[Federal Register Volume 62, Number 225 (Friday, November 21, 1997)]
[Proposed Rules]
[Pages 62458-62464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30611]



[[Page 62457]]

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Part III





Department of the Treasury





_______________________________________________________________________



Fiscal Service



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31 CFR Part 285



Administrative Wage Garnishment; Proposed Rule

  Federal Register / Vol. 62, No. 225 / Friday, November 21, 1997 / 
Proposed Rules  

[[Page 62458]]



DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

[Docket No. FMS-285.11]
RIN 1510-AA67


Administrative Wage Garnishment

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This proposed rule implements the administrative wage 
garnishment provisions contained in the Debt Collection Improvement Act 
of 1996 (DCIA). The DCIA authorizes Federal agencies to garnish the 
disposable pay of an individual to collect delinquent nontax debts owed 
to the United States in accordance with regulations issued by the 
Secretary of the Treasury.

DATE: Comments must be received by December 22, 1997.

ADDRESSES: Comments should be sent 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.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program 
Specialist, at (202) 874-6660; Ronda Kent or Ellen Neubauer, Senior 
Attorneys, or Laurie Levin, Attorney-Advisor, at (202) 874-6680. This 
document is available for downloading from the Financial Management 
Service web site at the following address: http://www.fms.treas.gov.

SUPPLEMENTARY INFORMATION:

Background

    This proposed regulation implements the wage garnishment provision 
in section 31001(o) 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. 3720D. Under this provision Federal agencies may 
administratively garnish up to 15 percent of the wages of a debtor to 
satisfy delinquent nontax debt owed to the United States. Prior to the 
enactment of the DCIA, agencies were required to obtain a court 
judgment before garnishing the wages of non-Federal employees. Section 
31001(o) of the DCIA preempts State laws that prohibit wage garnishment 
or otherwise govern wage garnishment procedures.
    As authorized by the DCIA, a Federal agency which is collecting 
delinquent nontax debt may administratively garnish a delinquent 
debtor's wages in accordance with regulations promulgated by the 
Secretary of the Treasury. 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 implementing this and other debt 
collection tools established by the DCIA.
    In accordance with the requirements of the DCIA, this proposed rule 
establishes the following rules and procedures:
    1. Notice. At least 30 days before an agency initiates garnishment 
proceedings, the agency will give the debtor written notice informing 
him or her of the nature and amount of the debt, the intention of the 
agency to collect the debt through deductions from pay, and an 
explanation of the debtor's rights regarding the proposed action.
    2. Rights of the debtor. The agency will provide the debtor with an 
opportunity to inspect and copy records related to the debt, to 
establish a repayment agreement, and to receive a hearing concerning 
the existence or amount of the debt and the terms of a repayment 
schedule. The hearing will be held prior to the issuance of a 
withholding order if the debtor's request is timely received. For 
hearing requests that are not received in the specified time frame, an 
agency need not delay issuance of the withholding order prior to 
conducting a hearing. An agency may not garnish the wages of a debtor 
who has been involuntarily separated from employment until that 
individual has been reemployed continuously for at least 12 months.
    3. Employer's responsibilities. The agency will send to the 
employer of a delinquent debtor a wage garnishment order directing that 
the employer pay a portion of the debtor's wages to the Federal 
Government. This proposed regulation requires the debtor's employer to 
certify certain payment information about the debtor. Employers will 
not be required to vary their normal pay cycles in order to comply with 
the garnishment order.
    The DCIA prohibits employers from taking disciplinary actions 
against the debtor based on the fact that the debtor's wages are 
subject to administrative garnishment. In addition, the DCIA authorizes 
an agency to sue an employer for amounts not properly withheld from the 
wages payable to the debtor.

Section Analysis

(a) Purpose

    The purpose of this section is to implement the wage garnishment 
provision in the DCIA, codified at 31 U.S.C. 3720D, under which Federal 
agencies may administratively garnish up to 15% of the wages of a 
debtor to satisfy delinquent nontax debt owed to the United States.

(b) Scope

    Paragraph (b)(1) states that all Federal agencies are authorized to 
utilize this collection tool to collect delinquent nontax debt owed to 
the United States. The term ``agency'' is defined in paragraph (c).
    As provided in the DCIA, paragraph (b)(2) explains that State law 
does not apply to the withholding of an employee's wages under this 
section to the extent that such State law conflicts or interferes with 
the procedures and requirements of this section.
    Paragraph (b)(3) explains that an agency's use of this collection 
tool does not interfere with an agency's discretion to compromise a 
debt, or to suspend or terminate collection action of the debt.
    Paragraph (b)(4) explains that administrative wage garnishment is 
one of many debt collection tools available to an agency. An agency may 
use administrative wage garnishment concurrently with other collection 
tools, even if an agency receives payments through the use of wage 
garnishment.
    Paragraph (b)(5) distinguishes Federal salary offset from 
administrative wage garnishment. Federal salary offset procedures, 
whereby Federal salary payments payable to Federal employees who owe 
debt to the United States are withheld to satisfy the outstanding 
obligations, are set forth in 5 U.S.C. 5514 and the implementing 
regulations.

(c) Definitions

    Agency. The term ``agency'' has the same meaning as found in 31 
U.S.C. 3701(a)(4). The term refers to an agency in the executive, 
judicial or legislative branches of the Government, including 
government corporations, that either administers the program that gave 
rise to the debt or pursues recovery of the debt. For example, the 
Department of the Treasury and Treasury-designated debt collection 
centers may collect debts by administrative wage garnishment in 
accordance with the provisions of this rule when collecting debts for 
other agencies.
    Business day. The term ``business day'' means Monday through Friday 
and shall be calculated consistent with Rule

[[Page 62459]]

6(a) of the Federal Rules of Civil Procedure.
    Certificate of service. A ``certificate of service'' refers to a 
signed certificate that an agency is required to retain as evidence of 
mailing of a document. A certificate may be retained electronically and 
may contain a computer generated signature.
    Day. Unless otherwise indicated, the term ``day'' means calendar 
day and shall be calculated consistent with Rule 6(a) of the Federal 
Rules of Civil Procedure.
    Debt or claim. For the purposes of this rule, the terms ``debt'' 
and ``claim'' refer to delinquent nontax debt. The term ``delinquent 
nontax debt'' refers to debt that is past-due.
    Debtor. The term ``debtor'' refers to an individual who owes a 
delinquent nontax debt to the United States.
    Disposable pay. ``Disposable pay'' is all of a debtor's 
compensation except health insurance premiums and those amounts 
required to be withheld by law, such as social security taxes. Lump sum 
payments, such as bonuses and back pay, are included in disposable pay. 
For purposes of calculating disposable pay, voluntary withholdings, 
such as savings allotments, are not deducted from a debtor's 
compensation.
    Employer. The term ``employer'' refers to a person or entity that 
employs the services of others and includes State and local 
Governments. For purposes of this section, however, the Federal 
Government is not an ``employer'' because debts owed by Federal 
employees are collected in accordance with the Federal salary offset 
procedures.
    Garnishment. The term ``garnishment'' refers to the process of 
withholding amounts from an employee's pay and forwarding those amounts 
to a creditor in satisfaction of a withholding order.
    Withholding order. The term ``withholding order'' refers to any 
order for withholding or garnishment of pay, whether issued under the 
provisions of this section or otherwise. A withholding order may be 
issued by an agency, or a judicial or administrative body. For purposes 
of this proposed rule, the terms ``wage garnishment order'' and 
``garnishment order'' have the same meaning as ``withholding order.''

(d) General Rule

    Paragraph (d) sets forth the authority contained in the DCIA that 
authorizes an agency to administratively garnish the wages of a 
delinquent debtor. Agencies authorized to administratively garnish the 
wages of a delinquent debtor include the Department of the Treasury and 
Treasury-designated debt collection centers when collecting debt for 
other agencies.

(e) Notice Requirements

    Paragraph (e)(1) contains the DCIA requirement that the agency give 
the debtor written notice at least 30 days before initiating 
garnishment proceedings. The notice will inform the debtor of the 
nature and amount of the debt, the intention of the agency to collect 
the debt through deductions from pay, and an explanation of the 
debtor's rights regarding the proposed action. The notice will include 
the time frame within which a debtor may exercise his or her rights. 
This notice may be combined with and made a part of any notice of 
intent to use other collection tools that an agency sends to the 
debtor.
    Paragraph (e)(2) contains the DCIA requirement that the agency 
provide the debtor with an opportunity to inspect and copy records 
related to the debt, to establish a repayment agreement, and to receive 
a hearing. Agencies should review a debtor's request to establish a 
repayment agreement under paragraph (e)(2)(ii) of this section in 
accordance with the requirements of the Federal Claims Collection 
Standards (4 CFR Parts 101-105), or other applicable standards, to 
ensure that the debtor's ability to pay is considered. The debtor is 
entitled to a hearing only with respect to (1) the existence of the 
debt; (2) the amount of the debt; or, (3) the terms of the proposed 
repayment schedule under the garnishment order, e.g., that the amount 
withheld would create a financial hardship. However, the debtor is not 
entitled to a hearing concerning the terms of the proposed repayment 
schedule if these terms have been established by written agreement 
between the debtor and the agency. As discussed below, a debtor who is 
subject to a wage garnishment order may request a review by the agency 
of the amount garnished based on materially changed circumstances that 
result in financial hardship. See paragraph (k) of this section.
    Paragraph (e)(3) requires that the agency keep a copy of the 
certificate of service indicating the date of mailing of the notice 
required by this section as evidence of the agency having provided the 
debtor with notice and the opportunity for review. This regulation does 
not specify how the certificate should be retained by the agency, and 
accordingly the certificate may be retained electronically. However, 
agencies are advised to consult with the Department of Justice as to 
the adequacy of computer generated records for evidentiary purposes.

(f) Hearing

    The DCIA requires agencies to promulgate regulations concerning 
procedures for the conduct of administrative wage garnishment hearings. 
Agencies may use established hearing procedures so long as they meet 
the requirements of this section. Paragraph (f)(1) allows agencies 
either to prescribe their own regulations for this purpose or adopt 
this section without change.
    Under paragraph (f)(2), agencies may decide whether to hold an oral 
or written hearing. The subject matter of the hearing is limited to the 
existence or amount of the debt or the terms of an involuntary 
repayment schedule as described under paragraph (e) of this section.
    Paragraph (f)(3) sets forth factors an agency should consider in 
determining the type of hearing or review to provide. If an agency 
determines that an oral hearing is appropriate, the debtor may choose 
an in-person hearing or a hearing by telephone conference.
    As required by the DCIA, paragraph (f)(4) provides that a hearing 
will be held prior to the issuance of a withholding order if the 
debtor's request for a hearing is timely received by the agency. Timely 
received means that the request for a hearing is received by the agency 
on or before the 15th business day following the mailing of the notice 
described in paragraph (e)(1) of this section. Agencies are required to 
inform the debtor of the deadline for requesting a hearing prior to the 
issuance of a withholding order.
    Paragraph (f)(5) addresses hearing requests received after the 15th 
business day following the mailing of the notice described in paragraph 
(e)(1) of this section. As provided in the DCIA, an agency need not 
delay issuance of the withholding order prior to conducting a hearing 
if the request for a hearing is not timely received.
    Paragraph (f)(6) authorizes the head of the agency to designate any 
qualified individual as a hearing official.
    Paragraph (f)(7) requires an agency to notify the debtor about the 
hearing, including the date and time of the hearing or the deadlines 
for the submission of evidence.
    Paragraph (f)(8) describes the burden of proof on the respective 
parties to a hearing. The agency must present evidence as to the 
existence or amount of the debt. To dispute the debt, the debtor must 
present clear and convincing evidence that no debt exists or that the 
amount of the debt is

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incorrect. If the terms of the repayment schedule are an issue, the 
debtor must show that such terms are unreasonable or unlawful.
    Paragraph (f)(9) describes the type of record required for a 
hearing provided under this section.
    As required by the DCIA, under paragraph (f)(10), the hearing 
official is required to issue a written decision no later than sixty 
(60) days after the request for a hearing was made. Thus, a hearing 
must be held and a decision rendered within 60 days after the receipt 
of a hearing request by the debtor. The agency may not issue a 
withholding order until a hearing is held and a decision rendered. If 
an agency has previously issued a withholding order and the agency is 
unable to hold a hearing and issue a decision within the 60-day time 
period, the agency must suspend the withholding order until a hearing 
and a decision have been provided to the debtor. The provisions of this 
paragraph (f)(10) do not apply to financial hardship reviews under the 
provisions of paragraph (k) of this section.
    Paragraph (f)(11) sets forth the information that must be included 
in the hearing official's written decision.
    Paragraph (f)(12) states that the hearing official's decision is 
the final agency action for appeal purposes.
    Paragraph (f)(13) provides that if a debtor, without good cause 
shown, fails to appear at a scheduled hearing, an agency may issue a 
withholding order prior to rescheduling or holding a subsequent 
hearing.

(g) Wage Garnishment Order

    In accordance with the provisions of the DCIA, paragraph (g)(1) 
requires agencies to send to employers of delinquent debtors a wage 
garnishment order directing the employer to pay a portion of the 
debtor's wages to the Federal Government. The agency is required to 
send the order within 30 days after the debtor fails to make a timely 
request for a hearing, or if a timely request is made, within 30 days 
after a final decision is made to proceed with the garnishment.
    Paragraph (g)(2) describes the format and content of a withholding 
order. A withholding order may contain a computer generated signature.
    Paragraph (g)(3) requires that the agency retain a copy of the 
certificate of service indicating the date of mailing of the 
withholding order as evidence of the agency having served the employer 
with the order. While a copy of the certificate may be retained 
electronically, agencies are advised to consult with the Department of 
Justice as to the adequacy of computer generated records for 
evidentiary purposes.

(h) Certification by Employer

    When a debtor's employer receives a withholding order, paragraph 
(h) requires the employer to complete a certification in a form 
prescribed by the Secretary of the Treasury. The certification will 
address matters such as information about the debtor's employment 
status and disposable pay available for withholding.

(i) Amounts Withheld

    Paragraphs (i)(1), (i)(2), and (i)(3) describe the restrictions on 
the amounts that can be withheld from an employee's pay to satisfy a 
withholding order issued pursuant to this proposed rule. As provided in 
the DCIA, under paragraph (i)(1) no more than 15% of the debtor's 
disposable pay for each pay period may be garnished.
    Special rules apply to calculating the amount to be withheld from a 
debtor's pay that is subject to multiple withholding orders. Paragraph 
(i)(2) describes the amount that may be garnished from a debtor's 
disposable pay if, at the time of the withholding, the debtor's pay is 
subject to other wage garnishment orders, whether issued under this 
section or otherwise, e.g., a wage garnishment order issued pursuant to 
the provisions of 28 U.S.C. 3205 (Garnishment) or a commercial wage 
garnishment.
    For garnishments issued under this section, an employer is required 
to withhold from a debtor's pay the amounts set forth in paragraph 
(i)(1). However, when the employee's pay is subject to multiple 
withholding orders that would result in the withholding of more than 
25% of a debtor's disposable pay, this proposed rule requires that the 
amounts withheld under this section be reduced if the other withholding 
orders are for family support or were served on the employer prior in 
time. For example, if the employer is withholding 15% of a debtor's 
disposable pay for a family support or prior withholding order, the 
amount withheld for the subsequent withholding order issued under this 
section is limited to 10% of the debtor's disposable pay. When the 
family support or prior withholding order terminates, the amount 
withheld for the subsequent withholding order issued under this section 
may be increased to the maximum 15% allowed under (i)(1).
    The following examples illustrate how the rules described in 
paragraphs (i)(1) and (i)(2) work.

    Examples: An agency issues a garnishment order under this 
section setting the amount of garnishment at 15% of the debtor's 
disposable pay.
    (A) If the debtor's disposable pay is $200 weekly and is not 
subject to other garnishment orders with priority, then the amount 
of the garnishment under this section will be $30 weekly, 15% of 
disposable pay (15% x $200=$30).
    (B) If the debtor's disposable pay is $200 weekly and is subject 
to a prior garnishment order in the amount of $40 weekly, then the 
amount of the garnishment under this section will be $10 weekly. The 
$10 amount is the lesser of 15% of disposable pay (15% x $200=$30) 
or the maximum amount to be garnished where a debtor's pay is 
subject to withholding orders with priority (25% x $200=$50; 
$50-$40=$10). When the prior garnishment order terminates, the 
amount of the garnishment shall be increased to $30 weekly because 
the calculation regarding the prior withholding orders is no longer 
necessary.
    (C) If the debtor's disposable pay is $200 weekly and is subject 
to a garnishment order with priority in the amount of $100 weekly, 
then the amount of the garnishment under this section will be $0. 
The $0 amount is the lesser of 15% of disposable pay 
(15% x $200=$30) or the maximum amount to be garnished where a 
debtor's pay is subject to withholding orders with priority 
(25% x $200=$50; $50--$100$0). When the prior 
garnishment order terminates, the amount of the garnishment shall be 
increased to $30 weekly because the calculation regarding the prior 
withholding orders is no longer necessary.

    Paragraph (i)(3) allows the debtor to consent in writing to 
withholding a greater amount than provided in paragraphs (i)(1) and 
(i)(2).
    Under paragraph (i)(4), the employer is required to promptly pay to 
the agency amounts withheld under the garnishment order, generally 
within 10 days.
    As provided in the DCIA, under paragraph (i)(5) an employer is not 
required to vary its pay cycle or disbursement cycle to comply with a 
withholding order issued pursuant to this section.
    Paragraph (i)(6) provides that a withholding order issued under 
this section will take priority over any assignment or allotment by an 
employee of his wages, except for an assignment or allotment made 
pursuant to a family support judgment or order.
    Paragraph (i)(7) requires the employer to continue to garnish an 
employee's wages until the agency notifies the employer that 
garnishment is no longer appropriate.

(j) Exclusions From Garnishment

    As required by the DCIA, paragraph (j) provides that no withholding 
of a debtor's wages may occur in the case of an individual who has been 
involuntarily separated from

[[Page 62461]]

employment until that individual has been reemployed continuously for 
at least 12 months. The debtor bears the burden of notifying the agency 
of an involuntary separation and the circumstances surrounding any 
separation from employment to avoid wage withholding based on this 
provision.

(k) Financial Hardship

    Paragraph (k)(1) allows a debtor to request a review by the agency 
of the amount being garnished under a wage garnishment order based on 
materially changed circumstances which result in a financial hardship.
    Paragraph (k)(2) requires the debtor to explain and submit evidence 
of the materially changed circumstances and the effect of the change on 
the debtor's ability to pay.
    Paragraph (k)(3) explains that an agency is required to adjust the 
amounts withheld under the garnishment order if a financial hardship is 
found to exist.

(l) Ending Garnishment

    Paragraph (l)(1) requires an agency to instruct the employer to 
discontinue garnishment upon its receipt of the full amount of the 
debt, including interest, penalties, and administrative costs.
    Paragraph (l)(2) requires an agency to review its debtors' 
accounts, at least annually, to ensure that garnishment has been 
terminated for accounts that have been paid in full.

(m) Actions Prohibited by the Employer

    As mandated by the DCIA, paragraph (m) prohibits employers from 
taking disciplinary actions against a debtor based on the fact that the 
debtor's wages are subject to administrative garnishment.

(n) Refunds

    Paragraph (n)(1) requires an agency to refund promptly to a debtor 
amounts improperly withheld from wages.
    Paragraph (n)(2) provides that, unless required by law or contract, 
refunds shall not bear interest.

(o) Right of Action

    As authorized by the DCIA, paragraph (o) provides that an agency 
may sue an employer for the amounts that were not properly withheld 
from the wages payable to the debtor. The agency may initiate action 
against an employer only after terminating its collection efforts 
against the debtor. For purposes of this section, this occurs when an 
agency (1) has terminated collection action in accordance with the 
Federal Claims Collection Standards or other applicable standards, or 
(2) has not received any payments for the debt from any source for at 
least one year.

Regulatory Analyses

    This proposed rule is not a significant regulatory action as 
defined in Executive Order 12866.
    It is hereby certified that this proposed regulation, including the 
certification referenced in this notice of proposed rulemaking (see 
paragraph (h) of this section), will not have a significant economic 
impact on a substantial number of small entities. Although a 
substantial number of small entities will be subject to this proposed 
regulation and to the certification requirement in this proposed rule, 
the requirements will not have a significant economic impact on these 
entities. Employers of delinquent debtors must certify certain 
information about the debtor such as the debtor's employment status and 
earnings. This information is contained in the employer's payroll 
records. Therefore, it will not take a significant amount of time or 
result in a significant cost for an employer to complete the 
certification form. Even if an employer is served withholding orders on 
several employees over the course of a year, the cost imposed on the 
employer to complete the certifications would not have a significant 
economic impact on that entity. Employers are not required to vary 
their normal pay cycles in order to comply with a withholding order 
issued pursuant to this proposed rule.

List of Subjects in 31 CFR Part 285

    Administrative practice and procedure, Claims, Debts, Garnishment 
of wages, Hearing and appeal procedures, Salaries, Wages.

Authority and Issuance

    For the reasons set forth in the preamble, 31 CFR Part 285 is 
proposed to be amended to read as follows:

PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION 
IMPROVEMENT ACT OF 1996

    1. The authority citation for Part 285 is revised to read as 
follows:

    Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 3701, 3716, 3720A, 
3720D; E.O. 13019

    2. Subpart B consisting of Sec. 285.11 is added to Part 285 to read 
as follows:

Subpart B--Authorities Other Than Offset


Sec. 285.11  Administrative wage garnishment.

    (a) Purpose. This regulation provides procedures for Federal 
agencies to collect money from a debtor's disposable pay by means of 
administrative wage garnishment to satisfy delinquent nontax debt owed 
to the United States.
    (b) Scope. (1) This regulation applies to any Federal agency that 
administers a program that gives rise to a delinquent nontax debt owed 
to the United States and to any agency that pursues recovery of such 
debt.
    (2) This regulation shall apply notwithstanding any provision of 
State law.
    (3) Nothing in this regulation precludes the compromise of a debt 
or the suspension or termination of collection action in accordance 
with applicable law. See, for example, the Federal Claims Collection 
Standards (FCCS), 4 CFR Parts 101-105.
    (4) The receipt of payments pursuant to this regulation does not 
preclude a Federal agency from pursuing other debt collection remedies, 
including the offset of Federal payments to satisfy delinquent nontax 
debt owed to the United States. A Federal agency may pursue such debt 
collection remedies separately or in conjunction with administrative 
wage garnishment.
    (5) This regulation does not apply to the collection of delinquent 
nontax debt owed to the United States from the wages of Federal 
employees from their Federal employment. Federal pay is subject to the 
Federal salary offset procedures set forth in 5 U.S.C. 5514 and the 
implementing regulations.
    (c) Definitions. As used in this section the following definitions 
shall apply:
    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. 
For purposes of this regulation, agency means either the agency that 
administers the program that gave rise to the debt or the agency that 
pursues recovery of the debt.
    Business day means Monday through Friday. For purposes of 
computation, the last day of the period will be included unless it is a 
Federal legal holiday.
    Certificate of service means a certificate signed by an agency 
official indicating the nature of the document to which it pertains, 
the date of mailing of the document, and to whom the document is being 
sent.
    Day means calendar day. For purposes of computation, the last day 
of the period will be included unless it is a Saturday, a Sunday, or a 
Federal legal holiday.
    Debt or claim means any amount of money, funds or property that has 
been

[[Page 62462]]

determined by an appropriate official of the Federal Government to be 
owed to the United States by an individual. Delinquent nontax debt 
means any nontax debt that has not been paid by the date specified in 
the agency's initial written demand for payment, or applicable 
agreement, unless other satisfactory payment arrangements have been 
made. For purposes of this section, the terms ``debt'' and ``claim'' 
are synonymous and refer to delinquent nontax debt.
    Debtor means an individual who owes a delinquent nontax debt to the 
United States.
    Disposable pay means that part of the debtor's compensation 
(including, but not limited to, salary, bonuses, commissions, and 
vacation pay) from an employer remaining after the deduction of health 
insurance premiums and any amounts required by law to be withheld. For 
purposes of this section, ``amounts required by law to be withheld'' 
include amounts for deductions such as social security taxes and 
withholding taxes, but do not include any amount withheld pursuant to a 
court order.
    Employer means a person or entity that employs the services of 
others and that pays their wages or salaries. The term employer 
includes, but is not limited to, State and local Governments, but does 
not include an agency of the Federal Government.
    Garnishment means the process of withholding amounts from an 
employee's disposable pay and the paying of those amounts to a creditor 
in satisfaction of a withholding order.
    Withholding order means any order for withholding or garnishment of 
pay issued by an agency, or judicial or administrative body. For 
purposes of this section, the terms ``wage garnishment order'' and 
``garnishment order'' have the same meaning as ``withholding order.''
    (d) General rule. Whenever an agency determines that a delinquent 
debt is owed by an individual, the agency may initiate proceedings to 
administratively garnish the wages of the delinquent debtor.
    (e) Notice requirements. (1) At least 30 days before the initiation 
of garnishment proceedings, the agency shall mail, by first class mail, 
to the debtor's last known address a written notice informing the 
debtor of:
    (i) The nature and amount of the debt;
    (ii) The intention of the agency to initiate proceedings to collect 
the debt through deductions from pay until the debt and all accumulated 
interest, penalties and administrative costs are paid in full; and
    (iii) An explanation of the debtor's rights, including those set 
forth in paragraph (e)(2) of this section, and the time frame within 
which the debtor may exercise his or her rights.
    (2) The debtor shall be afforded the opportunity:
    (i) To inspect and copy agency records related to the debt;
    (ii) To enter into a written repayment agreement with the agency 
under terms agreeable to the agency; and
    (iii) For a hearing in accordance with paragraph (f) of this 
section concerning the existence or the amount of the debt or the terms 
of the proposed repayment schedule under the garnishment order. 
However, the debtor is not entitled to a hearing concerning the terms 
of the proposed repayment schedule if these terms have been established 
by written agreement under paragraph (e)(2)(ii) of this section.
    (3) The agency will keep a copy of a certificate of service 
indicating the date of mailing of the notice.
    (f) Hearing.--(1) In general. Agencies shall prescribe regulations 
for the conduct of administrative wage garnishment hearings or shall 
adopt this section without change by reference.
    (2) Request for hearing. The agency shall provide a hearing, which 
at the agency's option may be oral or written, if the debtor submits a 
written request for a hearing concerning the existence or amount of the 
debt or the terms of the repayment schedule (for repayment schedules 
established other than by written agreement under paragraph (e)(2)(ii) 
of this section).
    (3) Type of hearing or review. (i) For purposes of this section, 
whenever an agency is required to afford a debtor a hearing, the agency 
shall provide the debtor with a reasonable opportunity for an oral 
hearing when the agency determines that the issues in dispute 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) If the agency determines that an oral hearing is appropriate, 
the time and location of the hearing shall be established by the 
agency. An oral hearing may, at the debtor's option, be conducted 
either in-person or by telephone conference. All travel expenses 
incurred by the debtor in connection with an in-person hearing will be 
borne by the debtor. All telephonic charges incurred during the hearing 
will be the responsibility of the agency.
    (iii) This section does not require an oral hearing with respect to 
debt collection systems in which a determination of indebtedness 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, an agency will decide the issues in dispute based 
upon a review of the written record. The agency will establish a 
reasonable deadline for the submission of evidence.
    (4) Effect of timely request. Subject to paragraph (f)(13) of this 
section, if the debtor's written request is received by the agency on 
or before the 15th business day following the mailing of the notice 
described in paragraph (e)(1) of this section, the agency shall not 
issue a withholding order under paragraph (g) of this section until the 
debtor has been provided the requested hearing and a decision in 
accordance with paragraphs (f)(10) and (f)(11) of this section has been 
rendered.
    (5) Failure to timely request a hearing. If the debtor's written 
request is received by the agency after the 15th business day following 
the mailing of the notice described in paragraph (e)(1) of this 
section, the agency shall provide a hearing to the debtor but will not 
delay issuance of a withholding order unless the agency determines that 
the delay in filing the request was caused by factors over which the 
debtor had no control, or the agency receives information that the 
agency believes justifies a delay or cancellation of the withholding 
order.
    (6) Hearing official. A hearing official may be any qualified 
individual, as determined by the head of the agency, including an 
administrative law judge.
    (7) Procedure. After the debtor requests a hearing, the hearing 
official shall notify the debtor of:
    (i) The date and time of a telephonic hearing;
    (ii) The date, time, and location of an in-person oral hearing; or
    (iii) The deadline for the submission of evidence for a written 
hearing.
    (8) Burden of proof. (i) The agency will have the burden of going 
forward to prove the existence or amount of the debt.
    (ii) Thereafter, if the debtor disputes the existence or amount of 
the debt, the debtor must present clear and convincing evidence that no 
debt exists or that the amount of the debt is incorrect. In addition, 
the debtor may present evidence that the terms of the repayment 
schedule are unreasonable or unlawful.

[[Page 62463]]

    (9) Record. The hearing official must maintain a summary record of 
any hearing provided under this section. A hearing is not required to 
be a formal evidentiary-type hearing, however, witnesses who testify in 
oral hearings will do so under oath or affirmation.
    (10) Date of decision. The hearing official shall issue a written 
opinion stating his or her decision, as soon as practicable, but not 
later than sixty (60) days after the date on which the request for such 
hearing was received by the agency. If an agency is unable to provide 
the debtor with a hearing and render a decision within 60 days after 
the receipt of the request for such hearing:
    (i) The agency may not issue a withholding order until the hearing 
is held and a decision rendered; or
    (ii) If the agency had previously issued a withholding order to the 
debtor's employer, the agency must suspend the withholding order 
beginning on the 61st day after the receipt of the hearing request and 
continuing until a hearing is held and a decision is rendered.
    (11) Content of decision. The written decision shall include:
    (i) A summary of the facts presented;
    (ii) The hearing official's findings, analysis and conclusions; and
    (iii) The terms of any repayment schedules, if applicable.
    (12) Final agency action. The hearing official's decision will be 
the final agency action for the purposes of judicial review under the 
Administrative Procedures Act (5 U.S.C. 701 et seq.).
    (13) Failure to appear. In the absence of good cause shown, a 
debtor who fails to appear at a hearing scheduled pursuant to paragraph 
(f)(4) of this section, will be deemed as not having timely filed a 
request for a hearing.
    (g) Wage garnishment order. (1) Unless the agency receives 
information that the agency believes justifies a delay or cancellation 
of the withholding order, the agency shall send, by first class mail, a 
withholding order to the debtor's employer within 30 days after the 
debtor fails to make a timely request for a hearing (i.e., within 15 
business days after the mailing of the notice described in paragraph 
(e)(1) of this section), or, if a timely request for a hearing is made 
by the debtor, within 30 days after a final decision is made by the 
agency to proceed with garnishment.
    (2) The withholding order sent to the employer under paragraph 
(g)(1) of this section shall be in a form prescribed by the Secretary 
of the Treasury on the agency's letterhead and signed by the head of 
the agency or his/her delegatee. The order shall contain only the 
information as may be necessary for the employer to comply with the 
withholding order. Such information includes the debtor's name, 
address, and social security number, as well as instructions for 
withholding and information as to where payments should be sent.
    (3) The agency will keep a copy of a certificate of service 
indicating the date of mailing of the order.
    (h) Certification by employer. Along with the withholding order, 
the agency shall send to the employer a certification in a form 
prescribed by the Secretary of the Treasury. The employer shall 
complete and return the certification to the agency within the time 
frame prescribed in the instructions to the form. The certification 
will address matters such as information about the debtor's employment 
status and disposable pay available for withholding.
    (i) Amounts withheld. (1) Subject to the provisions of paragraph 
(i)(3), after receipt of the garnishment order issued under this 
section the employer shall deduct from all disposable pay paid to the 
applicable debtor during each pay period the amount indicated on the 
garnishment order up to 15% of the debtor's disposable pay.
    (2) When a debtor's pay is subject to withholding orders with 
priority the following shall apply:
    (i) Unless otherwise provided by Federal law, withholding orders 
issued under this section shall be paid in the amounts set forth under 
paragraph (i)(1) of this section and shall have priority over other 
withholding orders which are served later in time. Notwithstanding the 
foregoing, withholding orders for family support shall have priority 
over withholding orders issued under this section.
    (ii) If amounts are being withheld from a debtor's pay pursuant to 
a withholding order served on an employer before a withholding order 
issued pursuant to this section, or if a withholding order for family 
support is served on an employer at any time, the amounts withheld 
pursuant to the withholding order issued under this section shall be 
the lesser of:
    (A) The amount calculated under paragraph (i)(1) of this section, 
or
    (B) An amount equal to 25% of the debtor's disposable pay less the 
amount(s) withheld under the withholding order(s) with priority.
    (3) An amount greater than that set forth in paragraphs (i)(1) and 
(i)(2) of this section may be withheld upon the written consent of 
debtor.
    (4) The employer shall promptly pay to the agency all amounts 
withheld in accordance with the withholding order issued pursuant to 
this section.
    (5) An employer shall not be required to vary its normal pay and 
disbursement cycles in order to comply with the withholding order.
    (6) Any assignment or allotment by an employee of his earnings 
shall be void to the extent it interferes with or prohibits execution 
of the withholding order issued under this part, except for any 
assignment or allotment made pursuant to a family support judgment or 
order.
    (7) The employer shall withhold the appropriate amount from the 
debtor's wages for each pay period until the employer receives 
notification from the agency to discontinue wage withholding. The 
garnishment order shall indicate a reasonable period of time within 
which the employer is required to commence wage withholding.
    (j) Exclusions from garnishment. The agency may not garnish the 
wages of a debtor who it knows has been involuntarily separated from 
employment until the debtor has been reemployed continuously for at 
least 12 months. The debtor bears the burden of informing the agency of 
the circumstances surrounding an involuntary separation from 
employment.
    (k) Financial hardship. (1) A debtor whose wages are subject to a 
wage withholding order under this section, may, at any time, request a 
review by the agency of the amount garnished, based on materially 
changed circumstances such as disability, divorce, or catastrophic 
illness which result in financial hardship.
    (2) A debtor requesting a review under paragraph (k)(1) of this 
section shall submit the basis for claiming that the current amount of 
garnishment results in a financial hardship to the debtor, along with 
supporting documentation. Agencies shall consider any information 
submitted in accordance with procedures and standards established by 
the agency.
    (3) If a financial hardship is found, the agency shall downwardly 
adjust, by an amount and for a period of time agreeable to the agency, 
the amount garnished to reflect the debtor's financial condition. The 
agency will notify the employer of any adjustments to the amounts to be 
withheld.
    (l) Ending garnishment. (1) Once the agency has fully recovered the 
amounts owed by the debtor, including interest, penalties, and 
administrative costs consistent with the FCCS, the agency shall send 
the debtor's employer

[[Page 62464]]

notification to discontinue wage withholding.
    (2) At least annually, an agency shall review its debtors' accounts 
to ensure that garnishment has been terminated for accounts that have 
been paid in full.
    (m) Actions prohibited by the employer. An employer may not 
discharge, refuse to employ, or take disciplinary action against the 
debtor due to the issuance of a withholding order under this section.
    (n) Refunds. (1) If a hearing official, at a hearing held pursuant 
to paragraph (f)(3) of this section, determines that a debt is not 
legally due and owing to the United States, the agency shall promptly 
refund any amount collected by means of administrative wage 
garnishment.
    (2) Unless required by Federal law or contract, refunds under this 
section shall not bear interest.
    (o) Right of action. The agency may sue any employer for any amount 
that the employer, after receipt of the garnishment order provided by 
the agency under paragraph (g) of this section, fails to withhold from 
wages owed and payable to an employee. However, a suit may not be filed 
before the termination of the collection action, unless earlier filing 
is necessary to avoid expiration of any applicable statute of 
limitations period. For purposes of this section, ``termination of the 
collection action'' occurs when the agency has terminated collection 
action in accordance with the FCCS or other applicable standards. In 
any event, termination of the collection action will have been deemed 
to occur if the agency has not received any payments to satisfy the 
debt, in whole or in part, from any source for a period of one (1) 
year.

    Dated: November 17, 1997.
Russell D. Morris,
Commissioner.
[FR Doc. 97-30611 Filed 11-20-97; 8:45 am]
BILLING CODE 4810-35-P