[Federal Register Volume 63, Number 77 (Wednesday, April 22, 1998)]
[Proposed Rules]
[Pages 20006-20009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10588]



[[Page 20005]]

_______________________________________________________________________

Part II





Department of the Treasury





_______________________________________________________________________



Fiscal Service



_______________________________________________________________________



31 CFR Part 285



Barring Delinquent Debtors From Obtaining Federal Loans or Loan 
Insurance or Guarantees; Proposed Rule

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

[[Page 20006]]



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

[[Page 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

[[Page 20008]]

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:


Sec. 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 post-delinquency 
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

[[Page 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