[Federal Register Volume 60, Number 233 (Tuesday, December 5, 1995)]
[Rules and Regulations]
[Pages 62190-62192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29564]



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SMALL BUSINESS ADMINISTRATION

13 CFR Part 140


Debt Collection Through Offset

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: In response to President Clinton's regulatory review 
directive, the Small Business Administration has completed a page-by-
page and line-by-line review of its regulations. As a result, SBA is 
proposing to clarify and streamline its regulations, revising or 
eliminating any duplicative, outdated, inconsistent, or confusing 
provisions. This rule reorganizes all of Part 140 covering agency debt 
collection, clarifying it and making it easier to use through the use 
of ``plain language.'' It also amends the Part by removing redundant 
provisions and applying, where permitted by applicable statute, uniform 
procedural rights to all debt collection procedures. The name of the 
regulation has been changed from simply Debt Collection to Debt 
Collection Through Offset. There are no substantive changes.

EFFECTIVE DATE: This rule is effective January 4, 1996.

FOR FURTHER INFORMATION CONTACT: Cheri Wolff, Chief Counsel for General 
Litigation, Office of General Counsel, at (202) 205-6643.

SUPPLEMENTARY INFORMATION: 13 CFR Part 140 establishes procedures for 
the collection of debts owed to SBA. This rule reorganizes the entire 
Part, clarifying it and making it easier to use. Where permitted by 
relevant statute, it also amends Part 140 to give all debtors similar 
procedural rights.
    Currently, Part 140 does not give all debtors the same procedural 
rights. Where a salary deduction or administrative offset procedure is 
used, debtors have thirty days to present evidence in response to SBA's 
notice of intent to collect a debt. On the other hand, where the 
deduction from income tax refund procedure is used, debtors are given 
sixty days to present evidence in response to SBA's notice. The rule 
eliminates this distinction and provides all debtors with the same 
procedural rights. All debtors will be given sixty days to present 
their relevant evidence. 

[[Page 62191]]


Section-by-Section Analysis

    The authority citations are amended by specifying the statutory 
authority for each of the three debt collection procedures.
    The following is a section by section analysis of each provision of 
this Rule affected by these changes:
    140.1: Revises section 140.1 by inserting clear language as to 
coverage of the regulation.
    140.2: Deletes, in most respects, section 140.2 (the definition 
section). The definitions of administrative offset and salary offset 
are now included in proposed section 140.2 (``What is a debt and how 
can the SBA collect it through offset?''). Several other definitions 
are retained for clarity, but are defined as the terms appear in the 
text. Section 140.2 also clarifies the three debt collection 
procedures.
    140.3: Current sections 140.3 (``Information disclosure''), 140.4 
(``Salary offset''), 140.5 (``Administrative offset''), and 140.6 
(``Income tax refund offset'') are deleted and replaced with new 
Section 140.3 (``What rights do you have when SBA tries to collect a 
debt from you through offset?''). Section 140.3 specifies, in clear 
language, debtors' rights. These rights apply to all persons affected 
by SBA debt collection offset procedures.

Compliance With Executive Orders 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    SBA certifies that this rule involves internal administrative 
procedures and would not be considered a significant rule within the 
meaning of Executive Order 12866 and would not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. It is 
not likely to have an annual economic effect of $100 million or more, 
result in a major increase in costs or prices, or have a significant 
adverse effect on competition or the United States economy.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this rule contains no new reporting or recordkeeping 
requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
would not have any federalism implications warranting the preparation 
of a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 140

    Claims; Government employees; Income taxes; Wages.

    For the reasons set forth above, SBA revises Part 140 of Title 13 
of the Code of Federal Regulations to read as follows:

PART 140--DEBT COLLECTION THROUGH OFFSET

Sec.
Sec. 140.1  What does this part cover?
Sec. 140.2  What is a debt and how can the SBA collect it through 
offset?
Sec. 140.3  What rights do you have when SBA tries to collect a debt 
from you through offset?

    Authority: 31 U.S.C. 3711, Collection and compromise; 31 U.S.C. 
3720A, Reduction of tax refund by amount of debt; 5 U.S.C. 5514, 
Installment deduction for indebtedness to the United States; 31 
U.S.C. 3716, Administrative offset; 15 U.S.C. 634(b)(6), Small 
Business Act.


Sec. 140.1  What does this part cover?

    This part establishes procedures which SBA may use in the 
collection, through offset, of past-due debts owed to the Government. 
SBA's failure to comply with any provision of the regulations in this 
part is not available to any debtor as a defense against collection of 
the debt through judicial process.


Sec. 140.2  What is a debt and how can the SBA collect it through 
offset?

    (a) A debt means an amount owed to the United States from loans 
made or guaranteed by the United States, and from fees, leases, rents, 
royalties, services, sales of real or personal property, overpayments, 
fines, penalties, damages, interest, forfeitures, or any other source. 
You are a debtor if you owe an amount to the United States from any of 
these sources.
    (b) SBA may collect past-due debts through offset by using any of 
three procedures: administrative offset, salary offset, or IRS tax 
refund offset. A past-due debt is one which has been reduced to 
judgment, has been accelerated, or has been due for at least 90 days.
    (1) Administrative offset. SBA may withhold money it owes to the 
debtor in order to satisfy the debt. This procedure is an 
``administrative offset'' and is authorized by 31 U.S.C. 3716.
    (2) Salary offset. If the debtor is a federal employee (a civilian 
employee as defined by 5 U.S.C. 2105, an employee of the U.S. Postal 
Service or Postal Rate Commission, or a member of the Uniformed 
Services or Reserve of the Uniformed Services), SBA may deduct payments 
owed to SBA or another federal agency from the debtor's paycheck. This 
procedure is a ``salary offset'' and is authorized by 5 U.S.C. 5514.
    (i) Any amount deducted from salary in any one pay period will not 
exceed 15 percent of a debtor's disposable pay, unless the debtor 
agrees in writing to a greater percentage.
    (ii) SBA also may collect against travel advances, training 
expenses, disallowed payments, retirement benefits, or any other amount 
due the employee, including lump-sum payments.
    (iii) If an employee has terminated employment after salary offset 
has been initiated, there are no limitations on the amount that can be 
withheld or offset.
    (3) IRS tax refund offset. SBA may request that IRS reduce a 
debtor's tax refund by the amount of the debt, as authorized by 31 
U.S.C. 3720A. Where available, administrative and salary offsets must 
be used before collection is attempted through income tax offset. SBA 
may refer a debt to the IRS for a tax refund offset and take additional 
action against the debtor to collect the debt at the same time or in 
sequence. When SBA makes simultaneous or sequential referrals (within 
six months of the initial notice), only one review pursuant to the 
rules in this part and the statutes authorizing them is required.


Sec. 140.3  What rights do you have when SBA tries to collect a debt 
from you through offset?

    (a) SBA must write to you and tell you that it proposes to collect 
the debt by reducing your federal paycheck, withholding money the 
Government owes you, and/or reducing your tax refund.
    (b) In its written notice to you, SBA must tell you the nature and 
amount of the debt; that SBA will begin procedures to collect the debt 
through reduction of your federal paycheck, administrative offset, or 
reduction of your tax refund; that you have an opportunity to inspect 
and copy Government records relating to the debt at your expense; and 
that, before collection begins, you have an opportunity to agree with 
SBA on a schedule for repayment of your debt.
    (c) SBA also must tell you that unless you respond within 60 days 
from the date of the notice, it will disclose to consumer reporting 
agencies (also known as credit bureaus or credit agencies) that you are 
responsible for the debt and the specific information it intends to 
disclose in order to establish your identity. The amount, status, 
history of the debt, and agency program 

[[Page 62192]]
under which it arose also will be disclosed.
    (d) If you respond to SBA within 60 days from the date of the 
notice, SBA will not disclose the information to consumer reporting 
agencies until it considers your response and determines that you owe a 
past-due, legally enforceable debt.
    (e) Within 60 days of the notice you may present evidence that all 
or part of the debt is not past due or not legally enforceable.
    (1) Where a salary offset or administrative offset is proposed, you 
will have the opportunity to present your evidence to SBA's Office of 
Hearings and Appeals (``OHA''). The rules in part 134 of this title 
govern the procedural rights to which you are entitled. In order to 
have a hearing before OHA, you must request a hearing within 15 days of 
receipt of the written notice described in this section. An OHA judge 
will issue a decision within 60 days of the date you filed your 
petition/request for a review or hearing with OHA, unless you were 
granted additional time within which to file your request for review.
    (2) Where an income tax refund offset is proposed, you will have 
the opportunity to request a review and present your evidence to the 
appropriate SBA Commercial Loan Servicing Center at the address 
provided in the notice.
    (f) SBA must consider any evidence you present and must first 
decide that a debt is past due and legally enforceable. A debt is 
legally enforceable if there is any forum, including a State or Federal 
Court or administrative agency, in which SBA's claim would not be 
barred on the date of offset. Non-judgment debts are enforceable for 
ten years; judgment debts are enforceable beyond ten years. You will be 
notified of SBA's decision at least 30 days before any offset deduction 
is made. You also will be notified of the amount, frequency, proposed 
beginning date, and duration of the deductions, as well as any 
obligation to pay interest, penalties, and administrative costs.
    (g) If there is any substantial change in the status or amount of 
your debt, SBA will promptly report that change to each consumer 
reporting agency it originally contacted.
    (h) SBA will obtain satisfactory assurances from each consumer 
reporting agency that the consumer reporting agency has complied with 
all federal laws relating to provision of consumer credit information.
    (i) If your debt is being repaid by reduction of your income tax 
refund and you make any additional payments to SBA, SBA will notify the 
IRS of these payments and your new balance within 10 business days of 
receiving your payment.
    (j) When the debt of a federal employee is reduced to court 
judgment, the employee is not entitled to further review by SBA, but is 
only entitled to notice of a proposed salary offset resulting from the 
judgment. The amount deducted may not exceed 15% of disposable pay, 
except when the deduction of a greater amount is necessary to 
completely collect the debt within the employee's remaining period of 
employment.
    (k) When another federal agency asks SBA to offset a debt for it, 
SBA will not initiate the requested offset until it has received from 
the creditor agency a written certification that the debtor owes a 
debt, its amount, and that the provisions of all applicable statutes 
and regulations have been complied with fully.
    (l) SBA may make an offset prior to completion of the procedures 
described in this part, if:
    (1) Failure to make an offset would substantially prejudice the 
government's ability to collect the debt; and
    (2) The time before the payment would otherwise be made to you does 
not reasonably permit the completion of the procedures.
    (3) Such prior offset then must be followed by the completion of 
the procedures described in this part.
    (m) Where an IRS tax refund offset is sought, SBA must follow the 
Department of the Treasury's regulations governing offset of a past-
due, legally enforceable debt against tax overpayment.

    Dated: November 22, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-29564 Filed 12-4-95; 8:45 am]
BILLING CODE 8025-01-P