20006 Federal Register / Vol. 63, No. 77 /Wednesday, April 22, 199 / Proposed Rules

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510–AA71

Barring Delinquent Debtors From

Obtaining Federal Loans or Loan

Insurance or Guarantees

AGENCY: Financial Management Service,

Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Debt Collection

Improvement Act of 1996 (DCIA)

mandated a new eligibility requirement

for persons seeking Federal financial

assistance, namely that delinquent

Federal debtors are ineligible for Federal

direct and indirect loan assistance

(other than disaster loans). This

proposed rule defines when a debt is in

delinquent status and when a

delinquency is resolved for purposes of

determining whether the DCIA bars a

person from receiving financial

assistance. In addition, this proposed

rule prescribes when the Secretary of

the Treasury may exempt a class of

delinquent debts from affecting a

debtor’s loan eligibility. This proposed

rule also sets forth factors for authorized

agency officials to consider when

deciding whether to waive the DCIA

eligibility requirement.

DATES: Comments must be received on

or before May 22, 1998.

ADDRESSES: All comments should be

addressed to Gerry Isenberg, Financial

Program Specialist, Debt Management

Services, Financial Management

Service, 401 14th Street SW, Room 151,

Washington, D.C. 20227. A copy of this

proposed rule is being made available

for downloading from the Financial

Management Service web site at the

following address: http://

www.fms.treas.gov.

FOR FURTHER INFORMATION CONTACT:

Gerry Isenberg, Financial Program

Specialist, at (202) 874–6859; or Ellen

Neubauer or Ronda Kent, Senior

Attorneys, at (202) 874–6680.

SUPPLEMENTARY INFORMATION:

Background

Section 31001(j)(1) of the Debt

Collection Improvement Act of 1996

(DCIA), Pub. L. 104–134, 110 Stat.

1321–358 (Apr. 26, 1996), codified at 31

U.S.C. 3720B (section 3720B), provides

that a person owing a delinquent nontax

debt to the Federal Government is

ineligible for Federal financial

assistance in the form of a loan (other

than a disaster loan) or loan insurance

or guarantee. The head of an agency that

administers a Federal financial

assistance program may waive this

provision. The waiver authority may be

delegated only to the agency’s Chief

Financial Officer or Deputy Chief

Financial Officer. In addition, the

Secretary of the Treasury may exempt

any class of debts from affecting a

person’s eligibility for receiving

financial assistance.

The DCIA requires the Secretary of

the Treasury to prescribe standards

under which agencies will determine

whether a person has an outstanding

delinquent debt that would trigger the

DCIA bar to Federal financial assistance.

As the lead agency for the collection of

nontax debt in the Federal Government,

the Financial Management Service

(FMS), a bureau of the Department of

the Treasury, is responsible for

promulgating the regulations governing

this and other provisions of the DCIA.

This proposed rule defines when a debt

is in delinquent status and when the

delinquency is resolved for purposes of

determining whether the DCIA bars a

person from receiving financial

assistance. This proposed rule also

prescribes standards under which a

Treasury exemption may be granted and

sets forth factors for an agency to

consider when deciding whether an

agency waiver is appropriate.

Section Analysis

(a) Definitions

The intent of section 3720B is to

prevent persons owing delinquent

nontax obligations to the Government

from receiving Federal financial

assistance. The definition of the term

‘‘debt’’ in paragraph (a)(3) is intended to

cover all amounts owed to the United

States, including debts administered by

a third party as an agent for the Federal

Government, and has the same meaning

as set forth in 31 U.S.C. 3701(b)(1).

As stated in paragraph (a)(4), the term

‘‘Federal financial assistance’’ or

‘‘financial assistance’’ as defined in

section 3720B means any Federal loan

(other than a disaster loan), loan

insurance, or loan guarantee. Although

disaster loans are not covered by section

3720B and this proposed rule, nothing

in this proposed rule is intended to

suggest that a delinquent debtor is

eligible for a disaster loan unless he or

she meets all eligibility requirements

under applicable law.

In paragraph (a)(7), the term person is

defined to include all individuals and

organizations, including state and local

governments, but does not include

Federal agencies. FMS requests

comments on the extent to which

foreign entities are barred from

obtaining Federal financial assistance

under the DCIA (31 U.S.C. 3720B).

(b) Purpose and Scope

The purpose and scope of this

proposed rule are described in

paragraph (b) of this section. Section

3720B and this proposed rule apply to

persons owing delinquent nontax debt

to the Government. This proposed rule

sets forth the standards for determining

whether a debt is in delinquent status

for the purpose of barring a debtor from

receiving Federal financial assistance as

required by section 3720B. In addition,

the proposed rule addresses when an

agency waiver or Treasury exemption is

appropriate. Nothing in this proposed

rule is intended to define the term

‘‘delinquent’’ for purposes other than

the application of section 3720B.

As stated in paragraph (b)(3), this

proposed rule is not intended to replace

agency policies or procedures for

determining whether a person is eligible

for financial assistance or for agency

review of denials of such assistance. For

example, although the DCIA bar does

not apply to a person owing delinquent

Federal tax debt, nothing in this

proposed rule precludes an agency from

denying financial assistance to such a

person under other applicable eligibility

requirements. The fact that a debtor has

had debts discharged in bankruptcy also

may be a factor that agencies consider

in assessing creditworthiness although

the DCIA and this proposed rule do not

bar the extension of credit. Similarly,

the granting of a waiver or an exemption

under this section does not mean that a

loan application must be approved. For

example, a waiver of this rule by the

head of an agency under the provisions

of section 3720B does not prohibit the

agency from denying credit to a person

based on general creditworthiness

requirements, such as repayment ability

or failure to pay obligations when they

become due.

As stated in paragraph (b)(4), this

proposed rule does not confer any new

rights or benefits on persons seeking

Federal financial assistance. The DCIA

mandated a new eligibility requirement

for persons seeking financial assistance,

namely that delinquent Federal debtors

are ineligible for Federal direct and

indirect loan assistance (other than

disaster loans). Agencies are not

required to add new review procedures

for persons who do not qualify for or are

denied financial assistance based on the

DCIA eligibility requirement. Those

persons who are denied financial

assistance based on the DCIA

requirement are entitled to the same
Federal Register / Vol. 63, No. 77 /Wednesday, April 22, 199 / Proposed Rules 20007

opportunities for review, if any, as those

who are denied financial assistance

based on other applicable eligibility

requirements.

(c) General Rule

Paragraph (c) of this section states the

general rule contained in the DCIA that

a person is ineligible for a Federal direct

loan (other than disaster loans), loan

insurance or loan guarantee if that

person owes a delinquent nontax debt to

the Federal Government. The DCIA

eligibility requirement applies to all

persons seeking Federal financial

assistance and owing an outstanding

nontax debt in delinquent status,

including, but not limited to,

guarantors. The DCIA eligibility

requirement applies to all Federal loans

(other than disaster loans) including

those loans for which creditworthiness

or credit history is not otherwise a factor

for eligibility purposes, e.g., student

loans. Since there are many ways in

which agencies may obtain delinquent

debt information, this proposed rule

does not mandate a particular method of

collecting such information. Agencies

may request delinquent debt

information on loan applications, obtain

credit reports, and use the Department

of Housing and Urban Development’s

Credit Alert Interactive Voice Response

System (CAIVRS) to determine whether

a person seeking financial assistance

owes a delinquent nontax debt to the

Federal Government. For information

about the CAIVRS program, agencies

should contact the Director of

Information Technology, Department of

Housing and Urban Development, 451

7th Street, S.W., Washington, DC 20410.

This proposed rule encourages

persons seeking financial assistance to

resolve their delinquent debt. Therefore,

after a person’s delinquency is resolved

in accordance with the provisions of

paragraph (e)(1) of this section, the

DCIA and this proposed rule no longer

provide a basis for denying financial

assistance to that person. As noted

above, a credit-granting agency may use

other factors in determining whether to

grant or deny credit based on other

applicable eligibility requirements.

The DCIA authorizes the head of the

agency to waive the application of the

general rule. The head of the agency

may delegate the waiver authority only

to the Chief Financial Officer of the

agency who may redelegate the

authority only to the Deputy Chief

Financial Officer. Paragraph (g) of this

section, discussed below, prescribes the

factors that authorized agency officials

should consider when deciding whether

to waive the DCIA requirement.

(d) Delinquent status

Paragraph (d) defines when a debt is

in delinquent status for purposes of

section 3720B. As noted above, this

proposed rule does not define the term

‘‘delinquent’’ for any purpose other than

the application of section 3720B.

As stated in paragraph (d)(2)(i), a debt

is not in delinquent status if the creditor

agency has released the person seeking

Federal financial assistance from the

obligation to pay the debt. A creditor

agency may release a person from an

obligation because the person has paid

the debt in an amount acceptable to the

creditor agency, the debt was

determined not to be owed, or for other

reasons. The release of an individual

obligor does not mean that all obligors

on the debt have been released. In

addition, as stated in paragraph (d)(2)(i),

a debt is not in delinquent status if an

adjudication or determination has been

made that the person does not owe or

does not have to pay the debt.

As stated in paragraph (d)(2)(ii), a

debt is not in delinquent status for

purposes of this proposed rule if the

debtor is the subject of a bankruptcy

proceeding or has been discharged in

bankruptcy. In this circumstance the

debt is not in delinquent status so long

as the debtor is current on any

applicable court authorized repayment

plan.

Nothing in this proposed rule is

intended to deny persons seeking

financial assistance the opportunity to

contest a creditor agency’s

determination that a debt is owed.

Therefore, as stated in paragraph

(d)(2)(iii), for purposes of this proposed

rule a debt is not considered to be in

‘‘delinquent status’’ if a timely-filed

appeal challenging the creditor agency’s

determination that the debt exists or is

delinquent is pending. The purpose of

requiring that an appeal be filed timely

is to prevent debtors from appealing an

agency’s determination solely to avoid

the application of section 3720B. To the

extent permissible, agencies should

defer making a determination as to

whether or not to extend credit until the

appeal process is completed.

(e) Delinquency resolution

A person may remove the bar to

financial assistance mandated by the

DCIA by resolving a delinquency in

accordance with the provisions of

paragraph (e)(1). The debtor must

resolve the debt with the creditor

agency responsible for the collection of

the debt or with the agency to which the

creditor agency has referred the debt for

collection. For purposes of this

proposed rule, the debt is ‘‘resolved’’ if

the debtor pays the debt in full, pays a

compromise amount agreed to by the

creditor agency, brings the debt current

i.e., makes up all past due monthly

payments, including interest, fees, and

penalties, or enters into a written

agreement with the creditor agency to

pay the debt under terms acceptable to

the creditor agency. The fact that the

creditor agency has ceased its collection

efforts for a reason other than one set

forth in paragraph (e)(1) of this section

does not mean that the delinquency has

been resolved. For example, unless one

of the provisions of paragraph (e)(1)

apply, a delinquent nontax debt that has

been written off the books of the

creditor agency or reported to the

Internal Revenue Service as discharged

(i.e., cancelled) would not be deemed

‘‘resolved.’’

(f) Exemptions by the Secretary

Upon the written request and

recommendation of the head of an

agency, the Secretary of the Treasury

may exempt any class of delinquent

debt from affecting a debtor’s eligibility

for financial assistance based on Section

3720B. Paragraph (f)(2) specifies the

information that an agency should

provide when recommending an

exemption. Generally, an exemption

will not be granted unless compelling

reasons justify the elimination of the bar

to Federal financial assistance for a class

of delinquent debtors. Paragraph (f)(3)

contains the circumstances under which

Treasury may grant an exemption.

(g) Waivers by the Agency

The DCIA authorizes the head of the

agency, on a person by person basis, to

grant a waiver of the DCIA eligibility

requirement. The head of the agency

may delegate the waiver authority only

to the Chief Financial Officer of the

agency who may redelegate the

authority only to the Deputy Chief

Financial Officer. Paragraph (g)

prescribes factors that an agency official

should consider when deciding whether

to grant a waiver of the DCIA

requirement that financial assistance be

denied. A waiver will be granted only

when compelling circumstances require.

(h) Effect of Denial of Federal Financial

Assistance

Paragraph (h) states that nothing in

this proposed rule precludes a person

from obtaining Federal financial

assistance after a delinquent debt has

been resolved.

Regulatory Analysis

This proposed rule is not a significant

regulatory action as defined in

Executive Order 12866. It is hereby
20008 Federal Register / Vol. 63, No. 77 /Wednesday, April 22, 199 / Proposed Rules

certified that this rule will not have a

significant economic impact on a

substantial number of small entities.

The basis for this certification is that the

DCIA provides that entities owing

delinquent debt to the Federal

Government are ineligible for Federal

direct and indirect loan assistance

(other than disaster loans). This

proposed rule provides definitions for

purposes of determining whether the

DCIA mandate applies. Therefore a

regulatory flexibility analysis is not

required.

List of Subjects in 31 CFR Part 285

Administrative practice and

procedure, Credit, Debt, Loan programs.

Authority and Issuance

For the reasons set forth in the

preamble, 31 CFR Part 285 is proposed

to be amended as follows:

1. The authority citation for Part 285

is proposed to be revised to read as

follows:

Authority: 26 U.S.C. 6402; 31 U.S.C. 321,

3701, 3711, 3716, 3720A, 3720B, 3720D; E.O.

13019; 3 CFR, 1996 Comp., p. 216.

2. Section 285.13 is proposed to be

added to Subpart B to read as follows:

§ 285.13 Barring delinquent debtors from

obtaining federal loans or loan insurance or

guarantees.

(a) Definitions. For purposes of this

section:

Agency means a department, agency,

court, court administrative office, or

instrumentality in the executive,

judicial, or legislative branch of the

Federal Government, including

government corporations.

Creditor agency means any Federal

agency that is owed a debt.

Debt means any amount of money,

funds or property that has been

determined by an appropriate official of

the Federal Government to be owed to

the United States or an agency thereof

by a person, including debt

administered by a third party as an

agent for the Federal Government.

Federal financial assistance or

financial assistance means any Federal

loan (other than a disaster loan), loan

insurance, or loan guarantee.

FMS means the Financial

Management Service, a bureau of the

Department of the Treasury.

Nontax debt means any debt other

than a debt under the Internal Revenue

Code of 1986 (26 U.S.C.).

Person means an individual,

corporation, partnership, association,

organization, State or local government,

or any other type of entity other than a

Federal agency.

Secretary means the Secretary of the

Treasury.

(b) Purpose and scope. (1) This

section prescribes standards for

determining whether an outstanding

nontax debt owed to the Federal

Government is in delinquent status and

whether such delinquency is resolved

for the purpose of denying Federal

financial assistance to a debtor. In

addition, this section prescribes the

circumstances under which the

Secretary may exempt a class of debts

from affecting a debtor’s loan eligibility.

This section also outlines the factors an

agency should consider when

determining whether waiver of the

general rule in paragraph (c) of this

section is appropriate.

(2) FMS may provide additional

guidance in ‘‘Managing Federal

Receivables’’ and other FMS

publications concerning debt collection

and debt management.

(3) Nothing in this section requires an

agency to grant Federal financial

assistance if denial otherwise is

authorized by statute, regulation, or

agency policies and procedures. For

example, if an agency requires

borrowers to have a satisfactory credit

history, the agency may deny financial

assistance even if a delinquent debt has

been resolved.

(4) This section does not confer any

new rights or benefits on persons

seeking Federal financial assistance.

(5) This section applies to any person

owing delinquent nontax debt and to

any agency that administers a program

that grants Federal financial assistance.

(c) General rule. As required by the

provisions of 31 U.S.C. 3720B, a person

owing an outstanding nontax debt that

is in delinquent status shall not be

eligible for Federal financial assistance.

This eligibility requirement applies to

all persons seeking Federal financial

assistance and owing an outstanding

nontax debt in delinquent status,

including, but not limited to,

guarantors. This eligibility requirement

applies to all Federal financial

assistance even if creditworthiness or

credit history is not otherwise a factor

for eligibility purposes, e.g., student

loans. A person may be eligible for

Federal financial assistance only after

the delinquency is resolved in

accordance with this section. An agency

may waive this eligibility requirement

in accordance with paragraph (g) of this

section.

(d) Delinquent status. (1) Except as

otherwise provided in paragraph (d)(2)

of this section, a debt is in ‘‘delinquent

status’’ for purposes of this section if the

debt has not been paid by the payment

due date or by the end of any grace

period provided by statute, regulation,

contract, or agreement. The payment

due date is the date specified in the

creditor agency’s initial written demand

for payment or applicable agreement or

instrument (including a postdelinquency repayment agreement).

(2) For purposes of this section, a debt

is not in delinquent status if:

(i) The person seeking Federal

financial assistance has been released by

the creditor agency from any obligation

to pay the debt, or there has been an

adjudication or determination that such

person does not owe or does not have

to pay the debt;

(ii) The debtor is the subject of, or has

been discharged in, a bankruptcy

proceeding, and if applicable, the

person seeking Federal financial

assistance is current on any court

authorized repayment plan; or

(iii) The existence of the debt or the

agency’s determination that the debt is

delinquent is being challenged under an

ongoing administrative appeal or

contested judicial proceeding and the

appeal was filed by the debtor in a

timely manner. Unless otherwise

prohibited, an agency may defer making

a determination as to whether or not to

extend credit until the appeal process is

completed.

(3) Unless the provisions of paragraph

(d)(2) apply, a debt is in delinquent

status even if the creditor agency has

suspended or terminated collection

activity with respect to such debt. For

example, a delinquent nontax debt that

has been written off the books of the

creditor agency or reported to the

Internal Revenue Service as discharged

(i.e., canceled) is in delinquent status

for purposes of this section.

(e) Delinquency resolution. (1) For

purposes of this section, a person’s

delinquent debt is resolved only if the

person:

(i) Pays or otherwise satisfies the

delinquent debt in full;

(ii) Pays the delinquent debt in part if

the creditor agency accepts such part

payment as a compromise in lieu of

payment in full;

(iii) Cures the delinquency under

terms acceptable to the creditor agency

in that the person pays any overdue

payments, plus all interest, penalties,

late charges, and administrative charges

assessed by the creditor agency as a

result of the delinquency; or

(iv) Enters into a written repayment

agreement with the creditor agency to

pay the debt, in whole or in part, under

terms and conditions acceptable to the

creditor agency.

(2) Unless the provisions of paragraph

(e)(1) apply, a delinquent debt is not

resolved even if the creditor agency has
Federal Register / Vol. 63, No. 77 /Wednesday, April 22, 199 / Proposed Rules 20009

suspended or terminated collection

activity with respect to such debt. For

example, a delinquent nontax debt that

has been written off the books of the

creditor agency or reported to the

Internal Revenue Service as discharged

(i.e., cancelled) would not be

‘‘resolved.’’

(f) Exemptions by the Secretary. (1)

Upon the written request and

recommendation of an agency, the

Secretary may exempt any class of debts

from affecting a debtor’s eligibility for

Federal financial assistance based on

the provisions of 31 U.S.C. 3720B and

this section.

(2) The agency recommending an

exemption for a class of debts will

provide the Secretary with information

about:

(i) The nature of the program under

which the delinquencies have arisen;

(ii) The number, dollar amount, and

age of the debts in the program for

which exemption is recommended;

(iii) The reasons why an exemption is

justified, including why the granting of

financial assistance to persons owing

the type of debt for which exemption is

requested would not be contrary to the

Government’s goal to reduce losses by

requiring proper screening of potential

borrowers; and,

(iv) Other information the Secretary

deems necessary to consider the

exemption request.

(3) The Secretary may exempt a class

of debts if exemption is in the best

interests of the Federal Government.

(g) Waivers by the agency. (1) The

head of an agency from which a person

seeks to obtain Federal financial

assistance may waive the eligibility

requirement described in paragraph (c)

of this section. Waivers shall be granted

only on a person by person basis. The

head of the agency may delegate the

waiver authority only to the Chief

Financial Officer of the agency. The

Chief Financial Officer may redelegate

the authority only to the Deputy Chief

Financial Officer of the agency.

(2) The authorized agency official

should balance the following factors

when deciding whether to grant a

waiver under paragraph (g)(1) of this

section:

(i) Whether the denial of the financial

assistance to the person would tend to

interfere substantially with or defeat the

purposes of the financial assistance

program or otherwise would not be in

the best interests of the Federal

Government; and

(ii) Whether the agency’s granting of

the financial assistance to the person is

contrary to the Government’s goal to

reduce losses from debt management

activities by requiring proper screening

of potential borrowers.

(3) When balancing the factors

described in paragraph (d)(2) of this

section, the authorized agency official

should consider:

(i) The age, amount, and cause(s) of

the delinquency and the likelihood that

the person will resolve the delinquent

debt; and

(ii) The amount of total debt,

delinquent or otherwise, owed by the

person and the person’s credit history

with respect to repayment of debt.

(4) Each agency shall retain a

centralized record of the number and

type of waivers granted under this

section.

(h) Effect of denial of Federal

financial assistance. Nothing contained

in this section precludes a person who

has been denied Federal financial

assistance from obtaining such

assistance after that person’s delinquent

debt has been resolved in accordance

with paragraph (e)(1) of this section.

Dated: April 16, 1998.

Richard L. Gregg,

Commissioner.

[FR Doc. 98–10588 Filed 4–21–98; 8:45 am]

BILLING CODE 4810–35–P