[Federal Register Volume 87, Number 22 (Wednesday, February 2, 2022)]
[Rules and Regulations]
[Pages 5693-5696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01496]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 1

RIN 2900-AR20


Threshold for Reporting VA Debts to Consumer Reporting Agencies

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) amends its regulations 
around the conditions by which VA benefits debts or medical debts are 
reported to consumer reporting agencies (CRA). The Johnny Isakson and 
David P. Roe, M.D. Veterans Health Care and Benefits Improvement Act of 
2020 provides the Secretary authority to prescribe regulations that 
establish the minimum amount of a benefits or medical debt that the 
Secretary will report to the CRA. This change will establish the 
methodology for determining a minimum threshold for debts reported to 
CRA.

DATES: This rule is effective March 4, 2022.

FOR FURTHER INFORMATION CONTACT: Jason Hoge, Director of Operations, 
Debt Management Center, Office of Management, 189, 1 Federal Drive, 
Suite 4500, Fort Snelling, MN 55111, (612) 725-4337. (This is not a 
toll-free telephone number.)

SUPPLEMENTARY INFORMATION: On July 23, 2021 (86 FR 38958), VA published 
a proposed rule in the Federal Register that would significantly reduce 
the amount of VA debts referred to the CRA. VA provided a 60-day 
comment period, which ended on September 21, 2021. VA received nine 
comments on the proposed rule.

Summary of Regulatory Changes

    This final rule amends VA's regulation that governs reporting of 
delinquent debts to CRA. This rulemaking would update the regulation to 
comply with section 2007 of Public Law 116-315, the Johnny Isakson and 
David P. Roe, M.D. Veterans Health Care and Benefits Improvement Act of 
2020. Section 2007 amends chapter 53 of title 38, United States Code by 
adding section 5320 as follows: ``The Secretary shall prescribe 
regulations that establish the minimum amount of a claim or debt, 
arising from a benefit administered by the Under Secretary for Benefits 
or Under Secretary for Health, that the Secretary will report to a 
consumer reporting agency under section 3711 of title 31.''
    This amendment will establish the methodology for determining the 
minimum threshold for reporting certain VA debts to CRA. It will also 
exclude from the minimum threshold those debts in which there is an 
indication of fraud, misrepresentation, or bad faith on the part of the 
debtor.

Background on Governing Statutes

    The Debt Collection Improvement Act of 1996 (DCIA), in part, 
mandated agencies to report delinquent debts to CRA. 31 U.S.C. 3711(e); 
Sec. 31001(k), Public Law 104-134, 110 Stat. 1321. The purpose of the 
DCIA includes maximizing collection of delinquent debts by ensuring 
quick action to recover debts, use of appropriate collection tools, and 
minimizing the costs of debt collection. Sec. 31001(b), Public Law 104-
134.
    Section 5320 of title 38, United States Code, authorizes VA to 
``establish the minimum amount of a claim or debt, arising from a 
benefit administered by the Under Secretary for Benefits or Under 
Secretary for Health, that the Secretary will report to a consumer 
reporting agency under section 3711 of title 31.'' The intent of 
section 5320 is to lessen negative impact of CRA reports on Veterans.

Introduction to Regulatory Changes

    As explained in more detail below, we amend 38 CFR 1.916 to comply 
with 38 U.S.C. 5320, to establish a minimum threshold for reporting 
debts to CRA.
    In accordance with 31 U.S.C. 3711(e), the VA Debt Management Center 
(DMC) is responsible for reporting delinquent debts to CRA. Prior to 
January 5, 2021, DMC reported an average of 5,000 delinquent Veteran 
accounts monthly. DMC regularly receives complaints from Veterans whose 
accounts have been reported to CRA. Common complaints

[[Page 5694]]

from Veterans include loss of security clearance, inability to obtain 
approval for home loans or home refinancing, and difficulty securing 
rental housing. This amendment recognizes that the debts described in 
38 U.S.C. 5320 are fundamentally different from consumer debt. Debts 
arising from a benefit administered by the Under Secretary for Benefits 
or the Under Secretary for Health may result from a variety of 
scenarios, including overpayments that are not the fault of the 
Veteran.
    Section 5320 authorizes the Secretary to establish a minimum 
threshold that will ultimately reduce the number of debts that will be 
reported to CRA. This will, in turn, decrease the number of Veterans 
negatively impacted by these reports. The VA's mission is to ``fulfill 
President Lincoln's promise `To care for him who shall have borne the 
battle, and for his widow, and his orphan' by serving and honoring the 
men and women who are America's Veterans.'' Negative credit reports may 
cause housing insecurity or job loss, and this result is inconsistent 
with VA's mission.

38 CFR 1.916 Disclosure of Debt Information to Consumer Reporting 
Agencies (CRA)

    We amend 38 CFR 1.916, which sets forth the requirements for 
reporting delinquent debts to CRA, by inserting paragraphs (c)(1) 
through (3) to provide the methodology used by the Secretary to 
establish the minimum threshold. This section would also clarify that 
the minimum threshold applies only to a debt of an individual that 
arises from a benefit administered by the Under Secretary for Benefits 
or Under Secretary for Health.
    We add paragraphs (c)(1) through (3) to provide that:
    <bullet> The Secretary has established a minimum threshold for a 
debt, arising from a benefit administered by the Under Secretary for 
Benefits or Under Secretary for Health, that the Secretary will report 
to a consumer reporting agency under section 3711 of title 31.
    <bullet> VA will only report those debts that meet the following 
standards:
    [cir] The debt is classified as currently not collectible. For 
purposes of this paragraph, the debt is currently not collectible if VA 
has exhausted available collection efforts, including, as appropriate, 
referrals for administrative offset and enforced collection;
    [cir] The debt is not owed by an individual who is determined by VA 
to be catastrophically disabled or has reported to VA a gross household 
income below the applicable geographically adjusted income limits that 
would entitle a VA beneficiary to cost-free health care, medications 
and/or beneficiary travel; and
    [cir] The outstanding debt amount is over $25, or such higher 
amount VA may from time to time prescribe, in accordance with Sec.  
1.921 of the part.
    <bullet> The minimum threshold set forth in the paragraph will not 
apply if there is an indication of fraud, misrepresentation, or bad 
faith on the part of the individual in connection with the debt.

Positive Comments

    Most commenters were in support of the proposed rule. One commenter 
stated that the rule will make life easier for Veterans, particularly 
those who have experienced conditions that require them to receive 
financial assistance from VA. Another commenter stated the rule 
demonstrates that VA recognizes these debts are not like consumer debts 
and result from many sources, including some that are of no fault of 
the Veteran. The commenter added the proposed rule makes it clear that 
VA understands that fraudulent and misrepresented claims should not be 
tolerated, and these are exempt from the proposed rule, as they should 
be. An additional commenter similarly mentioned that these debts should 
be recognized differently from consumer debts as many times it is not 
the fault of the Veteran, and we should be protecting those who serve 
us.
    VA thanks the commenters for their support of the rule. We are not 
making any changes based on these comments.

Comments on Referral of Medical Debts

    One commenter stated there should never be a time Veteran medical 
debts should be reported to a credit reporting agency. The commenter 
added that reporting Veterans for non-payment or delinquent status of a 
medical debt can further add to the mental and emotional turmoil most 
are already dealing with.
    Another commenter suggested expanding reporting restrictions to 
Veterans in priority groups one through seven. The commenter states the 
proposed criteria would effectively exclude Veterans in VA health care 
priority groups four and five but leave several categories of Veterans 
unprotected. The commenter added Veterans should be as insulated as 
possible from the negative consequences of having medical debt included 
in their credit reports and urged the VA to exclude all delinquent 
debts held by Veterans in priority groups one through seven.
    VA acknowledges and understands the concern with reporting medical 
debts to CRA. However, the proposed rule states VA will only report 
debts that are considered currently not collectible, the debt is not 
owed by an individual who is determined catastrophically disabled or 
has a gross household income below the applicable geographically 
adjusted income limit, and the outstanding debt amount is over $25. 
When considering VA medical debts that fall under these conditions, VA 
is obligated by the Debt Collection Improvement Act (DCIA) to report 
delinquent debts to the CRA. Through VA's analysis and determination of 
the referral conditions, the current rule is projected to result in a 
significant reduction in referred debts while continuing to comply with 
DCIA. Therefore, VA is not making changes based on these comments.

Comment on Minimum Threshold Amount

    Several commenters voiced concern over the $25 minimum threshold 
amount. One commenter suggested the $25 threshold be increased to 
$1,000 since this would more likely represent a common loan borrowed on 
the regular marketplace. The commenter also stated a significant amount 
of Veterans face housing and job insecurity, even with benefits 
extended to them, so the proposed threshold requirement should be 
higher.
    Another commenter stated by setting a low monetary threshold of 
$25, it is hard to imagine there will be a significant reduction in 
debt reporting. The same commenter suggested the VA set the minimum 
threshold at the 10 percent rating monthly rate.
    One commenter suggested to substantially increase the proposed 
dollar amount from $25 to a higher threshold that would follow various 
characteristics about Veterans' delinquent debt, such as the median 
medical collections tradeline provided by Consumer Financial Protection 
Bureau (CFPB). The commenter further explains the CFPB reports that the 
addition of any paid or unpaid collections tradeline can significantly 
reduce a credit score and may even preclude individuals from accessing 
the credit market altogether.
    VA considered several different threshold amounts and after 
thorough analysis came to the threshold as proposed in the rule which 
includes four criteria: (1) The debt is classified as currently not 
collectible; (2) The debt is not owed by an individual who is 
determined by VA to be catastrophically disabled or has reported to VA 
a gross household income below the applicable geographically adjusted 
income limits; (3) The outstanding debt amount is over

[[Page 5695]]

$25.00; and (4) There is no indication of fraud, misrepresentation, or 
bad faith on the part of the individual in connection with the debt. 
Based on the comprehensive impact of the criteria in addition to the 
dollar amount, VA is not making changes based on these comments.

Comments on Definition of Catastrophically Disabled Veteran

    One commenter suggested expanding its exemptions to all totally and 
permanently disabled Veterans as an additional way to lessen the impact 
of CRA reporting. Another commenter stated VA should align the 
``catastrophically disabled'' rule to meet the Department of 
Education's Total and Permanent Disability Discharge program. The 
commenter states VA's use of ``catastrophically disabled'' in the 
proposed rule places a significantly higher standard even though a 
rating of 100% or a finding of total disability makes it just as 
unreasonable to expect the Veteran to be able to repay the debt. One 
commenter made a similar suggestion that VA should consider expanding 
its exemptions to all totally and permanently disabled Veterans as an 
additional way to lessen the impact of CRA reporting.
    As stated in the proposed rule, VA will only report debts to CRA if 
the debt is not owed by an individual who is determined to be 
catastrophically disabled or has reported to VA a gross household 
income below the applicable geographically adjusted income limits. Due 
to the requirements of the DCIA and the Johnny Isakson and David P. 
Roe, M.D. Veterans Health Care and Benefits Improvement Act of 2020, VA 
is not making changes based on these comments.

Comments on Veteran Benefits

    One commenter stated benefits or entitlements for Veterans should 
not end once they are no longer in the service due to medical issues or 
disabilities caused by their time in the military. It was also 
suggested that all Veterans should have a counselor of some sort to 
inform them of their financial responsibilities in connection with 
receiving services. Another commenter stated Veterans need more support 
and access to benefits than what is currently available, and the 
benefits that are available should not be allowed to negatively impact 
Veterans on the housing and job market.
    VA acknowledges the concerns addressed in these comments; however, 
the comments do not directly correlate with the proposed rulemaking so 
VA will not be making any changes based on these comments.

Comment on Referral of Education Debts

    One commenter stated the proposed rule should be revised to exempt, 
or at a minimum, specifically restrict the reporting of educational 
overpayment debts to a CRA since most of these debts are caused by 
error or delay by VA or an institution.
    Effective January 5, 2021, Public Law 116-315 section 1019 was 
enacted, making the school, instead of the student, financially liable 
for payments such as tuition, fees, and Yellow Ribbon paid directly to 
a school. Therefore, any educational overpayment debt owed to the VA 
would be a books and supplies or housing debt. Students currently 
enrolled in school would have their debts offset by their VA benefits 
so there should be very few debts classified as currently not 
collectible in this category. Due to the fact that reporting 
educational overpayment debts to CRA is a rare occurrence, VA is not 
making changes based on this comment.

Comment on Referral of Debts Under Dispute by a Veteran

    One commenter suggested the VA should prohibit reporting of any 
debt to a CRA that is being disputed until an individual's dispute or 
appeal is resolved. The commenter states if the dispute is found in 
favor of the Veteran, the inaccurate negative credit report may have 
caused irreversible financial harm, such as the loss of a security 
clearance, inability to obtain credit for the purchase of a home or 
vehicle, and inability to secure rental housing.
    When an individual timely disputes or appeals his or her VA debt, 
VA pauses collection on the debt, and the debt would not be referred to 
CRA until the dispute or appeal has been resolved. The determination of 
currently not collectible would come well after any resolution of a 
dispute. VA is not making changes based on this comment.
    Based on the rationale set forth in the SUPPLEMENTARY INFORMATION 
to the proposed rule and in this final rule, VA is adopting the 
proposed rule with no changes.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The Office of Information and Regulatory Affairs has determined that 
this rule is not a significant regulatory action under Executive Order 
12866. The Regulatory Impact Analysis associated with this rulemaking 
can be found as a supporting document at www.regulations.gov.

Regulatory Flexibility Act

    The Secretary hereby certifies that this rule will not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act (5 U.S.C. 601-
612). The regulations established by this rulemaking do not impose 
burdens or otherwise regulate the activities of any small entities 
outside of VA. Therefore, pursuant to 5 U.S.C. 605(b), the initial and 
final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 
604 do not apply.

Paperwork Reduction Act

    This rule contains no provisions constituting a collection of 
information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3521).

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This final rule will have no such effect on 
State, local, and tribal governments, or on the private sector.

Congressional Review Act

    Pursuant to Subtitle E of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (known as the Congressional Review Act) (5 U.S.C. 
801 et seq.), the Office of Information and Regulatory Affairs 
designated this rule as not a major rule, as defined by 5 U.S.C. 
804(2).

List of Subjects in 38 CFR Part 1

    Administrative practice and procedure, Archives and records, 
Cemeteries, Claims, Courts, Crime, Flags, Freedom of information, 
Government contracts, Government employees, Government property,

[[Page 5696]]

Infants and children, Inventions and patents, Parking, Penalties, 
Postal Service, Privacy, Reporting and recordkeeping requirements, 
Seals and insignia, Security measures, Wages.

Signing Authority

    Denis McDonough, Secretary of Veterans Affairs, approved this 
document on December 2, 2021, and authorized the undersigned to sign 
and submit the document to the Office of the Federal Register for 
publication electronically as an official document of the Department of 
Veterans Affairs.

Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of 
General Counsel, Department of Veterans Affairs.

    For the reasons stated in the preamble, the Department of Veterans 
Affairs amends 38 CFR part 1 as set forth below:

PART 1--GENERAL PROVISIONS

0
1. The authority citation for part 1 is revised to read as follows:

    Authority:  31 U.S.C. 3711(e); 38 U.S.C. 501, 5701(g) and (i); 
38 U.S.C. 5320.


0
2. Amend Sec.  1.916 by revising paragraph (c) to read as follows:


Sec.  1.916   Disclosure of debt information to consumer reporting 
agencies (CRA).

* * * * *
    (c) Subject to the conditions set forth in this paragraph (c) and 
paragraph (d) of this section, information concerning individuals may 
be disclosed to consumer reporting agencies for inclusion in consumer 
reports pertaining to the individual, or for the purpose of locating 
the individual. Disclosure of the fact of indebtedness will be made if 
the individual fails to respond in accordance with written demands for 
repayment, or refuses to repay a debt to the United States. In making 
any disclosure under this section, VA will provide consumer reporting 
agencies with sufficient information to identify the individual, 
including the individual's name, address, if known, date of birth, VA 
file number, and Social Security number.
    (1) The Secretary has established a minimum threshold for a debt, 
arising from a benefit administered by the Under Secretary for Benefits 
or Under Secretary for Health, that the Secretary will report to a 
consumer reporting agency under 31 U.S.C. 3711.
    (2) VA will only report those debts that meet the following 
standards:
    (i) The debt is classified as currently not collectible. For 
purposes of this paragraph (c)(2)(i), the debt is currently not 
collectible if VA has exhausted available collection efforts, 
including, as appropriate, referrals for administrative offset and 
enforced collection;
    (ii) The debt is not owed by an individual who is determined by VA 
to be catastrophically disabled or has reported to VA a gross household 
income below the applicable geographically adjusted income limits that 
would entitle a VA beneficiary to cost-free health care, medications 
and/or beneficiary travel; and
    (iii) The outstanding debt amount is over $25, or such higher 
amount VA may from time to time prescribe, in accordance with Sec.  
1.921.
    (3) The minimum threshold set forth in this paragraph (c) will not 
apply if there is an indication of fraud, misrepresentation, or bad 
faith on the part of the individual in connection with the debt.
* * * * *

[FR Doc. 2022-01496 Filed 2-1-22; 8:45 am]
BILLING CODE 8320-01-P