federal Medical Care Recovery Act, Pub. L. 87-693, 76 Stat. 
593 (Sept. 25, 1962) (codified at 42 U.S.C. 2651 et seq.), and 
applicable regulations, 28 CFR part 43. In such cases, the laws and 
regulations that are specifically applicable to claims collection 
activities of a particular agency generally take precedence over parts 
900-904 of this chapter.


Sec. 900.5  Form of payment.

    Claims may be paid in the form of money or, when a contractual 
basis exists, the Government may demand the return of specific property 
or the performance of specific services.


Sec. 900.6  Subdivision of claims not authorized.

    Claims may not be subdivided to avoid the monetary ceiling 
established by 31 U.S.C. 3711(a)(2). A debtor's liability arising from 
a particular transaction or contract shall be considered a single claim 
in determining whether the claim is one of less than $100,000 
(excluding interest, penalties, or administrative costs) or such higher 
amount as the Attorney General shall from time to time prescribe for 
purposes of compromise or suspension or termination of collection 
activity.


Sec. 900.7  Required administrative proceedings.

    Agencies are not required to omit, foreclose, or duplicate 
administrative proceedings required by contract or other laws or 
regulations.


Sec. 900.8  No private rights created.

    The standards in this chapter do not create any right or benefit, 
substantive or procedural, enforceable at law or in equity by a party 
against the United States, its agencies, its officers, or any other 
person, nor shall the failure of an agency to comply with any of the 
provisions of parts 900-904 of this chapter be available to any debtor 
as a defense.

PART 901--STANDARDS FOR THE ADMINISTRATIVE COLLECTION OF CLAIMS

Sec.
901.1  Aggressive agency collection activity.
901.2  Demand for payment.
901.3  Collection by administrative offset.
901.4  Administrative offset against amounts payable from Civil 
Service Retirement and Disability Fund and the Federal Employee 
Retirement System.
901.5  Reporting claims.
901.6  Contracting for debt collection agencies and to locate and 
recover unclaimed assets.
901.7  Suspension or revocation of eligibility for loans and loan 
guaranties, licenses, permits, or privileges.
901.8  Liquidation of collateral.
901.9  Collection in installments.
901.10  Interest, penalties, and administrative costs.
901.11  Analysis of costs.
901.12  Use and disclosure of mailing addresses.
901.13  Exemptions.

    Authority: 31 U.S.C. 3701, 3711, 3716, 3717, 3718, and 3720B.


Sec. 901.1  Aggressive agency collection activity.

    (a) Federal agencies shall aggressively collect all claims arising 
out of activities of, or referred or transferred for collection 
services to, that agency. Collection activities shall be undertaken 
promptly with follow-up action taken as necessary depending upon the 
circumstances. Nothing contained in parts 900-904 of this chapter 
requires the Department of Justice, the Department of the Treasury, or 
other Treasury-designated debt collection center, to duplicate 
collection activities previously undertaken by other agencies or to 
perform collection activities that other agencies should have 
undertaken.
    (b) Claims referred or transferred shall be serviced, collected, or 
compromised, or the collection action will be suspended or terminated, 
in accordance with the statutory requirements and authorities otherwise 
applicable to the collection of such claims.
    (c) Agencies shall cooperate with one another in their debt 
collection activities.
    (d) Agencies should consider referring claims that are less than 
180 days delinquent to ``debt collection centers'' of the Federal 
Government to accomplish efficient, cost effective debt collection. The 
Department of the Treasury is a debt collection center, is authorized 
to designate other debt collection centers within the Federal 
Government based on the debt collection centers' performance in 
collecting delinquent claims owed to the Government, and may withdraw 
such designations. Referrals to debt collection centers shall be at the 
discretion of, and for a time period acceptable to, the Secretary. 
Referrals may be for servicing, collection, compromise, suspension, or 
termination of collection action.

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    (e) Agencies shall transfer to the Secretary any claim that has 
been delinquent for a period of 180 days or more so that the Secretary 
may take appropriate action to collect the claim or terminate 
collection action. This requirement does not apply to any claim that:
    (1) Is in litigation or foreclosure;
    (2) Will be disposed of under an approved asset sale program;
    (3) Has been referred to a private collection contractor for a 
period of time acceptable to the Secretary;
    (4) Is at a debt collection center for a period of time acceptable 
to the Secretary (see paragraph (d) of this section);
    (5) Will be collected under internal offset procedures within three 
years after the debt first became delinquent; or
    (6) To other classes of claims for which the Secretary has 
determined that an exemption from this requirement is in the best 
interest of the Government. Agencies may request that the Secretary 
exempt specific classes of claims.
    (f) Agencies operating debt collection centers are authorized to 
charge a fee for services rendered regarding referred or transferred 
claims. The fee may be paid out of amounts collected and may be added 
on the claim as an administrative cost (see Sec. 901.10).


Sec. 901.2  Demand for payment.

    (a) Written demand as described in paragraph (b) of this section 
shall be made promptly upon a debtor of the United States in terms that 
inform the debtor of the consequences of failing to cooperate with the 
agency to resolve the claim. The specific content, timing, and number 
of demand letters shall depend upon the type and amount of the claim 
and the debtor's response, if any, to the agency's letters or calls. 
Generally, one demand letter should suffice. In determining the timing 
of the demand letter or letters, agencies should give due regard to the 
need to refer claims promptly to the Department of Justice for 
litigation, in accordance with Sec. 904.1 of this chapter or otherwise. 
When necessary to protect the Government's interest (for example, to 
prevent the running of a statute of limitations), written demand may be 
preceded by other appropriate actions under parts 900-904 of this 
chapter, including immediate referral for litigation.
    (b) Demand letters shall inform the debtor of:
    (1) The basis for the indebtedness and the rights, if any, the 
debtor may have to seek review within the agency;
    (2) The applicable standards for imposing any interest, penalties, 
or administrative costs;
    (3) The date by which payment should be made to avoid late charges 
and enforced collection, which generally should not be more than 30 
days from the date that the demand letter is mailed or hand-delivered; 
and
    (4) The name, address, and phone number of a contact person or 
office within the agency.
    (c) Agencies should exercise care to ensure that demand letters are 
mailed or hand-delivered on the same day that they are dated. There is 
no prescribed format for demand letters. Agencies should utilize demand 
letters and procedures that will lead to the earliest practicable 
determination of whether the claim can be resolved administratively or 
must be referred for litigation.
    (d) Agencies should include in demand letters such items as the 
agency's willingness to discuss alternative methods of payment; its 
policies with respect to the use of credit bureaus, debt collection 
centers, and collection agencies; the agency's remedies to enforce 
payment of the claim (including assessment of interest, administrative 
costs and penalties, administrative garnishment, the use of collection 
agencies, Federal salary offset, tax refund offset, administrative 
offset, and litigation); the requirement that any debt delinquent for 
more than 180 days be transferred to the Department of the Treasury for 
collection; and, depending on applicable statutory authority, the 
debtor's entitlement to consideration of a waiver.
    (e) Agencies should respond promptly to communications from 
debtors, within 30 days whenever feasible, and should advise debtors 
who dispute claims to furnish available evidence to support their 
contentions.
    (f) Prior to the initiation of the demand process or at any time 
during or after completion of the demand process, if an agency 
determines to pursue or is required to pursue offset, the procedures 
applicable to offset should be followed (see Sec. 901.3). The 
availability of funds or money for debt satisfaction by offset and the 
agency's determination to pursue collection by offset shall release the 
agency from the necessity of further compliance with paragraphs (a), 
(b), (c), and (d) of this section.
    (g) Prior to referring a claim for litigation, agencies should 
advise each person determined to be liable for the claim that, unless 
the claim can be collected administratively, litigation may be 
initiated. This notification should comply with Executive Order 12988 
and may be given as part of a demand letter under paragraph (b) of this 
section or in a separate document. Litigation counsel for the 
Government should be advised that this notice has been given.
    (h) When an agency learns that a bankruptcy petition has been filed 
with respect to a debtor, before proceeding with further collection 
action, the agency should immediately seek legal advice from its agency 
counsel concerning the impact of the Bankruptcy Code on any pending or 
contemplated collection activities. Unless the agency determines that 
the automatic stay imposed at the time of filing pursuant to 11 U.S.C. 
362 has been lifted or is no longer in effect, in most cases collection 
activity against the debtor should stop immediately.
    (1) After seeking legal advice, a proof of claim should be filed in 
most cases with the bankruptcy court or the Trustee. Agencies should 
refer to the provisions of 11 U.S.C. 106 relating to the consequences 
on sovereign immunity of filing a proof of claim.
    (2) If the agency is a secured creditor, it may seek relief from 
the automatic stay regarding its security, subject to the provisions 
and requirements of 11 U.S.C. 362.
    (3) Offset is stayed in most cases by the automatic stay. However, 
agencies should seek legal advice from their agency counsel to 
determine whether their payments to the debtor and payments of other 
agencies available for offset may be frozen by the agency until relief 
from the automatic stay can be obtained from the bankruptcy court. 
Agencies also should seek legal advice from their agency counsel to 
determine whether recoupment is available.


Sec. 901.3  Collection by administrative offset.

    (a) In general. Two types of administrative offset exist under this 
section: Administrative offset by non-disbursing officials and 
administrative offset by disbursing officials. The standards contained 
in paragraph (a) apply to both types of administrative offset. The 
standards contained in paragraph (b) of this section apply solely to 
non-disbursing official offset, and the standards contained in 
paragraph (c) of this section apply solely to disbursing official 
offset. Collection by administrative offset shall be undertaken in 
accordance with Secs. 901.3 and 901.4 and implementing regulations 
established by each agency on all claims where such collection is 
determined to be feasible and not otherwise prohibited.
    (1) Agencies shall prescribe regulations for the exercise of 
administrative offset consistent with

[[Page 68480]]

this section or adopt this section without change by cross-reference.
    (2) For purposes of this section, the term ``administrative 
offset'' has the meaning provided in 31 U.S.C. 3701(a)(1).
    (3) This section applies to administrative offsets undertaken by 
agencies pursuant to 31 U.S.C. 3716 against funds or money payable to, 
or held for, a debtor. It does not apply to:
    (i) Claims arising under the Social Security Act, except as 
provided in 42 U.S.C. 404;
    (ii) Payments made under the Social Security Act, except as 
provided for in 31 U.S.C. 3716(c);
    (iii) Claims arising under or payments made under the Internal 
Revenue Code or the tariff laws of the United States;
    (iv) Offsets against Federal salaries, to the extent these 
standards are inconsistent with regulations published to implement such 
offsets under 5 U.S.C. 5514;
    (v) Offsets under 31 U.S.C. 3728 against a judgment obtained by a 
debtor against the United States;
    (vi) Offsets or recoupments under common law, State law, or Federal 
statutes specifically prohibiting offsets or recoupments of particular 
types of claims; or
    (vii) Offsets in the course of judicial proceedings, including 
bankruptcy.
    (4) Unless otherwise provided for by contract or law, claims or 
payments that are not subject to administrative offset under 31 U.S.C. 
3716 may be collected by administrative offset under the common law or 
other applicable statutory authority.
    (5) Agency regulations for offsets pursuant to 31 U.S.C. 3716 shall 
provide also that, except as is provided in paragraph (b)(2) of this 
section, offsets may be initiated only after the debtor has received:
    (i) Written notice of the type and amount of the claim and that the 
agency intends to use administrative offset to collect the claim;
    (ii) An opportunity to inspect and copy agency records related to 
the claim;
    (iii) An opportunity for a hearing or review within the agency of 
the determination of indebtedness; and
    (iv) An opportunity to make a written agreement to repay the claim.
    (6) When an agency previously has given a debtor any of the 
required notice and review opportunities with respect to a particular 
claim, the agency need not give notice and review opportunities 
duplicating those previously given before initiating administrative 
offset with respect to that claim.
    (7) (i) For purposes of this section, whenever an agency is 
required to afford a debtor a hearing or review within the agency, the 
agency shall provide the debtor with a reasonable opportunity for an 
oral hearing when:
    (A) An applicable statute authorizes or requires the agency to 
consider waiver of the indebtedness involved, the debtor requests 
waiver of the indebtedness, and the waiver determination turns on an 
issue of credibility or veracity; or
    (B) The debtor requests reconsideration of the claim and the agency 
determines that the question of the indebtedness 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) Unless otherwise required by law, an oral hearing under this 
section is not required to be a formal evidentiary-type hearing, 
although the agency should carefully document all significant matters 
discussed at the hearing.
    (iii) This section does not require an oral hearing with respect to 
debt collection systems in which a determination of indebtedness or 
waiver 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, a determination of the request for waiver or 
reconsideration based upon a review of the written record.
    (8) Unless otherwise provided by law, agencies may not initiate 
administrative offset to collect a claim under 31 U.S.C. 3716 more than 
10 years after the Government's right to collect the claim first 
accrued, unless facts material to the Government's right to collect the 
claim were not known and could not reasonably have been known by the 
official or officials of the Government who were charged with the 
responsibility to discover and collect such claims.
    (b) Administrative offset by non-disbursing officials. Generally, 
administrative offsets by non-disbursing officials are offsets that an 
agency conducts internally or in cooperation with the agency certifying 
or authorizing payments to the debtor. Disbursing agencies also are 
authorized to conduct offsets in accordance with this paragraph on a 
case-by-case basis.
    (1) The creditor agency is responsible for determining, in its 
discretion on a case-by-case basis, whether collection by 
administrative offset under this subsection is feasible. Creditor 
agencies should consider whether administrative offset may be 
accomplished practically and legally and whether offset furthers and 
protects the Government's interests. In appropriate circumstances, such 
as when a debtor is unable to pay the full amount that could be 
collected by offset (see Sec. 902.2(b) of this chapter), the agency may 
consider the debtor's financial condition and is not required to use 
offset in every instance in which there is an available source of funds 
or money. Agencies also may consider whether offset would tend to 
interfere substantially with, or defeat the purposes of, the program 
authorizing the payments against which offset is contem plated. For 
example, under a grant program in which payments are made in advance of 
the grantee's performance, offset may be inappropriate. This concept 
generally does not apply, however, when payment is in the form of 
reimbursement.
    (2) Agency regulations may provide for the omission of the 
procedures set forth in paragraph (a)(5) of this section when:
    (i) The offset is in the nature of a recoupment;
    (ii) The claim arises under a contract as set forth in Cecile 
Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993); or
    (iii) The agency first learns of the existence of the amount owed 
by the debtor when there is insufficient time before payment would be 
made to the debtor to allow for prior notice and an opportunity for 
review. When prior notice and an opportunity for review are omitted, 
the agency shall give the debtor such notice and an opportunity for 
review as soon as practicable and shall promptly refund any money 
ultimately found not to have been owed to the Government.
    (3) Agencies shall comply with requests from other agencies to 
collect claims owed to the United States by administrative offset, 
unless the offset would not be in the best interests of the Government 
with respect to the program of the agency conducting the offset as 
determined by the head of the agency, or would be otherwise contrary to 
law. Appropriate use should be made of the cooperative efforts of other 
agencies in effecting collection by administrative offset.
    (4) Agency regulations shall provide that the agency making a 
payment against which administrative offset is sought should not make 
the requested offset until it has been provided with a written 
certification by the creditor agency that the debtor owes the claim in 
the amount specified and that the creditor agency has fully complied 
with

[[Page 68481]]

its regulations concerning administrative offset.
    (5) When collecting multiple claims by administrative offset, 
agencies should apply the recovered amounts to those claims in 
accordance with the best interests of the United States, as determined 
by the facts and circumstances of the particular case, particularly the 
applicable statutes of limitation.
    (c) Administrative offset by disbursing officials. Disbursing 
officials of the Department of the Treasury, the Department of Defense, 
the United States Postal Service, other Government corporations, and 
disbursing officials of the United States designated by the Secretary 
are required to conduct administrative offset to collect claims that 
agencies have certified to the Secretary for collection by 
administrative offset. Agencies shall certify claims to the Secretary 
and the Secretary shall share information concerning delinquent claims 
with the aforesaid disbursing officials so that offsets may occur 
government-wide. If an agency has not certified a specific claim to the 
Secretary, an agency still may collect the claim by administrative 
offset in accordance with paragraph (b) of this section by contacting 
the payment certifying agency or the disbursing agency directly.
    (1) Certification of claims to the Secretary shall be in a form 
acceptable to the Secretary and shall include, at a minimum:
    (i) A statement that the claim(s) is past due and legally 
enforceable; and
    (ii) A statement that the agency certifying the claim has complied 
with all the due process requirements enumerated in 31 U.S.C. 3716(a) 
and the agency's regulations.
    (2) Federal agencies that are owed past due, legally enforceable 
claims over 180 days delinquent shall certify those claims to the 
Secretary for collection through the disbursing official offset 
program. In addition to claims that, by law, may not be collected by 
administrative offset, the Secretary may exempt any claim or class of 
claims from this requirement if the Secretary determines exemption is 
in the best interest of the United States.
    (3) Payments that are prohibited by law from being offset are 
exempt from offset by disbursing officials. Means-tested benefit 
payments shall be exempted from offset by the Secretary at the request 
of the head of the agency administering the means-tested benefit 
program. For the purposes of this section, ``means-tested benefit 
payments'' are payments made to an individual under a program where 
eligibility is based on a determination that the income, assets, and/or 
resources of the beneficiary are inadequate to provide the beneficiary 
with an adequate standard of living without program assistance. The 
Secretary may exempt other classes of payments upon the written request 
of the head of the payment certifying or authorizing agency. Such 
requests may be granted if the Secretary determines that exemption is 
in the best interests of the Government. For example, offsets that 
would tend to interfere substantially with, or defeat the purposes of, 
the payment agency's program may qualify for an exemption.
    (4) Benefit payments made under the Social Security Act (42 U.S.C. 
301 et seq.), part B of the Black Lung Benefits Act (30 U.S.C. 921 et 
seq.), and any law administered by the Railroad Retirement Board (other 
than tier 2 benefits) may be offset only in accordance with Department 
of the Treasury regulations, issued in consultation with the Social 
Security Administration, the Railroad Retirement Board, and the Office 
of Management and Budget.
    (5) The disbursing official shall notify the debtor/payee in 
writing that an offset has occurred. The notice shall include a 
description of the payment from which the offset was taken, the amount 
of offset that was taken, the identity of the creditor agency 
requesting the offset, and a contact point within the creditor agency 
who will respond to questions regarding the offset.
    (6) If more than one claim is owed by a debtor, funds or money 
collected by offset shall be applied to the claims in an order that is 
in the best interests of the United States as determined by the 
Secretary.
    (7) In accordance with 31 U.S.C. 3716(f), the Secretary may waive 
the provisions in the Computer Matching and Privacy Protection Act of 
1988 concerning matching agreements and post-match notification and 
verification (5 U.S.C. 552a(o) and (p)) for administrative offset under 
paragraph (c) of this section upon receipt of a certification from a 
creditor agency that the due process requirements enumerated in 31 
U.S.C. 3716(a) have been met. The certification of a claim in 
accordance with paragraph (c)(1) of this section will satisfy this 
requirement. If such a waiver is granted, only the Data Integrity Board 
of the Department of the Treasury is required to oversee any matching 
activities, in accordance with 31 U.S.C. 3716(g).
    (8) Under 31 U.S.C. 3716(h), the Secretary may enter into 
reciprocal agreements with states for Federal disbursing officials to 
collect state debts through offset of Federal payments and for state 
disbursing officials to collect Federal debts through offset of state 
payments. States shall have regulations or procedures concerning 
offsets consistent with those contained in these standards. This 
section shall not apply to claims or payments that are not subject to 
offset by Federal law. The Secretary may exempt additional claims and/
or payments from these reciprocal agreements if the Secretary 
determines such exemptions are in the best interest of the Federal 
Government.
    (d) In bankruptcy cases, agencies should seek legal advice from 
their agency counsel concerning the impact of the Bankruptcy Code, 
particularly 11 U.S.C. 106, 362, and 553, on pending or contemplated 
collections by offset.


Sec. 901.4  Administrative offset against amounts payable from Civil 
Service Retirement and Disability Fund and the Federal Employee 
Retirement System.

    (a) For claims that have not been certified to the Secretary for 
administrative offset by disbursing officials, unless otherwise 
prohibited by law, agencies may request that moneys that are due and 
payable to a debtor from the Civil Service Retirement and Disability 
Fund (CSRD) or the Federal Employee Retirement System (FERS) be 
administratively offset, in amounts authorized under 5 CFR 831.1807, to 
collect claims owed to the United States by the debtor. Because 
disbursing officials of the Department of the Treasury are authorized 
to offset these payments under Sec. 901.3, requests under this section 
should be limited to those instances in which offset cannot be 
accomplished by certification to the Secretary. Requests under this 
section shall be made to appropriate officials of the Office of 
Personnel Management (OPM) in accordance with such regula tions as are 
prescribed by the Director of that office at 5 CFR 831.1801-831.1808.
    (b) Agencies that decide to request administrative offset under 
paragraph (a) of this section should make the request as soon as 
practical after completion of the applicable procedures. Unless the 
debtor has filed for a refund, there is no specific time period for 
filing an offset request (see 5 CFR 831.1805), other than the 10-year 
limitation period described in Sec. 901.3(a)(6). The filing of the 
request for offset within the 10-year period shall satisfy any 
requirement that offset be initiated prior to expiration of the statute 
of limitations. The OPM shall retain the claim for future recovery and 
make the collection when the debtor

[[Page 68482]]

applies for a refund or benefits from the retirement fund. The OPM 
shall notify the agency if it does not have an application for a refund 
or benefits from the debtor so that the agency may continue to attempt 
recovery using other collection mechanisms. The agency shall notify the 
OPM if it collects the claim using alternative means and wishes to 
modify or terminate its offset request.
    (c) If the offset request has been pending for a year or more when 
the debtor files an application for a refund or benefits, the OPM shall 
contact the agency to determine if the claim is still due and the 
current balance of the claim. If the claim is still due, the agency 
shall allow the debtor to offer a satisfactory repayment plan in lieu 
of the offset, upon establishing that changes in the debtor's financial 
condition would render the offset unjust (see Sec. 901.9 and 
Sec. 902.2(b) of this chapter).
    (d) This section does not authorize the OPM or the Merit Systems 
Protection Board to review the merits of the requesting agency's 
determination with respect to the amount and validity of the claim, its 
determination as to waiver under an applicable statute, or its 
determination whether to provide a hearing. The Merit Systems 
Protection Board or any other review panel is not precluded from 
providing hearing officials, on a reimbursable basis, to other Federal 
agencies where hearing officials are required by law.
    (e) In bankruptcy cases, agencies should seek legal advice from 
their agency counsel concerning the impact of the Bankruptcy Code, 
particularly 11 U.S.C. 106, 362 and 553, on pending or contemplated 
collections by offset.


Sec. 901.5  Reporting claims.

    (a) Agencies shall develop and implement procedures for reporting 
delinquent claims to credit bureaus and other automated databases. 
Agencies also may develop procedures to report non-delinquent claims to 
credit bureaus.
    (1) In developing procedures for reporting claims to credit 
bureaus, agencies shall comply with the Bankruptcy Code and the Privacy 
Act of 1974, 5 U.S.C. 552a, as amended. Credit bureaus are not subject 
to the Privacy Act.
    (2) Agency procedures for reporting consumer claims to credit 
bureaus shall be consistent with the due process and other requirements 
contained in 31 U.S.C. 3711(e). When an agency has given a debtor any 
of the required notice and review opportunities with respect to a 
particular claim, the agency need not give notice and review 
opportunities duplicating those previously given before reporting that 
consumer claim to credit bureaus.
    (b) Agencies should report delinquent claims to the Department of 
Housing and Urban Development's Credit Alert Interactive Voice Response 
System (CAIVRS). For information about participating in the CAIVRS 
program, agencies should contact the Director of Information Resources 
Management Policy and Management Division, Office of Information 
Technology, Department of Housing and Urban Development, 451 7th 
Street, S.W., Washington, DC 20410.


Sec. 901.6  Contracting for debt collection agencies and to locate and 
recover unclaimed assets.

    (a) Agencies may contract with collection agencies to recover 
delinquent claims provided that:
    (1) Agencies retain the authority to resolve disputes, compromise 
claims, suspend or terminate collection activity, and refer claims for 
litigation;
    (2) The collection agency is not allowed to offer the debtor, as an 
incentive for payment, the opportunity to pay the claim less the 
collection agency's fee unless the agency has granted such authority 
prior to the offer;
    (3) The collection agency is subject to the Privacy Act of 1974 to 
the extent specified in 5 U.S.C. 552a(m) and to applicable Federal and 
state laws and regulations pertaining to debt collection practices, 
including but not limited to the Fair Debt Collection Practices Act, 15 
U.S.C. 1692; and
    (4) The collection agency is required to account for all amounts 
collected.
    (b) Except for those agencies specifically exempted by procurement 
statutes or with collection contracts in effect prior to the award of 
the government-wide contracts, agencies shall use government-wide debt 
collection contracts to obtain debt collection services provided by 
collection agencies.
    (c) Agencies may fund collection agency contracts on a fixed-fee 
basis, that is, by providing for payment of a fixed fee determined 
without regard to the amount actually collected under the contract, 
provided that the payment of the fee under this type of contract shall 
be charged to available agency appropriations or funds.
    (d) Unless prohibited by statute, agencies may fund collection 
agency contracts on a contingent-fee basis, that is, by including a 
provision in the contract permitting the collection agency to deduct a 
fee, consistent with prevailing commercial practice, based on a 
percentage of the amount collected under the contract.
    (e) Agencies also may enter into contracts for locating and 
recovering unclaimed assets of the United States. Agencies must 
establish procedures that are acceptable to the Secretary before 
entering into contracts to recover assets of the United States held by 
a state government or a financial institution.


Sec. 901.7  Suspension or revocation of eligibility for loans and loan 
guaranties, licenses, permits, or privileges.

    (a) Unless waived by the head of the agency, agencies are not 
permitted to extend financial assistance in the form of a loan, loan 
guarantee, or loan insurance to any person delinquent on a non-tax 
claim owed to a Federal agency. This prohibition does not apply to 
disaster loans. The authority to waive the application of this section 
may be delegated to the Chief Financial Officer and redelegated only to 
the Deputy Chief Financial Officer of the agency. Agencies may extend 
credit after the delinquency has been resolved. The Secretary may 
exempt classes of claims from this prohibition and shall prescribe 
standards defining when a ``delinquency'' is ``resolved'' for purposes 
of this prohibition.
    (b) In non-bankruptcy cases, agencies seeking the collection of 
statutory penalties, forfeitures, or other types of claims should give 
serious consideration to the suspension or revocation of licenses, 
permits, or other privileges for any inexcusable or willful failure of 
a debtor to pay such a claim in accordance with the agency's 
regulations or governing procedures. The debtor should be advised in 
the agency's written demand for payment of the agency's ability to 
suspend or revoke licenses, permits, or privileges. Any agency making, 
guaranteeing, insuring, acquiring, or participating in loans should 
give consideration to suspending or disqualifying any lender, 
contractor, or broker from doing further business with it or engaging 
in programs sponsored by it if such a debtor fails to pay its claims to 
the Government within a reasonable time or if such debtor has been 
suspended, debarred, or disqualified from participation in a program or 
activity by another Federal agency. The failure of any surety to honor 
its obligations in accordance with 31 U.S.C. 9305 should be reported to 
the Department of the Treasury. The Department of the Treasury shall 
forward to all interested agencies notification that a surety's 
certificate of authority to do business with the Government has been 
revoked or forfeited by the Department.

[[Page 68483]]

    (c) The suspension or revocation of licenses, permits, or 
privileges should also extend to Federal programs or activities that 
are administered by the states on behalf of the Federal Government, to 
the extent that they affect the Government's ability to collect money 
or funds owed by debtors. Therefore, states that manage Federal 
activities, pursuant to approval from the agencies, should ensure that 
appropriate steps are taken to safeguard against issuing licenses, 
permits, or privileges to debtors who fail to pay their claims to the 
Government.
    (d) In bankruptcy cases, before advising the debtor of an agency's 
intention to suspend or revoke licenses, permits, or privileges, 
agencies should seek legal advice from their agency counsel concerning 
the impact of the Bankruptcy Code, particularly 11 U.S.C. 362 and 525, 
which may restrict such action by the Government.


Sec. 901.8  Liquidation of collateral.

    (a) Agencies should liquidate security or collateral and apply the 
proceeds to the applicable claim(s) due through the exercise of a power 
of sale in the security instrument or a nonjudicial foreclosure if 
debtors fail to pay the claim(s) within a reasonable time after demand 
and such action is in the Government's best interest. Collection from 
other sources, including liquidation of security or collateral, is not 
a prerequisite to requiring payment by a surety, insurer, or guarantor 
unless such action is expressly required by statute or contract.
    (b) When an agency learns that a bankruptcy petition has been filed 
with respect to a debtor, the agency should seek legal advice from 
their agency counsel concerning the impact of the Bankruptcy Code, 
including, but not limited to, 11 U.S.C. 362, to determine 
applicability of the automatic stay and the procedures for obtaining 
relief from such stay prior to proceeding under paragraph (a) of this 
section.


Sec. 901.9  Collection in installments.

    (a) Whenever feasible, agencies shall collect the total amount of a 
claim in one lump sum regardless of the collection mechanism being 
used. If a debtor is financially unable to pay a claim in one lump sum, 
agencies may accept payment in regular installments. Agencies should 
obtain financial statements from debtors who represent that they are 
unable to pay in one lump sum and independently verify such 
representations whenever possible (see Sec. 902.2(g) of this chapter). 
Agencies that agree to accept payments in regular installments should 
obtain a legally enforceable written agreement from the debtor that 
specifies all of the terms of the arrangement and that contains a 
provision accelerating the claim in the event of default.
    (b) The size and frequency of installment payments should bear a 
reasonable relation to the size of the claim and the debtor's ability 
to pay. If possible, the installment payments should be sufficient in 
size and frequency to liquidate the Government's claim in three years 
or less.
    (c) Security for deferred payments should be obtained in 
appropriate cases. Agencies may accept installment payments 
notwithstanding the refusal of the debtor to execute a written 
agreement or to give security, at the agency's option.


Sec. 901.10  Interest, penalties, and administrative costs.

    (a) Except as provided in paragraphs (g), (h), and (i) of this 
section, agencies shall charge interest, penalties, and administrative 
costs on claims owed to the United States pursuant to 31 U.S.C. 3717. 
An agency shall mail or hand-deliver a written notice to the debtor, at 
the debtor's most recent address available to the agency, explaining 
the agency's requirements concerning these charges except where these 
requirements are included in a contractual or repayment agreement. 
These charges shall continue to accrue until the claim is paid in full 
or otherwise resolved through compromise, termination, or waiver of the 
charges.
    (b) Agencies shall charge interest on claims owed the United States 
as follows:
    (1) Interest shall accrue from the date of delinquency when all 
circumstances have occurred to give rise to the claim or as otherwise 
provided by law.
    (2) Unless otherwise established in a contract, repayment 
agreement, or by statute, the rate of interest charged shall be the 
rate established annually by the Secretary in accordance with 31 U.S.C. 
3717. Pursuant to 31 U.S.C. 3717, an agency may charge a higher rate of 
interest if it reasonably determines that a higher rate is necessary to 
protect the rights of the United States. The agency should document the 
reasons for its determination that the higher rate is necessary.
    (3) The rate of interest, as initially charged, shall remain fixed 
for the duration of the indebtedness. When a debtor has defaulted on a 
repayment agreement and seeks to enter into a new agreement, the agency 
may require payment of interest at a new rate that reflects the current 
value of funds to the Treasury at the time the new agreement is 
executed. Interest shall not be compounded, that is, interest shall not 
be charged on interest, penalties, or administrative costs required by 
this section. If, however, a debtor defaults on a previous repayment 
agreement, charges that accrued but were not collected under the 
defaulted agreement shall be added to the principal to be paid under 
the new repayment agreement.
    (c) Agencies shall assess administrative costs incurred for 
processing and handling delinquent claims. The calculation of 
administrative costs should be based on actual costs incurred or upon 
estimated costs as determined by the assessing agency.
    (d) Unless otherwise established in a contract, repayment 
agreement, or by statute, agencies shall charge a penalty, pursuant to 
31 U.S.C. 3717(e)(2), not to exceed six percent a year on the amount 
due on a claim that is delinquent for more than 90 days. This charge 
shall accrue from the date of delinquency.
    (e) Agencies may increase an ``administrative claim'' by the cost 
of living adjustment in lieu of charging interest and penalties under 
this section. Such increases shall be computed annually. Agencies 
should use this alternative only when there is a legitimate reason to 
do so, such as when calculating interest and penalties on a claim would 
be extremely difficult because of the age of the claim. 
``Administrative claim'' includes, but is not limited to, a claim based 
on fines, penalties, and overpayments, but does not include a claim 
based on the extension of Government credit, such as those arising from 
loans and loan guaranties. The cost of living adjustment is the 
percentage by which the Consumer Price Index for the month of June of 
the calendar year preceding the adjustment exceeds the Consumer Price 
Index for the month of June of the calendar year in which the claim was 
determined or last adjusted.
    (f) When a claim is paid in partial or installment payments, 
amounts received by the agency shall be applied first to outstanding 
penalties, second to administrative charges, third to interest, and 
lastly to principal.
    (g) Agencies shall waive the collection of interest and 
administrative charges imposed pursuant to this section on the portion 
of the claim that is paid within 30 days after the date on which 
interest began to accrue. Agencies may extend this 30-day period on a 
case-by-case basis. In addition, agencies may waive interest, 
penalties, and administrative costs charged under this section, in

[[Page 68484]]

whole or in part, without regard to the amount of the claim, either 
under the criteria set forth in these standards for the compromise of 
claims, or if the agency determines that collection of these charges is 
against equity and good conscience or is not in the best interests of 
the United States.
    (h) Agencies shall set forth in their regulations the circumstances 
under which interest and related charges will not be imposed for 
periods during which collection activity has been suspended pending 
agency review.
    (i) Agencies are authorized to impose interest and related charges 
on claims not subject to 31 U.S.C. 3717 in accordance with the 
applicable common law.


Sec. 901.11  Analysis of costs.

    Agency collection procedures should provide for periodic comparison 
of costs incurred and amounts collected. Data on costs and 
corresponding recovery rates for claims of different types and in 
various dollar ranges should be used to compare the cost effectiveness 
of alternative collection techniques, establish guidelines with respect 
to points at which costs of further collection efforts are likely to 
exceed recoveries, assist in evaluating offers in compromise, and 
establish minimum claim amounts below which collection efforts need not 
be taken.


Sec. 901.12  Use and disclosure of mailing addresses.

    (a) When attempting to locate a debtor in order to collect or 
compromise a claim under parts 900-904 of this chapter or other 
authority, agencies may send a request to the Secretary of the Treasury 
(or designee) to obtain a debtor's mailing address from the records of 
the Internal Revenue Service.
    (b) Agencies are authorized to use mailing addresses obtained under 
paragraph (a) of this section to enforce collection of a delinquent 
claim and may disclose such mailing addresses to other agencies and to 
collection agencies for collection purposes.


Sec. 901.13  Exemptions.

    (a) The preceding sections of this part, to the extent they reflect 
remedies or procedures prescribed by the Debt Collection Act of 1982 
and the Debt Collection Improvement Act of 1996, such as administrative 
offset, use of credit bureaus, contracting for collection agencies, and 
interest and related charges, do not apply to claims arising under, or 
payments made under, the Internal Revenue Code of 1986 as amended (26 
U.S.C. 1 et seq.); the Social Security Act (42 U.S.C. 301 et seq.), 
except to the extent provided under 42 U.S.C. 404 and 31 U.S.C. 
3716(c); or the tariff laws of the United States. These remedies and 
procedures, however, may be authorized with respect to claims that are 
exempt from the Debt Collection Act of 1982 and the Debt Collection 
Improvement Act of 1996, to the extent that they are authorized under 
some other statute or the common law.
    (b) This section should not be construed as prohibiting the use of 
these authorities or requirements when collecting claims owed by 
persons employed by agencies administering the laws cited in paragraph 
(a) of this section unless the claim arose under those laws.

PART 902--STANDARDS FOR THE COMPROMISE OF CLAIMS

Sec.
902.1--Scope and application.
902.2--Bases for compromise.
902.3--Enforcement policy.
902.4--Joint and several liability.
902.5--Further review of compromise offers.
902.6--Consideration of tax consequences to the Government.
902.7--Mutual releases of debtor and the Government.

    Authority: 31 U.S.C. 3711.


Sec. 902.1  Scope and application.

    (a) The standards set forth in this part apply to the compromise of 
claims pursuant to 31 U.S.C. 3711. An agency may exercise such 
compromise authority for claims arising out of activities of, or 
referred or transferred for collection services to, that agency when 
the amount of the claim then due, exclusive of interest, penalties, and 
administrative costs, does not exceed $100,000 or any higher amount 
authorized by the Attorney General. Agency heads may designate 
officials within their respective agencies to exercise the authorities 
referred to in this section.
    (b) Unless otherwise provided by law, when the principal balance of 
a claim, exclusive of interest, penalties, and administrative costs, 
exceeds $100,000 or any higher amount authorized by the Attorney 
General, the authority to accept the compromise rests with the 
Department of Justice. The agency should evaluate the offer, using the 
factors set forth in this part. If the agency decides that an offer to 
compromise any claim in excess of $100,000 is acceptable to the agency, 
it shall refer the claim to the appropriate litigating division in the 
Department of Justice using a Claims Collection Litigation Report 
(CCLR). Agencies may obtain the CCLR from the Department of Justice or 
local United States Attorney's Office. The referral shall include 
appropriate financial information and a recommendation for the 
acceptance of the compromise offer. Justice Department approval is not 
required if the agency decides to reject a compromise offer.


Sec. 902.2  Bases for compromise.

    (a) Agencies may compromise a claim if the Government cannot 
collect the full amount because:
    (1) The debtor is unable to pay the full amount in a reasonable 
time, as verified through credit reports or other financial 
information;
    (2) The Government is unable to collect the claim in full within a 
reasonable time by enforced collection proceedings;
    (3) The cost of collecting the claim does not justify the enforced 
collection of the full amount; or
    (4) There is significant doubt concerning the Government's ability 
to prove its case in court.
    (b) In determining the debtor's inability to pay, among other 
relevant factors, agencies should consider the following:
    (1) Age and health of the debtor;
    (2) Present and potential income;
    (3) Inheritance prospects;
    (4) The possibility that assets have been concealed or improperly 
transferred by the debtor; and
    (5) The availability of assets or income that may be realized by 
enforced collection proceedings.
    (c) Agencies should verify the debtor's claim of inability to pay 
by using a credit report and other financial information as provided in 
paragraph (g) of this section. Agencies may use their own financial 
information form or may request suitable forms from the Department of 
Justice or local United States Attorney's Office. Agencies should 
consider the applicable exemptions available to the debtor under state 
and Federal law in determining the Government's ability to enforce 
collection. Agencies also may consider uncertainty as to the price that 
collateral or other property will bring at forced sale in determining 
the Government's ability to enforce collection. A compromise effected 
under this section should be for an amount that bears a reasonable 
relation to the amount that can be recovered by enforced collection 
procedures, with regard to the exemptions available to the debtor and 
the time that collection will take.
    (d) If there is significant doubt concerning the Government's 
ability to prove its case in court for the full amount claimed, either 
because of the

[[Page 68485]]

legal issues involved or because of a bona fide dispute as to the 
facts, then the amount accepted in compromise of such cases should 
fairly reflect the probabilities of successful prosecution to judgment, 
with due regard given to the availability of witnesses and other 
evidentiary support for the Government's claim. In determining the 
litigative risks involved, agencies should consider the probable amount 
of court costs and attorney fees pursuant to the Equal Access to 
Justice Act, 28 U.S.C. 2412, that may be imposed against the Government 
if it is unsuccessful in litigation.
    (e) Agencies may compromise a claim if the cost of collecting the 
claim does not justify the enforced collection of the full amount. The 
amount accepted in compromise in such cases may reflect an appropriate 
discount for the administrative and litigative costs of collection, 
with consideration given to the time it will take to effect collection. 
Collection costs may be a substantial factor in the settlement of small 
claims. In determining whether the cost of collecting justifies 
enforced collection of the full amount, agencies should consider 
whether continued collection of the claim, regardless of cost, is 
necessary to further an enforcement principle, such as the Government's 
willingness to pursue aggressively defaulting and uncooperative 
debtors.
    (f) Agencies generally should not accept compromises payable in 
installments. This is not an advantageous form of compromise in terms 
of time and administrative expense. If, however, payment of a 
compromise in installments is necessary, agencies should obtain a 
legally enforceable written agreement providing that, in the event of 
default in payment of the compromise, the full original principal 
balance of the claim prior to compromise, less sums paid thereon, is 
reinstated. Whenever possible, agencies should also obtain security for 
repayment in the manner set forth in part 901 of this title.
    (g) Agencies should obtain a current financial statement from the 
debtor, executed under penalty of perjury, showing the debtor's assets 
and liabilities, income and expenses, as a basis for assessing the 
merits of a compromise proposal. Agencies also may obtain credit 
reports or other financial information to assess compromise offers. 
Agencies may use their own financial information form or may request 
suitable forms from the Department of Justice or the local United 
States Attorney's Office.


Sec. 902.3  Enforcement policy.

    Agencies may compromise statutory penalties, forfeitures, or claims 
established as an aid to enforcement and to compel compliance, pursuant 
to this part, if the agency's enforcement policy in terms of deterrence 
and securing compliance, present and future, will be adequately served 
by the agency's acceptance of the sum to be agreed upon. Accidental or 
technical violations may be dealt with less severely than willful and 
substantial violations.


Sec. 902.4  Joint and several liability.

    (a) When two or more debtors are jointly and severally liable, 
agencies should pursue collection activity against all debtors, as 
appropriate. Agencies should not attempt to allocate the burden of 
payment between the debtors but should proceed to liquidate the 
indebtedness as quickly as possible.
    (b) Agencies should ensure that a compromise agreement with one 
debtor does not release the agency's claim against the remaining 
debtors. The amount of a compromise with one debtor shall not be 
considered a precedent or binding in determining the amount that will 
be required from other debtors jointly and severally liable on the 
claim.


Sec. 902.5  Further review of compromise offers.

    If an agency receives a firm, written, substantive compromise offer 
on a claim that comes within its own delegated compromise authority, 
but is uncertain whether the offer should be accepted, it may refer the 
offer, using a CCLR accompanied by supporting data and particulars 
concerning the claim, to the appropriate litigating division in the 
Department of Justice. The Department of Justice may act upon such an 
offer or return it to the agency with instructions or advice.


Sec. 902.6  Consideration of tax consequences to the Government.

    In negotiating a compromise with a business concern, agencies 
should consider the tax consequences to the Government. In particular, 
agencies should consider requiring a waiver of tax-loss-carry-forward 
and tax-loss-carry-back rights of the debtor.


Sec. 902.7  Mutual releases of debtor and the Government.

    In all appropriate instances, a compromise that is accepted by an 
agency should be implemented by means of a mutual release, whereby the 
debtor is released from further non-tax liability on the compromised 
claim in consideration of payment in full of the compromise amount. The 
Government and its officials, past and present, are released and 
discharged from any and all claims arising from the same transaction 
the debtor may have against them.

PART 903--STANDARDS FOR SUSPENDING OR TERMINATING COLLECTION 
ACTIVITY

Sec.
903.1 Scope and application.
903.2 Suspension of collection activity.
903.3 Termination of collection activity.
903.4 Exception to termination.

    Authority: 31 U.S.C. 3711.


Sec. 903.1  Scope and application.

    (a) The standards set forth in this part apply to the suspension or 
termination of collection activity pursuant to 31 U.S.C. 3711 on claims 
that do not exceed $100,000, or such other amount as the Attorney 
General may direct, ex-clusive of interest, penalties, and 
administrative costs, after deducting the amount of partial payments or 
collec-tions, if any. Prior to referring a claim to the Department of 
Justice for litigation, agencies may suspend or terminate collection 
under this part with respect to claims arising out of activities of, or 
referred or transferred for collection services to, that agency.
    (b) If, after deducting the amount of any partial payments or 
collections, the principal amount of a claim exceeds $100,000, or such 
other amount as the Attorney General may direct, exclusive of interest, 
penalties, and administrative costs, the authority to suspend or 
terminate rests solely with the Department of Justice. If the agency 
believes that suspension or termination of any claim in excess of 
$100,000 may be appropriate, it shall refer the claim to the 
appropriate litigating division in the Department of Justice, using the 
Claims Collection Litigation Report. The referral should specify the 
reasons for the agency's recommendation. If, prior to referral to the 
Department of Justice, an agency determines that a claim is plainly 
erroneous or clearly without legal merit, the agency may terminate 
collection activity regardless of the amount involved without obtaining 
Department of Justice concurrence.


Sec. 903.2  Suspension of collection activity.

    (a) Agencies may suspend collection activity on a claim when:
    (1) The agency cannot locate the debtor;
    (2) The debtor's financial condition is expected to improve; or
    (3) The debtor has requested a waiver or review of the claim.
    (b) Based on the current financial condition of the debtor, 
agencies may

[[Page 68486]]

suspend collection activity on a claim when the debtor's future 
prospects justify retention of the claim for periodic review and 
collection activity and:
    (1) The applicable statute of limitations has not expired; or
    (2) Future collection can be effected by administrative offset, 
notwithstanding the expiration of the applicable statute of limitations 
for litigation of claims, with due regard to the 10-year limitation for 
administrative offset prescribed by 31 U.S.C. 3716(e)(1); or
    (3) The debtor agrees to pay interest on the amount of the claim on 
which collection will be suspended, and such suspension is likely to 
enhance the debtor's ability to pay the full amount of the principal of 
the claim with interest at a later date.
    (c) (1) Agencies shall suspend collection activity during the time 
required for consideration of the debtor's request for waiver or 
administrative review of the claim if the statute under which the 
request is sought prohibits the agency from collecting the debt during 
that time.
    (2) If the statute under which the request is sought does not 
prohibit collection activity pending consideration of the request, 
agencies may use discretion, on a case-by-case basis, to suspend 
collection. Further, an agency ordinarily should suspend collection 
action upon a request for waiver or review if the agency is prohibited 
by statute or regulation from issuing a refund of amounts collected 
prior to agency consideration of the debtor's request. However, an 
agency should not suspend collection when the agency determines that 
the request for waiver or review is frivolous or was made primarily to 
delay collection.
    (d) When an agency learns that a bankruptcy petition has been filed 
with respect to a debtor, in most cases the collection activity on a 
claim must be suspended, pursuant to the provisions of 11 U.S.C. 362, 
1201, and 1301, unless the agency can clearly establish that the 
automatic stay has been lifted or is no longer in effect. Agencies 
should seek legal advice immediately from their agency counsel and, if 
legally permitted, take the necessary legal steps to ensure that no 
funds or money are paid by the agency to the debtor until relief from 
the automatic stay is obtained.


Sec. 903.3  Termination of collection activity.

    (a) Agencies may terminate collection activity when:
    (1) The agency is unable to collect any substantial amount through 
its own efforts or through the efforts of a debt collection center;
    (2) The agency is unable to locate the debtor;
    (3) Costs of collection are anticipated to exceed the amount 
recoverable;
    (4) The claim is legally without merit or enforcement of the claim 
is barred by any applicable statute of limitations;
    (5) The claim cannot be substantiated; or
    (6) The claim against the debtor has been discharged in bankruptcy.
    (b) Before terminating collection activity, the agency should have 
pursued all appropriate means of collection and determined, based upon 
the results of the collection activity, that the claim is 
uncollectible. Termination of collection activity ceases active 
collection of the claim. The termination of collection activity does 
not preclude the agency from retaining a record of the account for 
purposes of:
    (1) Selling the debt, if the Secretary determines that such sale is 
in the best interests of the United States;
    (2) Pursuing collection at a subsequent date in the event there is 
a change in the debtor's status or a new collection tool becomes 
available;
    (3) Offsetting against future income or assets not available at the 
time of termination of collection activity; or
    (4) Screening future applicants for prior indebtedness.
    (c) Generally, agencies shall terminate collection activity on a 
claim that has been discharged in bankruptcy, regardless of the amount. 
Agencies may continue collection activity, however, subject to the 
provisions of the Bankruptcy Code, for any payments provided under a 
plan of reorganization. Offset and recoupment rights may survive the 
discharge of the debtor in bankruptcy and, under some circumstances, 
claims also may survive the discharge. For example, the claims of an 
agency that is a known creditor of a debtor may survive a discharge if 
the agency did not receive formal notice of the proceedings. Agencies 
should seek legal advice from their agency counsel if they believe they 
have claims or offsets that may survive the discharge of a debtor.


Sec. 903.4  Exception to termination.

    When a significant enforcement policy is involved, or recovery of a 
judgment is a prerequisite to the imposition of administrative 
sanctions, agencies may refer such a claim for litigation even though 
termination of collection activity might otherwise be appropriate.

PART 904--REFERRALS TO THE DEPARTMENT OF JUSTICE

Sec.
904.1  Prompt referral.
904.2  Claims Collection Litigation Report.
904.3  Preservation of evidence.
904.4  Minimum amount of referrals to the Department of Justice.

    Authority: 31 U.S.C. 3711.


Sec. 904.1  Prompt referral.

    (a) Agencies promptly shall refer to the Department of Justice for 
litigation claims on which aggressive collection activity has been 
taken in accordance with part 901 of this title and that cannot be 
compromised, or on which collection activity cannot be suspended or 
terminated, in accordance with parts 902 and 903 of this chapter. 
Agencies may refer those claims arising out of activities of, or 
referred or transferred for collection services to, that agency. Claims 
for which the principal amount is over $1,000,000, or such other amount 
as the Attorney General may direct, exclusive of interest and 
penalties, shall be referred to the division responsible for litigating 
such claims at the Department of Justice, Washington, D.C. Claims for 
which the principal amount is $1,000,000, or less, or such other amount 
as the Attorney General may direct, exclusive of interest or penalties, 
shall be referred to the Department of Justice's Nationwide Central 
Intake Facility as required by the CCLR instructions. Claims should be 
referred as early as possible, consistent with aggressive agency 
collection activity and the observance of the standards contained in 
parts 900-904 of this chapter, and, in any event, well within the 
period for initiating timely lawsuits against the debtors. Agencies 
shall make every effort to refer delinquent claims to the Department of 
Justice for litigation within one year of the date such claims last 
became delinquent. In the case of guaranteed or insured loans, agencies 
should make every effort to refer these delinquent claims to the 
Department of Justice for litigation within one year from the date the 
loan was presented to the agency for payment or re-insurance.
    (b) The Department of Justice has exclusive jurisdiction over the 
claims referred to it pursuant to this section. The referring agency 
shall refrain from having any contact with the debtor and shall direct 
all debtor inquiries concerning the claim to the Department of Justice. 
The referring agency shall notify immediately the Department of Justice 
of any payments credited by the agency to the debtor's account after 
referral of a claim under this section.

[[Page 68487]]

The Department of Justice shall notify the referring agency, in a 
timely manner, of any payments it receives from the debtor.


Sec. 904.2  Claims Collection Litigation Report.

    (a) Unless excepted by the Department of Justice, agencies shall 
complete the Claims Collection Litigation Report (CCLR) (See 
Sec. 902.1(b) of this chapter.), accompanied by a signed Certificate of 
Indebtedness, to refer all administratively uncollectible claims to the 
Department of Justice for litigation. Referring agencies shall complete 
all of the sections of the CCLR appropriate to each claim as required 
by the CCLR instructions and furnish such other information as may be 
required in specific cases.
    (b) Agencies shall indicate clearly on the CCLR the actions they 
wish the Department of Justice to take with respect to the referred 
claim. The CCLR permits the agency to indicate specifically any of a 
number of litigative activities which the Department of Justice may 
pursue, including enforced collection, judgment lien only, renew 
judgment lien only, renew judgment lien and enforce collection, program 
enforcement, foreclosure only, and foreclosure and deficiency judgment.
    (c) Agencies also shall use the CCLR to refer claims to the 
Department of Justice to obtain that Department's approval of any 
proposals to compromise the claims or to suspend or terminate agency 
collection activity.


Sec. 904.3  Preservation of evidence.

    Referring agencies must take care to preserve all files and records 
that may be needed by the Department of Justice to prove their claims 
in court. Agencies ordinarily should include certified copies of the 
documents that form the basis for the claim in the packages referring 
their claims to the Department of Justice for litigation. Agencies 
shall provide originals of such documents immediately upon request by 
the Department of Justice.


Sec. 904.4  Minimum amount of referrals to the Department of Justice.

    (a) Agencies shall not refer for litigation claims of less than 
$2,500, exclusive of interest, penalties, and administrative costs, or 
such other amount as the Attorney General shall from time to time 
prescribe. The Department of Justice promptly shall notify referring 
agencies if the Attorney General changes this minimum amount.
    (b) Agencies shall not refer claims of less than the minimum amount 
unless:
    (1) Litigation to collect such smaller claims is important to 
ensure compliance with the agency's policies or programs;
    (2) The claim is being referred solely for the purpose of securing 
a judgment against the debtor, which will be filed as a lien against 
the debtor's property pursuant to 28 U.S.C. 3201 and returned to the 
referring agency for enforcement; or
    (3) The debtor has the clear ability to pay the claim and the 
Government effectively can enforce payment, with due regard for the 
exemptions available to the debtor under state and Federal law and the 
judicial remedies available to the Government. Agencies should consult 
with the Financial Litigation Staff of the Executive Office for United 
States Attorneys in the Department of Justice prior to referring claims 
valued at less than the minimum amount.

    Dated: December 16, 1997.
Robert E. Rubin,
Secretary of the Treasury.
    Dated: November 28, 1997.
Janet Reno,
Attorney General of the United States.
[FR Doc. 97-33338 Filed 12-30-97; 8:45 am]
BILLING CODE 4810-35-P, 4410-26-P