[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Proposed Rules]
[Pages 29304-29332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13848]



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Part II





Department of Agriculture





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Food and Nutrition Service



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7 CFR Parts 272 and 273



Food Stamp Program: Food Stamp Recipient Claim Establishment and 
Collection Standards; Proposed Rule

  Federal Register / Vol. 63, No.102 / Thursday, May 28, 1998 / 
Proposed Rule  

[[Page 29304]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 272 and 273

[Amdt. No. 377]
RIN 0584-AB88


Food Stamp Program: Food Stamp Recipient Claim Establishment and 
Collection Standards

AGENCY: Food and Consumer Service, USDA.

ACTION: Proposed rule.

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

SUMMARY: The Food and Nutrition Service (FNS) is proposing to revise 
Food Stamp Program (FSP) regulations that cover the establishment and 
collection of food stamp recipient claims, including collections at the 
Federal level. This rule aims to improve claims management in the FSP 
while providing State agencies with increased flexibility in their 
efforts to increase claims collections. The provisions of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) 
affecting recipient claims are incorporated into this rulemaking and 
this action is consistent with the President's regulatory reform 
effort. This proposed rule also strives to achieve a balance between 
State agency flexibility and fiscal accountability.
    Food stamp recipient claims are established against households that 
receive more benefits than they are entitled to receive. The last major 
revision to these regulations was in 1983. Recent legislation, 
technological advances and changes in Federal debt management 
regulations have rendered many portions of the current regulations 
obsolete. In addition, the current regulations place unnecessary 
burdens on State agencies. The proposed changes are intended to: 
incorporate changes mandated by PRWORA; simplify presentation of 
policy; incorporate Federal debt management regulations and statutory 
revisions into food stamp recipient claim management; and provide State 
agencies with additional tools to facilitate the establishment, 
collection and disposition of food stamp recipient claims.

DATES: Comments on this proposed rulemaking must be received by August 
26, 1998 to be assured of consideration.

ADDRESSES: Comments should be submitted to James I. Porter, Recipient 
Claims Coordinator, Program Accountability Division, Food Stamp 
Program, Food and Nutrition Service, USDA, 3101 Park Center Drive, 
Alexandria, Virginia 22302. Only written comments will be accepted. All 
written comments will be open for public inspection during regular 
business hours (8:30am to 5:00pm, Monday through Friday) at 3101 Park 
Center Drive, Alexandria, Virginia, Room 905.

FOR FURTHER INFORMATION CONTACT: Questions regarding this proposed 
rulemaking should be directed to Mr. Porter at the above address or by 
telephone at (703) 305-2385.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be significant and was 
reviewed by the Office of Management and Budget under Executive Order 
12866.

Executive Order 12372

    The FSP is listed in the Catalog of Federal Domestic Assistance 
under No. 10.551. For the reasons set forth in the final rule at 7 CFR 
Part 3015, Subpart V and related Notice (48 FR 29115, June 24, 1983), 
the FSP is excluded from the scope of Executive Order 12372 which 
requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley R. 
Watkins, Under Secretary for Food, Nutrition and Consumer Services, has 
certified that this rule will not have a significant impact on a 
substantial number of small entities.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the ``Implementation'' section of this preamble. 
Prior to any judicial challenge to the provisions of this proposed rule 
or the application of its provisions, all applicable administrative 
procedures must be exhausted.

Public Law 104-4

    This proposed rule contains no Federal mandates under the 
regulatory provisions of title II of the Unfunded Mandates Reform Act 
of 1995 (UMRA), Pub. L. 104-4, for State, local and tribal governments 
or the private sector of $100 million or more in any one year. 
Therefore, this rule is not subject to the requirements of sections 202 
and 205 of the UMRA.

Paperwork Reduction Act: Recipient Claims and Reporting Format 
Redesign

    The following constitutes a 60 day notice being issued by FNS, 
USDA.
    In accordance with the Paperwork Reduction Act of 1995, this notice 
invites the general public and other public agencies to comment on this 
proposal to consolidate several existing collection burdens by 
requesting a new burden.
    Written comments must be submitted on or before July 27, 1998.
    Send comments and requests for copies of this information 
collection to James I. Porter, Recipient Claims Coordinator, Program 
Accountability Division, Food Stamp Program, Food and Nutrition 
Service, USDA, 3101 Park Center Drive, Alexandria, Virginia 22302 and 
to Wendy Taylor, FNS Desk Officer, Office of Information and Regulatory 
Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC 
20503. For further information regarding this notice, Mr. Porter may be 
contacted at (703) 305-2385.
    Comments regarding these burden estimates are invited on: (a) 
Whether the proposed collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information will have practical utility; (b) the accuracy of the 
agency's estimate of the burden of the proposed collection of 
information including the validity of the methodology and assumptions 
used; (c) ways to enhance the quality, utility and clarity of the 
information to be collected; and (d) ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology.
    All responses to this notice will be summarized and included in the 
request for Office of Management and Budget (OMB) approval. All 
comments will also become a matter of public record.
    Title: Food Stamp Data Collection.
    OMB Number: A new burden number is being requested This burden will 
consolidate burden associated with 0584-0069, 0584-0080, 0584-0009, 
0584-0015, 0584-0081 and 0584-0025. The existing burden under 0584-0064 
is not being changed.
    Form Number: New request for FNS-695 which will consolidate the 
FNS-

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209, FNS-46, FNS-250, FNS-259, FNS-388, FNS-388a and FNS-101 reports.
    Type of Request: Consolidation of several collection and record 
keeping burdens into one burden.
    Abstract: In accordance with the Paperwork Reduction Act of 1995, 
the reporting and recordkeeping burden associated with the Notice of 
Adverse Action, the demand letter for recipient claims and general 
case/claim recordkeeping has been approved by OMB under OMB number 
0584-0064. The Department recognizes that, under this proposed rule, 
State agencies would be required to track claim referrals. The 
Department does not consider this to be an additional recordkeeping 
burden because tracking referrals is part of efficient and effective 
general case recordkeeping and management that has already been 
approved under OMB 0584-0064.
    The burden associated with the reporting of claims under OMB number 
0584-0069 consists of the submission of the Status of Claims Against 
Households (FNS-209) report. In an effort to reduce the number of 
reports and/or data elements to be reported, the Department is 
proposing to request OMB to combine and consolidate this reporting 
function with a number of other FNS reports with the result being one 
electronic reporting format. The reports with which the FNS-209 would 
be consolidated include the Issuance Reconciliation Report (FNS-46), 
Food Stamp Accountability Report (FNS-250), Food Stamp Mail Issuance 
Report (FNS-259), State Issuance and Participation Estimates (FNS-388), 
Project Area Issuance and Participation Estimates (FNS-388a) and 
Participation in Food Programs--by Race (FNS-101) as it pertains to the 
FSP. All of these reports, including the FNS-209, currently have 
assigned to them a unique OMB burden approval number: 0584-0069 for the 
FNS-209; 0584-0080 for the FNS-46; 0584-0009 for the FNS-250; 0584-0015 
for the FNS-259; 0584-0081 for the FNS-388 and FNS-388a; and 0584-0025 
for the FNS-101. To facilitate the report consolidation effort, the 
Department is requesting that OMB cancel all of the above approval 
numbers (with the exception of OMB number 0584-0025) and assign a 
single burden approval number for the new electronic reporting format. 
Since the burden associated with OMB number 0584-0025 also pertains to 
activity in the Food Distribution Program, the Department is not 
requesting that this number be canceled. However, the portion of this 
burden relating to the FSP would be removed and transferred to the 
newly assigned number.
    The number of annual data reporting elements associated with this 
reporting burden will change dramatically. Currently, the forms 
proposed to be replaced have a cumulative total of 3,121,124 annual 
data reporting elements resulting in a reporting and recordkeeping 
burden of 110,122 hours. The proposed reporting format, on the other 
hand, would only have 15,300 annual data reporting elements.
    Even though the number of data elements would be reduced 
significantly, the reporting and recordkeeping burden hours would 
increase by an average one hour per State agency per report submission. 
This is because much of the data proposed to be reported in the new 
reporting format is summational. Under the proposed reporting format, 
State agencies would need to retrieve and record the detailed data, 
compute the summational amounts and maintain the records necessary for 
audit purposes. Many States are already performing this consolidation 
function as part of their existing reporting procedures and therefore 
would experience no increase in burden. The one-hour increase in burden 
is to accommodate the remaining states who would need to perform some 
consolidation work to carry out this function.
    Affected Public: State and local governments.
    Estimated Number of Respondents: 37,973.
    Estimated Time per Response: 2.90 hours.
    Estimated Total Annual Burden: 110,758 hours.

Paperwork Reduction Act: Federal Collection Methods for Food Stamp 
Program Recipient Claims

    The following constitutes a 60-day notice being issued by FNS, 
USDA.
    In accordance with the Paperwork Reduction Act of 1995, this notice 
invites the general public and other public agencies to comment on this 
proposal to change an information collection burden related to Federal 
claims collection methods (FCCM's).
    Written comments must be submitted on or before July 27, 1998.
    Send comments and requests for copies of this information 
collection to James I. Porter, Recipient Claims Coordinator, Program 
Accountability Division, Food Stamp Program, Food and Nutrition 
Service, USDA, 3101 Park Center Drive, Alexandria, Virginia 22302 and 
to Wendy Taylor, FNS Desk Officer, Office of Information and Regulatory 
Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC 
20503. For further information regarding this notice, Mr. Porter may be 
contacted at (703) 305-2385.
    Comments regarding these burden estimates are invited on: (a) 
Whether the proposed collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information will have practical utility; (b) the accuracy of the 
agency's estimate of the burden of the proposed collection of 
information including the validity of the methodology and assumptions 
used; (c) ways to enhance the quality, utility and clarity of the 
information to be collected; and (d) ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological collection techniques or other forms of information 
technology.
    All responses to this notice will be summarized and included in the 
request for Office of Management and Budget (OMB) approval. All 
comments will also become a matter of public record.
    Title: Federal Collection Methods for Food Stamp Program Recipient 
Claims.
    OMB Number: 5084-0446.
    Expiration date: September 30, 1999.
    Type of request: Revision to a currently approved collection.
    Abstract: Changes to the collection burden would result from two 
changes proposed in this rule. One proposed change is the consolidation 
of the 60-day notice for Federal Income Tax Refund Offset Program 
(FTROP)(See 7 U.S.C. Sec. 2022(b)(1)(C); 7 CFR 273.18(g)(5)) into an 
all inclusive 60-day notice for all types of Federal offsets. The other 
is the increased number of 60-day notices due to the proposed inclusion 
of agency error (AE) claims as a type of claim subject to collection 
under Federal offset.
    Estimate of Burden: The proposed rule would increase the annual 
burden on State agencies from an average of 450 to 500 hours and for 
debtors would decrease from an average of 8 to 6 minutes.
    Respondents: The collection would continue to impact two groups, 
State agencies that administer the FSP and certain individuals who are 
liable for overissued food stamp benefits.
    Estimated Number of Respondents: The number of State agency 
respondents increase from 52 to 53. The number of debtor respondents 
would increase from 370,000 to 425,000.
    Estimated Number of Responses per respondent: As under current 
rules, for State agencies the number of responses would vary from once 
for such activities

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as certifying files to FNS to 380,000 for mailing out due process 
notices. For debtors the number of responses would continue to vary 
from once for such things as due process notices to three or four in 
the case of debtors making informal inquiries and requesting reviews.
    Estimated Total Annual Burden on Respondents: Under this proposed 
rule the annual reporting and recordkeeping burden would decrease from 
72,862 to 71,803 hours (1,059 hours).

Background

    The tolerance of abuse, or even the perception of such, undermines 
the fundamental mission of the FSP. The efficient and effective 
establishment and collection of recipient claims is essential to 
program integrity. This rule aims to improve and increase claims 
establishment and also to increase the collection rate of established 
claims, while providing State agencies with increased flexibility in 
their efforts to increase claims collections.
    The PRWORA (Pub. L. 104-193) amended the Food Stamp Act of 1977 (7 
U.S.C. 2011-2032) (the FSA) in a number of ways. This rule proposes to 
implement the provisions of the PRWORA relating to recipient claims. 
This rule also proposes to incorporate certain provisions of the 
Federal Debt Collection Improvement Act of 1996 (DCIA)(Pub. L. 104-134, 
Chapter 10, signed April 26, 1996) as discussed later in this preamble 
in connection with Federal claim collection methods. The DCIA amended 
the Debt Collection Act of 1982 (31 U.S.C. 3701)(DCA).
    In addition to the revisions mandated by the enactment of the 
PRWORA, the Department is proposing a number of significant changes in 
discretionary FSP policy regarding recipient claims. This rule also 
proposes certain changes in FTROP and the Federal Salary Offset 
Program, 7 U.S.C. 2022(b)(1)(C)(FSOP), in response to the amended DCA. 
Furthermore, this proposed rule would extensively reorganize the 
current regulations at 7 CFR 273.18. To assist in the regulatory 
reorganization and in the development of the discretionary policy 
changes being proposed, the Department, in an effort to maintain 
consistency with the treatment of other Federal debts, utilized the 
Federal Claims Collection Standards (FCCS) issued by the Department of 
Treasury (Treasury) (See 4 CFR Parts 101-105). The Department also drew 
upon a number of other sources including the policies and regulations 
of other social programs, private and public sector accounting 
standards, technological advances, recommendations by the Department's 
Office of the Inspector General (OIG) and Office of General Counsel, 
and suggestions from State agencies.

Responsibility for Recovering Overpayments

    Current regulations at 7 CFR 273.18(a) discuss the State agency's 
responsibility for establishing claims as well as the household's 
liability for the amount of the claim. It also defines the three types 
of claims. The Department is proposing to revise the structure of this 
paragraph. The first structural revision would change the title of the 
paragraph from Establishing claims against households to Responsibility 
for recovering overpayments. This is being proposed because the new 
title more accurately portrays the purpose of the paragraph. In 
addition, the Department feels that keeping the current title would 
lead to confusion because other paragraphs of the proposed rule discuss 
``establishing'' claims in much greater detail.
    The second structural revision would involve the breakout of the 
single introductory paragraph into two paragraphs. The first paragraph 
of the proposed rule, Sec. 273.18(a)(1), would establish household 
liability for overissuances. Section 273.18(a)(2) would establish State 
agency responsibility for establishing and recovering overissuances.
    Even though the responsibility for establishment and collection of 
overpayments has been delegated to State agencies, food stamp recipient 
claims remain debts to the Federal government. Section 273.18(a)(2) of 
the proposed rule would specify this in detail. This proposal is not 
intended to change policy but simply to clarify existing policy. As 
Federal debts, unless superseded by this or other Departmental 
regulation, food stamp recipient claims are subject to the same debt 
collection processes and procedures as are all other Federal debts.

Claim Types and Definitions

    In the current regulations, there are three claim types: 
intentional Program violation (IPV), inadvertent household error (IHE) 
and administrative error. The proposed rule would keep the same 
designations for IPV and IHE claims. Administrative error claims, on 
the other hand, would be renamed and referred to as agency error (AE) 
claims. This is being proposed to be consistent with the term most 
commonly used for this type of claim.
    Paragraphs 7 CFR 273.18(a)(1), (a)(2) and (a)(3) of the current 
regulations provide the specific definitions for IPV, IHE and AE 
claims. As part of the regulatory reorganization, this rule proposes to 
split out these paragraphs from 7 CFR 273.18(a) into their own 
respective paragraphs: Sec. 273.18(b) for IPV claims; Sec. 273.18(c) 
for IHE claims; and Sec. 273.18(d) for AE claims.

IPV Claims

    Current regulations at 7 CFR 273.18(a)(3) provide the definition 
for an IPV claim. The paragraph contains specific instructions as to 
what must have occurred for an overissuance to be handled as an IPV 
claim. Since the basis for IPV claims is set by statute, this rule 
proposes no change in current policy about the basis for such claims. 
However, as part of the regulatory reorganization, the Department is 
proposing to list the criteria for defining an IPV claim in separate 
paragraphs, Sec. Sec. 273.18(b)(1) through 273.18(b)(4).
    The proposed rule contains one change regarding IPV claims in an 
area in which the Department has discretion. Current regulations at 7 
CFR 273.18(a)(3) mandate that prior to the determination of IPV the 
claim shall be handled as an IHE claim. The Department is proposing to 
delete this mandate thereby making this practice a State agency option 
on a case-by-case basis as long as the claim is established within the 
required timeframe (See the Claim Referral and Backlog section of this 
preamble for details on timeframe).

IHE Claims

    Current regulations at 7 CFR 273.18(a)(1) provide the definition 
for an IHE claim. Under these regulations, an IHE claim generally 
results from an overissuance that was caused by a misunderstanding or 
unintended error on the part of the household. As part of the 
regulatory reorganization and in an effort to enhance FSP 
simplification, the Department is proposing to eliminate much of the 
definitional language in the current regulations and simply use the 
specific language at Sec. 273.18(c) in the proposed rule.

AE Claims

    Current regulations at 7 CFR 273.18(a)(2) define an AE claim. Under 
these current regulations, an AE claim results from an overissuance 
that was caused by a State agency action or failure to take action. As 
with the proposal regarding the definition of an IHE claim, the 
Department is proposing to eliminate unnecessary definitional language 
in this paragraph and simply use the specific language at 
Sec. 273.18(d) in this proposed rule.
    Section 844 of the PRWORA eliminated all legislative limitations on

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the collection options available for AE claims. This ends a previous 
inconsistency wherein State agencies were required to collect AE claims 
but were precluded from using the most effective and efficient 
collection tool, involuntary allotment reduction.
    Some groups maintain that, since the reason for the overissuance 
resulting in the AE claim was an error by the State agency, the 
household should not be responsible for the overissuance under laws in 
a number of States under the legal concept of equitable estoppel. The 
Department disagrees with this position. The FSP is administered under 
Federal law and the Department provides 100 percent of the value of the 
benefits. Section 13(a)(2) of the FSA (7 U.S.C. 2022(a)(2)), which was 
unchanged by the PRWORA, clearly and unconditionally provides that 
adult members of a household that receive any overissuance shall be 
jointly and severally liable for the value of the overissuance. Thus, 
Federal law permits no exception for equitable estoppel in the case of 
an overissuance caused by State agency error.

Claims for Recipient Trafficking

    In a significant policy change, the Department is proposing, in 
Sec. 273.18(a) of this rule, to provide for establishing a claim 
against a household for the value of benefits that are trafficked 
rather than redeemed for authorized food purchases.
    Trafficking has long been an IPV subject to disqualification from 
FSP participation. However, the advent of electronic benefits transfer 
(EBT) has provided a source of data that makes it easier to identify 
both parties to trafficking transactions. The availability of EBT data 
has already increased the number of disqualifications for trafficking. 
In addition to disqualification penalties, the Department believes that 
trafficking can also be deterred by the development and use of 
additional enforcement tools. Assessing a claim for the amount of 
trafficked benefits offers such a tool.
    The authority for this determination is found in section 13(a)(1) 
of the FSA (7 U.S.C. 2022(a)(1)) which states that the Department ``* * 
* shall have the power to determine the amount of and settle and adjust 
any claim * * * arising under the provisions of this Act or the 
regulations issued pursuant to this Act, including, but not limited to, 
claims arising from fraudulent and nonfraudulent overissuances to 
recipients * * * (emphasis added)'' Generally, a recipient claim is 
established when a household receives more coupons than the household 
is entitled to receive. However, as indicated above, section 13 of the 
FSA (7 U.S.C. 2022) does not limit the Department to establishing 
claims against individuals solely because of overissuances. Clearly, 
recipient misuse, such as trafficking, falls within the definition of 
an IPV as specified in 7 CFR 273.16(c)(2). The Department is thus 
proposing in this rule that claims would be established for all IPV's, 
including those caused by trafficking offenses.
    The Department would like to clarify that this change in policy 
would have no effect on the current policy regarding the establishment 
and collection of fines and penalties from authorized retailers and 
unauthorized third parties who are found to have illegally obtained 
coupons via trafficking. (See 7 CFR 278.6). Retailer fines and claims 
act as a deterrent and punish retailers and unauthorized third parties 
for engaging in prohibited activity. The current regulations on 
retailer fines and claims at 7 CFR 278.6 provide for monetary penalties 
significantly larger than the amount trafficked. The proposed policy 
change providing for recipient trafficking claims, on the other hand, 
would directly correlate with the benefit amount that was trafficked. 
The procedure for calculating a recipient trafficking claim is 
discussed elsewhere in this preamble.
    The Department also proposes to establish a second category of 
claims for trafficking that is analogous to the inadvertent household 
error claim established for household-caused overpayments that do not 
warrant IPV determinations. A State agency can assert an 
``inadvertent'' misuse claim in situations where the State agency 
chooses not to obtain or cannot obtain a formal designation of 
trafficking through an administrative or court determination but can 
document the transaction sufficiently to sustain the claim. The 
Department is therefore proposing that instances of inadvertent 
recipient misuse be appropriately treated as IHE's as described in 7 
CFR 273.18(a)(1)(i) of the current regulations and Sec. 273.18(c) in 
the proposed rule. This rule would provide the authority for State 
agencies to specifically include trafficking and recipient misuse in 
benefit transactions as a basis for establishing a claim against a 
household.

Claim Calculation

    Current regulations at 7 CFR 273.18(c)(1) and 7 CFR 273.18(c)(2) 
discuss the procedures for calculating the amount of a claim due to an 
overissuance. Under the proposed reorganization of 7 CFR 273.18, the 
paragraphs on calculating claims would be combined under 
Sec. 273.18(e)(1). In addition, some policy revisions are being 
proposed in this area and are outlined below. The current paragraph 
also does not include a provision for calculating claims for 
trafficking. The proposed rule at Sec. 273.18(e)(2) addresses this 
issue.

Calculating Recipient Trafficking Claims

    The Department is proposing, in Sec. 273.18(e)(2), to include a 
procedure for determining the value of a misused benefit caused by 
trafficking. The amount of the misused benefit would be the value of 
the trafficked benefit as determined by: the individual's admission; 
adjudication; or the documentation, such as detailed electronic 
benefits transfer (EBT) transaction listings, which forms the basis for 
the benefit misuse determination. Trafficking claims could be either an 
IPV or IHE claim depending on the nature of the procedure under which 
trafficking was established.

Calculating Overissuance Claims

    For an IPV claim due to an overissuance, current regulations at 7 
CFR 273.18(c)(2) provide the parameters for claim calculation. Current 
regulations at 7 CFR 273.18(c)(1) establish the procedures for 
calculating claims for IHE and AE overissuances. In an effort to 
provide a better structure, the Department is proposing to combine 
these paragraphs into a single procedure in Sec. 273.18(e)(1)(i) 
through (vi) in this rule. As part of this reorganization and general 
streamlining effort, some unnecessary prescriptive language would also 
be removed. In addition to these structural and streamlining revisions, 
several policy changes are also being proposed in this rule.
    The PRWORA included a change in the calculation of claims caused by 
unreported earned income. Section 809 of the PRWORA amended section 5 
of the FSA (7 U.S.C. 2014) by specifying that the earned income 
deduction ``* * * shall not be allowed with respect to determining an 
overissuance due to the failure of a household to report earned income 
in a timely manner.'' This changed current policy by removing the 
stipulation that the failure to properly report income must be willful 
or fraudulent. As a result, the Department is proposing, in 
Sec. 273.18(e)(1)(iii) of this rule, that, in calculating an IHE claim, 
the State agency would not apply the earned income deduction to that 
part of any earned income that the household failed

[[Page 29308]]

to report in a timely manner. This would be the same policy that the 
Department currently has for calculating IPV claims with unreported 
earned income.
    In addition to the earned income revision necessitated by the 
PRWORA, the Department is proposing two additional policy changes 
related to claim calculation: (1) Under the proposed rule, a State 
agency would be able to waive up to 20 percent of any claim if the 
household cooperates with the establishment of the claim; and (2) the 
amount of the claim would be offset by the amount of any expunged EBT 
benefits. These two policy revisions are discussed in greater detail in 
other sections of this preamble.
    Current regulations at 7 CFR 273.18(c)(1)(iii) and (c)(2)(iii) 
discuss offsetting the claim amount against any amount of lost benefits 
that have not yet been restored to the household. This proposed rule 
does not change this policy. However, as part of the regulatory 
reorganization and since this area applies more to collecting rather 
than calculating claims, the Department proposes to move this paragraph 
to the claims collection section of this rule.

Pre-Establishment Cost Effectiveness Determination Methodologies

    Section 844 of the PRWORA amended section 13 of the FSA (7 U.S.C. 
2022(b)) by stating that the collection of any overissuance does not 
apply ``* * * if the State agency demonstrates to the satisfaction of 
the Secretary * * *'' that it is not cost effective to collect that 
claim. This establishes that interest in program integrity must be 
tempered by administrative costs considerations. This provision implies 
that some test must be established to assess or demonstrate the degree 
of cost effectiveness for a claim. However, the Department strongly 
believes that this provision (as well as the implementing language in 
this rule) by no means implies that a household has an automatic 
``right'' to an overpayment without fear of collection, even if the 
overpayment is not cost effective for the State agency to pursue 
collection. This rule addresses standards for determining which claims 
must be pursued. For smaller claims State agencies should continue to 
maintain some probability of collection. Knowledge that even small 
overpayments may be collected increases payment accuracy by holding 
households responsible for accurate reporting of their circumstances.
    The Department believes that a cost effectiveness test can be 
applied both prior to and after establishing a claim. This section of 
the preamble discusses assessing cost effectiveness prior to 
establishment and the initiation of collection action. Assessing cost 
effectiveness subsequent to the initiation of collection action as a 
means to determine whether a claim should be terminated and written off 
is discussed elsewhere in this preamble.
    In Federal fiscal year 1995 alone, over 775,000 recipient claims 
were established nationwide. The Department recognizes that this sheer 
volume negates any notion of a State agency demonstrating to FNS the 
degree of cost effectiveness for claims on an individual basis. 
Therefore, the Department is proposing in this rule that, in lieu of 
demonstrating cost-effectiveness to FNS on an individual claim basis, 
State agencies would use standards approved by FNS to assess the cost 
effectiveness of collecting claims.
    In determining these standards, the Department is proposing to 
present State agencies with a choice. The first would be for a State 
agency to design its own standard (subject to FNS approval). The second 
option would be for a State agency to use an updated version of the 
existing FNS recipient claim threshold. Both options are discussed 
below.

State Agency-Developed Methodology for Cost Effectiveness 
Determination

    The Department is proposing, in Sec. 273.18(h)(2) of this rule, how 
a State agency could adopt its own procedure, threshold, and/or 
methodology for use in determining whether to pursue the establishment 
of any claim and subsequent collection of the overissuance. A State 
agency would need to submit a detailed analysis of costs over time and 
obtain prior approval from FNS for use of this procedure, threshold 
and/or methodology. Cost effectiveness should reflect total returns to 
the Federal and State government and the total cost of the State claims 
collection effort.
    The concept of having a State agency develop its own methodology is 
an expansion of current policy. The reason for this policy expansion is 
twofold. First, this option would be consistent with the spirit of 
section 844 of the PRWORA which increases State agency control over its 
claims. The stipulation requiring prior FNS approval of the methodology 
to be utilized would be needed because the provision in the PRWORA 
requires that cost effectiveness be demonstrated to the satisfaction of 
FNS, thus reinforcing the Federal government's interest in State 
stewardship of FSP resources.
    The second reason for this policy expansion is that cost 
effectiveness varies significantly from one State agency to another 
depending on factors such as the degree of automated processing, the 
amount of historical case record information, the degree of 
centralization, features of administrative structures, salaries, and 
the number and size of claims established. This observation is 
supported by a contracted study released by FNS in June 1996 entitled, 
``Optimal Thresholds in the Collection of Food Stamp Program Claims.'' 
While State agencies have a responsibility to adopt cost-effective 
claims management systems, this proposal would allow a State agency to 
establish a cost-effectiveness methodology (subject to FNS approval) to 
reflect the State agency's own situation and expenses.

FNS Threshold for Establishing and Collecting Overissuances

    Current regulations at 7 CFR 273.18(d)(1)(i)(A) require that, 
except for those IHE and AE claims which (1) are collected through 
offset of restored benefits or (2) are less than $35 and cannot be 
collected through allotment reduction, State agencies shall initiate 
collection action on all IHE and AE claims. This $35 exception 
represents the current FNS threshold for recipient claim collection.
    Since 1982, 12 State agencies participating in the FSP have 
received waivers increasing the $35 FNS threshold. State agencies have 
maintained that the current threshold is too low because the cost of 
establishing and collecting claims exceeded the thresholds.
    Administrative costs relating to claims actions are the cost of 
establishing a claim; calculating the claim; posting the claim into the 
State agency accounting and reporting system; initiating the various 
demand letters and notices; and managing collections. Economic factors, 
such as inflation, in addition to fluctuations in salary and staffing 
levels and automation start-up and maintenance costs cause changes 
(usually increases) in the amount of administrative funding expended 
for food stamp claim activity within each respective State agency over 
a given time period. In addition, the aforementioned contractor study 
on recipient claim collection thresholds found that the optimal 
thresholds in the State agencies surveyed were higher than the current 
collection threshold. The study also found that it was more appropriate 
to apply the threshold to the costs of the combined process of 
establishing and collecting claims. Including only the cost of 
collection led

[[Page 29309]]

to setting too low a threshold from an economic perspective.
    As a result, the Department is proposing to increase the FNS 
threshold for collecting food stamp recipient IHE and AE claims. In 
addition, the Department is proposing to extend this threshold to IPV 
claims. The Department is also proposing utilizing the same threshold 
for both establishing and collecting claims. Current regulatory 
language refers only to the collection of claims and implies there is 
no threshold below which claims need not be established.
    In its reorganization of 7 CFR 273.18, the Department is proposing 
to break out and expand the paragraph in the current regulations 
dealing with the threshold, 7 CFR 273.18(d)(1)(i)(A), into 
Sec. 273.18(g)(2)(ii) of the proposed rule. In Sec. 273.18(g)(2)(ii), 
the threshold would be defined as the maximum dollar amount of a claim 
or a claim referral that a State agency may decide not to pursue 
establishment and/or collection solely based on the amount of the 
referral. The purpose of the threshold is to maximize cost 
effectiveness in the establishment, pursuit and recovery of 
overissuances in the FSP. The Department originally considered 
proposing to raise this threshold from $35 to $100. Then the Department 
considered establishing a threshold that would change periodically 
depending on the rate of inflation or some similar economic factor. The 
Department decided to strike a balance between increased State costs 
and the uncertainty of a fluctuating threshold by proposing a fixed 
threshold of $125. This proposed threshold is reflected in 
Sec. 273.18(g)(2)(ii) of this rule.
    In addition, as noted earlier and reflected in 
Sec. 273.18(g)(2)(ii) of the proposed rule, this threshold would also 
apply to IPV claims. The authority to include IPV's under the threshold 
is found in section 13(a)(1) of the FSA (7 U.S.C. 2022(a)(1)) which 
provides the Department with the authority to delegate to State 
agencies the power to ``* * * settle and adjust any [recipient] claim * 
* * if the [Department] determines that to do so would serve the 
purposes of this Act.'' The proposed inclusion of IPV claims under the 
threshold would increase the waiver authority delegated to State 
agencies.
    Currently, procedures for establishing and pursuing IPV claims vary 
significantly from jurisdiction to jurisdiction. By including IPV 
claims under the threshold, the Department would like to reduce this 
degree of variability. However, the Department would like to emphasize 
that no jurisdiction would be prevented from establishing and/or 
pursuing the collection of any claim that falls under this threshold. 
State agencies are encouraged to pursue claims on selected bases which 
would act as a deterrent or be in the best interest of the FSP or 
agency to establish or collect.
    Finally, the current regulations at 7 CFR 273.18(d)(1)(i)(A) do not 
allow the FNS threshold to be applied to claims that can be recovered 
by reducing the household's allotment. Since the utilization of this 
claim collection method incurs relatively little post-establishment 
costs, the Department is not proposing any changes to this policy.
    The Department is interested in receiving comments on these 
proposals concerning the determination of cost effectiveness for the 
establishment and collection of recipient claims. In addition, the 
Department is particularly interested is receiving actual cost data 
from State agencies.

Claim Establishment

Claim Referral and Backlog

    Under current regulations, no time frame exists for State agencies 
to follow for initiating collection action by establishing claims. This 
has resulted in a number of State agencies either not establishing or 
not enforcing internal time frames for addressing potential claims, 
thereby causing a backlog of claim referrals. These claim referral 
backlogs have been cited as deficiencies and problem areas in Federal 
and State-level management evaluations and audits conducted by the 
Department's OIG. Potential debts that are not timely developed into 
claims become less collectible the longer they remain undeveloped.
    In an effort to reduce the number of claims which are not 
established in a timely manner, the Department believes that it is 
necessary to develop a minimum timeliness standard for establishing 
claims which incorporates a standardized methodology for measuring the 
length of time it takes to establish a claim after the potential 
overissuance is discovered. To accomplish this, the Department must 
initially set the parameters by defining the starting and ending points 
of the process.
    The Department is proposing that the starting point for calculating 
the length of time that it takes to establish a claim would be the date 
the potential claim is initially detected. This would be known as the 
date of discovery and is being defined as such in Sec. 273.18(f) of 
this proposed rule.
    The Department considered and rejected one other alternative in its 
determination of the appropriate starting point. This alternative was 
to use the date of occurrence of the change that caused the 
overissuance. For example, if a household was overissued benefits 
because of a decrease in household size, the starting point would be 
the date that the individual(s) left the household. The Department 
decided not to propose this alternative because the State agency may 
not become aware of the change that caused the overissuance for some 
time.
    In addition to proposing a starting point to gauge the length of 
time it takes to establish a claim after the potential overissuance is 
discovered, the Department is also proposing to define an ending point 
for tracking and reporting purposes. This would be the date of 
establishment. The Department is proposing, in Sec. 273.18(f)(3) of 
this rule, to have the date of establishment be the date that the 
initial written claim notification or demand letter is issued to the 
household. This is being proposed because the Department feels that 
this is the final step in establishing a claim.
    The Department considered one other alternative as the ending 
point. This alternative would define the date of establishment as the 
date that the claim is posted as a receivable in the State agency's 
claim collection and tracking system. However, while it is integral to 
the establishment of a receivable, this is not being proposed because 
the Department believes that a claim is not truly established until the 
demand letter is sent to the household.
    The Department is proposing that the length of time it takes to 
establish the claim would simply be the number of days between the date 
of discovery (starting point) and the date of establishment (ending 
point).
    Now that the mechanism for measuring the length of time it takes to 
establish a claim has been proposed, the Department is proposing a 
standard for the timely establishment of claims.
    Originally, the Department considered a 90-day standard for 
establishing claims with an allowance for up to 180 days if the State 
agency needs to secure additional documentation from uncooperative 
sources. However, this was not considered feasible because it would be 
difficult to track and gauge its effectiveness given the additional 
time allowance that would be allotted for certain claim referrals. 
Instead, the Department is proposing in Sec. 273.18(f) of this rule to 
conform with time frames used in other assistance programs. The 
proposed rule would have the same standard as one that was in place for

[[Page 29310]]

initiating collection action in the Aid to Families with Dependent 
Children (AFDC) Program in July of 1996. Specifically, claims would 
need to be established before the end of the quarter following the 
quarter of the discovery of the claim. As an example, if the date of 
discovery is in October, November or December, the last day for sending 
the demand letter in a timely manner would be March 31.
    The Department is aware that a number of State agencies are either 
not establishing or not consistently enforcing internal time frames for 
addressing potential claims. This has resulted in what many State and 
Departmental officials perceive as a ``backlog'' of claim referrals. 
However, the measure of what actually constitutes a claim referral 
backlog has never been defined by the Department and State agencies 
have no clear regulatory guidance on this issue. With its proposed time 
frame for establishing claims, the Department feels that it now has the 
mechanism to propose clear guidance as to what would constitute a claim 
backlog.
    The Department is proposing in Sec. 273.18(f) of this rule to 
define a claim backlog as existing when more than 10 percent of the 
claim referrals are not established in a timely manner. The Department 
chose 10 percent because it feels that an absolute zero tolerance in 
this area would not account for the claims which would not be able to 
be timely established based on circumstances (such as uncooperative 
employers, etc.) which would be out of the State agency's control. The 
Department did not choose a percentage greater than 10 percent because 
it felt it would be too tolerant and condone inefficient and 
ineffective claim management.
    The Department would like to emphasize that the purpose of 
establishing a standard for what is considered an acceptable as opposed 
to an excessive backlog is not to penalize a State agency with an 
excessive backlog but to provide a management tool for gauging the 
State agency's claim establishment efforts.
    The Department is proposing in Sec. 273.18(f) that State agencies, 
in order to assess the age of referrals, be required to record the date 
of discovery and the establishment date in the claim case file and/or 
referral tracking system. The Department feels that this is not placing 
an additional or unnecessary burden on a State agency as prudent claim 
management would dictate that the State agency would have a system to 
internally track referrals already in place.
    Even though the Department is proposing a new standard for 
determining the existence of a claim backlog, the Department would not 
require State agencies to report this information to FNS. Monitoring 
would be achieved in the same manner that other areas of the FSP are 
reviewed and evaluated. The Department feels that the most effective 
way for State agencies to address a deficiency in this area would be to 
initially concentrate on preventing future backlogs by adhering to the 
standards proposed in this rule. Once this is accomplished, corrective 
action for the elimination of existing backlogs could be addressed.
    The Department is interested in receiving comments on the proposed 
standard for establishing claims and measuring a claims backlog.

Initiating Collection Action When the Household Cannot Initially Be 
Located

    The current regulations at 7 CFR 273.18(d)(1) contain the criteria 
for initiating collection action on IHE and AE claims. This criteria 
includes applying the dollar threshold for collecting claims, not 
taking action on households that cannot be located and postponing 
collection action on suspected IPV's. Proposed changes to the dollar 
threshold and the treatment of suspected IPV's are discussed in detail 
elsewhere in this preamble. In addition to these changes, the 
Department is also proposing a change in policy on initiating 
collection action if the household cannot be located.
    The current regulations at 7 CFR 273.18(d)(1)(i)(B) provide that 
the State agency shall initiate collection action for IHE and AE claims 
unless the household cannot be located. The Department is proposing to 
delete this paragraph and have the State agency initiate collection 
action on these claims. The reason for this is that, with the advent of 
innovative collection methods such as Federal and State tax refund 
offset, it is much easier for State agencies to eventually locate the 
household and collect the claim. In addition, the household would be 
subject to allotment reduction if it returns to the FSP prior to the 
claim being terminated and written off. Terminating and writing off 
claims is discussed elsewhere in this preamble.
    The current regulations at 7 CFR 273.18(d)(2) discuss the criteria 
for initiating collection action on IPV claims. This criteria includes 
making personal contact with the household. The Department is proposing 
to delete this clause. This is being proposed to increase the 
flexibility afforded State agencies in their collection efforts.
    As with IHE and AE claims, the Department is also proposing to 
delete the clause in 7 CFR 273.18(d)(2) that allows State agencies not 
to pursue collection action against IPV claims if the household cannot 
be located. The reason for this being proposed is the same as with IHE 
and AE claims: the increased possibility of collection via Federal and 
State tax refund offset and the possibility of allotment reduction if 
the household returns to the FSP before the claim is terminated.

Household Notification

Requirements at Certification

    In the Department's efforts to afford State agencies maximum 
flexibility, the Department is taking steps to ensure that household 
notification requirements (as required by the Privacy Act of 1964 at 5 
U.S.C. 552a and the Debt Collection Act of 1982 (DCA), as amended by 
the DCIA at 31 U.S.C. 3716(a)) are not compromised. Proper notification 
involves informing the household of its rights regarding the claim and 
informing the household at the time of FSP application of the potential 
uses of information provided by the household to collect the claim.
    Households initially provide identifying information (such as 
names, addresses and social security numbers) as well as other 
information regarding household circumstances at the time of 
application. This information is used by State agencies for program 
purposes including verification and eligibility and to refer delinquent 
claims to other agencies for various collection tools and methodologies 
such as tax refund, salary and administrative offset. The Department is 
proposing in this rule to require that State agencies inform households 
of this potential use of provided information at the time of 
application in a new paragraph, Sec. 273.2(b)(4).

Demand Letter Requirements

    Under the proposed rule at Sec. 273.18(g)(3), a State agency would 
simply develop and use its own demand letter for claim notification and 
repayment solicitation. The Department is proposing several 
requirements to ensure that proper notification and due process 
conditions are met when the household is informed of the existence of 
the claim via the demand letter.
    The first requirement being proposed by the Department in this rule 
is that the claim notification or initial demand letter would continue 
to contain a notice of adverse action (see Sec. 273.18(g)(3)(v)). This 
notice of adverse action can either be an attachment or

[[Page 29311]]

contained in the body of the initial demand letter itself. This notice 
would also provide the household with the opportunity for a fair 
hearing on the validity and amount of the claim. At a fair hearing (or 
at an administrative disqualification hearing for some IPVs), the 
household currently is provided the opportunity to inspect and copy 
agency records and review with the agency the circumstances relating to 
the claim. This conforms with the information availability requirements 
in the DCA at 31 U.S.C. 3716(a)(2) and (a)(3). The current regulations 
regarding fair hearings (7 CFR 273.15) and administrative 
disqualification hearings (7 CFR 273.16) are not affected by this 
proposed rule.
    In addition, to ensure proper notification per 31 U.S.C. 3716(a)(1) 
and (a)(4), the demand letter or accompanying notice of adverse action 
would contain information to provide the household with written notice 
of: (1) The type and amount of the claim, the intent to collect the 
claim, if not paid, by referral to other agencies, including private 
collection agencies, for various claims collection actions including, 
but not limited to, administrative offset, tax refund offset and salary 
offset; (2) the opportunity to inspect and copy the records related to 
the claim; (3) the opportunity for an administrative review (fair 
hearing) of the decision related to the claim; and (4) the opportunity 
to make a written agreement to repay the amount of the claim prior to 
the claim being referred for Federal collection methods. The Department 
is also proposing that the demand letter contain language specifying 
that, if the claim becomes delinquent, the household may be subject to 
additional delinquent and/or processing charges. Finally, the 
Department is proposing that the demand letter provide notification 
that all adult household members are equally liable for the claim and 
that the claim, if not otherwise collected, may be referred to the 
Department of Justice for litigation. These proposals are reflected in 
Sec. 273.18(g)(3)(iii) and (g)(3)(iv) of this rule.

Elimination of Repayment Option Choice in the Demand Letter

    Prior to the enactment of the PRWORA, section 13(b) of the FSA (7 
U.S.C. 2022(a)(1)) contained the stipulation that the household had the 
option of selecting the method of payment. This resulted in the 
formulation of detailed regulations at 7 CFR 273.18(d)(3) implementing 
this legislative requirement. In section 844 of the PRWORA, Congress 
removed all references in section 13 of the FSA (7 U.S.C. 2022) which 
pertained to allowing the household to select the method of payment. In 
their place, Congress provided the State agency (and not the household) 
with the prerogative to select the appropriate payment method. In 
addition, section 844 of the PRWORA gave the State agency the authority 
to establish its own requirements for providing notice to a household 
with an overissuance. Although State agencies will have greater 
flexibility in providing notice, the Department is proposing the 
minimum due process notice requirements specified in the DCA, as 
discussed above, in order to assure that collection through Federal 
administrative offset and other methods are available to State 
agencies. These changes are reflected in Sec. 273.18(g)(3) of this 
proposed rule.
    In addition, other prescriptive language in 7 CFR 273.18(d)(3) 
regarding demand letter content unrelated to household notification 
rights discussed above would also be removed to conform to allow for 
greater State agency flexibility in this area.

Claim Management

Delinquency and Due Date

    In most accounts receivable systems, certain actions beyond the 
original demand letter or claim notification generally occur when a 
receivable is not paid timely and becomes delinquent. These actions 
usually facilitate further collection action and/or disposition of the 
receivable. The Department believes that the processing of food stamp 
recipient claims should be no different from other receivables in this 
regard.
    The Department is proposing in this rule to clearly define what 
constitutes delinquency in food stamp recipient claims. This is being 
proposed in an effort to increase consistency among State agencies in 
the treatment of food stamp claims with outstanding balances. This lack 
of consistency undermines the integrity of the aggregate receivable 
data compiled by the Department as part of its financial statement. The 
Department also feels that standardization is necessary in this 
instance because recipient claims are ultimately Federal debts and the 
individualized approach by State agencies results in inconsistent 
treatment. In addition, the proper aging of claims (which is a Treasury 
requirement for all Federal debts) facilitates optimal claim management 
from establishment through collection and final disposition. Therefore, 
the first step in effective and consistent post-establishment claims 
management requires a definition of delinquency that then triggers 
subsequent steps in the claims collection process.
    The current regulations governing food stamp recipient claims at 7 
CFR 273.18 do not define or even utilize the terms delinquent or 
delinquency. Delinquency, however, is defined at 4 CFR 101.2(b) in 
Treasury's FCCS as occurring when a claim ``* * * has not been paid by 
the date specified in the agency's initial written notification* * * 
unless other satisfactory payment arrangements have been made by that 
date, or if, at any time thereafter, the debtor fails to satisfy 
obligations under a payment agreement with the creditor agency.'' The 
Department is planning to use this definition as a basis for defining 
delinquency for food stamp recipient claims.
    Delinquency, in the FCCS's definition, is determined contingent 
upon the non-receipt of payment by the ``date specified'' in the 
notification unless other arrangements have been made. The ``date 
specified'' is commonly known as the due date. To have a delinquent 
claim based on the initial demand letter, according to the FCCS, the 
agency should have a due date specified in its initial demand letter. 
Therefore, in an effort to establish delinquency in conformance with 
the FCCS on this issue, the Department is proposing in 
Sec. 273.18(g)(3)(v) to require that all initial demand letters contain 
a due date in their text. The due date would be up to 30 days after the 
date of the initial demand letter. This conforms with the response time 
frame established by the FCCS at 4 CFR 102.2(b).
    The paragraph at 7 CFR 273.18(g)(2) in the current regulations 
governing recipient claims discusses the procedures when a household 
fails to make an installment payment in accordance with the established 
repayment schedule. This is the same situation as specified in the 
second part of the FCCS's definition of delinquency which states that a 
claim is considered delinquent when ``* * * the debtor fails to satisfy 
obligations under a payment agreement* * * '' In this instance, the due 
date would be the date that payment was to have been received in 
accordance with the installment agreement. The Department is therefore 
proposing, in Sec. 273.18(g)(4) of this rule, that all repayment 
agreements specify when payments are to be due and that the claim will 
be considered delinquent and may be subject to involuntary collection 
actions if payment is not received by the due date.

[[Page 29312]]

    The proposals in this rule to require a due date in both initial 
demand letters and installment agreements would give the Department the 
ability to define delinquency in a manner that is consistent with the 
FCCS's definition. While the Department recognizes that it has the 
authority to define terms and establish policy that differ from the 
FCCS, it feels that it would be in the best interest of the FSP to be 
consistent with the FCCS on this issue. Therefore, the Department, in 
Sec. 273.18(g)(5) of this rule, is proposing to define a delinquent 
food stamp recipient claim as a claim: (1) Which has not been paid by 
the due date specified in the State agency's initial written demand 
letter and a satisfactory payment arrangement has not been made; or (2) 
if a satisfactory payment arrangement has been made, a claim for which 
a payment has not been paid by a date required payment in accordance 
with an established repayment schedule. A claim would remain delinquent 
under either of these criteria until payment is received in full, a 
satisfactory payment agreement is negotiated (or renegotiated), or 
allotment reduction is invoked.
    The Department is proposing to have two exceptions to its 
definition of delinquency. The first exception involves multiple 
claims. The Department is proposing in Sec. 273.18(g)(5)(iv) that a 
claim would not be considered delinquent if another claim or claims for 
the same household exists and the other claim(s) is currently being 
paid either through an installment agreement or allotment reduction. In 
addition, the State agency would have to expect to begin collection on 
the claim once the other claim(s) is settled. This is being proposed to 
ensure that claims that are collectible and simply ``waiting their 
turn'' would not be subjected to activities such as involuntary 
collection actions and termination.
    The second exception to the definition of delinquency involves IPV 
claims where the collection is coordinated through the court system. 
The Department is proposing this exception in Sec. 273.18(g)(5)(iv) 
because it recognizes that the State agency which is responsible for 
overall food stamp recipient claim collecting and reporting may be 
limited in its control over this type of claim. This exception to the 
definition would be optional depending upon the collection system and 
coordination between the court and State agency.
    The Department is interested in receiving comments on this proposal 
to define delinquency.

Delinquency and Fair Hearing Requests

    Current regulations governing fair hearing requests at 7 CFR 
273.15(g) state that the ``* * * household shall be allowed to request 
a (fair) hearing on any action * * * which occurred in the prior 90 
days.'' For food stamp recipient claims, the 90-day fair hearing 
standard is applicable to the initial demand letter. Therefore, the 
Department is proposing in Sec. 273.18(g)(6) of this rule to specify 
that, once a household timely requests a fair hearing, all attempts to 
collect the claim would cease. This would be done to protect the rights 
of the household. If, when the hearing decision is rendered, it is 
determined that a claim does, in fact, exist against the household, the 
household would be sent another demand letter. This demand letter may 
be combined with the notice of the hearing decision. The determination 
of delinquency would then be based on whether payment is received or an 
agreement to pay is reached by the due date on this subsequent demand 
letter.
    If, when the hearing decision is rendered, it is determined that a 
claim does not exist, the Department is proposing in Sec. 273.18(g)(8) 
that the claim be terminated and written-off. This is discussed in 
greater detail in another section of this preamble.

Claim Termination and Write-off

    Section 13(a)(1) of the FSA (7 U.S.C. 2022(a)(1)) authorizes the 
Department to settle and adjust all or part of any food stamp recipient 
claim if it serves the purposes of the FSP. Current regulations at 7 
CFR 273.18(e) specify the conditions by which collection action on 
claims may be suspended and terminated. Suspended claims are claims in 
which no more collection action will be actively taken. A suspended 
claim may be terminated after it has been held in suspense for three 
years.
    In many State agencies, claims that are currently under 
``suspension'' are being or soon will be subjected to a variety of 
collection methods. These methods include such collection alternatives 
as salary offset and State and Federal tax refund offset. The 
Department feels that, with the introduction of these innovative 
collection methods, it would be unlikely in an effective claims 
collection environment for a claim to fall under the definition of a 
suspended claim as per 7 CFR 273.18(e) in the current regulations. 
Therefore, the Department is proposing in this rule to eliminate all 
references to the concept of suspending food stamp recipient claims. 
Having a designation for claims that will be inactive for three years 
without any subsequent collection action being planned serves no 
purpose, especially with the advent of the additional collection 
methods.
    In the current regulations, there is no requirement to terminate 
claims and there is no clear definition of this term. The regulations 
at 7 CFR 273.18(e)(ii)(3) simply state that a ``* * * claim may be 
determined uncollectible after it is held in suspense for 3 years 
(emphasis added).'' The lack of a requirement or clear definition has 
resulted in a large number of uncollectible claims being included in 
reports submitted to FNS and sizable account receivables being 
unnecessarily maintained in State agencies' ledgers. In addition, 
efficient and effective claims management advocates timely and 
aggressive action on a debt but with a quick disposition through 
termination when the probability of collection proves low.
    A study released by a Departmental contractor in August 1994 
entitled, ``Standard Operating Principles and Detailed Standard 
Operating Procedures for Food Stamp Recipient Claims,'' recommended 
that terminating and writing-off claims be made a requirement if the 
claims meet certain criteria. The study compared the current approach 
to food stamp recipient claim accounting with generally accepted 
accounting principles. These generally accepted accounting principles 
included statements from the Federal Accounting Standards Advisory 
Board, Acts of Congress, Treasury regulations (including the FCCS), and 
other authoritative documents. Page 15 of the Departmental contractor 
study specified that an organization's termination and write-off policy 
should ``* * * include the collection agent's definition of an 
uncollectible claim specifying which circumstances require a claim to 
be written-off and under which circumstances a claim may be deemed 
uncollectible by the decision of management. The write-off policy * * * 
should be strictly applied.''
    The Department, in Sec. 273.18(g)(9) of this rule, is therefore 
proposing to define a terminated claim as one in which all collection 
action has ceased. Under the proposed rule, a terminated claim would be 
immediately written-off, that is, it would be no longer considered a 
receivable subject to continued Federal and State agency collection and 
reporting requirements. A claim would have to fit one of the five 
criteria listed below to be terminated and written-off.
    In determining which criteria should be used to terminate a claim, 
the Department considered the

[[Page 29313]]

requirements found in 4 CFR 104.3 in the current FCCS published by 
Treasury. This paragraph of the FCCS contains five specific standards 
for terminating and writing-off claims: (a) The inability to collect 
any substantial amount; (b) the inability to locate the debtor; (c) the 
cost will exceed recovery; (d) the claim is legally without merit; or 
(e) the claim cannot be substantiated by evidence.
    In determining the Department's termination and write-off policy, 
FCCS standard (a), the inability to collect any substantial amount, was 
considered as it is of fundamental concern when the debtors primarily 
consist of households which are currently participating or were 
recently eligible to participate in a means tested program such as the 
FSP.
    FCCS standard (b), the inability to locate the debtor, was also 
considered in the development of the Department's proposed termination 
and write-off policy. The Department's termination and write-off policy 
being proposed in this rule takes into account the capabilities of the 
tax refund and other automated offset programs that are very effective 
in collecting from difficult-to-locate household members.
    FCCS standard (c), cost will exceed recovery, is certainly a factor 
in the Department's proposal. Food stamp claims, by nature, are usually 
relatively small with the average claim established in Federal fiscal 
year 1995 being $464. This is also a predominant factor in a proposal 
discussed in another section of this preamble regarding cost 
effectiveness determination prior to claim establishment.
    Food stamp recipient claim terminations and write-offs that may be 
applicable under FCCS standards (d), claim legally without merit, and 
(e), claim cannot be substantiated by evidence, are usually handled 
under the fair hearing process in the FSP. Administrative 
disqualification hearing and court determinations that specifically 
find that no overissuance occurred are also pertinent to these 
standards.
    Taking into account FCCS standards (a) through (e), the Department 
is proposing in Sec. 273.18(g)(9) to require State agencies to 
terminate and write-off a food stamp recipient claim if it meets any 
one of the following five criteria: (1) Any claim which is found to be 
invalid in a fair hearing, administrative disqualification hearing or 
court determination; (2) Any claim in which all adult household members 
are deceased and the State agency is not planning to pursue collection 
from the estate; (3) Any claim which has an outstanding balance of $25 
or less and has been delinquent for 90 days or more; (4) Any claim that 
the State agency has determined is not cost effective to collect; or 
(5) Any claim that has been delinquent for three years.
    The fourth Departmental criterion states that any claim that the 
State agency has determined not to be cost effective to collect shall 
be terminated and written off. To determine cost effectiveness, the 
Department believes that a State agency should use the standards 
already in use for food stamp recipient claims. If no standards 
currently exist, the State agency shall develop standards subject to 
FNS approval.
    In the fifth Departmental criterion, a State agency would be 
required to terminate and write-off any claim that has been delinquent 
for three years. The decision to require termination and write-off 
after three years of delinquency is based on a recommendation in the 
aforementioned contractor study (August 1994). Page 16 of the study 
specifies that ``* * * three years of delinquency is a reasonable 
amount of time to collect on outstanding debts, and that debts 
exceeding this time limit will likely not be collected with additional 
effort or time and should be written-off.''
    In addition, for the fifth criterion, the Department is proposing 
to add a qualifier that the State agency may opt not to terminate a 
claim which has been delinquent for three years or more if prior 
collections have been realized through Federal or state tax refund 
offset, salary offset or any other similar collection mechanism. This 
proposed qualifier was added because, even though these claims 
technically remain delinquent, the probability of collection via offset 
in the future may be relatively high because a portion of the claim has 
already been collected via this collection method.
    An issue has been raised concerning the possible reinstatement of 
terminated claims if an additional collection methodology is introduced 
or an event (such as lottery winnings) occurs to substantially increase 
the likelihood of future collections. In such cases State agencies may 
reinstate the claim.

Compromising Claims

    The areas in the current regulations at 7 CFR 273.18(g)(2) and 
(g)(4) concerning compromising claims would be consolidated into its 
own section, Sec. 273.18(g)(7) in the proposed rule. The Department is 
proposing two revisions in this area to increase consistency with the 
FCCS at 4 CFR Part 103. The first proposed revision would limit the 
authority to compromise to claims under $20,000. The second proposed 
revision would provide that, if a claim becomes delinquent, any 
compromised portion of that claim would be reinstated to the claim 
balance.

Acceptable Forms of Payment

    Current regulations at 7 CFR 273.18(g) indicate that payments for 
claims shall be accepted in various forms of cash, food coupons, 
offsets, intercepts and reductions to the household's allotment. The 
Department is proposing some policy clarifications and changes in this 
area.

``Cash'' Payments

    The Department would like to clarify in Sec. 273.18(h)(2)(i) of 
this rule that acceptable ``cash'' payments for food stamp claims 
actually take several forms. In addition to traditional forms of cash 
payments such as cash, check or money order, the Department also 
considers payments made via credit and/or debit cards as acceptable 
methods of payment if the State agency has the capability to accept 
such payments. Payment in these and other generally accepted formats 
are acceptable for both lump sum and installment payments. Offering 
alternative forms of payment increases the possibility of collection 
and State agencies are encouraged to explore these alternative payment 
methods.
    Currently, no policy exists regarding the issue of crediting cash 
collections received as general lump sum or installment payments for 
joint food stamp/other social service program recipient claims. In an 
effort to ensure that each program receives its fair share in joint 
collections, the Department is proposing, in Sec. 273.18(h)(2)(ii) of 
this rule, to require that each program receive its appropriate pro 
rata share of any installment collection. For example, under the 
proposed rule, if a $700 public assistance and $300 food stamp claim 
were combined into a $1,000 claim, 30 percent of an undesignated 
payment would be credited to the food stamp portion of the claim while 
70 percent would be credited to the public assistance portion. This 
proposal would not pertain to any designated payment or agreement that 
includes the specific withholding of public assistance or food stamp 
benefits to satisfy a claim.

Coupon and EBT Payments

    The Department is not proposing any changes to the current 
regulations regarding payments made using paper food coupons. The 
Department is also not proposing any changes regarding the handling of 
coupons or coupon books collected as payments. However, EBT

[[Page 29314]]

benefits are also included under the definition of coupon in the 
current regulations at 7 CFR 271.2. The Department believes that the 
distinctive characteristics of EBT, as opposed to those of the 
traditional paper food coupon system, warrant special attention in the 
area of recipient claims collection.
    An active EBT benefit account is one in which benefits have been 
accessed within the last three months. The Department is proposing, in 
Sec. 273.18(h)(4)(iii) of this rule, to make the policy concerning 
active EBT benefit accounts and claims collection consistent with the 
current policy regarding claim repayment via paper coupons. This would 
allow a household to voluntarily pay all or part of its outstanding 
claim with funds taken from its EBT benefit account. This would differ 
from allotment reduction in that the payment is being made subsequent 
to the allotment being issued and credited to the household's EBT 
benefit account.
    The actual methodology and procedure to enact this transaction 
regarding the use of Point-of-Sale devices, administrative terminals or 
any other acceptable method to conduct these transactions would be 
determined by the State agency and included in its EBT system design.
    In addition to the above, the Department is proposing an additional 
requirement to safeguard the rights of households by ensuring that 
involuntary payments would not be made from EBT benefit accounts. The 
proposed rule, in Sec. 273.18(h)(4)(iii), would require that the State 
agency secure and retain a statement or document signed by a household 
member or representative authorizing the transaction. A signed document 
for each transaction would not be necessary, however, if each 
transaction was completed in accordance with a signed repayment 
agreement or similar document. The signed agreement would serve as 
adequate documentation.
    The same policy that applies to active EBT benefit accounts also 
applies to inactive or stale EBT benefit accounts. Inactive or stale 
EBT benefit accounts are those accounts that have not been accessed for 
three months or longer and have yet to be expunged. The Department, in 
Sec. 273.18(h)(4) of this rule, is proposing that voluntary payments 
from inactive or stale accounts be accepted once the account is 
reactivated at the request of the household in accordance with 7 CFR 
274.12(f)(7).
    The Department recognizes that some State agencies may have 
difficulty assimilating this change into already existing EBT 
environments. However, State agencies, by complying with the current 
requirements in 7 CFR 274.12(e)(1), should already have a system in 
place to administratively adjust amounts in EBT benefit accounts. 
Adapting this system for paying off claims may not be a major 
undertaking. The Department believes that, in addition to maintaining 
consistency with the current policy regarding paper coupons, 
cooperating households should be afforded maximum flexibility in their 
efforts to voluntarily repay a claim.
    The Department would also like to take this opportunity to stress 
that the collection of claims using EBT benefits is considered a non-
cash collection and corresponding funds should not be drawn from the 
Federal EBT benefit account by the State agency when this type of 
collection is made.
    EBT benefit accounts that have not been accessed by the household 
for one year are expunged and households lose all entitlement to these 
benefits. These benefits are then returned to FNS in accordance with 7 
CFR 274.12(f)(7) of the current regulations. The Department considered 
allowing State agencies to treat already expunged EBT benefits as a 
``collection'' and therefore allow State agencies to retain their 
appropriate share of the collection. However, since the accounts were 
already expunged and returned to FNS, a complex system and reporting 
mechanism would need to be designed and implemented to ensure that 
these ``collected'' but expunged (and therefore essentially 
nonexistent) funds are properly accounted for in FNS and State agency 
reporting. The Department feels that this would be inefficient and not 
cost effective from both a Federal and State agency perspective.
    However, the Department does recognize that these are benefits that 
the household never used. This presents the possibility that a 
household may have consciously not used its benefits because it was 
aware of the existence of an overissuance and, essentially placed these 
funds ``in escrow'' to make good on the error. The Department believes 
that including this amount in a claim to repay the overissuance is 
inappropriate. Therefore, the Department is proposing, in 
Sec. 273.18(e), to allow a State agency to subtract the value of 
expunged EBT benefits from overissuances prior to the establishment of 
the claim. This would be the final step in the claim calculation 
process and would not be considered a ``collection'' for Federal 
reporting purposes. In instances where the claim is already established 
and benefits become expunged, the State would subtract the amount of 
the expunged benefits from the claim balance. This is reflected in 
Sec. 273.18(h)(4)(v) of this proposed rule. Again, this adjustment 
would not be considered a ``collection'' for Federal reporting 
purposes.
    The Department is interested in receiving comments on the use of 
funds from EBT benefit accounts to repay outstanding recipient claims.

Collection and Payment Methods

    Section 844 of the PRWORA made significant changes to the FSA (7 
U.S.C. 2011-2032) in the areas of collections and payments. One 
revision to section 13 of the FSA (7 U.S.C. 2022) states that a State 
agency shall collect a claim ``* * * in accordance with requirements 
established by the State agency for * * * electing a means of payment, 
and establishing a time schedule for payment.'' This change is 
significant in two areas. First, the State agency, and not the 
household, now determines the appropriate collection method, including 
whether to provide options to the household, when the claim is 
initially established. Second, this revision also provides the State 
agency with the ability to involuntarily subject all claims to all 
collection methods--including those such as allotment reduction for AE 
claims that, until the enactment of the PRWORA, could only be collected 
on a voluntary basis. These changes are reflected in each applicable 
paragraph in Sec. 273.18(i) in this proposed rule.
    The PRWORA addresses specific collection methodologies by stating 
that a claim shall be collected by ``* * * (A) reducing the allotment 
of the household; (B) withholding amounts from unemployment 
compensation * * *; (C) recovering from Federal pay or Federal income 
tax refund * * *; or (D) any other means.'' The PRWORA further states 
that these methods shall not be applicable if the State agency can 
demonstrate ``* * * that all of the means are not cost effective.'' 
This proposed rule includes a paragraph in Sec. 273.18(i) for each of 
the collection methods (allotment reduction, unemployment compensation, 
and Federal salary and Federal income tax refund offsets) specified in 
the PRWORA. Federal salary and Federal income tax refund offsets are 
also discussed in much greater detail elsewhere in this preamble and in 
Sec. 273.18(p). In addition, other means of payment, notably lump sum 
and via installments, are included in Sec. 273.18(i). Cost 
effectiveness is addressed in the detailed discussion for each payment 
method as well as in the discussions in

[[Page 29315]]

this preamble regarding pre-establishment cost effectiveness 
determination and claim termination and write-off.

Allotment Reduction

    A major change in section 13 of the FSA (7 U.S.C. 2022) brought 
about by section 844 of the PRWORA involves the use of allotment 
reduction to collect claims. Prior to the enactment of the PRWORA, a 
participating household with any type of claim could opt to pay its 
claim using a method other than allotment reduction. In addition, a 
State agency was statutorily prohibited from invoking involuntary 
allotment reduction against a household with an AE claim. Section 844 
of the PRWORA removed the household's right to choose the payment 
option for any type of claim. As a result, this places allotment 
reduction, which is widely recognized by State and local agencies as 
the most cost effective and efficient food stamp recipient claim 
collection method, in the forefront as the primary collection method.
    This is being reflected in this rule. The Department is proposing, 
in Sec. 273.18(i)(1), to require that a State agency automatically 
collect payment from a participating household for any established 
claim, including an AE claim, through allotment reduction. There would 
only be two stipulations to this proposal. The first would be that the 
household would need to be initially notified of the existence of the 
claim. This is discussed in greater detail elsewhere in this preamble. 
The second stipulation would be that a household's initial allotment 
shall not be reduced to collect the claim. This stipulation is included 
because the initial allotment is usually pro rated and therefore has 
already been reduced. This is not a change from current policy.
    Some may argue that it is unfair to a household to collect an AE 
claim through involuntary allotment reduction since the reason for the 
overissuance was not the fault of the household. The Department 
believes that, since Congress specifically removed the prohibition from 
the FSA, that it is clearly the intent of Congress to allow this type 
of collection.
    In addition to the above, the Department is proposing to make three 
additional policy and several structural revisions to the paragraph 
governing allotment reduction at 7 CFR 273.18(g)(4) in the current 
regulations. The structural revisions are being proposed to avoid 
repetition by eliminating much of the language in the introductory 
paragraph that may be found elsewhere in the rule. This includes the 
notification procedures and the acceptance of lump sum payments.
    Two of the three additional policy changes in allotment reduction 
being proposed concern the current benefit reduction procedures and IPV 
claims. The current regulations at 7 CFR 273.18(g)(4)(i) provide that 
benefit reduction for an IHE claim is to be computed from the monthly 
allotment. The allotment is the benefit level that the household is 
scheduled to receive. Benefit reduction (in current 7 CFR 
273.18(g)(4)(iii)) for an IPV claim, on the other hand, is to be 
computed from the monthly entitlement. The entitlement is the benefit 
amount that the household would have received if the household member 
was not disqualified for committing the IPV. Several State agencies 
have obtained waivers to use the allotment rather than the entitlement 
as the basis for reducing the household's benefits. For the purposes of 
administrative efficiency, which was the basis for the Department 
approving the waivers, this rule, in Sec. 273.18(i)(1)(ii), would allow 
all State agencies to determine the benefit reduction amount for IPV 
claims based on either the allotment or entitlement as long as all 
areas within the State handles the calculation of benefit reductions in 
the same manner.
    Current regulations at 7 CFR 273.18(g)(4)(iii) limit the reduction 
amount for an IPV claim to the greater of 20 percent of a household's 
monthly entitlement or $10 per month. In the second policy change, the 
Department is proposing, in Sec. 273.18(i)(1)(ii), to increase the 
maximum recoupment amount for an IPV claim to the greater of $20 per 
month or 20 percent of a household's monthly entitlement or allotment. 
This is being proposed as an effort to expedite the collection of 
claims stemming from intentional violations. The rule also proposes in 
Sec. 273.18(i)(1)(i) to provide that individuals in households subject 
to allotment reduction are not subject to involuntary collection by any 
other methods.
    The final policy change being proposed in this rule is to 
specifically include a paragraph (Sec. 273.18(i)(1)(v)) which would 
provide a State agency with the prerogative to pursue additional 
collection methods against individuals who are past household members 
and who are severally responsible for repayment of this claim. This is 
being proposed because of the dynamic nature of households in regard to 
make-up and participation in the FSP.

Intercept of Unemployment Compensation Benefits

    Current regulations at 7 CFR 273.18(d)(3)(vi) state that a State 
agency may implement the intercept of unemployment compensation 
benefits as a voluntary payment option for IPV claims. In addition, the 
current regulations at 7 CFR 272.12 also discuss collecting claims via 
this method. In an effort to streamline this area of the regulations, 
the Department is proposing, in this rule, to remove the paragraph 
currently at 7 CFR 272.12.
    In addition to the above streamlining effort, a change in policy, 
brought about by section 844 of the PRWORA, is being proposed regarding 
collection via an intercept of unemployment compensation benefits.
    Currently, the intercept of unemployment benefits is allowed only 
for IPV claims. Section 273.18(i)(5) of the proposed rule would extend 
this collection method to any claim. This is being proposed to conform 
with the requirement in section 840 of the PRWORA that provides for a 
State agency to use any collection method to collect any type of claim.
    Currently, unemployment compensation intercept is optional and 
State agencies are not mandated to use this collection method. The 
Department is not proposing to change this policy in this rule. The 
reason for the Department not proposing to mandate this collection 
method is that the intercept of unemployment compensation benefits is 
State-specific and therefore it may not be cost effective to implement 
in some State agencies. Even though this would remain an option under 
this proposed rule, the Department strongly urges State agencies to 
pursue this avenue of claims collection.

Coordination with Federal Claim Collection Methods

    Current rules specify requirements for FTROP and FSOP at 7 CFR 
273.18(g)(5) and (g)(6). This rule would include proposed requirements 
for these as well as other Federal collection programs such as the 
Treasury Offset Program (TOP) at Sec. 273.18(p). To the extent that it 
is feasible, the Department wants State agencies to use these and other 
Federal collection methods concurrently with State agency methods. 
Accordingly, this rule proposes at Sec. 273.18(i)(7) to authorize such 
concurrent collection.

Lump Sum Payments

    Current regulations at 7 CFR 273.18(g)(1)(i) through (iii) allow 
for the full or partial collection of claims via a

[[Page 29316]]

lump sum cash or coupon payment. As part of the regulatory 
reorganization, these three paragraphs would be consolidated into one 
paragraph (Sec. 273.18(i)(3)) in the proposed rule. The proposed rule 
would also include using funds in an EBT benefit account as a lump sum 
payment. This is discussed in greater detail elsewhere in this 
preamble.

Installment Payments

    Current regulations at 7 CFR 273.18(g)(2) provide the procedures 
for installment payments. The Department is not proposing to make any 
substantial change to the procedure found in the first paragraph (7 CFR 
273.18(g)(2)(i)) of this section. Paragraphs (ii) through (iv) of 7 CFR 
273.18(g)(2) in the current regulations provide detailed procedures for 
when the household fails to make a scheduled payment. These procedures 
currently call for providing a household with another notice and an 
opportunity to renegotiate its payment schedule if it fails to make a 
payment. The Department, in an effort to streamline this area of the 
regulations, is proposing to increase State agency flexibility by 
eliminating much of the language contained in these paragraphs.
    The Department believes that installment payments should be made 
available but also should be at least as efficient and effective as 
allotment reduction and other collection methods. Consequently, the 
proposed rule at Sec. 273.18(i) would permit a State agency to take 
whatever action it feels is appropriate if a household fails to make an 
installment payment provided the household was previously notified of a 
potential adverse action if payments are not made in accordance with 
the terms of the original repayment agreement.

Additional Collection Actions

    The Department is proposing in Sec. 273.18(i)(6) to add a paragraph 
stating that State agencies may employ any additional collection 
methods to collect claims. These actions would include, but would not 
be limited to, referral to a collection agency, state tax refund and 
lottery offsets, wage garnishments, property liens and small claims 
court. This is being proposed to clarify that State agencies are able 
to employ any other means of collection for all types of claims.

Retention Rates

    The applicable retention rates in the current regulations at 7 CFR 
273.18(h) for collections by a State agency are 50 percent for IPV 
claims and 25 percent for IHE claims. Section 844 of the PRWORA changes 
these rates by amending section 16(a) of the FSA (7 U.S.C. 2025(a)) to 
replace the current rates with 35 percent retention for IPV claims and 
20 percent retention for IHE claims. In addition, as indicated in 
section 13 of the newly amended FSA (7 U.S.C. 2025), if an IHE claim is 
collected via unemployment compensation, that collection would also 
have a 35 percent retention rate. The Department is proposing, in 
Sec. 273.18(m) of this rule to make the adjustments in the rates 
accordingly.

Submission of Payments

    Current regulations at 7 CFR 273.18(i) discuss the procedures for 
the submission of State agency payments for claims collections to FNS 
and payments from FNS to the State agency. The only change that the 
Department is proposing in this area is to eliminate the State agency 
option of receiving a Federal check for payment of claims collection 
retention and replace it with electronic funds transfer. The Department 
is proposing this change to comply with the DCIA. The DCIA requires 
Federal agencies to convert from checks to electronic funds transfer. 
In addition, as part of the regulatory reorganization, much of the 
prescriptive language would be removed and this paragraph would be 
moved to Sec. 273.18(n) in this proposed rule.
    The current regulations at 7 CFR 273.18(i)(4) discuss providing 
refunds for overpaid claims. As part of the regulatory reorganization, 
this is broken out into its own paragraph, Sec. 273.18(j), in the 
proposed rule.

Bankruptcy

    Current regulations at 7 CFR 273.18(k) discuss the procedures for 
proceeding against households with claims which file for bankruptcy. 
The current policy authorizes State agencies to act on FNS's behalf to 
recover claims when households file for bankruptcy. The Department is 
not proposing to make any changes in policy regarding this area of the 
regulations. However, as part of the regulatory reorganization, this 
paragraph would be moved to Sec. 273.18(l) in this rule.

Accounting Procedures

    Current regulations at 7 CFR 273.18(l) discuss the accounting 
requirements and procedures to be maintained by State agencies. Further 
procedural clarification is being provided on this issue and this 
paragraph is being moved to in Sec. 273.18(o) in this rule.

Interstate Claim Collection

    Current regulations at 7 CFR 273.18(m) discuss the continuation of 
collection action against households that have an outstanding claim and 
move from one State agency's jurisdiction to another. The regulations 
state that a receiving State agency should initiate or continue 
collection action when it ascertains that the originating State agency 
does not intend to pursue collection. Feedback received from State 
agencies indicates that this policy has not been successful in 
recovering interstate claims and needs to be strengthened to assure 
cooperation among State agencies. A number of State agencies have 
entered into claim-transferring agreements among themselves on their 
own initiative but it has not been a nationwide effort. This has 
resulted in a household being able to avoid paying its claim simply by 
relocating to another State. Federal tax refund offset does address 
this issue to some extent by conducting a nationwide search and 
subsequently collecting claims against household members regardless of 
where they currently reside. However, Federal tax refund offset is 
limited to those households with members who file a Federal income tax 
return and are due a refund.
    The Department believes that food stamp recipient claims, as 
Federal debts, should be more vigorously pursued by State agencies when 
households move across State borders. Therefore, the Department is 
proposing to amend 7 CFR 273.18(m) by breaking it out into separate 
paragraphs to specifically outline the responsibilities of the 
originating and receiving State agencies. This amendment is intended to 
maximize collection potential while maintaining State agency 
flexibility.
    The Department is proposing that, unless an actual interstate 
transfer takes place, the originating State agency will continue to 
have the responsibility for collection action on any recipient claim 
regardless of whether the household remains in its jurisdiction. State 
agencies, however, would be able to formally transfer this 
responsibility for individual claims to receiving State agencies under 
certain circumstances. The types of interstate transfers being proposed 
are discussed in the succeeding paragraphs of this preamble.
    To strengthen the interstate claim collection process for 
participating households, the Department is proposing to further amend 
7 CFR 273.18(m) to require that a State agency must accept the transfer 
of the remaining balance of any claim from another State agency if it 
is discovered that the household is participating in the FSP in the 
receiving State. This ensures efficient claims collection since 
allotment reduction, a highly effective

[[Page 29317]]

collection tool, is available to the receiving State agency. Once the 
transfer takes place, the claim would then no longer be the 
responsibility of the originating State agency and the receiving State 
agency would be able to retain any applicable retention amounts for 
subsequent collections. The amended regulatory text being proposed is 
being designated as its own paragraph, Sec. 273.18(k)(3) in the 
proposed rule.
    In addition, to facilitate this process, the Department is 
proposing, in a new paragraph, Sec. 273.18(k)(2), to require that State 
agencies timely respond to inquiries concerning household participation 
received from State agencies who have reason to believe that a 
household or adult members of a household with an outstanding claim 
have relocated to that State. A response would be considered timely if 
a determination is made within 30 days. If an examination of the 
receiving State agency's caseload does reveal that the household (or 
any of its adult members) are, in fact, receiving benefits in that 
State, the State agency would then accept the transfer of the claim 
balance from the originating State agency and continue collection 
action efforts including allotment reduction. The receiving State would 
keep any retention amounts for transferred claims.
    The Department is also proposing to add another new paragraph, 
Sec. 273.18(k)(4), to allow, but not require, receiving State agencies 
to accept the transfer of any claim if the household is not 
participating. This policy is being maintained to maximize flexibility 
as well as facilitate the new claim termination process being proposed 
in another section of this rule.

Federal Claim Collection Methods (FCCM's)

    This rule proposes changes to current regulations on FTROP and 
FSOP. These changes are proposed to incorporate certain legislative 
changes and to implement certain other changes based on experience 
operating these programs. The Department believes that these changes 
will enhance the collection of recipient claims and will make that 
collection more efficient, especially for State agencies. In summary, 
these changes would:

--Require all State agencies to use FCCM's (unless the methods are 
shown to be not cost beneficial).
--Require that all claims that meet the criteria, including AE claims, 
be submitted for collection under FCCM.
--Provide that claims may be collected by FTROP and/or administrative 
offset (ADOP), or by FSOP and/or ADOP.
--Provide that FTROP 60-day notices and FSOP advance notices advise 
debtors that their claims are subject to ADOP.
--Comply with the hearing requirements for ADOP with the hearing 
opportunities currently provided under FTROP and FSOP.

Federal Claim Collection Methods (FCCM's)

    This rule would introduce the phrase ``Federal claim collection 
methods'' and its acronym ``FCCM's'' at Sec. 273.18(p)(1). Currently 
there are two such collection methods, FTROP and FSOP. As discussed 
later in this preamble, this rule is proposing an additional collection 
method that would be operated at the Federal level. The new method is 
ADOP. There are several policies and procedures that would become 
common to these three collection methods. As discussed in this preamble 
several paragraphs below, FNS plans to develop a single manual which 
for all three programs would contain such things as computer system 
record layout and production schedules and guidance on procedures for 
handling special cases and for fiscal and accounting matters. The rule 
would also specify that under FCCM's State agencies would retain their 
recipient claims responsibilities, that would provide certain 
information on claims subject to FCCM's and would receive amounts 
collected based on the currently authorized retention rates.

Mandated Participation

    Section 844 of PRWORA amended section 13(b) of the FSA (7 U.S.C. 
2022(b)) to require that, unless State agencies can demonstrate that 
the methods are not cost effective, they must collect overissued food 
coupons (recipient claims) from Federal pay or Federal income tax 
refunds.
    Currently, these two collection methods, FTROP and FSOP are 
optional for State agencies. Regulations at 7 CFR 273.18(g)(5)(i) 
provide that State agencies which choose to implement FTROP must submit 
an amendment to their Plan of Operation stating that they will comply 
with FTROP regulations. Choosing to implement FTROP entails 
implementing FSOP because current regulations at 7 CFR 273.18(g)(6)(i) 
provide that all claims submitted for FTROP are also subject to FSOP. 
This rule proposes to delete the language on State agency option to 
implement FTROP. At Sec. 273.18(p)(2)(i), the rule would require that 
all State agencies submit all claims which meet certain criteria for 
collection by FCCM's.
    Mandatory implementation of FCCM's will affect few State agencies. 
In calendar year 1998, of the 52 State agencies who could use FCCM's, 
47 are doing so. As discussed under the paragraph on Implementation at 
the end of this preamble, this rule would be required to be implemented 
180 days after its publication is final. The Department expects that 
this implementation period would be sufficient for State agencies to 
implement FCCM's during calendar year 1999.
    Consistent with mandatory implementation of FCCM's, this rule 
proposes deleting the requirement (in current rules at 7 CFR 
272.2(a)(2) and (d)(1)(xii) and 7 CFR 273.18(g)(5)(i)(A)) that State 
agencies choosing to implement FTROP and FSOP submit an amendment to 
their Plan of Operations.

Administrative Offset

    Prior to the DCIA, under administrative offset, debts owed by 
persons to the Federal government are collected from payments due those 
persons from the Federal government. The DCA at 31 U.S.C. 3716 as 
amended by the DCIA greatly expanded the Federal government's authority 
to collect Federal debts through ADOP.
    The Department believes that implementing the DCIA's provisions 
relating to ADOP would significantly enhance collection of FSP 
recipient claims. First, the amended DCA at 31 U.S.C. 3716(c)(1)(A) 
requires that, with certain exceptions, disbursing officials of Federal 
government agencies must at least annually offset from Federal payments 
claims submitted by creditor agencies. Heretofore, while there has been 
general authority for administrative offset, there has not been a 
general requirement that Federal payments due to individuals be offset 
against debts those individuals owe the Federal Government. Second, the 
amended DCA at 31 U.S.C. 3716(c)(3)(A)(ii) provides that, except for a 
$9,000 annual exemption, all payments due a debtor under the Social 
Security Act are subject to ADOP. Third, the amended DCA at 31 U.S.C. 
3716(c) centralized the ADOP procedures in a single Federal agency, the 
Department of the Treasury.
    Accordingly, as discussed in detail later in this preamble, this 
rule proposes to add ADOP to FTROP and FSOP by modifying the required 
due process and privacy notices to notify the debtor that, in addition 
to being subject to collection from tax refunds and Federal wages, the 
claim in question is also subject to

[[Page 29318]]

collection from other payments due the debtor from the Federal 
government. The Department expects that there will be little work 
impact on State agencies related to referring claims for ADOP. FNS will 
refer for collection by ADOP claims submitted by State agencies. FSOP 
claims referred to FNS for notices of intent which are referred for 
collection from Federal salaries will also be referred for collection 
by ADOP. Funds collected through ADOP will be transferred to State 
agencies and reported with FTROP and FSOP collections. Current 
regulations on FTROP specify update requirements for State agencies, 
and FNS has provided State agencies update procedures for FSOP. This 
rule proposes a general requirement for updating records of claims 
submitted for collection through FCCM's.

Cross Servicing

    The amended DCA at 31 U.S.C. 3711(g) requires that debt delinquent 
over 180 days be transferred to the Secretary of the Treasury for 
``cross servicing.'' Under cross servicing, the Department of the 
Treasury (Treasury) would pursue a variety of claims collection actions 
such as referring the claim under FTROP and FSOP. Treasury would refer 
debts to debt collection centers (selected Federal agencies) which 
would pursue these actions.
    The Department is currently working with Treasury to determine the 
best way to implement this collection strategy. As such, this rule does 
not propose adding procedures for cross servicing at this time.

Claims Subject to FCCM's

    As part of administrative offset provisions, the amended DCA now 
requires at 31 U.S.C. 3716(c)(6) that any Federal agency that is owed a 
past due, legally enforceable nontax debt that is over 180 days 
delinquent, including nontax debt administered by a third party acting 
as an agent for the Federal Government, must notify the Secretary of 
the Treasury of all such debt for purposes of administrative offset 
(emphasis added). Currently, rules for FTROP and Salary Offset set 
criteria for claims which may be submitted for collection under these 
procedures. This rule proposes that, subject to two conditions 
discussed just below, all delinquent recipient claims be submitted for 
collection under FCCM's. The Department is proposing this requirement 
because FCCM's are extremely effective. For example, net dollar 
collections under FTROP (voluntary payments and collections from 
Federal tax refunds less offset fees and Treasury reversals) exceed 20 
percent of the dollar value of claims submitted. FSOP offers the only 
way to locate and pursue collection against the salaries of Federal 
employees who are liable for overissued food stamp benefits. (The 
Internal Revenue Service (IRS) currently prohibits referral of debts 
for FTROP which can be collected from Federal employees' salaries.) 
Finally, and especially with the addition of ADOP, FCCM's provide State 
agencies access to sources of significant collections not otherwise 
available to them.
    In addition, this rule proposes that, unless no liable individual 
can be located, State agencies must pursue one or more State agency 
claim collection method before submitting a claim for collection under 
FCCM's. The rule proposes to specify that demand letters sent to liable 
individuals at the most current address known to the State agency and 
returned as undeliverable would be sufficient to show that no liable 
individual could be located. The requirement for State agency 
collection initiative as a condition to the use of FCCM's is being 
proposed to make the procedures for the other components of FCCM 
consistent with the FTROP requirement that the (Federal) agency satisfy 
the Secretary of the Treasury that the agency has made reasonable 
efforts to obtain payment of the debt. (See 31 U.S.C. 3720A(b)(4).) In 
addition, the Department believes that it is most efficient for State 
agencies to attempt collection action with methods available to them 
and that if those methods are not successful relatively soon after 
initiation, debts should be referred for collection through FCCM's.
    As stated above, the amended DCA at 31 U.S.C. 3711(c)(6) requires 
that claims 180 days delinquent be submitted for ADOP. State agencies 
are establishing claims at a rate of over 775,000 per year. To have a 
State agency submit each claim for FCCM's as soon as that claim is 180 
days delinquent is not administratively or logistically possible at 
this time. Therefore, the Department is proposing that State agencies 
be required to submit claims for FCCM's at intervals to be determined 
by the Department. The Department will continue to work with Treasury 
to fine tune this process to implement this aspect of the DCIA.
    Accordingly, this rule proposes at Sec. 273.18(p)(1)(i) that all 
claims would be subject to collection by FCCM's only after the State 
agency has initiated one or more State agency collection methods. The 
rule also proposes that the requirement for a State agency collection 
effort will not apply when no liable individual can be located as 
indicated by such evidence as demand letters returned as undeliverable. 
Finally, in this regard, the rule proposes that State agencies must 
submit all delinquent claims for collection by FCCM's.

Procedures and Schedules

    Current rules at 7 CFR 273.18(g)(5)(i)(B) specify that State 
agencies submit data for FTROP to FNS in the record formats specified 
by FNS and/or Treasury, and according to schedules and by means of 
magnetic tape, electronic data transmission or other method specified 
by FNS. This rule proposes to apply these procedures to FCCM's in 
general.
    This rule would require that, in addition to following computer 
data-related guidance, State agencies follow other technical and 
procedural guidelines as specified by FNS. During the testing of FTROP 
and FSOP, FNS conducted several national training sessions during which 
FNS provided substantial guidance on computer system operations, policy 
requirements and the financial reporting and funds processing for FTROP 
and FSOP. Following the training sessions, FNS provided packages of 
written responses to questions raised during the sessions. On an 
ongoing basis, FNS responds to numerous questions from State agencies 
concerning how to handle particular cases with respect to computer 
systems, collection policies and financial and accounting procedures. 
FNS sees a need to continue to provide this material so that all staff, 
Federal and State agency, involved with different aspects of FCCM's, 
have a single, consolidated operations manual.
    This manual will be called the ``Manual for Federal Claims 
Collection Methods for the Food Stamp Program'' (the FCCM manual). The 
basis of the FCCM manual would be the current manual used for FTROP and 
FSOP data management (the Federal Debt Collection Program Revenue 
Procedure Manual 1997). As is the case with the current manual, the 
FCCM manual would be a vehicle for providing technical guidance for 
complying with established regulatory requirements. (See 
Sec. 273.18(p)(1)(ii).)

Identification of Type of Claims

    Currently State agencies are not required to identify the type of 
claim submitted for FTROP and FSOP. This rule proposes to require that 
claims submitted for collection under an FCCM be identified as an IPV, 
IHE or AE claim. Instructions on how to make such identification will 
be provided in the

[[Page 29319]]

FCCM Manual. The new information would be included in currently 
required data submissions and record formats. The rule proposes this 
new requirement because, effective with implementation of this rule, 
for collection made under FCCM's, FNS intends to transfer to State 
agencies the dollar amount of each collection to which the State agency 
is entitled based on current retention rates for each type of claim. 
Currently, FNS transfers gross collections net of IRS fees from FTROP 
and FSOP to State agencies. State agencies then report these 
collections to FNS on the FNS-209, Status of Claims Against Households, 
retain the percentage of the collections to which they are entitled 
under section 16(a) of the FSA (7 U.S.C. 2025(a)) and transfer 
appropriate amounts back to FNS. With annual FTROP collections of about 
$40 million, this process results in significant amounts of Federal 
funds not being as promptly transferred to Treasury as they could be.
    Current rules allow State agencies to combine claims for an 
individual into one claim in order to try to collect on all of the 
claims through FTROP or FSOP. This rule would require that for any 
claim submitted for collection under FCCM's which is a combination of 
more than one type of claim, the State agency must specify the dollar 
amounts due to each type of claim.

File Updates

    Current rules at 7 CFR 273.18(5)(ix)(A) require that for FTROP 
purposes State agencies update Treasury files. As discussed above, this 
rule proposes to make that requirement apply to FCCM's in general. 
Accordingly, this rule at Sec. 273.18(p)(1)(iv) proposes to require 
that, as instructed in the FCCM manual, State agencies must update 
files by reducing the amounts of and deleting claims to reflect 
payments received, and by deleting claims which for other reasons are 
no longer subject to collection.

Hierarchy of Collection Methods

    The mechanisms for ADOP are currently being developed. 
Consequently, the Department expects that until those mechanisms are in 
place, claims submitted for collection under FTROP and FSOP will be 
collected through those methods before any remaining debt is collected 
through ADOP from other Federal payments. Once ADOP is operational, a 
debt submitted under FTROP, for example, might be collected from 
another Federal payment if that payment was identified and available 
before the tax refund was offset. Accordingly, this rule proposes to 
state at Sec. 273.18(p)(2)(v) that claims submitted under FCCM's would 
be offset from Federal payments due to debtors as such payments are 
identified and are available for offset.

Federal Income Tax Refund Offset Program (FTROP)

    Among other things, this rule proposes to simplify the statement of 
criteria for claims subject to collection under FTROP, shorten and 
restructure the 60-day notice to eliminate unnecessary material, and to 
clarify that the 60-day notice is a demand for payment of a debt.

Limitation to IPV and IHE Claims

    Current rules at 7 CFR 273.18(g)(5)(ii)(A)(1) limit the types of 
claims subject to FTROP to IPV and IHE claims. As discussed earlier in 
this preamble, section 844(a) of the PRWORA amended the FSA to provide 
that, subject to a State agency's demonstration that the collection 
method is not cost effective, all claims collection methods must be 
applied to all types of claims. Accordingly, this rule proposes to 
remove the limitation of FTROP to IPV and IHE claims.

Properly Established Claims

    The regulatory paragraph cited just above also specifies that 
claims submitted under FTROP must be properly established no later than 
the date the State agency transmits its final request for Treasury 
addresses for the particular offset year. This requirement was made to 
assure that claims are not referred for collection under FTROP unless 
and until an individual has had an opportunity for a fair hearing and 
any fair hearing decision is reached. As discussed above, this rule 
proposes at Sec. 273.18(g)(6) to require that State agencies cease any 
collection action upon timely receipt of a fair hearing request. 
Accordingly, this rule proposes not to reiterate the proposed 
requirement with respect to FTROP.

Required Documentation

    The same regulatory paragraph cited above also elaborates on the 
records required for properly established claims. The Department 
believes that this language is unnecessary. State agencies will develop 
and retain appropriate records of their claims activities as a result 
of the various requirements for those activities proposed in this rule. 
In addition, the current regulations at 7 CFR 272.1(f) already require 
state agencies to retain fiscal records and accountable documents for 3 
years from the date of fiscal or administrative closure. This rule does 
not propose any changes to this policy. Accordingly, this rule proposes 
not to state a records requirement specifically for FTROP or any other 
FCCM.

Collection From All Liable Parties

    Current rules at 7 CFR 273.18(g)(5)(ii)(A)(2) specify that for a 
claim to be subject to FTROP the State agency must have verified that 
no individual who is jointly and severally liable for the claim is also 
currently participating in the FSP in the State. Since claims owed by 
participating households must be recouped from the monthly allotment, 
this requirement prohibited the simultaneous collection of a claim from 
a participating household through recoupment and from nonparticipating 
household members through FTROP.
    State agencies objected to this restriction. They argued that with 
the restriction the entire burden of paying the claim fell on 
participants. State agencies also objected to the restriction because 
collection solely by recoupment meant that claims were often paid more 
slowly than they could be when there were liable, nonparticipating 
individuals with Federal tax refunds. This rule proposes at 
Sec. 273.18(i)(1)(v) to allow simultaneous collection through 
recoupment from liable, participating households and through other 
means from liable, nonparticipating individuals. In addition, this rule 
proposes at Sec. 273.18(i)(1)(i) to prohibit additional involuntary 
collection from individuals who are in households subject to allotment 
reduction. Accordingly, the rule proposes to delete from current rules 
the requirement that for a claim to be subject to FTROP the State 
agency must have verified that no individual who is jointly and 
severally liable for the claim is also currently participating in the 
FSP in the State.

Concurrent Collection Efforts

    Current rules at 7 CFR 273.18(g)(5)(ii)(A)(5) state that claims are 
not subject to FTROP if the State agency is receiving either regular 
voluntary payments or involuntary payments such as wage garnishment. In 
addition, the rule specifies that claims for which a State agency has 
been receiving regular payments (either voluntary or involuntary) are 
considered past due and legally enforceable (and so are subject to 
FTROP) if the individual does not respond to a notice of default.
    As discussed earlier in this preamble, this rule proposes at 7 CFR 
273.18(i)(7) that State agencies may continue (State-based) collection 
efforts on claims after submitting them for collection under

[[Page 29320]]

FCCM's. Accordingly, this rule proposes to eliminate the requirement 
that claims cannot be submitted for FTROP if the State agency is 
receiving voluntary or involuntary payments such as wage garnishment.
    Under provisions related to voluntary payments which this rule 
proposes at 7 CFR 273.18(i)(4), there would no longer be a requirement 
that State agencies send households which fail to make scheduled 
payments a notice and an opportunity to renegotiate the payment 
agreement.

No Reduction in the Dollar Amounts Submitted

    Current rules at 7 CFR 273.18(g)(5)(ii)(B)(1) require that all 
claims submitted for collection under FTROP must be reduced by any 
amounts subject to collection from State income tax refunds or from 
other sources which may result in collections during the offset year. 
This rule proposes to eliminate this provision because, as discussed 
above, this rule proposes to allow State agencies to continue to pursue 
State agency collection efforts on claims submitted for collection 
under FCCM's. State agencies will have an increased responsibility to 
maintain adequate records of collections in order to minimize over 
collections and to promptly refund any which might occur.

Claims Apportioned Among Two or More Individuals

    Current rules at 7 CFR 273.18(g)(5)(ii)(B)(3) provide that if a 
claim submitted under FTROP is apportioned between two or more 
individuals who are jointly and severally liable for the claim, the sum 
of the amounts submitted cannot exceed the total amount of the claim. 
This rule proposes to eliminate this provision. The apportioning of a 
claim as prescribed in this provision was required to conform to an 
informal IRS policy. The Department believes that the provision for 
joint and several liability established by section 13(a)(2) of the FSA 
(7 U.S.C. 2022(a)(2)) establishes the Department's authority to pursue 
a claim's full amount from all liable adults until the claim is paid. 
Debtors are protected by the requirement for State agencies to promptly 
post records and provide refunds of any over collections as this rule 
proposes at Sec. 273.18(j).

All Delinquent Claims

    Current rules at 7 CFR 273.18(g)(5)(ii) provide that State agencies 
may submit claims for collection under FTROP recipient claims which are 
past due and legally enforceable. As discussed above, this rule would 
require that all claims which are delinquent and have been subject to 
one or more State agency collection methods are subject to collection 
under FCCM's. Accordingly, this rule proposes to state at 
Sec. 273.18(p)(2)(i) that State agencies must submit for collection all 
recipient claims which are delinquent, which are legally enforceable 
and which meet the criteria specified in the subsequent subparagraphs.

Minimum Dollar Value

    Current rules at 7 CFR 273.18(g)(5)(ii)(A)(3) require that claims 
submitted under FTROP must meet at least the minimum dollar amount 
established by Treasury. This minimum continues to be $25. This rule 
would make no change in this requirement. FNS would advise State 
agencies if the Treasury minimum changes. The requirement is stated at 
Sec. 273.18(p)(2)(i)(A) in this proposed rule.

10-year Limit

    Current rules at 7 CFR 273.18(g)(5)(ii)(A)(4) require that claims 
submitted under FTROP must be claims for which the date of the initial 
demand letter is within 10 years of January 31 of the offset year, 
except that claims reduced to final court judgments ordering 
individuals to pay the debt are not subject to this 10-year limitation. 
This rule proposes no changes in this requirement, which is stated at 
Sec. 273.18(p)(2)(i)(B).

Voluntary Payments

    As discussed above, this rule proposes to state at 7 CFR 
273.18(i)(1)(i) that individuals in households subject to allotment 
reduction are not subject to involuntary collection by any other means. 
As also discussed above, this rule proposes at Sec. 273.18(i)(1)(v) 
that collection via allotment reduction does not preclude additional 
collection methods being pursued against other liable individuals not 
currently members of a participating household. The Department wants to 
make clear how these policies apply to collection under FTROP. 
Accordingly, this rule proposes at Sec. 273.18(p)(2)(i)(C) that claims 
submitted under FTROP cannot include any claim which is submitted for 
collection from an individual in a household which is subject to 
allotment reduction.

Bankruptcy

    The current rule at 7 CFR 273.18(g)(5)(ii)(A)(6) specifies that 
claims for which collection is barred by a bankruptcy are not subject 
to FTROP. With the exception of redesignating this paragraph as 
Sec. 273.18(p)(2)(i)(D), this rule proposes no change to this 
provision.

All Required Notices

    The current rule at 7 CFR 273.18(g)(5)(ii)(A)(7) requires that for 
a claim to be subject to FTROP the State agency must have provided the 
individual all the notices required. FNS, not the State agency, 
provides one of those notices after the FNS decision on a request for a 
hearing. Accordingly, this rule would remove the reference to the State 
agency in the current criteria. Further this rule proposes that the 
criterion for referral under FTROP and FCCM would be that claims are 
subject to referral for which individuals have been provided the 
opportunities for review and the notifications specified in paragraphs 
(p)(2)(iii), (p)(2)(iv), and (p)(2)(v). (See Sec. 273.18(p)(2)(i)(E).)

Combined Claims

    Current rules at 7 CFR 273.18(g)(5)(ii)(B)(2) provide that if a 
claim to be submitted for collection under FTROP is a combination of 
two or more recipient claims, the date of the initial demand letter for 
each claim combined must be within the 10-year range and that claims 
reduced to judgment shall not be combined with claims which are not 
reduced to judgment. This rule proposes to retain this provision. (See 
Sec. 273.18(p)(2)(ii).)

Proposed Changes in the General Requirements and Contents of the 60-day 
Notice

    The proposed rule would combine the general requirements for 60-day 
notices and the requirements for contents of the notices (currently in 
paragraphs 7 CFR 273.18(g)(5) (iii) and (iv)) into a single paragraph, 
Sec. 273.18(p)(2)(iii). The overall goal in this proposed rule is to 
enable a single 60-day notice to serve as notification for FTROP, FSOP, 
ADOP and any other FCCM. In addition, the rule proposes to delete 
several provisions which are obsolete or extraneous, and proposes to 
change certain provisions. These proposed deletions and changes are 
discussed in the following paragraphs. The Department believes that the 
60-day notice will be most effective if State agency notices present 
the proposed required contents in the order they appear in the 
regulation.

[[Page 29321]]

Implementing Guidelines for 60-day Notices

    Current rules at 7 CFR 273.18(g)(5)(iii)(A) specify requirements 
for 60-day notices related to implementing the current rule. That 
material is obsolete, and this rule proposes to delete it. For the same 
reason, this rule proposes to delete the last sentence of 7 CFR 
273.18(g)(5)(iii)(B), and the introductory clause of 7 CFR 
273.18(g)(5)(iv).

State Agency Records

    Current rules at 7 CFR 273.18(g)(5)(iv)(A) require that the 60-day 
notice state that the State agency has records documenting that the 
individual, identified by name (and Social Security Number), is liable 
for a specified unpaid balance of a recipient claim resulting from 
overissued food stamp benefits. The Department believes that it is 
unnecessary for the 60-day notice to state that the State agency has 
records which they are required to develop in the course of 
establishing and acting on recipient claims. The Department presumes 
that State agencies have the necessary records to support their claims. 
Accordingly, the rule proposes to delete the language on this matter in 
the just cited paragraph.
    One of the requirements in the amended DCA at 31 U.S.C. 3716(a) for 
collecting a claim by ADOP provides the debtor with the right to 
inspect and copy agency records relating to the claim. This right is 
covered under the fair hearing and administrative disqualification 
hearing procedures and is available to the debtor when the claim is 
initially established. Moreover, the debtor would be provided notice of 
this right under the notice requirements for demand letters as 
discussed previously in this proposed rule. The current regulations 
regarding fair hearings (7 CFR 273.15) and administrative 
disqualification hearings (7 CFR 273.16) are not affected by this 
proposed rule.

Previous Actions Taken

    In the second sentence of 7 CFR 273.18(g)(5)(iv)(A), current rules 
require that the 60-day notice state that the State agency has 
previously mailed or otherwise delivered demand letters notifying the 
individual about the claim, including the right to a fair hearing on 
the claim, and has made any other required collection efforts. This 
requirement was made to comply with the requirement in DEFRA that the 
(Federal) agency satisfy the Secretary of the Treasury that the agency 
has made reasonable efforts to obtain payment of the debt. (See 31 
U.S.C. 3720A(b)(4).) The Department believes that this requirement is 
met by the requirement proposed in this rule and discussed above under 
which State agencies must pursue State agency collection methods before 
referring claims for collection through FCCM's. In addition, the 
Department does not believe that debtors need the information since 
they would have already received demand letters and other billing 
actions. Accordingly, this rule proposes to delete the language in 
question.

Statement on Joint Liability

    Current rules at 7 CFR 273.18(g)(5)(iv)(D) require that the 60-day 
notice advise individuals that all adults who were household members 
when excess food stamp benefits were issued to the household are 
jointly and severally liable for the value of those benefits, and 
collection of claims for such benefits may be pursued against all such 
individuals. The Department believes that questions about this policy 
are being effectively answered in telephone conversations between 
debtors and State agencies and that inclusion of the statement of the 
subject policy unnecessarily lengthens the 60-day notice. In addition, 
the initial notification of claim or demand letter would already 
include the jointly and severally language. Accordingly, this rule 
proposes to delete the currently required language on this matter from 
the 60-day notice.

Statement on Voluntary and Involuntary Payments

    Current rules at 7 CFR 273.18(g)(5)(iv)(E) require that the 60-day 
notice state that State agency records do not show that the claim is 
being paid according to either a voluntary agreement or through 
scheduled, involuntary payments. The language in question was added to 
the 60-day notice in the rulemaking at 60 FR 45990-46001, dated 
September 1, 1995. The language was added in response to a public 
interest group's concern that debtors be informed of this policy.
    As discussed above, this rule proposes allowing State agencies to 
pursue collection through FTROP, FSOP, ADOP and other FCCM's while 
pursuing other collection efforts except against individuals in 
households subject to allotment reduction. In addition, at 
Sec. 273.18(p)(2)(i)(C) the rule would prohibit referring claims for 
FTROP collection from individuals subject to allotment reduction. 
Furthermore, in operating FSOP the Department has found that, in 
response to notices of intent issued under that collection procedure, 
debtors who are paying the claim call and advise FNS of that fact. The 
Department believes that the same issue can be resolved over the 
telephone between debtors and State agencies under FTROP. Accordingly, 
this rule proposes not to require the language currently required at 7 
CFR 273.18(g)(5)(iv)(E).

Summary of Criteria

    Current rules in paragraphs 7 CFR 273.18(g)(5)(iv)(I), (J) and (K) 
require that the 60-day notice include information intended to inform 
individuals about the criteria for claims which are subject to FTROP 
and what information they should provide to request a hearing on the 
intended collection action. These requirements were made in order to 
both assist individuals in understanding the intended collection action 
and to reduce State agency workload associated with telephone calls in 
response to 60-day notices. The Department does not believe that either 
of these purposes were achieved by the additional information, that 
individuals' continued to telephone State agencies and that their 
concerns were adequately dealt with through that form of communication. 
Accordingly, this rule proposes deleting the just cited paragraphs.

The Notice Would Advise

    Current rules at 7 CFR 273.18(g)(5)(iii)(B) require that with the 
exception of such State-specific information as names and job titles 
and information required for State agency contacts, a State agency's 
60-day notice must contain only the information specified in paragraph 
(g)(5)(iv). The Department believes that it is adequate to require that 
State agencies advise individuals of the required information. This 
approach should also provide State agencies flexibility in the design 
of 60-day notices and also facilitate their production. Accordingly, 
Sec. 273.18(p)(2)(iii)(B) requires that the 60-day notice advise 
debtors of the matters listed in that paragraph.

Intent to Collect by Various Federal Collection Methodologies

    The rule proposes at Sec. 273.18(p)(2)(iii)(B)(3) to include in the 
60-day notice ADOP, as one of the methodologies to which the debt is to 
be referred. The other methodologies which would utilize the same 60-
day notice are FTROP, FSOP and any other FCCM.

[[Page 29322]]

Collection of the Federal Offset Fee

    Current rules at 7 CFR 273.18(g)(5)(iv)(C) require that the 60-day 
notice state that if the State agency refers the claim to the IRS, a 
charge for the administrative cost of collection will be added to the 
claim and that amount will also be deducted if the claim, or any 
portion of the claim, is deducted from the debtor's tax refund. This 
rule proposes to modify this language to include the cost of any 
Federally imposed processing fee. (See Sec. 273.18(p)(2)(iii)(B)(5).)

Citation of Authorities

    The rule proposes to require language to the effect that collection 
through ADOP is authorized by the Debt Collection Act of 1982, as 
amended 31 U.S.C. 3701, and that the 60-day notice meets that statute's 
requirements for notice to debtors about ADOP. (See 
Sec. 273.18(p)(2)(iii)(B)(7).)

Advice on Joint Tax Returns

    Current rules at 7 CFR 273.18(g)(5)(iv)(H) require that the 60-day 
notice provide substantial guidance concerning jointly filed Federal 
income tax returns and offsets from tax refunds. The Department is 
concerned that some of the language may be inappropriately providing 
information about filing income tax returns. In addition, the 
Department wants to point out that IRS rules concerning FTROP at 26 CFR 
301.6402-6(i) state that the IRS will advise non-debtor spouses of 
steps to take to protect their share of tax refunds and will refund to 
such persons such shares that are offset. Consequently, the Department 
believes that the proposed changes will not adversely affect spouses of 
debtors who are not liable for the overissued food stamp benefits. 
Accordingly, the rule proposes to require that 60-day notices advise 
debtors that, if they are filing a joint Federal income tax return, 
they may want to contact their local office of the IRS. (See 
Sec. 273.18(p)(2)(iii)(B)(9).) In addition, this rule proposes to 
delete from the current required language the sentence discussing 
spousal liability. The rule also proposes to delete the sentence 
concerning liability for Treasury offset fees. The Department believes 
that the paragraph already required on Treasury offset fees information 
provides adequate information on this matter.

Statement of Compliance

    Current rules at 7 CFR 273.18(g)(5)(iii)(B) require that in their 
annual certification letters State agencies include a statement that 
their 60-day notices conform to the content requirements of that 
paragraph. This rule proposes to require that State agencies include in 
their annual certification letter a statement that their 60-day notices 
comply with the requirements of Sec. 273.18(p)(2)(iii)(B). (See 
Sec. 273.18(p)(2)(iii)(C).)

Mailing Schedule

    Current rules at 7 CFR 273.18(g)(5)(iii)(C) require that unless 
otherwise notified by FNS, the State agency must mail 60-day notices 
for claims to be referred for collection through FTROP no later than 
October 1 preceding the offset year during which the claims would be 
offset. The date for such mailings in 1996 was September 1. The 
Department expects that September 1 will continue to be the mailing 
date for 60-day notices. Nonetheless, to avoid confusion on this point, 
the rule proposes to state that unless otherwise notified by FNS, the 
State agency shall mail 60-day notices for claims to be referred for 
collection through FTROP, FSOP, ADOP and other FCCM's according to the 
schedule provided by FNS. (See Sec. 273.18(p)(2)(iii)(D).)

Deletion of October 31 Cutoff for Reviews

    Current rules at 7 CFR 273.18(g)(5)(v)(E) provide that State 
agencies may not refer claims for which timely review requests are 
received unless by October 31 they have completed the review and 
notified the individual that the claim is past due and legally 
enforceable. This provision was necessary when 60-day notices were 
mailed on October 1 because of the length of time necessary to offer 
the opportunity for both State agency and FNS reviews during an annual 
processing cycle. Since 60-day notices are now mailed on September 1, 
and in the future may be mailed more frequently than annually, this 
requirement is now obsolete. This rule proposes to delete this 
requirement.

Incorporation of Administrative Offset

    Current rules at 7 CFR 273.18(g)(5)(v) state the requirements for 
State agency action in response to debtor requests for review of 
intended collection action under FTROP. The Department believes that 
these requirements exceed the requirements for such action under ADOP. 
Accordingly, with the exception of appropriate references, this rule 
proposes no additional review procedures for ADOP or any other FCCM.

Notice of Potential Administrative Offset

    Current rules at 7 CFR 273.18(g)(5)(v)(C)(2) require that when the 
State agency determines that a debt is past due and legally enforceable 
the State agency notice to the debtor advise the debtor that the State 
agency intends to refer the claim to Treasury for offset. This rule 
proposes to require that the notice of the State agency's decision 
state that the State agency intends to refer the claim for collection 
from the debtor's Federal income tax refund and/or from other payments 
which may be payable to the debtor by the Federal government.

No Referral for Federal Collection Pending FNS Review

    Under current rules at 7 CFR 273.18(g)(5)(iv)(F), the 60-day notice 
provides debtors a 60-day period to request that the State agency 
review whether the claim in question is past due and legally 
enforceable. The State agency notice of its decision that a claim is 
past due and legally enforceable must advise the debtor that the debtor 
has 30 days to request that FNS review that decision. The notice must 
also advise the debtor that, pending FNS review, the debt will not be 
referred to Treasury for offset. The rule proposes to also require that 
such notices advise debtors that, pending the FNS decision, the claim 
will not be referred for collection from other payments which may be 
payable to the debtor by the Federal government.

Regional Office Address

    Current rules at 7 CFR 273.18(g)(5)(v)(C)(4) require that the State 
agency notice to the debtor provide the appropriate FNS regional office 
address, including the phrase ``Tax Offset Review.'' To reflect that 
the review may pertain to ADOP situations, this rule proposes to change 
that phrase to ``Offset Review.''

FNS Action on Appeals of State Agency Reviews

    Current rules at 7 CFR 273.18(g)(5)(vi) specify the actions which 
FNS will take in response to appeals of State agency review decisions. 
In several places in this section, this rule proposes to conform 
regulation citations to the proposed rule. In addition, this rule 
proposes to delete the clause in 7 CFR 273.18(g)(5)(v)(B) which sets 
the condition that the State agency's decision be dated on or before 
October 31, and to delete paragraph (g)(5)(v)(C). That paragraph 
currently provides that for timely requests for FNS review of State 
agency decisions made after

[[Page 29323]]

October 31, FNS will complete its review but the claim cannot be 
referred under FTROP. The clause and the paragraph coordinated with the 
October 31 cut-off discussed just above are also obsolete because, 
under an annual processing cycle, the 60-day notices are being mailed 
September 1. All review requests which FNS receives on State agency 
decisions will be acted on. Current rules provide at 7 CFR 
273.18(g)(5)(v)(B)(2) that FNS will advise the State agency if it does 
not complete its review and the claim must be deleted from the 
certified files. This rule would not change that provision.

Referral of Claims for Offset

    Current rules at 7 CFR 273.18(g)(5)(vii) specify requirements for 
State agency submission of claims under FTROP and the requirements for 
the letter certifying that the claims submitted meet the criteria for 
collection under FTROP. This rule proposes several changes in this 
paragraph, which is Sec. 273.18(p)(2)(vi) in the proposed rule.
    The rule proposes to add to the first sentence of the current 7 CFR 
273.18(g)(5)(vii)(A) a reference to administrative offset and to change 
the paragraph reference to conform to the paragraph in the proposed 
rule.
    The rest of current rules at 7 CFR 273.18(g)(5)(vii)(A) relate to 
the certification letter. The proposed rule would put this material in 
a new paragraph, itemize the required contents as subparts of that 
paragraph, change the references to conform to the paragraphs in the 
proposed rule, and make editorial changes.
    Section 273.18(g)(5)(vii)(A) requires State agencies to submit 
certification letters to FNS regional offices. State agencies have 
found this instruction confusing, some sending the letter with their 
data files, some sending it to regional offices. The rule proposes to 
require that State agencies submit the letter according to FNS 
instructions. FNS plans to direct that the certification letters be 
sent to FNS headquarters with, or at the same time as certified files 
and to provide in those instructions a specific address for the letter. 
Also, the requirement for the statement on the conformance of the 60-
day notice would be changed to reflect the new requirement discussed 
earlier in this preamble. Finally, the requirement currently at 7 CFR 
273.18(g)(5)(vii)(B) that State agencies include in their certification 
letter how they determined that the information about the State agency 
contact for debtors is accurate would be included in the list of 
required contents for the certification letter.
    Current rules at 7 CFR 273.18(g)(5)(vii)(B) require that the State 
agency provide to FNS the name, address and toll-free or collect 
telephone numbers of State agency contacts to be included in Treasury 
notices of offset, and provide FNS updates of that information if and 
when that information changes. The rule proposes to modify this 
requirement with a reference to FNS instructions. FNS intends to 
include such instructions in the expanded Revenue Manual.

State Agency Actions on Offsets Made

    Current rules at 7 CFR 273.18(g)(5)(viii)(A) specify requirements 
for State agency actions on offsets made. For the reasons discussed in 
the following paragraph, this rule proposes to delete this section 
because its contents repeat requirements which this rule proposes to 
make elsewhere.
    First, current rules at 7 CFR 273.18(g)(5)(viii)(A) require that 
State agencies notify debtors about offsets. This rule proposes at 
Sec. 273.18(o)(4) to require that State agencies keep debtors advised 
of the status of their claims. Also, the Federal agency from whose 
payment the debt is offset would advise the debtor of the offset.
    Second, current rules at 7 CFR 273.18(g)(5)(viii)(B) require prompt 
refunds for over collections due to offsets from Federal income tax 
refunds. As already discussed, this rule proposes at Sec. 273.18(j) to 
require that State agencies promptly refund all over collections of 
recipient claims regardless of the source of the over collection.
    Third, current rules at 7 CFR 273.18(g)(5)(viii)(C) address several 
matters relating to over collection and refund situations due to State 
agency error and Treasury reversals of offsets. FNS periodically issues 
procedural guidelines on these and related matters and plans to 
continue to address such matters in the FCCM Manual discussed above in 
this preamble.

Monitoring and Reporting Offset Activities

    Current rules at 7 CFR 273.18(g)(5)(ix) specify several 
requirements for State agency reporting on offset activities. As 
discussed in the following paragraphs, this rule proposes to delete 
several of those requirements because this rule would state the 
requirements elsewhere. The section would be renamed ``Reporting FTROP 
and ADOP activities.''
    As already discussed, this rule proposes to make a general 
requirement for the updating of files for FCCM's. Accordingly, this 
rule proposes to delete paragraph (g)(5)(ix)(A). Paragraph (B) of the 
section in question repeats the requirement for prompt refunds of over 
collections. This rule proposes to delete it for reasons discussed 
earlier in this preamble. Paragraph (E) of the section in question 
reiterates the requirement that State agencies report collections as 
required for all recipient claims collection. The rule proposes to 
delete this restatement.
    Current rules at 7 CFR 273.18(g)(5)(ix)(C) require that State 
agencies annually report on 60-day notices no later than the tenth of 
October. This rule proposes to require that State agencies make that 
report no later than the ten days after mailing 60-day notices. In 
paragraph (g)(5)(ix)(D), this rule proposes to delete the reference to 
the IRS. The rule proposes to require that State agencies report on 60-
day notices, data security and voluntary payments according to 
instructions in the FCCM manual.

Federal Salary Offset Program (FSOP)

    In addition to proposing changes in the requirements for FSOP which 
are intended to reduce workload on State agencies and to eliminate 
provisions of the current rule which are extraneous, this rule proposes 
to reorder several paragraphs of this regulations pertaining to FSOP. 
Also, whenever possible, the Department's goal is to allow State 
agencies to combine FSOP activities with FTROP, ADOP, and other FCCM 
activities.

Claims Subject to FSOP

    Current rules at 7 CFR 273.18(g)(6)(i) state that all claims 
submitted under FTROP are subject to the salary offset match and that 
all individuals identified in the match are subject to FSOP procedures. 
As discussed earlier in this preamble, this rule proposes to require 
that State agencies submit all appropriate claims for collection under 
FCCM's thereby combining the FSOP advance notice with the FTROP and 
ADOP 60-day notice. Accordingly, this rule proposes to delete this 
paragraph as redundant.

Supplemental Information

    Current rules at 7 CFR 273.18(g)(6)(iii)(C)(1) specify certain 
information which State agencies are encouraged to include in their 
advance notices. The Department believes that including such 
information may improve the credibility of the advance notice, but 
since the Department does not want to require that the information be 
included in the advance notice, this

[[Page 29324]]

rule proposes to delete the subject language.

Notice of Review Decision

    Current rules at 7 CFR 273.18(g)(6)(iii)(C)(5) require that the 
advance notice state that the State agency will notify debtors in 
writing when, due to a review decision, claims will not be referred for 
collection from salaries. The Department does not believe that the 
advance notice needs to advise debtors about the requirements for State 
agency notification of review decisions. Accordingly, this rule 
proposes to delete the requirement for language on this matter from the 
advance notice.

Notice of Right to a Federal-level Hearing

    Current rules at 7 CFR 273.18(g)(6)(iii)(C)(5) also require that 
the advance notice state: (1) that debtors have the right to a formal 
appeal to FNS; and (2) that notification about how to make such appeals 
is required and will be provided to debtors before any collection 
action from salaries is taken. The Department believes that the notice 
of intent which is provided to debtors prior to referral of claims for 
collection from Federal salaries provides adequate notice of the right 
to a hearing and related matters. Accordingly, this rule proposes to 
delete the requirement that the advance notice provide information 
about such matters.

Reporting

    Current rules at 7 CFR 273.18(g)(6)(iv)(A) specify requirements for 
State agency retention of collections, reporting and about how FNS will 
report and transfer collections to State agencies. For the reasons 
discussed earlier in this preamble in relation to the proposed deletion 
of these same requirements for FTROP, this rule proposes to delete this 
paragraph.

FNS Recipient Claims Matching Procedures

    Current rules at 7 CFR 273.18(g)(6)(ii)(A) describe certain FNS 
recipient claims matching procedures. This rule would include this 
material unchanged at Sec. 273.18(p)(3)(i).

Security and Confidentiality

    Current rules at 7 CFR 273.18(g)(6)(ii)(B) require that State 
agencies return security and confidentiality agreements prior to 
receiving information about Federal employees identified as subject to 
FSOP. This rule would include this material unchanged at 
Sec. 273.18(p)(3)(ii).
    Except for conforming references to this proposed rule, no changes 
are proposed for current rules requiring security and confidentiality 
agreements from State agencies as a condition for receiving FSOP debt 
information currently at 7 CFR 273.18(g)(6)(iii)(A). (See 
Sec. 273.18(p)(3)(iii).)

Review of Claim Status

    Current rules at 7 CFR 273.18(g)(6)(ii)(D) require that prior to 
taking any action to collect recipient claims under FSOP, State 
agencies must review records to verify the amount owed, and to remove 
claims which have been paid, which are being paid according to an 
agreed to schedule, or which for other reasons are not collectible. 
This requirement remains essentially unchanged in this proposed rule. 
(See Sec. 273.18(p)(3)(iv).)

Advance Notices

    Current rules at 7 CFR 273.18(g)(6)(iii) specify the requirements 
for State agency advance notices to Federal employees. This rule 
proposes to modify those requirements based on the requirements of DCIA 
and combine the FSOP advance notice with 60-day notice proposed in this 
rule, and to conform references to the proposed rule.
    Current rules at 7 CFR 273.18(g)(6)(iii)(B) prescribe procedures 
for referring salary offset claims to FNS following State agency 
efforts to collect them through advance notices. This rule proposes to 
place this material after the requirements for the contents of the 
notice. This rule proposes to reduce the documentation required for 
FSOP claims referred to FNS. The rule also proposes to move the 
requirements for referring defaulted claims and to specify that such 
referrals must include the same documentation as claims referred to FNS 
because of no timely or adequate response to the advance notice. (See 
Sec. 273.18(p)(3)(vii).)
    Current rules at 7 CFR 273.18(g)(6)(iii)(C) state the requirements 
for the contents of the advance notice. This rule proposes to require 
that the notice advise debtors of certain matters.
    Current rules at 7 CFR 273.18(g)(6)(iii)(C)(1) require that the 
advance notice state that according to State agency records the debtor 
is liable for a claim for a specified dollar amount due to receiving 
excess food stamp benefits. This rule proposes to require that the 
notice advise debtors of what State agency records indicate is their 
name and SSN and that they are liable for a specified unpaid balance of 
a recipient claim resulting from overissued food stamp benefits. (See 
Sec. 273.18(p)(3)(v)(B)(1) and (2).)
    Current rules at 7 CFR 273.18(g)(6)(iii)(C)(2) and the first 
sentence of 7 CFR 273.18(g)(6)(iii)(C)(3) discuss procedure and 
authorities related to FSOP. This rule proposes to modify this material 
and add the citation of the authority for collection through ADOP. (See 
Sec. 273.18(p)(3)(v)(B)(7).)

Voluntary Payment

    Current rules in the second sentence of 7 CFR 
273.18(g)(6)(iii)(C)(3) and in the rest of that paragraph specify that 
the advance notice must state that the claim will be referred to FNS 
for collection from the debtor's Federal salary unless it is paid in 
full within 30 days or in installments of $50 if the claim was greater 
than $50. The Department specified an installment structure for FSOP 
claims with the intent to relieve State agencies of the need to 
negotiate with debtors. Experience with FSOP indicates that the 
installment structure did not help in this regard. State agencies often 
preferred to have the discretion to negotiate a payment schedule with 
debtors. Accordingly, this rule proposes to provide this flexibility 
and to incorporate a notice that the claim is subject to administrative 
offset. Accordingly, Sec. 273.18(p)(3)(v)(B)(3) would require that the 
advance notice advise the debtor that unless the debtor pays the claim 
within 30 days of the date of the notice or makes other repayment 
arrangements acceptable to the State agency, the State agency intends 
to refer the claim for collection from his or her salary and/or by 
administrative offset from other Federal payments which may be payable 
to the debtor.
    Current rules at 7 CFR 273.18(g)(6)(iii)(C)(4) require that the 
advance notice include the name, address and a toll-free or collect 
telephone number of a State agency contact (an individual or unit) for 
repayment and/or discussion of the claim. As in the case of the FTROP 
60-day notice, this rule proposes to require that the advance notice 
advise debtors that to pay the claim voluntarily or to discuss it, the 
debtor should contact the State agency. The advance notice would also 
be required to include the name of the State agency contact for this 
purpose (such as an office, administrative unit and/or individual), the 
contact's street address or post office box, and a toll-free or collect 
telephone number for that contact.
    Current rules at 7 CFR 273.18(g)(6)(iii)(C)(5) state the required

[[Page 29325]]

contents for the advance notice with respect to the debtors' rights for 
review of the intended collection action under FSOP. The second 
sentence of that paragraph requires that the advance notice state that 
unless the State agency receives documentation that the claim is not 
collectible within 30 calendar days the State agency will refer the 
claim to FNS for collection from the debtor's salary. This rule 
proposes to replace that sentence with the requirement that the advance 
notice advise debtors that the State agency must receive the 
documentation within 30 days at the address provided in the notice, 
that the debtor should provide his or her SSN and that the claim will 
not be referred for collection from the debtor's Federal salary of 
other Federal payments pending the State agency's review of that 
documentation. This rule also proposes to add the requirement that the 
advance notice advise debtors that a claim is not collectible if a 
bankruptcy filing prevents collection of the claim. (See 
Sec. 273.18(p)(3)(v)(B)(5).)
    The Department believes that State agencies should notify debtors 
of their decision either to refer or not to refer the claim for 
collection. Accordingly, this rule proposes to require at 
Sec. 273.18(p)(3)(vi) that State agencies notify debtors in writing of 
decisions on documentation submitted concerning payments and other 
matters relating to the collection of claims under FSOP and ADOP.

FNS Action on Claims Referred by State Agencies

    Current rules at 7 CFR 273.18(g)(6)(v) specify pertinent matters 
relating to FNS actions on FSOP claims referred by State agencies. This 
rule proposes no change in that paragraph except to conform the 
references in the introductory sentence of 7 CFR 273.18(g)(6)(v) to the 
paragraphs in this proposed rule and to specify that the notice of 
intent would advise debtors that their recipient claim is subject to 
collection through administrative offset as well as from their Federal 
salary, and to cite the authority for that collection action, the DCA, 
as amended, 31 U.S.C. 3701.

Administrative Offset Program (ADOP)

    As discussed in several places earlier in this preamble, this rule 
proposes that claims submitted under FTROP and FSOP, but not collected 
under those programs, would be subject to collection through ADOP from 
other Federal payments otherwise due debtors. Due process notices for 
ADOP would have been provided through separate FTROP and FSOP notices 
or through a combined notice which would include FTROP, FSOP, ADOP or 
any other FCCM. State agencies would not need to re-submit those claims 
for ADOP. State agencies would need to keep their balances updated to 
avoid over-collections. (See Sec. 273.18(p)(4).)

Implementation

    The PRWORA set the date of enactment, August 22, 1996, as the 
effective date for the provisions of the law relating to recipient 
claims. In response, the Department, on August 26, 1996, issued an 
implementation memorandum stating that these provisions are to be 
implemented no later than September 22, 1996.
    The Department proposes that State agencies implement the 
discretionary aspects of these regulations no later than the first day 
of the month 180 days after the publication of the final rule. This 
should provide sufficient time to amend food stamp handbooks, demand 
letters and forms, make any necessary changes in data processing 
systems and administrative procedures, and train affected State and 
local agency staff.

List of Subjects

7 CFR Part 272

    Alaska, Civil rights, Food stamps, Grant programs-social programs, 
Reporting and recordkeeping requirements.

7 CFR Part 273

    Administrative practice and procedure, Aliens, Claims, Employment, 
Food stamps, Fraud, Government employees, Grant programs--social 
programs, Income taxes, Penalties, Reporting and recordkeeping 
requirements, Social security, Students, Supplemental Security Income 
(SSI), Wages.
    Accordingly, 7 CFR Parts 272 and 273 are proposed to be amended as 
follows:
    1. The authority citation for Parts 272 and 273 continues to read 
as follows:

    Authority: 7 U.S.C. 2011-2032.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES


Sec. 272.2  [Amended]

    2. In Sec. 272.2:
    a. Paragraph (a)(2) is amended by removing the last sentence; and
    b. Paragraph (d)(1)(xii) is removed.


Sec. 272.12  [Removed]

    3. Sec. 272.12 is removed.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

    4. In Sec. 273.2, paragraph (b)(4) is added to read as follows:


Sec. 273.2  Application processing.

* * * * *
    (b) Food stamp application form. * * *
    (4) Privacy Act statement. At the time of application and at each 
recertification through a written statement on or provided with the 
application form, all applicants for food stamp benefits shall be 
notified of the following:
    (i) The collection of this information, including the social 
security number (SSN) of each household member, is authorized under the 
Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.) The information will be 
used to determine whether your household is eligible or continually 
eligible to participate in the Food Stamp Program and may be subject to 
verification through computer matching programs. This information will 
also be used to monitor compliance with program regulations and for 
program management.
    (ii) This information may be disclosed to other Federal assistance 
programs or federally assisted State programs, to the Comptroller 
General of the United States for authorized audit and examination 
purposes and to Federal, State and local law enforcement officials for 
the purpose of apprehending persons fleeing to avoid prosecution, 
custody or confinement or to a court, magistrate, or administrative 
tribunal when required in civil or criminal proceedings.
    (iii) If a claim arises against your household as a result of 
participation in the Food Stamp Program, the information you provide, 
including the SSN of each member of your household, may be referred to 
Federal and State agencies, as well as private claims collection 
agencies, for claims collection action, including but not limited to 
administrative offset, and to the Department of Justice for litigation.
    (iv) The providing of the requested information, including the SSN 
of each household member, is voluntary. However, failure to provide 
this information will result in the denial of food stamp benefits to 
your household.
* * * * *
    5. Sec. 273.18 is revised to read as follows:


Sec. 273.18  Claims against households.

    (a) Responsibility for recovering overpayments--(1) Household and 
individual liability. (i) All adult household members shall be jointly 
and severally liable for the value of any overissuance of benefits to 
the household. All adult household members shall also be responsible 
for the amount of any claim established for the trafficking of 
benefits.

[[Page 29326]]

    (ii) Any sponsor of an alien and the alien's household shall be 
jointly and severally liable for the value of any benefits overissued 
as a result of incorrect information being provided by the sponsor. 
However, if the alien's sponsor had good cause or was without fault, 
the alien's household shall be solely liable for repayment of the 
overissuance.
    (2) State agency responsibility. (i) Unless specified under 
paragraph (g)(2) of this section, the State agency shall establish a 
claim against:
    (A) Any participating household (including former adult members) or 
non-participating household that has trafficked benefits or received 
more food stamp benefits than it was entitled to receive; and
    (B) Any household which contains an adult member who was an adult 
member of another household that trafficked benefits or received more 
food stamp benefits than it was entitled to receive.
    (ii) Even though the establishment and collection of food stamp 
recipient claims are delegated to State agencies, these debts shall 
remain Federal debts subject only to this and other regulations 
governing Federal debts.
    (b) Intentional program violation (IPV) claims. An IPV is defined 
in Sec. 273.16(c). A claim shall be handled as an IPV claim only if one 
of the following occurs:
    (1) A court of appropriate jurisdiction has determined that a 
household member has committed an IPV.
    (2) A household member was determined at an administrative 
disqualification hearing to have committed an IPV.
    (3) A household member signs a disqualification consent agreement 
for a suspected IPV referred for prosecution.
    (4) A household member signs a waiver of his/her right to an 
administrative disqualification hearing.
    (c) Inadvertent household error (IHE) claims. A claim shall be 
handled as an IHE claim if the overissuance or recipient misuse 
incident was caused by a misunderstanding or unintended error on the 
part of the household. In addition, at the option of the State agency, 
a potential IPV may be handled as an IHE claim prior to the 
determination of IPV.
    (d) Agency error (AE) claims. (1) A claim shall be handled as an AE 
claim if the overissuance was caused by an action or failure to take 
action by the State agency.
    (2) The State agency shall take action to establish a claim against 
any household that received an overissuance due to a State agency 
error. No recipient claim shall be established if an overissuance 
occurred as a result of the household transacting an expired 
Authorization to Participate card (ATP), unless the household altered 
its ATP.
    (e) Calculating the claim amount--(1) Non-trafficking claims. A 
claim that is not related to trafficking shall be calculated 
incorporating all of the following:
    (i) For each month that a household received an overissuance, the 
State agency shall determine the correct amount of food stamp benefits, 
if any, the household was entitled to receive.
    (ii) The amount of correct benefits, if any, and the resulting 
claim shall be, at a minimum, calculated back to twelve months prior to 
the date of discovery. For an IPV claim, the resulting claim shall be 
calculated back to the month the act of IPV occurred. However, for any 
claim, the State agency shall not include in its calculation any amount 
of the overissuance that occurred in a month more than six years from 
the discovery date. The discovery date is defined in paragraph (g)(2) 
of this section.
    (iii) In calculating an IPV or IHE claim involving unreported 
earned income, the State agency shall not apply the earned income 
deduction to that part of any earned income which the household failed 
to report in a timely manner when this act was the basis for the claim.
    (iv) If the household received a larger allotment than it was 
entitled to receive, the State agency shall establish a claim against 
the household as follows:
    (A) The allotment that the household should have received is 
subtracted from the allotment the household actually received.
    (B) This amount is then reduced by any EBT benefits expunged from 
the household's EBT benefit account (up to the amount of the claim) 
that have not previously been applied to any other claim. The 
difference is the amount of the claim.
    (v) For categorically eligible households, an IHE or AE claim shall 
only be calculated and established when it can be computed on the basis 
of a change in net income and/or household size.
    (2) Trafficking-related claims. Claims arising from trafficking-
related offenses shall be the value of the trafficked benefits as 
determined by: the individual's admission; adjudication; or the 
documentation which forms the basis for the trafficking determination.
    (f) Claim referral, establishment and backlog prevention. (1) State 
agencies shall establish a claim before the last day of the quarter 
following the quarter in which the overissuance was discovered. For 
example, if the date of discovery, as defined in paragraph (f)(2) of 
this section, is in October, November, or December, the last day to 
timely establish the claim shall be March 31 of the following calendar 
year.
    (2) The ``date of discovery,'' for the purposes of this section, 
shall be the date the potential claim is initially detected as a 
possible overissuance by the State agency. The State agency shall 
annotate the date of discovery for each claim referral in the 
appropriate case/claim file or claim tracking system.
    (3) The ``date of establishment,'' for the purposes of this 
section, shall be the date that the initial claim notification or 
demand letter, as described in paragraph (g)(3) of this section, is 
sent to the household. The State agency shall annotate the date of 
establishment for each claim referral in the appropriate case/claim 
file or claim tracking system.
    (4) State agencies shall ensure that no less than 90 percent of all 
claim referrals are either established or, if warranted, disposed of 
within the time frame established in paragraph (f)(1) of this section.
    (g) Initiating collection action and managing claims--(1) 
Applicability. State agencies shall initiate collection action on all 
claims unless the conditions under paragraph (g)(2) of this section 
apply.
    (2) Pre-establishment cost effectiveness determination. A State 
agency may opt not to pursue the establishment of any claim and 
subsequent collection of the overissuance if the pursuit is determined 
not to be cost effective by using either of the following 
methodologies:
    (i) State-agency developed methodology for cost-effectiveness 
determination. A State agency may adopt its own procedure, threshold, 
and/or methodology for use in determining whether to pursue the 
establishment of any claim and subsequent collection of the 
overissuance. State agencies shall obtain prior approval from FNS for 
use of this procedure, threshold, and/or methodology.
    (ii) FNS threshold for establishing and collecting overissuances. 
(A) Unless prohibited by paragraph (g)(2)(ii)(C) of this section, a 
State agency may utilize the claims threshold as defined in paragraph 
(g)(2)(ii)(B) of this section in determining whether to pursue the 
establishment of any claim and collection of the subsequent 
overissuance.
    (B) The FNS threshold for establishing a claim and pursuing 
collection from an

[[Page 29327]]

overissuance is the maximum dollar amount of a claim or claim referral 
that a State agency may decide not to pursue solely based on the amount 
of the referral. The threshold is equal to $125.
    (C) A State agency shall not apply this threshold to overissuances 
which may be collected by reducing the allotment of the household. This 
threshold also does not apply to overissuances which have already been 
established as claims.
    (3) Notification of Claim. (i) Each State agency shall develop and 
mail or otherwise deliver to the household written notification to 
initiate collection action on any claim. The written notification or 
demand letter shall contain the information required by paragraphs 
(g)(3)(iii), (g)(3)(iv) and (g)(3)(v) of this section. Subsequent 
demand letters or notices may be sent at periodic intervals at the 
discretion of the State agency.
    (ii) The claim shall be considered established for tracking and 
reporting purposes as of the date of the initial written notification 
or demand letter.
    (iii) If the claim or the amount of the claim was not established 
at a hearing, the State agency shall provide the household with a one-
time notice of adverse action as part of or along with the initial 
demand letter/notification of claim. The notice of adverse action shall 
contain a statement that informs the household that it has 90 days to 
request a fair hearing on the claim.
    (iv) The demand letter or accompanying notice of adverse action 
shall inform the household of the following:
    (A) The type and amount of the claim, the intent to collect the 
claim from all adults in the household when the claim occurred; the 
intent to collect the claim, if not paid, by referral to other 
agencies, including private collection agencies, for the purposes of 
various claim collection methods;
    (B) The opportunity to inspect and copy records related to the 
claim;
    (C) Unless the amount of the claim was established at a hearing, 
the opportunity for a fair hearing on the decision related to the 
claim;
    (D) The opportunity to make a written agreement to repay the amount 
of the claim prior to the claim being referred to Federal tax refund 
offset, Federal salary offset, Federal administrative offset or other 
Federal claims collection actions; and
    (E) That, if the claim becomes delinquent, the household may be 
subject to additional processing charges and the claim may be referred 
to the Department of Justice for litigation.
    (v) The demand letter for any claim shall contain a due date for 
the submission of full repayment of the claim unless the State agency 
determines that allotment reduction will be invoked to repay the claim 
of a participating household. The due date shall be not later than 30 
days after the date of the initial written notification or demand 
letter.
    (4) Due dates for repayment agreements. (i) Any repayment agreement 
for any claim shall contain due dates for the periodic submission of 
payments.
    (ii) The agreement shall specify that the household shall be 
subject to involuntary collection action(s) if payment is not received 
by the due date and the claim becomes delinquent.
    (5) Time frames and delinquency. (i) Unless specified in either 
paragraph (g)(6)(iv) or (g)(7)(i) of this section, any claim shall be 
considered delinquent if either of the following occurs:
    (A) The claim has not been paid by the due date and a satisfactory 
payment arrangement has not been made.
    (B) A satisfactory payment arrangement has been made for the claim 
and payment has not been received by the due date specified in the 
established repayment schedule.
    (ii) The date of delinquency for a claim covered under paragraph 
(g)(5)(i)(A) of this section is the due date on the initial written 
notification/demand letter. The claim shall remain delinquent until 
payment is received in full, a satisfactory payment agreement is 
negotiated, or allotment reduction is invoked.
    (iii) The date of delinquency for a claim covered under paragraph 
(g)(5)(i)(B) of this section is the due date of the missed installment 
payment. The claim shall remain delinquent until payment is received in 
full, allotment reduction is invoked, or, at the State agency's option, 
a new repayment schedule is negotiated.
    (iv) A claim shall not be considered delinquent if another claim 
for the same household is currently being paid either through an 
installment agreement or allotment reduction and the State agency 
expects to begin collection on the claim once the prior claim(s) is 
settled. A claim may also not be considered delinquent if it is an IPV 
where collection is coordinated through the court system and the State 
agency has limited control over collection action.
    (6) Fair hearings and claims. (i) Once a household timely requests 
a fair hearing on the existence or amount of the claim, all attempts by 
the State agency to collect the claim shall cease. A claim awaiting a 
fair hearing decision shall not be considered delinquent.
    (ii) If the hearing official determines that a claim does, in fact, 
exist against the household, the household shall be sent another demand 
letter. The State agency may combine the demand letter with the notice 
of the hearing decision. Delinquency, as determined in paragraph (g)(6) 
of this section, shall be based on the due date of this subsequent 
demand letter and not on the initial pre-hearing demand letter sent to 
the household.
    (iii) If the hearing official determines that a claim does not 
exist, the claim is disposed of in accordance with paragraph (g)(8) of 
this section.
    (7) Compromising claims. (i) A State agency may compromise a claim 
or any portion of a claim if it can be reasonably determined that a 
household's economic circumstances dictate that the claim will not be 
settled in three years.
    (ii) The authority to compromise is limited to claims under 
$20,000.
    (iii) A State agency may use the full amount of the claim 
(including any amount compromised) to offset benefits in accordance 
with Sec. 273.17.
    (iv) If the claim becomes delinquent, any compromised portion of 
that claim shall be reinstated to the claim balance.
    (8) Terminating and writing-off claims--(i) A ``terminated claim'' 
is a claim in which all collection action has ceased. A ``written-off 
claim'' is a claim which is no longer considered a receivable subject 
to continued Federal and State agency collection and reporting 
requirements. All claims that are terminated shall be immediately 
written-off. If additional collection methodologies are developed in 
the future, State agencies may reinstate terminated claims.
    (ii) State agencies shall terminate any claim if the claim meets 
one of the following criteria:
    (A) The claim is found to be invalid in a fair hearing, 
administrative disqualification hearing or court determination. 
Collection efforts shall be pursued, however, if it is established at 
the hearing or in court that an overissuance did, in fact, occur. In 
instances where the court or hearing official determines that the act 
causing the overissuance was not intentional, the claim would continue 
to be pursued as an IHE or AE claim.
    (B) It is discovered that all adult household members have died and 
the State agency is not planning to pursue collection from the estate.
    (C) The claim has an outstanding balance of $25 or less and has 
been delinquent for 90 days or more.
    (D) Any claim which the State agency has determined is not cost 
effective to pursue further collection activity. The

[[Page 29328]]

State cost-effectiveness criteria is subject to prior FNS approval.
    (E) The claim has been delinquent for three years or more. The 
State agency may opt not to terminate the claim if prior collections 
have been realized through Federal or state tax refund offset, salary 
offset or any other similar collection mechanism.
    (h) Acceptable forms of payment--(1) Allotment reduction. State 
agencies may collect claims as specified in paragraph (i)(1) of this 
section by reducing a household's benefits prior to issuance.
    (2) Cash and its equivalents. (i) A State agency may accept payment 
for claims in cash or in any of its generally accepted equivalents. 
This includes check and money order. In addition, a State agency may 
accept payments with credit and/or debit cards if the State agency has 
the capability to accept such payments. Collections made using 
intercepts such as wage garnishment and tax offset are considered 
``cash'' for FNS claim accounting and reporting purposes.
    (ii) When an unspecified joint collection is received for a 
combined public assistance/food stamp recipient claim, each program 
shall receive its pro rata share of the amount collected.
    (3) Paper food coupons. Households may pay claims using paper food 
coupons. If coupon books collected from households as payment for 
claims are returned intact and in usable form, the State agency may 
return them to coupon inventory. The State agency shall destroy any 
coupons or coupon books which are not returned to inventory and 
document as appropriate.
    (4) Benefits from electronic benefit transfer (EBT) accounts. (i) 
State agencies shall allow a household to pay its claim using benefits 
from its active food stamp EBT benefit account.
    (ii) Payments shall be accepted from inactive or stale EBT benefit 
accounts once the account is reactivated at the request of the 
household.
    (iii) The State agency shall secure and retain documentation from 
the household authorizing a collection from an active or reactivated 
EBT benefit account.
    (iv) A collection using EBT benefits shall be considered a non-cash 
collection and corresponding funds shall not be drawn from the Federal 
EBT benefit account by the State agency when this type of collection is 
made.
    (v) In instances where the benefits are expunged and the State 
agency was unable to make the adjustment as outlined in paragraph 
(e)(1)(iv)(B) of this section when calculating the claim, the State 
agency shall adjust the amount of the claim by subtracting the amount 
expunged from the claim balance. These adjustments shall not be 
considered collections and the retention amounts in paragraph (m) of 
this section shall not apply to these transactions.
    (i) Collection methods--(1) Allotment reduction. (i) Except as 
specified in paragraph (i)(1)(iv) of this section and upon notification 
as specified in paragraph (g)(3) of this section, the State agency 
shall automatically collect payments for any claim by reducing the 
amount of monthly benefits that a household receives from any 
participating household that contains an individual liable for that 
claim. Individuals in households which are subject to allotment 
reduction shall not be subject to involuntary collection by any other 
means.
    (ii) For IPV claims, unless the household agrees to a higher 
amount, the amount of benefits to be recovered each month through 
allotment reduction shall be the greater of 20 percent of the 
household's monthly allotment/entitlement or $20 per month. The State 
agency has the option to base this amount on either the actual 
allotment or entitlement as long as this calculation is handled the 
same in all areas of the State.
    (iii) For IHE and AE claims, unless the household agrees to a 
higher amount, the amount of benefits to be recovered each month 
through allotment reduction shall be the greater of 10 percent of the 
household's monthly allotment or $10 per month.
    (iv) At the time the household is certified and receives an initial 
allotment, the initial allotment shall not be reduced to offset a 
claim.
    (v) Collection via allotment reduction does not preclude the State 
agency from pursuing additional collections methods against any 
individual severely liable for payment of the claim who is not 
currently a member of a participating household.
    (2) Offsets to restored benefits. State agencies shall immediately 
offset any restored benefits owed to the household by the amount of any 
outstanding claim. This is to be accomplished at any time during the 
claim establishment and collection process.
    (3) Lump sum payments. State agencies shall accept any payment for 
a claim whether it represents full or partial payment. State agencies 
may accept payments in any of the acceptable formats.
    (4) Installment payments. (i) State agencies may accept installment 
payments made for a claim as part of a negotiated repayment agreement.
    (ii) Households failing to submit payment in accordance with the 
terms of the negotiated repayment schedule are considered delinquent 
and shall be subject to additional collection actions.
    (5) Intercept of unemployment compensation benefits. (i) A State 
agency may, at its option, arrange for the intercept of unemployment 
compensation benefits for the collection of any claim.
    (ii) A State agency may also attempt to recover claims from liable 
individuals by obtaining a writ, order, summons, or other similar 
process in the nature of garnishment from a court of competent 
jurisdiction to require the withholding of amounts from unemployment 
compensation.
    (iii) Collections made by this method shall be treated as ``cash'' 
payments as described in paragraph (h)(2) of this section. This 
collection option may be included as part of a repayment agreement.
    (6) Other collection actions. State agencies may employ any other 
collection actions to collect claims. These actions include, but are 
not limited to, referrals to collection and/or other similar private 
and public sector agencies, state tax refund and lottery offsets, wage 
garnishments, property liens and small claims court.
    (7) Coordination with Federal claims collection methods. State 
agencies may continue collection efforts on claims as specified in this 
paragraph (i) after submitting such claims for collection as specified 
in paragraph (p) of this section.
    (j) Overpaid claims. If a household has overpaid a claim, the State 
agency shall provide a refund for the overpaid amount as soon as 
possible after the overpayment becomes known. The household shall be 
paid by whatever method the State agency deems appropriate considering 
the household's circumstances.
    (k) Interstate claims collection. (1) Unless a transfer occurs as 
outlined in paragraphs (k)(3) and (k)(4) of this section, a State 
agency remains responsible for initiating and continuing collection 
action on any food stamp claim regardless of whether the household 
remains in its jurisdiction.
    (2) A State agency must respond within 30 days to inquiries 
concerning household participation received from another State agency 
if the agency has reason to believe that a household with an 
outstanding claim has relocated to that State.
    (3) A State agency must accept the responsibility for collecting 
the remaining balance of any claim from another State agency if it is 
discovered that a relocated household with a claim

[[Page 29329]]

is receiving food stamp benefits in the receiving State agency's 
jurisdiction.
    (4) A State agency may, but is not required to, accept the 
responsibility for collecting the remaining balance of any claim from 
another State agency if it is discovered that the relocated household 
is residing in but not receiving food stamp benefits in the receiving 
State agency's jurisdiction.
    (l) Claims discharged through bankruptcy. State agencies shall act 
on behalf of, and as, FNS in any bankruptcy proceeding against bankrupt 
households with outstanding recipient claims. State agencies shall 
possess any rights, priorities, interests, liens or privileges, and 
shall participate in any distribution of assets, to the same extent as 
FNS. Acting as FNS, State agencies shall have the power and authority 
to file objections to discharge, proofs of claims, exceptions to 
discharge, petitions for revocation of discharge, and any other 
documents, motions or objections which are appropriate under the 
circumstances. Any amounts collected under this authority shall be 
transmitted to FNS as provided in paragraph (n) of this section.
    (m) Retention rates. (1) The State agency shall retain 20 percent 
of the value of IHE claims collected and 35 percent of the value of IPV 
claims collected. In addition, the State agency shall retain a total of 
35 percent of the value of IHE claims collected via unemployment 
compensation benefit withholdings. These retention rates shall apply 
for claims and delinquent claims collection charges collected by the 
State agency, including the value of allotment reductions for the 
purpose of collecting claims but not reductions in benefits due to 
disqualification.
    (2) The State agency shall not retain any percentage of the value 
of AE claims collected.
    (n) Submission of payments to FNS. The State agency shall submit 
the value of funds collected for IHE, IPV or AE claims in accordance 
with instructions issued by FNS. Any payment to State agencies for 
claims collection retention must be made by electronic funds transfer.
    (o) Accounting procedures. Each State agency shall be responsible 
for maintaining an accounting system for monitoring recipient claims 
against households. This accounting system shall consist of both the 
system of records maintained for individual debtors and the accounts 
receivable summary data maintained for these debts. At a minimum, the 
accounting system shall readily accomplish the following:
    (1) Document the date of discovery, the circumstances which 
resulted in a claim, the procedures used to calculate the claim, the 
date of establishment, the methods used to collect the claim, 
delinquent claim collection charges, and the circumstances which 
resulted in the final disposition of the claim.
    (2) Identify those situations in which an amount not yet restored 
to a household can be used to offset a claim owed by the household.
    (3) Identify those households whose claims have become delinquent 
either by not responding to the demand letter or failing to make an 
installment payment on their claim.
    (4) Document how much money was collected in payment of a claim and 
periodically advise households of the status of their claim balances.
    (5) Identify at certification households with outstanding claims.
    (6) Produce and accurately support balances in collections and 
outstanding liabilities for the recipient claims established.
    (7) At an interval determined by FNS, produce summary reports of 
the funds collected, the amount submitted to FNS, the claims 
established and terminated, the delinquent claims collection charges, 
the uncollected balance and the delinquency of the unpaid debt.
    (8) On a quarterly basis, unless otherwise directed by FNS, 
reconcile summary balances reported to individual supporting records.
    (p) Federal claim collection methods (FCCM's)--(1) General. Federal 
claim collection methods (FCCM's) include the Federal Income Tax Refund 
Offset Program (FTROP), the Federal Salary Offset Program (FSOP) and 
the Administrative Offset Program (ADOP) specified in this paragraph 
(p). Under procedures for FCCM's, State agencies are responsible for 
the recipient claim actions required in Sec. 273.18, including the due 
process and related actions specified in this paragraph (p). For claims 
offset under FCCM's, State agencies receive the percentage of such 
collections specified in paragraph (m) of this section.
    (i) Claims subject to FCCM's. (A) All claims shall be subject to 
collection by FCCM's only after the State agency has initiated one or 
more collection methods specified in paragraph (i) of this section. The 
requirement for a prior collection effort shall not apply when, as 
indicated by such evidence as demand letters returned as undeliverable, 
no liable individual can be located.
    (B) State agencies shall submit all claims subject to collection by 
FCCM's as required in paragraph (p) of this section.
    (ii) Procedures and schedules. State agencies shall submit data on 
claims subject to FCCM's in record formats, according to schedules, and 
by transmission methods as specified by FNS, and follow other technical 
and procedural guidelines as specified by FNS in the Manual for Federal 
Claims Collection Methods for the FSP (the FCCM manual).
    (iii) Identification of types of claim. For each claim submitted 
under FCCM's, State agencies shall identify whether the claim is due to 
an inadvertent household error, intentional Program violation or a 
State agency administrative error. For any claim which is submitted for 
collection under FCCM's and which is a combination of more than one 
type of claim, State agencies shall specify the dollar amounts due to 
each type of claim.
    (iv) Updating claim records. As instructed in the FCCM manual, 
State agencies shall update records of claims submitted under FCCM's by 
reducing the amounts of and deleting claims to reflect payments 
received, and by deleting claims which for other reasons are no longer 
subject to collection under FCCM's.
    (v) Hierarchy of collection methods. Claims submitted under 
paragraph (p) of this section will be offset from Federal payments due 
to debtors as such payments are identified and are available for 
offset.
    (2) Federal Tax Refund Offset Program (FTROP)--(i) Criteria for 
claims subject to FTROP. State agencies shall submit for collection 
from Federal income tax refunds all recipient claims which are 
delinquent as specified in paragraph (p)(1)(i) of this section and 
which are legally enforceable. Such claims must:
    (A) Be claims with a dollar value which is at least the minimum 
dollar amount established by the Department of Treasury. (B) Be claims 
for which the date of the initial demand letter is within 10 years of 
January 31 of the offset year, except that claims reduced to final 
court judgments ordering individuals to pay the debt are not subject to 
this 10-year limitation.
    (C) Not include any claim submitted for collection from an 
individual in a household which, as specified in paragraph (i)(1) of 
this section, is subject to allotment reduction
    (D) Not include any claim for which collection is barred by a 
bankruptcy.
    (E) Be claims for which individuals have been provided all of the 
opportunities for review and the notifications specified in paragraphs

[[Page 29330]]

(p)(2)(iii), (p)(2)(iv), and (p)(2)(v) of this section.
    (ii) Combined claims. If a claim which is otherwise subject to 
collection under FTROP is a combination of two or more recipient 
claims, the date of the initial demand letter for each claim combined 
shall be within the 10-year range specified in paragraph (p)(2)(i)(B) 
of this section. Claims reduced to judgment shall not be combined with 
claims which are not reduced to judgment.
    (iii) 60-Day notice to individuals. (A) Prior to referring claims 
for collection under FTROP, the State agency shall provide individuals 
from whom it seeks to collect such claims with a notice, called a 60-
day notice.
    (B) The 60-day notice shall advise the debtor:
    (1) What, according to State agency records, is the debtor's name 
and Social Security Number (SSN).
    (2) That the debtor is liable for a specified unpaid balance of a 
recipient claim resulting from overissued food stamp benefits.
    (3) That unless the debtor pays the claim within 60 days of the 
date of the notice or makes other repayment arrangements acceptable to 
the State agency, the State agency intends to refer the claim for 
deduction from the debtor's Federal income tax refund and/or collection 
by administrative offset from other Federal payments which may be 
payable to the debtor.
    (4) That to pay the claim voluntarily or to discuss it, the debtor 
should contact the State agency. The 60-day notice shall include the 
name of the State agency contact for this purpose (such as an office, 
administrative unit and/or individual), the contact's street address or 
post office box, and a toll-free or collect telephone number for the 
State agency contact.
    (5) That if the debtor's claim is referred for Federal collection, 
a charge for the administrative cost of collection will be added to the 
claim and that amount will also be deducted if the claim, or any 
portion of it, is deducted from the debtor's tax refund or other 
Federal payment.
    (6) That the debtor is entitled to request a review of the intended 
collection action and that the State agency must receive such a request 
within 60 days of the date of the 60-day notice. Such a request must be 
written, must be submitted to the address provided in this notice and 
should contain the debtor's SSN. The claim will not be referred for 
offset from the debtor's tax refund or for collection from other 
Federal payments while the State agency's review is pending.
    (7) That the Debt Collection Act of 1982, as amended (31 U.S.C. 
3701), authorizes collection of claims by administrative offset after 
giving the debtor notice of that intended action and advising the 
debtor of the debtor's rights under that statute. This notice meets the 
requirements for providing such notice and advice.
    (8) That the claim is not legally enforceable if a bankruptcy 
prevents collection of the claim.
    (9) That the debtor may want to contact the debtor's local office 
of the Internal Revenue Service if the debtor is filing a joint Federal 
income tax return.
    (C) In the certification letter required in paragraph 
(p)(2)(vi)(B)(4) of this section, the State agency shall include a 
statement that its 60-day notice complies with the requirements of 
paragraph (p)(2)(iii)(B) of this section.
    (D) The State agency shall mail 60-day notices for claims to be 
referred for collection through FTROP and administrative offset 
according to the schedule provided by FNS.
    (E) The State agency shall mail 60-day notices using the address 
information provided by Treasury unless the State agency receives clear 
and concise notification from the taxpayer that notices from the State 
agency are to be sent to an address different from the address obtained 
from Treasury. Such clear and concise notification shall mean that the 
taxpayer has provided the State agency with written notification 
including the taxpayer's name and identifying number (which is 
generally the taxpayer's SSN), the taxpayer's new address, and the 
taxpayer's intent to have notices from the State agency sent to the new 
address. Claims for which 60-day notices addressed as required in this 
paragraph (p)(2)(iii)(E) and are returned as undeliverable may be 
referred for collection.
    (iv) State agency action on requests for review. (A) For all 
written requests for review received within 60 days of the date of the 
60-day notice, the State agency shall determine whether or not the 
subject claims are past due and legally enforceable, and shall notify 
individuals in writing of the result of such determinations.
    (B) The State agency shall determine whether or not claims are past 
due and legally enforceable based on a review of its records, and of 
documentation, evidence or other information the individual may submit.
    (C) If the State agency decides that a claim for which a review 
request is received is past due and legally enforceable, it shall 
notify the individual that:
    (1) The claim was determined past due and legally enforceable, and 
the reason for that determination. Acceptable reasons for such a 
determination include the individual's failure to provide adequate 
documentation that the claim is not past due or legally enforceable.
    (2) The State agency intends to refer the claim for collection from 
the debtor's Federal income tax refund and/or collection from other 
payments which may be payable to the debtor by the Federal Government.
    (3) The individual may ask FNS to review the State agency decision. 
FNS must receive the request for review within 30 days of the date of 
the State agency decision. FNS will provide the individual a written 
response to such a request stating its decision and the reasons for its 
decision. Pending the FNS decision, the claim will not be referred for 
collection from the debtor's Federal income tax refund and/or from 
other payments which may be payable to the debtor by the Federal 
Government.
    (4) A request for an FNS review must include the individual's SSN 
and must be sent to the appropriate FNS regional office. The State 
agency decision shall provide the address of that regional office, 
including in that address the phrase ``Offset Review.''
    (D) If the State agency determines that the claim is not past due 
or legally enforceable, in addition to notifying the individual that 
the claim will not be referred for offset, the State agency shall take 
any actions required by food stamp regulations with respect to 
establishing the claim, including holding appropriate hearings and 
initiating collection action.
    (E) The State agency shall not refer for offset a claim for which a 
timely State agency review request is received unless the State agency 
determines the claim past due and legally enforceable, and notifies the 
individual of that decision as specified in paragraphs 
(p)(2)(iv)(C)(1), (p)(2)(iv)(C)(2) and (p)(2)(iv)(C)(3) of this 
section.
    (v) FNS action on appeals of State agency reviews. (A) FNS shall 
act on all timely requests for FNS reviews of State agency review 
decisions as specified in paragraph (p)(2)(iv)(C) of this section. A 
request for FNS review is timely if it is received by FNS within 30 
days of the date of the State agency's review decision.
    (B) If a timely request for FNS review is received, FNS shall:
    (1) Complete a review and notification as specified in paragraphs 
(p)(2)(v)(C) and (p)(2)(v)(D) of this section, including providing 
State agencies and

[[Page 29331]]

individuals the required notification of its decision; or
    (2) Notify the State agency that it has not completed its review 
and that the State agency must delete the claims in question from files 
to be certified to FNS according to paragraph (p)(2)(vi) of this 
section. If FNS fails to timely notify the State agency and because of 
that failure a claim is offset which FNS later finds does not meet the 
criteria specified in paragraph (p)(2)(i) of this section, FNS will 
provide funds to the State agency for refunding the charge for the 
offset fee.
    (C) When FNS receives an individual's request to review a State 
agency decision, FNS shall:
    (1) Request pertinent documentation from the State agency about the 
claim. Such documentation shall include such things as printouts of 
electronic records and/or copies of claim demand letters, results of 
fair hearings, advance notices of disqualification hearings, the 
results of such hearings, records of payments, 60-day notices, review 
requests and documentation, decision letters, and pertinent records of 
such things as telephone conversations; and
    (2) Decide whether the State agency correctly determined the claim 
in question is past due and legally enforceable.
    (D) If FNS finds that the State agency correctly determined that 
the claim is past due and legally enforceable, FNS will notify the 
State agency and individual of its decision, and the reason(s) for that 
decision, including notice to the individual that any further appeal 
must be made through the courts.
    (E) If FNS finds that the State agency incorrectly determined that 
the claim is past due and legally enforceable, FNS will notify the 
State agency and individual of its decision, and the reason(s) for that 
decision. FNS will also notify the State agency about any corrective 
action the State agency must take with respect to the claim and related 
procedures.
    (vi) Referral of claims for offset. (A) State agencies shall submit 
to FNS a certified file of claims for collection through FTROP and 
administrative offset by the date specified by FNS in schedules which 
FNS will provide as stated in paragraph (p)(2)(ii) of this section.
    (B) At the same time they submit the certified file required in 
paragraph (p)(2)(vi)(A) of this section, according to instructions 
which FNS will provide as stated in paragraph (p)(2)(ii) of this 
section, State agencies shall submit a letter which specifically 
certifies that:
    (1) All claims contained in the certified file meet the criteria 
for claims referable for FTROP as specified in paragraph (p)(2)(i) of 
this section.
    (2) For all claims on the certified file individuals have been 
provided all the opportunities for review and the notifications 
required in paragraphs (p)(2)(iii), (p)(2)(iv), and (p)(2)(v) of this 
section.
    (3) The State agency has not included in the certified file of 
claims any claim which, as provided in paragraph (p)(2)(v) of this 
section, FNS notified the State agency is not past due or is not 
legally enforceable, any claim for which FNS notified the State agency 
that it has not completed a timely requested review, or any claim for 
which the State agency has not completed a timely requested review.
    (4) The State agency's 60-day notice complies with the requirements 
of paragraph (p)(2)(iii)(B) of this section.
    (5) How the State agency determined that the State agency contact 
information required in paragraph (p)(2)(vi)(C) of this section is 
accurate.
    (C) The State agency shall provide to FNS according to FNS 
instructions, the name, address and toll-free or collect telephone 
numbers of State agency contacts to be included in IRS notices of 
offset, and shall provide FNS updates of that information if and when 
that information changes.
    (vii) Reporting FTROP and administrative offset activities. As 
specified in the FCCM manual, State agencies shall:
    (A) No later than the ten days after mailing 60-day notices, report 
the number of 60-day notices mailed and the total dollar value of the 
claims associated with those notices.
    (B) Submit data security and voluntary payment reports.
    (3) Federal salary offset program (FSOP)--(i) Identification of 
recipient claims owed by Federal employees. FNS will match all 
recipient claims submitted by State agencies under paragraph (p)(2) of 
this section against Federal employment records maintained by the 
Department of Defense and the United States Postal Service. FNS will 
identify recipient claims matched during this procedure with the list 
of recipient claims to be referred to the Department of Treasury for 
collection under paragraph (p)(2) of this section.
    (ii) Security and confidentiality agreements. When FNS receives a 
list of Federal employees matched against recipient claims for a 
particular State agency, it will notify the State agency in writing 
accompanied by a data security and confidentiality agreement containing 
the requirements specified in paragraph (p)(3)(iii) of this section for 
the State agency to sign and return. When that agreement is returned, 
signed by an appropriate official of the State agency, FNS will provide 
the list of matched Federal employees to the State agency.
    (iii) Security and confidentiality of information. State agencies 
which receive lists of Federal employees who have been identified as 
owing recipient claims shall take the actions specified in this 
paragraph (p)(3)(iii) to ensure the security and confidentiality of 
information about those employees and their apparent debts. In 
addition, those State agencies shall ensure that any contractors or 
other non-State agency entities to which the records may be disclosed 
also take these actions:
    (A) By such means as card keys, identification badges and security 
personnel, limit access to computer facilities handling the data to 
persons who need to perform official duties related to the salary 
offset procedures. By means of a security package, limit access to the 
computer system itself to such persons;
    (B) During off-duty hours, keep magnetic tapes and other hard copy 
records of data in locked cabinets in locked rooms. During on-duty 
hours, maintain those records under conditions that restrict access to 
persons who need them in connection with official duties related to 
salary offset procedures;
    (C) Use the data solely for salary offset purposes as specified in 
this paragraph (p)(3), including not extracting, duplicating or 
disseminating the data except for salary offset purposes;
    (D) Retain the data only as long as needed for FSOP purposes as 
specified in this paragraph (p)(3), or as otherwise required by FNS;
    (E) Destroy the data by shredding, burning or electronic erasure; 
and
    (F) Advise all personnel having access to the data about the 
confidential nature of the data and their responsibility to abide by 
the security and confidentiality provisions stated in this paragraph 
(p)(3)(iii).
    (iv) Record review. State agencies shall review the claims records 
of matched Federal employees identified as owing recipient claims to 
determine the correct amount owed, and to remove from the list of 
claims any recipient claims which have been paid, which are being paid 
as specified in paragraph (i)(4) of this section, or which for other 
reasons are not collectible.
    (v) State agency advance notice of salary offset. (A) Following the 
review specified in paragraph (p)(3)(iv) of this section, State 
agencies shall provide each Federal employee verified as

[[Page 29332]]

owing a recipient claim (debtor) with an advance notice of salary 
offset (advance notice). This advance notice shall be mailed to the 
debtor at the address provided by FNS, or shall be otherwise provided, 
within 60 days of State agency receipt of files of salary offset 
claims. This notice may be combined with the notice referred to under 
paragraph (p)(2) of this section.
    (B) The advance notice shall advise debtors that:
    (1) State agency records indicate that the debtor's Social Security 
Number (SSN) is [the number]. The advance notice shall also advise the 
debtor what the debtor's name is according to State agency records.
    (2) The debtor is liable for a specified unpaid balance of a 
recipient claim resulting from overissued food stamp benefits.
    (3) Unless the debtor pays the claim within 30 days of the date of 
the notice or makes other repayment arrangements acceptable to the 
State agency, the State agency intends to refer the claim for 
collection from the debtor's Federal salary and/or by administrative 
offset from other Federal payments which may be payable to the debtor.
    (4) To pay the claim voluntarily or to discuss it, the debtor 
should contact the State agency. The advance notice shall include the 
name of the State agency contact for this purpose (such as an office, 
administrative unit and/or individual), the contact's street address or 
post office box, and a toll-free or collect telephone number for that 
contact.
    (5) Debtors may submit documentation to State agencies showing such 
things as payments of claims or other circumstances which would prevent 
collection of claims. A claim is not collectible if a bankruptcy filing 
prevents collection of the claim. The State agency must receive the 
documentation within 30 days at the address provided in the notice. The 
debtor should provide his or her SSN with the documentation. The claim 
will not be referred for collection pending the State agency's review.
    (6) The debtor was found to be employed by a Federal agency through 
a computer match. That match was conducted under the authority of and 
according to procedures required by the Privacy Act of 1974, as amended 
(5 U.S.C. 552a)
    (7) Collection from the wages of Federal employees, including 
United States Postal Service employees, for debts such as claims for 
overissued food stamp benefits is authorized by the Debt Collection Act 
of 1982, as amended (31 U.S.C. 3701). That statute also authorizes 
collection of such debts by administrative offset from other Federal 
payments which may be payable to the debtor.
    (vi) State agency notice of review decisions. The State agency 
shall notify debtors in writing of the State agency's decision on 
documentation submitted concerning payments and on other matters 
relating to the collection of claims under FSOP and administrative 
offset.
    (vii) Referral of claims to FNS. (A) Within 90 days of the date of 
the advance notice, the State agency shall refer to FNS all claims for 
which the State agency does not receive timely and adequate response as 
specified in the advance notice. Such referrals shall consist of:
    (1) For each claim, a copy of the advance notice, a copy of the 
initial demand letter, a record of payments received and the current 
balance of the claim; or
    (2) If not previously provided to FNS, one copy each of the State 
agency's language for advance notices and demand letters, and for each 
claim the dates of the advance notice and the original demand letter, 
the amount of the claim cited in each of those two notices, the type of 
claim, a record of payments received and the current balance of the 
claim.
    (B) If a debtor fails to make an installment payment within 60 days 
of the date the payment was due, State agencies shall refer the claim 
to FNS, reporting the default, and including the documentation 
specified in paragraph (p)(3)(v)(A) of this section.
    (viii) FNS actions on claims referred by State agencies. 
Departmental procedures at 7 CFR 3.51-3.68 shall apply to claims 
referred by State agencies to FNS as required by paragraph (p)(3)(v) of 
this section subject to the following modifications:
    (A) In addition to the definitions set forth at 7 CFR 3.52, the 
term ``debts'' shall further be defined to include recipient claims 
established according to this section; and the terms ``State agency'' 
and ``FNS'' shall be defined as set forth in Sec. 271.2 of this 
chapter.
    (B) In addition to providing the right to inspect and copy 
Departmental records as specified at 7 CFR 3.60(a), the Secretary shall 
provide copies of records relating to the debt in response to timely 
requests. For a request to be timely, FNS must receive it within 30 
calendar days of the date of the notice of intent.
    (C) Pursuant to 5 CFR 550.1104(d)(6), an opportunity to establish a 
written repayment agreement provided at 7 CFR 3.61 shall not be 
provided.
    (D) The notice of intent for FSP salary offset shall comply with 
the requirements of the Departmental notice of intent which are set 
forth at 7 CFR 3.55, subject to the following modifications:
    (1) In addition to the statement that the debtor has the right to 
inspect and copy Departmental records relating to the debt, the notice 
of intent shall state that if timely requested by the debtor, the 
Secretary shall provide the debtor copies of such records. It shall 
further advise, as required by 7 CFR 3.60(a), that to be timely such 
requests must be received within 30 days of the date of the notice of 
intent.
    (2) The statement of the right to enter a written repayment 
agreement provided by 7 CFR 3.55(f) shall not be included.
    (3) The notice of intent shall advise the debtor that, in addition 
to being subject to collection from the debtor's Federal salary, the 
recipient claim is subject to collection from other payments due to the 
debtor from the Federal Government. The notice shall state that such 
collection is authorized under the Debt Collection Act of 1982, as 
amended (31 U.S.C. 3701).
    (4) Administrative Offset Program (ADOP). Claims submitted under 
FTROP and FSOP are also subject to collection through the 
Administrative Offset Program (ADOP) from other Federal payments 
otherwise due to debtors.

    Dated: May 15, 1998.
Shirley R. Watkins,
Under Secretary, Food, Nutrition, and Consumer Services.
[FR Doc. 98-13848 Filed 5-27-98; 8:45 am]
BILLING CODE 3410-30-P