[Federal Register Volume 63, Number 87 (Wednesday, May 6, 1998)]
[Rules and Regulations]
[Pages 25136-25142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11966]



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Part II





Department of the Treasury





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Fiscal Service



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31 CFR Part 285



Administrative Wage Garnishment; Final Rule



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  Federal Register / Vol. 63, No. 87 / Wednesday, May 6, 1998 / Rules 
and Regulations  

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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 285

RIN 1510-AA67


Administrative Wage Garnishment

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: This final rule implements the administrative wage garnishment 
provisions contained in the Debt Collection Improvement Act of 1996 
(DCIA). Wage garnishment is a process whereby an employer withholds 
amounts from an employee's wages and pays those amounts to the 
employee's creditor in satisfaction of a withholding order. The DCIA 
authorizes Federal agencies administratively 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.

DATES: This rule is effective June 5, 1998.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program 
Specialist, Debt Management Services, at (202) 874-6660 or James Regan, 
Attorney-Advisor, at (202) 874-6680, Financial Management Service, 
Department of the Treasury, 401 14th Street SW, Washington, DC 20227. 
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 final rule 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. Wage garnishment is a process whereby an employer 
withholds amounts from an employee's wages and pays those amounts to 
the employee's creditor in satisfaction of a withholding order. The 
DCIA authorizes Federal agencies administratively to garnish up to 15% 
of the disposable pay 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 collecting delinquent 
nontax debt may garnish administratively a delinquent debtor's wages in 
accordance with regulations promulgated by the Secretary of the 
Treasury. 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 final 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. A hearing must 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. The debtor bears the burden of informing the agency 
of the circumstances surrounding an involuntary separation from 
employment.

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 final rule 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.

Discussion of Comments

General

    In response to its Notice of Proposed Rulemaking (NPRM) concerning 
Administrative Wage Garnishment (62 FR 62458, Nov. 21, 1997), FMS 
received comments from Federal agencies, private collection agencies, 
an umbrella organization for organizations that support the activities 
of the Federal Family Education Loan Programs, and a private citizen. 
Many of the commenters have been involved in implementing a similar 
administrative wage garnishment provision that authorizes the U.S. 
Department of Education (Education) to garnish 10% of the disposable 
pay of employed individuals who have defaulted on their student loan 
obligations. See 20 U.S.C. 1095a; 34 CFR 682.410. FMS drafted the NPRM 
after consultation with the Departments of Education and Justice about 
their experience implementing wage garnishment to collect student 
loans. The comments received in response to the NPRM based on the 
commenters' experience with Education's program have been helpful in 
drafting the final rule. It is important to note that Education's wage 
garnishment program is applicable to the collection of one type of debt 
subject to a single statutory scheme. The DCIA wage garnishment 
provision and this rule, on the other hand, are applicable to all 
Federal agencies collecting all types of debt, the collection of which 
is subject to a variety of statutory provisions. Therefore, as 
explained below, while some of the suggestions have been incorporated 
into the final rule, others do not apply to a government-wide wage 
garnishment program involving all Federal agencies with various types 
of debts.
    A review of the comments is provided in the following Comment 
Analysis which includes a discussion of FMS' determination whether to 
incorporate specific suggestions in the final rule. The Comment 
Analysis is organized by reference to the paragraphs in the NPRM.

NPRM Sec. 285.11(a)  Purpose

    No changes were made to NPRM Sec. 285.11(a). FMS did not receive 
any comments applicable to this paragraph.

NPRM Sec. 285.11(b)  Scope

    One commenter suggested that FMS incorrectly interpreted the DCIA 
in the NPRM by not limiting the applicability

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of administrative wage garnishment to the collection of only those 
debts evidenced by written agreements. The commenter believes that the 
language contained in 31 U.S.C. 3720D(a) authorizing wage garnishment 
``if the individual is not currently making required repayment in 
accordance with any agreement between the agency head and the 
individual'' so limits the use of wage garnishment. FMS disagrees with 
the commenter. There is nothing in the plain language of the statute to 
indicate that the referenced phrase limits the applicability of wage 
garnishment to debts evidenced by a written agreement. The term 
``debt,'' as defined in 31 U.S.C. 3701(b)(1), as amended by the DCIA, 
is not limited to debts evidenced by a written agreement between the 
debtor and the Government.
    One commenter suggested that the rule establish a minimum threshold 
amount for garnishment based on a cost estimate of the garnishment 
procedure. This is unnecessary since the use of the administrative wage 
garnishment tool by agencies is voluntary and should be used by 
agencies in appropriate situations. Agencies may set their own policies 
regarding minimum thresholds.

NPRM Sec. 285.11(c)  Definitions

    One commenter suggested that the definition of agency under NPRM 
Sec. 285.11(c) be expanded to authorize agents or vendors of Federal 
agencies to garnish debtors' wages in accordance with this rule. 
Whether or not an agent or vendor can perform a particular function on 
behalf of a Federal agency is beyond the scope of this rule. While the 
use of contractors for the collection of debt generally is authorized 
by law, agencies may not contract out ``inherently governmental 
functions.'' See Office of Management and Budget (OMB) Circular A-76. 
This is not to say that contractors cannot assist agencies in 
conducting administrative wage garnishment. For example, contractors 
could be hired to mail notices and garnishment orders authorized by the 
agency, receive documents from the debtor and the employer, and 
document agency-approved repayment agreements with the debtor.

NPRM Sec. 285.11(d)  General Rule

    One commenter suggested that FMS clarify a statement in the NPRM 
preamble concerning NPRM Sec. 285.11(d) involving the use of wage 
garnishment by Treasury-designated debt collection centers. In addition 
to agencies that administer the program that gives rise to the debt, 
agencies that pursue the recovery of the debt for those agencies, such 
as the Department of the Treasury, Treasury-designated debt collection 
centers, and the Department of Justice, are authorized to conduct 
administrative wage garnishment. See, e.g., the definition of 
``agency'' in NPRM Sec. 285.11(c), unchanged in the final rule.

NPRM Sec. 285.11(e)  Notice Requirements

    The suggestion by one commenter that the rule specifically prohibit 
the combination of an agency's notice of intention to garnish a 
debtor's wages with other notices to the debtor has not been 
incorporated into this rule. The rule gives agencies the flexibility to 
combine notices where appropriate. In many circumstances, the debtor 
can be informed clearly in a single communication of all debt 
collection remedies available to the Federal agency and the 
opportunities available to the debtor to be heard concerning the 
existence or amount of the debt.
    One commenter's suggestion that FMS develop a standard 
administrative wage garnishment notice for government-wide use has not 
been incorporated in the final rule. Because agency-specific laws 
applicable to debt collection have to be considered in drafting a 
notice, a standard government-wide form would not be appropriate.
    One commenter suggested that the rule exempt private collection 
professionals acting on behalf of agencies from the liability 
provisions of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 
1692 et seq., provided that such entities comply with the terms of this 
rule and use notices and forms developed by Treasury or other agencies. 
The extent to which the FDCPA may apply to any entity, particularly 
private collection agencies, is outside the scope of this rule.
    Several commenters suggested that the rule should clearly state 
that the certificate of service may be retained electronically. Other 
commenters suggested that a certificate of service is unnecessary. The 
final rule retains the requirement that an agency keep a certificate of 
service as evidence of mailing. However, NPRM Secs. 285.11(e)(3) and 
285.11(g)(3) have been amended to indicate more clearly that the 
certificate of service may be retained electronically so long as the 
manner of retention is sufficient for evidentiary purposes.

NPRM Sec. 285.11(f)  Hearing

    One Federal agency asked that the rule address whether an agency 
needs to publish its own regulation before it can engage in 
administrative wage garnishment under the DCIA. Another commenter 
questioned how an agency's existing hearing procedures for debt 
determination relate to the wage garnishment requirements contained in 
the DCIA and NPRM. The phrase ``consistent with this section'' was 
added to NPRM Sec. 285.11(f)(1) in this final rule to clarify that 
agency regulations must follow the minimum requirements for wage 
garnishment hearings as set forth in this rule. Each agency is 
responsible for prescribing hearing procedures in accordance with the 
statutory and regulatory requirements of this rule and other 
requirements applicable to that agency's debt collection hearing 
procedures. Those agencies with hearings procedures which meet the 
requirements established under this rule and agency-specific statutory 
and other requirements need not develop new hearing procedures. 
Agencies should seek legal advice from their agency counsel to 
determine whether existing agency procedures meet the requirements 
established under this rule and whether the agency is required to 
publish new or amended regulations. Section 285.11(b)(6) has been added 
to the final rule to further clarify that ``(n)othing in this section 
requires agencies to duplicate notices or administrative proceedings 
required by contract or other laws or regulations.''
    The final rule does not incorporate one commenter's suggestion that 
the Department of the Treasury or the Department of Justice be required 
to review agencies' wage garnishment procedures and regulations prior 
to allowing an agency to initiate a wage garnishment program. Unique 
statutory requirements apply to every Federal program that gives rise 
to delinquent debt. Thus, the agency administering the program that 
gives rise to the debt is in the best position to know what is 
required. The Departments of Treasury and Justice will continue, 
however, to provide guidance to agencies concerning debt collection 
practices and procedures.
    One commenter recommended amending NPRM Sec. 285.11(f)(4) by 
establishing that a debtor has 15 ``calendar'' days, rather than 15 
``business'' days, to request a hearing. FMS was concerned that 15 
calendar days would not allow sufficient time for a debtor to request a 
hearing prior to the issuance of a garnishment order given that 15 
calendar days could include four to seven weekend days or holidays. For 
this reason, NPRM Sec. 285.11(f)(4) has not been changed.
    Several comments addressed the hearing procedures proposed in the 
NPRM. The final rule incorporates the comment from two commenters

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suggesting that the requirement in NPRM Sec. 285.11(f)(8)(ii) that a 
debtor prove by ``clear and convincing evidence'' that no debt exists 
or that the amount of the debt is incorrect is too burdensome. In the 
final rule at Sec. 285.11(f)(8)(ii), FMS replaced the ``clear and 
convincing'' standard with the less burdensome ``preponderance of the 
evidence'' standard.
    One commenter suggested that proving the terms of the repayment 
schedule are ``unreasonable,'' as required at NPRM 
Sec. 285.11(f)(8)(ii), is too vague and that the debtor should be 
required to show that the terms of the repayment schedule would cause a 
``financial hardship'' to the debtor. The final rule incorporates this 
suggestion.
    In response to a commenter's suggestion, NPRM Sec. 285.11(f)(8)(ii) 
has been amended to clarify that the debtor may present evidence that 
collection of the debt may not be pursued due to operation of law, 
e.g., enforcement of the order is subject to the automatic stay imposed 
at the time of a bankruptcy filing pursuant to 11 U.S.C. 362.
    Two commenters suggested that this rule restrict hearing officials 
to those individuals not under the supervision or control of the head 
of the agency. The commenters suggested that the rule, without such a 
change, could result in inequitable wage garnishment hearing decisions 
since an agency, and its qualified hearing officer, have a vested 
interest in the outcome. FMS disagrees for three reasons. First, 
Congress did not intend to require that hearing officials be 
independent. Unlike other statutes, see, e.g., 5 U.S.C. 5514(a)(2) 
(concerning Federal salary offset), the DCIA does not require an 
independent hearing official. Second, the rule explicitly sets forth 
minimum hearing procedures that ensure the debtor has a meaningful 
opportunity to be heard and minimize the risk of erroneous deprivation 
of the debtor's property interest in his or her wages. Finally, any 
final hearing decision by the agency on wage garnishment is subject to 
judicial review under the Administrative Procedure Act. See, e.g., 5 
U.S.C. 706 (concerning judicial review of an agency's actions).

NPRM Sec. 285.11(g)  Wage Garnishment Order

    One commenter noted that the provision under NPRM Sec. 285.11(g) 
requiring agencies to submit a wage garnishment order to a debtor's 
employer within 30 days of a hearing decision (or within 30 days after 
the debtor fails to make a timely request for a hearing) should be 
reconciled with the 20 day period provided under Education's wage 
garnishment regulation at 34 CFR 682.410(b)(10)(H). Such a 
reconciliation with Education's rule is not warranted or necessary. The 
time period in this rule accommodates a broad range of agencies' 
requirements and is consistent with the goal of issuing a wage 
garnishment order promptly after notice and an opportunity to be heard 
have been provided to the debtor.
    The final rule does not incorporate one commenter's suggestion that 
NPRM Sec. 285.11(g)(2) be amended to delete the requirement that the 
wage garnishment order be signed by the head of the agency or his/her 
designee. The commenter suggested that issuance of the wage garnishment 
order on agency letterhead including the agency's seal is sufficient to 
demonstrate official issuance. This rule requires a signature to 
authenticate a wage withholding order. Failure to include a signature 
on a wage withholding order could result in employer uncertainty as to 
the validity of the order and could result in delay, and possible loss, 
of garnishment payments to which the Government is entitled.
    As noted in the NPRM and as suggested by a commenter, FMS is 
developing a wage garnishment order form. It is anticipated that the 
use of a standard wage garnishment order form by agencies will make it 
easier for private sector employers to recognize and comply with agency 
wage garnishment order requirements. This form will be available from 
FMS at the address listed above and will be available for downloading 
from the FMS web site at the following address: www.fms.treas.gov.
    One commenter suggested that rather than require the agency to keep 
a certificate of service indicating the date of the mailing of a 
garnishment order, the rule should require the debtor's employer to 
verify receipt. The commenter's rationale is that the DCIA (31 U.S.C. 
3720D(f)(2)(A)) and NPRM Sec. 285.11(o) authorize the agency to sue the 
employer for noncompliance with the wage garnishment order. The final 
rule does not incorporate this comment because the Government need only 
show that the order was mailed, not whether it actually was received. 
Nelson v. Diversified Collection Services, 961 F.Supp. 863, 868-69 (D. 
Md. 1997). By requiring an agency to retain a copy of the certificate 
of service, the agency can produce evidence that the order was mailed 
without having to place an additional burden on the employer.
    One commenter suggested that the requirement to comply with the 
wage garnishment order should be waived under circumstances when a 
small employer (with less than five employees) would be subject to a 
major hardship (financial or otherwise) as a result of complying with 
the order. Such a change to the rule is unnecessary since the use of 
the wage garnishment collection tool by agencies is not mandated under 
the DCIA. Agencies can set their own policies on when it is appropriate 
to utilize the administrative wage garnishment process.

NPRM Sec. 285.11(h)  Certification by Employer

    The final rule did not incorporate the recommendation of two 
commenters to delete the requirement under NPRM Sec. 285.11(h) 
requiring the debtor's employer to complete and return a certification 
form to the agency. The commenters suggested this provision is unduly 
burdensome and that an employer's failure to complete and return the 
form could unnecessarily delay the garnishment process. The 
certification form serves multiple purposes. One, the form provides the 
agency with information necessary to monitor the employer's compliance 
with the wage garnishment order in accordance with the requirements of 
the DCIA and applicable laws. The form also will provide information so 
the agency can calculate anticipated collection amounts to determine 
whether to pursue other collection tools. Finally, the form will assist 
the employer in calculating the amount to be garnished from the 
debtor's disposable pay. It is noted that the employer's failure to 
complete the certification form as required does not affect the 
employer's responsibility to withhold the appropriate garnishment 
amount within a ``reasonable time'' in accordance with this rule. See 
NPRM Sec. 285.11(i)(7), renumbered as Sec. 285.11(i)(8) in the final 
rule.

NPRM Sec. 285.11(i)  Amounts Withheld

    Two commenters recommended clarifying the impact of the Consumer 
Credit Protection Act's (CCPA) minimum disposable pay requirement on 
the wage garnishment provisions of the DCIA and this rule. See CCPA, 
Sec. 303(a)(2), codified at 15 U.S.C. 1673(a)(2) (maximum allowable 
garnishment). NPRM Sec. 285.11(i) has been amended to clarify that the 
amount of garnishment is limited by the CCPA. Under section 285.11(i) 
of the final rule, the amount of garnishment is the lesser of the 
amount indicated on the garnishment order up to 15% of the debtor's 
disposable pay or the amount set forth in 15 U.S.C. 1673(a)(2). The 
amount set forth in 15 U.S.C. 1673(a)(2) is the amount by which a 
debtor's

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disposable pay exceeds an amount equivalent to thirty times the minimum 
wage. For example, if a debtor receives disposable pay of $160.00 per 
week and thirty times the minimum wage is $154.50, the amount that may 
be garnished weekly is the lesser of $24.00 (15% of $160) or $5.50 
($160.00-$154.40 = $5.50). See 29 CFR 870.10(b)(1) for information on 
calculating an amount equivalent to thirty times the minimum wage.
    Section 285.11(i)(3) of the final rule is the same as NPRM 
Sec. 285.11(i)(2) except that Sec. 285.11(i)(3)(iii) has been added to 
clarify the amount of garnishment for a debtor who owes multiple debts 
to a single creditor agency. Under section 285(i)(3)(iii) of the final 
rule, an agency may issue multiple withholding orders so long as the 
total amount garnished from the debtor's pay for such orders does not 
exceed the garnishment amount permitted under Sec. 285.11(i)(2). For 
purposes of Sec. 285.11(i)(3)(iii), the term ``agency'' refers to the 
agency that is owed the debt.
    One commenter suggested deleting the language in NPRM 
Sec. 285.11(i)(7) (renumbered as Sec. 285.11(i)(8) in the final rule) 
requiring that the wage garnishment order ``indicate a reasonable 
period of time within which the employer is required to commence wage 
withholding'' because garnishment orders in all other contexts 
typically require immediate compliance. This suggestion was not 
incorporated into the final rule. The ``reasonable period of time'' 
given to employers allows employers adequate time to calculate 
garnishment withholding payroll data involving a debtor employee 
without disrupting the normal payroll cycle. It is anticipated that a 
``reasonable period of time'' generally will mean that the employer 
will commence withholdings within two pay cycles following receipt of 
the garnishment order. This may vary given an employer's circumstances.

NPRM Sec. 285.11(j)  Exclusions From Garnishment.

    No changes were made to the NPRM Sec. 285.11(n). FMS did not 
receive any comments applicable to this paragraph.

NPRM Sec. 285.11(k)  Financial Hardship

    The final rule does not incorporate one commenter's suggestion that 
NPRM Sec. 285.11(k) be amended further to define the standards for 
agency review of a debtor's request for an adjustment in the amount 
withheld under a wage garnishment order due to ``financial hardship'' 
based on ``materially changed circumstances.'' NPRM Sec. 285.11(k), 
unchanged in the final rule, provides illustrative examples of the type 
of events which may give rise to financial hardship due to ``materially 
changed circumstances,'' such as disability, divorce, or catastrophic 
illness. However, whether financial hardship exists must be determined 
by an agency's review of the particular facts and circumstances of a 
given case.

NPRM Sec. 285.11(l) Ending Garnishment

    The final rule does not incorporate a commenter's suggestion that 
the rule clarify whether collection costs need to be collected before 
terminating the garnishment action. NPRM Sec. 285.11(l), unchanged in 
the final rule, clearly requires termination of garnishment only after 
the agency ``has fully recovered the amounts owed by the debtor, 
including interest, penalties and administrative costs consistent with 
the FCCS (Federal Claims Collection Standards).'' See 31 U.S.C. 3717(e) 
and 4 CFR 102.13 regarding the collection of administrative costs 
associated with a debt.

NPRM Sec. 285.11(m)  Actions Prohibited by the Employer

    No changes were made to NPRM Sec. 285.11(m). FMS did not receive 
any comments applicable to this paragraph.

NPRM Sec. 285.11(n)  Refunds

    No changes were made to NPRM Sec. 285.11(n). FMS did not receive 
any comments applicable to this paragraph.

NPRM Sec. 285.11(o)  Right of Action.

    The final rule does not incorporate a commenter's suggestion that 
NPRM Sec. 285.11(o) be amended to remove the requirement that a Federal 
agency must ``terminate collection action'' as a prerequisite to 
commencing suit against a debtor's employer for failure to withhold 
amounts from wages pursuant to a wage garnishment order. The DCIA 
specifically provides that ``suit (against an employer) 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.'' 31 U.S.C. 3720D(f)(2)(B).
    However, FMS has amended NPRM Sec. 285.11(o) in the final rule to 
incorporate a suggestion by another commenter that the rule be changed 
to clarify that ``termination of the collection action'' merely refers 
to the particular debtor/employee, rather than the debt. This change 
gives agencies flexibility to terminate collection action against one 
of the debtors and file suit against that debtor's employer for failing 
to withhold that debtor's wages pursuant to a wage garnishment order. 
At the same time, the agency could continue collection efforts 
involving the other debtors who are jointly and severally liable to the 
agency on the debt.

Regulatory Analysis

    This rule is not a significant regulatory action as defined in 
Executive Order 12866. It is hereby certified that this regulation, 
including the certification referenced in this final rule (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 regulation 
and to the certification requirement in this 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 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 
amended 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, 3711, 3716, 
3720A, 3720D; E.O. 13019; 3 CFR, 1996 Comp., p. 216.

    2. Section 285.11 is added to Subpart B to read as follows:


Sec. 285.11  Administrative wage garnishment.

    (a) Purpose. This section provides procedures for Federal agencies 
to collect money from a debtor's

[[Page 25140]]

disposable pay by means of administrative wage garnishment to satisfy 
delinquent nontax debt owed to the United States.
    (b) Scope. (1) This section 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 section shall apply notwithstanding any provision of State 
law.
    (3) Nothing in this section 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 section 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 section 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 other 
applicable laws.
    (6) Nothing in this section requires agencies to duplicate notices 
or administrative proceedings required by contract or other laws or 
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 section, 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 determined by an appropriate official of the Federal Government to 
be owed to the United States by an individual, including debt 
administered by a third party as an agent for the Federal Government. 
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 
administratively to 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. The certificate of 
service may be retained electronically so long as the manner of 
retention is sufficient for evidentiary purposes.
    (f) Hearing--(1) In general. Agencies shall prescribe regulations 
for the conduct of administrative wage garnishment hearings consistent 
with this section 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

[[Page 25141]]

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) 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. However, the 
agency 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 by a preponderance of the 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 unlawful, would cause a financial hardship to 
the debtor, or that collection of the debt may not be pursued due to 
operation of law.
    (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 Procedure 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 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. The certificate of service 
may be retained electronically so long as the manner of retention is 
sufficient for evidentiary purposes.
    (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) 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 of garnishment described in paragraph (i)(2) of this section.
    (2)(i) Subject to the provisions of paragraphs (i)(3) and (i)(4) of 
this section, the amount of garnishment shall be the lesser of:
    (A) The amount indicated on the garnishment order up to 15% of the 
debtor's disposable pay; or
    (B) The amount set forth in 15 U.S.C. 1673(a)(2) (Restriction on 
Garnishment). The amount set forth at 15 U.S.C. 1673(a)(2) is the 
amount by which a debtor's disposable pay exceeds an amount equivalent 
to thirty times the minimum wage. See 29 CFR 870.10.
    (3) 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)(2) 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

[[Page 25142]]

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)(2) 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.
    (iii) If a debtor owes more than one debt to an agency, the agency 
may issue multiple withholding orders provided that the total amount 
garnished from the debtor's pay for such orders does not exceed the 
amount set forth in paragraph (i)(2) of this section. For purposes of 
this paragraph (i)(3)(iii), the term agency refers to the agency that 
is owed the debt.
    (4) An amount greater than that set forth in paragraphs (i)(2) and 
(i)(3) of this section may be withheld upon the written consent of 
debtor.
    (5) The employer shall promptly pay to the agency all amounts 
withheld in accordance with the withholding order issued pursuant to 
this section.
    (6) An employer shall not be required to vary its normal pay and 
disbursement cycles in order to comply with the withholding order.
    (7) 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 section, except for any 
assignment or allotment made pursuant to a family support judgment or 
order.
    (8) 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 has 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 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 fails to withhold from wages owed and payable to an 
employee in accordance with paragraphs (g) and (i) of this section. 
However, a suit may not be filed before the termination of the 
collection action involving a particular debtor, 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 from the particular debtor whose wages were subject to 
garnishment, in whole or in part, for a period of one (1) year.

    Dated: April 30, 1998.
Richard L. Gregg,
Commissioner.
[FR Doc. 98-11966 Filed 5-5-98; 8:45 am]
BILLING CODE 4810-35-P