68476 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Proposed Rules

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.

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 sectionby-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
Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Proposed Rules 68477

or Treasury-designated debt collection

centers for collection, known as ‘‘crossservicing;’’

(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.

§ 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.

§ 900.2 Definitions and construction.

(a) For the purposes of the standards

in this chapter, the terms ‘‘claim’’ and

‘‘debt’’ are synonymous and interchangeable. 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 postdelinquency 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.

§ 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).

§ 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.

§ 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.

§ 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.

§ 900.7 Required administrative

proceedings.

Agencies are not required to omit,

foreclose, or duplicate administrative

proceedings required by contract or

other laws or regulations.

§ 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.

§ 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 § 901.10).

§ 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 § 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 § 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.

§ 901.3 Collection by administrative offset.

(a) In general. Two types of

administrative offset exist under this

section: Administrative offset by nondisbursing 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 §§ 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
68480 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Proposed Rules

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

§ 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 § 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

§ 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
68482 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Proposed Rules

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 § 901.9 and § 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.

§ 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.

§ 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.

§ 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.
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(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.

§ 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.

§ 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

§ 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.

§ 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 handdeliver 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
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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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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
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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.

§ 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.

§ 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.

§ 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.

§ 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-losscarry-back rights of the debtor.

§ 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.

§ 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, exclusive of interest, penalties, and

administrative costs, after deducting the

amount of partial payments or collections, 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.

§ 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
68486 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Proposed Rules

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.

§ 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.

§ 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.

§ 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.
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The Department of Justice shall notify

the referring agency, in a timely manner,

of any payments it receives from the

debtor.

§ 904.2 Claims Collection Litigation

Report.

(a) Unless excepted by the

Department of Justice, agencies shall

complete the Claims Collection

Litigation Report (CCLR) (See § 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.

§ 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.

§ 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