[Federal Register Volume 64, Number 81 (Wednesday, April 28, 1999)]
[Rules and Regulations]
[Pages 22906-22909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10136]
[[Page 22905]]
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Part II
Department of the Treasury
_______________________________________________________________________
Fiscal Service
_______________________________________________________________________
31 CFR Part 285
Transfer of Debts to Treasury for Collection; Final Rule
Federal Register / Vol. 64, No. 81 / Wednesday, April 28, 1999 /
Rules and Regulations
[[Page 22906]]
DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 285
RIN 1510-AA68
Transfer of Debts to Treasury for Collection
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Final rule; adoption of interim rule with changes.
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SUMMARY: The Debt Collection Improvement Act of 1996 (DCIA) requires
Federal agencies to transfer any nontax debt that is over 180 days
delinquent to the Department of the Treasury for debt collection
action. This is known as ``cross-servicing.'' On April 2, 1998, the
Financial Management Service (FMS) published an interim rule, with
request for comments, which established the procedures and criteria for
transferring delinquent debt to the Department of the Treasury for
cross-servicing, explained the statutory exceptions to this
requirement, and established standards by which the Secretary of the
Treasury will determine whether to grant exemptions. The interim rule
also required that agencies refer debts to private collection
contractors and to debt collection centers in accordance with
procedures established by the FMS. This final rule adopts the interim
rule, with changes, and addresses issues raised in the comments
received in response to the interim rule. In addition, this rule
includes a technical amendment to the final rule published on May 6,
1998 concerning administrative wage garnishment.
EFFECTIVE DATE: May 28, 1999.
FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program
Specialist, at (202) 874-6859; or James J. Regan, Attorney-Advisor, at
(202) 874-6680. A copy of this rule is being made available for
downloading from the Financial Management Service web site at the
following address: http://www.fms.treas.gov/debt.
SUPPLEMENTARY INFORMATION:
Background
Section 31001(m)(1) of the Debt Collection Improvement Act of 1996
(DCIA), Pub. L. 104-134, 110 Stat. 1321-358 (1996), codified at 31
U.S.C. 3711(g), requires Federal agencies to transfer to the Secretary
of the Treasury any nontax debt that has been delinquent for a period
of 180 days, subject to certain exemptions. This centralized collection
of government-wide debt is known as ``cross-servicing.'' Under the
DCIA, the Secretary is authorized to prescribe regulations to carry out
this requirement. Additionally, the DCIA authorizes the Secretary to
designate other Federal agencies as debt collection centers, and to
maintain a schedule of private collection contractors eligible for
referral of debts owed to the United States.
On April 2, 1998, the Financial Management Service (FMS), a bureau
of the Department of the Treasury responsible for promulgating the
regulations governing this and other provisions of the DCIA, issued an
interim rule, with a request for comments, governing the transfer of
debts to Treasury for collection (63 FR 16354).
Summary of Comments
FMS received comments from five (5) Federal agencies (executive
departments). Following is a discussion of the substantive issues
raised in the comments.
Relationship Between Cross-Servicing and Administrative Offset
Several of the commenters failed to differentiate between (1) the
requirement that agencies transfer debts for general collection
purposes (referred to as ``cross-servicing'') under this rule and (2)
the requirement that agencies notify Treasury of delinquent debts for
the limited purpose of administrative offset.
The DCIA includes separate provisions governing the requirements
that agencies (1) transfer delinquent debts to Treasury for general
collection purposes (cross-servicing) in accordance with 31 U.S.C.
3711(g)(1), and (2) notify Treasury of delinquent debts for the purpose
of administrative offset in accordance with 31 U.S.C. 3716(c)(6).
Section 3711(g)(1) requires an agency to transfer to Treasury all
collection activity for a given debt. Under section 3711(g), Treasury
will use all appropriate debt collection tools to collect the debt
including referral to a designated debt collection center or private
collection agency and administrative offset. Once a debt has been
transferred to Treasury the creditor agency must cease all collection
activity related to that debt. This rule specifies when creditor
agencies are required to transfer debts and when debts are exempt from
the general transfer requirement.
In contrast, administrative offset is one of many debt collection
tools available to Federal agencies for the collection of delinquent
debt. Under section 3716(c)(6), creditor agencies are required to
notify Treasury of debts that are over 180 days delinquent for purposes
of administrative offset. As a practical matter, agencies are required
to notify Treasury of such debts for administrative offset only when a
debt has not been transferred to Treasury pursuant to section
3711(g)(1), i.e., when a debt is exempt from transfer to Treasury under
section 3711(g)(1) and this rule. Since offset is one of the collection
tools used by Treasury for all eligible debts referred to Treasury
pursuant to section 3711(g)(1), referral of a debt to Treasury for
cross-servicing also satisfies the requirement under section
3716(c)(6). With respect to debts that are not referred to Treasury
pursuant to section 3711(g)(1), creditor agencies are required to
continue to collect the delinquent debts using all appropriate debt
collection tools, including administrative offset. Rules governing the
use of administrative offset are being published in separate
regulations in this part, and, as a consequence, questions regarding
administrative offset are not addressed in this rule.
Section 285.12(a)--Definitions
In response to a comment by one agency, a definition for the term
``debt collection center'' was moved to section 285.12(a) from section
285.12(f) of the interim rule.
Section 285.12(c)--Mandatory Transfer of Debts to FMS
FMS received several comments regarding the mandatory transfer of
debts and the use of designated debt collection centers (DCCs) and
private collection agencies (PCAs). In particular, the comments related
to whether, and when, agencies may refer debts directly to DCCs and
PCAs, and whether the debts must be referred to such entities through
FMS.
Section 285.12(c) applies only to debts that are more than 180 days
delinquent. Therefore, agencies are not required to refer debts to FMS
during the initial 180 days of delinquency (the pre-180 day period).
During the pre-180 day period agencies should take all appropriate
actions to collect delinquent debts, including referring such debts to
DCCs and PCAs. Agencies may, with the consent of FMS, refer debts
directly to DCCs during the pre-180 day period. Similarly, agencies may
refer debts to PCAs during the pre-180 day period either pursuant to a
contract entered into by the agency directly with a PCA, or by
referring the debts to FMS for referral to PCAs under existing FMS
[[Page 22907]]
contracts (a process known as ``pass-through''). Unlike when debts are
transferred to Treasury as required by section 3711(g)(1), FMS takes no
collection action when debts are referred to FMS for pass-through,
other than referring the debts to a PCA. The pass-through process is
necessary to allow FMS to assess and monitor fully the performance of
its PCA contractors. FMS will provide additional procedural guidance to
agencies regarding use of the ``pass-through'' referral process.
Another agency suggested that section 285.12(c)(3) be clarified
with respect to the transfer of debts that are under appeal.
Specifically, the agency asked FMS to define whether the 180 day period
begins to run on the date the debt was originally due prior to the
filing of the appeal, or the date of the decision of the reviewing
official at which time the amount of the debt is made final.
Alternatively, the agency suggested that the regulation be revised to
allow agencies 60 days, following the date of the appeal decision, to
collect a debt prior to referring amounts to Treasury for cross-
servicing.
FMS agrees that immediate transfer of a debt to FMS following a
decision on an appeal might, in some cases, be impractical. Therefore,
section 285.12(c)(3) has been revised to allow agencies up to 30 days
following a decision on an appeal to transfer debts over 180 days
delinquent to FMS. A 30 day period provides debtors with an opportunity
to pay the debt or to enter into a repayment plan with the creditor
agency before further collection action is taken. Debts should be
transferred to FMS immediately following a decision on an appeal when
the agency determines that it is unlikely that the debtor will pay or
enter into a repayment plan within the 30 day period.
In section 285.12(c)(1) of the final rule, FMS incorporated a
suggestion by one agency that the mandatory requirement to transfer
debts be limited to debts having a balance of more than $25. The
commenter suggested that transferring debts having a balance of less
than $25 would not be cost-effective. Under this final rule, agencies
may, after consulting with FMS, transfer debts in amounts less than $25
when failure to transfer such debts to FMS for collection would weaken
the creditor agency's ability to enforce compliance with the program
(see section 285.12(c)(4) of the final rule). The final rule provides
that agencies may combine small debts owed by the same debtor to meet
the $25 threshold, and that FMS may change the threshold amount from
time to time.
Section 285.12(d)--Exceptions to Mandatory Transfer
One agency questioned whether the foreclosure provisions in
paragraph (d)(2) cover debts referred to private counsel (when an
agency has specific authority to use private counsel) for non-judicial
foreclosure proceedings. The rule has not been revised because
paragraph (d)(2)(ii)(A)(1) of the rule, which provides that a debt is
in foreclosure if pre-foreclosure notice has been issued in a non-
judicial proceeding, does not exclude notices issued by private counsel
on behalf of an agency.
One commenter questioned whether the recent Supreme Court decision
in Cohen v. Cruz, 118 S.Ct. 1212 (1998), affects this rule. The case
holds that punitive damages, attorney fees and costs related to an
amount awarded as actual fraud, are not dischargeable under the fraud
exception of the Bankruptcy Code. Since the rule does not address
whether or not a particular debt or class of debts is dischargeable in
bankruptcy, the Cohen case does not affect this rule. Creditor agencies
are not required to transfer debts to FMS that are the subject of
pending bankruptcy proceedings regardless of whether the debt is
dischargeable (see section 285.12(d)(2)(i)(B)).
In response to a comment, paragraph (d)(4) has been revised to
clarify that a debt is in the process of being collected by internal
offset (and, therefore, exempt from the mandatory transfer provisions
of the DCIA and this rule) so long as the required pre-offset notice
has been issued by the creditor agency whether issued before or after
the 180 day delinquency period. Note, however, the creditor agency is
required to transfer to Treasury for collection debts over 180 days
delinquent that are not subject to collection by internal offset (or
another exemption). If the creditor agency determines that internal
offset is available after a debt has been transferred to Treasury, the
debt will be returned to the creditor agency for collection by internal
offset.
In response to an agency's request for clarification, paragraph
(d)(5)(i) has been revised. In recognition of the Congressional mandate
to centralize delinquent debt collection at Treasury, requests for
exemption require consideration by a creditor agency's top officials.
Under paragraph (d)(5)(i) of the final rule, an exemption request will
be considered only if it is made by the head of the creditor agency,
the creditor agency's Chief Financial Officer (CFO), or the agency's
Deputy CFO. Heads of subordinate agencies or organizations, such as the
head of a bureau within a department, are not considered heads of
agencies for purposes of this paragraph (d)(5)(i).
One commenter suggested that agencies be permitted to seek
exemptions for individual debts or small groups of debts within a class
of debts. The DCIA limits exemptions to specific classes of debts or
claims (see 31 U.S.C. 3711(g)(2)(B)). As a consequence, requests for
the exemption of individual debts or claims, or small groups of debts
or claims within a specific program or discrete activity, will not be
considered.
Paragraph 285.12(d)(6) was added to the final rule to provide
additional guidance on debts being collected by third parties. Several
agencies, in accordance with statutory or contractual requirements,
have debts more than 180 days past due that are being collected by
third parties such as private lenders or guaranty agencies. In
accordance with the provisions of 31 U.S.C. 3711(g)(2)(B) and this
rule, the Secretary has determined that it is in the best interest of
the Government that debts being collected by third parties be exempt
from the provisions of paragraph 285.12(c)(1) because the transfer of
such debts would interfere with the program goals and requirements of
the subject debts. Debts more than 180 days past-due must be
transferred to FMS for collection under paragraph 285.12(c)(1) upon
their return to a creditor agency by a third party.
Section 285.12(f)--Debt Collection Centers
In response to comments received from one agency, paragraph (f) is
revised to state that debt collection centers may charge and collect
fees (see 31 U.S.C. 3711(g)(6)), and to include a reference to
paragraph (j) which provides additional information on fees that may be
charged.
Section 285.12(i)--Certification
One agency asked whether agencies are required, under the
certification provision, to maintain contact with all debtors to
determine whether the debtor has filed a bankruptcy petition. Agencies
are not required to maintain such contact. However, agencies are
required to notify FMS immediately when they receive notice that a
debtor has filed for bankruptcy protection so that FMS can immediately
take action to stop collection proceedings that would be in violation
of the automatic stay.
Section 285.12(j)--Fees
One agency asked whether FMS or the creditor agency will be
responsible for
[[Page 22908]]
notifying the debtor that fees charged for collecting delinquent debt
will be added, as an administrative cost, to the debt balance. Under
paragraph (i), creditor agencies are required to certify to FMS that
they have complied with all prerequisites to various collection
actions, including any applicable requirements to notify the debtor
regarding the agency's policies with respect to the addition of
interest, penalties, and administrative costs to the principal amount
of the debt if the debt is not paid by the due date.
Technical Amendment to Section 285.11 (Administrative Wage
Garnishment)
On May 6, 1998, FMS published a final rule implementing the
administrative wage garnishment provisions of section 31001(o) of the
DCIA, codified at 31 U.S.C. 3720D. This rule amends section
285.11(g)(2) by deleting the words ``on the agency's letterhead.'' This
non-substantive, technical amendment allows Federal agencies to use the
form to be prescribed by the Secretary for the issuance of an
administrative wage garnishment order without preparing the form on
agency letterhead. The requirement that agencies issue the order on
agency letterhead was impractical and interfered with the requirement
that agencies use a standard form prescribed by Treasury. The agency
issuing the wage garnishment order will be clearly identified on the
form without the use of agency letterhead.
Regulatory Analysis
This final rule is not a significant regulatory action as defined
in Executive Order 12866. It is hereby certified that this rule will
not have a significant impact on a substantial number of small
entities. The basis for this certification is that the DCIA requires
agencies to transfer debts that have been delinquent for more than 180
days to Treasury for further collection action unless the debts have
been granted an exemption by the Secretary of the Treasury. This rule
establishes the procedures and criteria for transferring such debts,
explains the statutory exceptions to this requirement, and establishes
the required standards under which the Secretary of the Treasury will
grant exemptions. Therefore a regulatory flexibility analysis is not
required.
Authority and Issuance
Accordingly, the interim rule amending 31 CFR part 285 which was
published at 63 FR 16354 on April 2, 1998, is adopted as a final rule
with the following changes:
PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION
IMPROVEMENT ACT OF 1996
1. The authority citation for part 285 continues to read as
follows:
Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 3701, 3711, 3716,
3720A, 3720B, 3720D; E.O. 13019; 3 CFR, 1996 Comp., p. 216.
2. Section 285.11 is amended by revising paragraph (g)(2) to read
as follows:
Sec. 285.11 Administrative wage garnishment.
* * * * *
(g) Wage garnishment order.
* * * * *
(2) The withholding order sent to the employer under paragraph
(g)(1) of this section shall be in a form prescribed by the Secretary
of the Treasury and signed by the head of the agency or his/her
delegatee. The order shall contain only the information necessary for
the employer to comply with the withholding order. Such information
includes the debtor's name, address, and social security number, as
well as instructions for withholding and information as to where
payments should be sent.
* * * * *
3. Section 285.12 is amended to correct the heading; to revise the
definition for ``debt'' and add a definition for ``debt collection
center'' in paragraph (a); to revise paragraphs (b) and (c)(3); to add
paragraphs (c)(4), (d)(5)(iii) and (d)(6); and to revise paragraphs
(d)(4), (f), (g), (h), and (j) to read as follows:
Sec. 285.12 Transfer of debts to Treasury for collection.
(a) * * *
Debt means any amount of money, funds or property that has been
determined by an appropriate official of the Federal government to be
owed to the United States by a person. As used in this section, the
term ``debt'' does not include debts arising under the Internal Revenue
Code of 1986.
Debt collection center means an agency or a unit or subagency
within an agency that has been designated by the Secretary of the
Treasury to collect debt owed to the United States. FMS is a debt
collection center.
* * * * *
(b) In general. Cross-servicing means that FMS or another debt
collection center is taking appropriate debt collection action on
behalf of one or more Federal agencies or a unit or subagency thereof.
(c) * * *
(3)(i) A debt is considered 180 days delinquent for purposes of
this section if it is 180 days past due and is legally enforceable. A
debt is past-due if it has not been paid by the date specified in the
agency's initial written demand for payment or applicable agreement or
instrument (including a post-delinquency payment agreement) unless
other satisfactory payment arrangements have been made. A debt is
legally enforceable if there has been a final agency determination that
the debt, in the amount stated, is due and there are no legal bars to
collection action. Where, for example, a debt is the subject of a
pending administrative review process required by statute or regulation
and collection action during the review process is prohibited, the debt
is not considered legally enforceable for purposes of mandatory
transfer to FMS and is not to be transferred even if the debt is more
than 180 days past-due.
(ii) When a final agency determination is made after an
administrative appeal or review process, the creditor agency must
transfer such debt to FMS, if more than 180 days delinquent, within 30
days after the date of the final decision.
(iii) Nothing in this section is intended to impact the date of
delinquency of a debt for other purposes such as for purposes of
accruing interest and penalties.
(4) Agencies are not required to transfer to FMS debts which are
less than $25 (including interest, penalties, and administrative
costs), or such other amount as FMS may determine. Agencies may
transfer debts less than $25 to FMS if the creditor agency, in
consultation with FMS, determines that transfer is important to ensure
compliance with the agency's policies or programs. Agencies may combine
individual debts of less than $25 owed by the same debtor for purposes
of meeting the $25 threshold.
(d) * * *
(4) A debt is being collected by internal offset if a creditor
agency expects the debt to be collected in full within three (3) years
from the date of delinquency through internal offset. A debt is being
collected by internal offset if the creditor agency is withholding
funds payable to the debtor by the creditor agency, or if the creditor
agency has issued notice to the debtor of the creditor agency's intent
to offset such funds.
(5) * * *
(iii) Requests for exemption must be made by the head of the agency
requesting the exemption, the Chief Financial Officer of the agency, or
the Deputy Chief Financial Officer of the
[[Page 22909]]
agency. For purposes of this section, the head of an agency does not
include the head of a subordinate organization within a department or
agency.
(6) In accordance with paragraph (d)(5)(i) of this section, debts
being serviced and/or collected in accordance with applicable statutes
and/or regulations by third parties, such as private lenders or
guaranty agencies are exempt from the requirements in paragraph (c)(1)
of this section.
* * * * *
(f) Debt collection centers. A creditor agency may transfer debt
that has not been transferred to FMS, such as debt less than 180 days
delinquent, to a Treasury-designated debt collection center, with the
consent of, and in accordance with procedures established by FMS. Debt
collection centers will take action upon a debt in accordance with the
statutory or regulatory requirements and other authorities that apply
to the debt or to the particular action being taken. Debt collection
centers may, on behalf of the creditor agency and subject to the terms
under which the debt collection center has been designated as such by
the Secretary, take any action to collect, compromise, suspend or
terminate collection action on debts, in accordance with terms and
conditions agreed upon in writing by the creditor agency and the debt
collection center or FMS. Debt collection centers may charge fees for
the debt collection services in accordance with the provisions of
paragraph (j) of this section.
(g) Administrative offset. As described in paragraph (c) of this
section, under the DCIA, agencies are required to transfer all debts
over 180 days delinquent to FMS for purposes of debt collection (i.e.,
cross-servicing). Agencies are also required, under the DCIA, to notify
the Secretary of all debts over 180 days delinquent for purposes of
administrative offset. Administrative offset is one type of collection
tool used by FMS and Treasury-designated debt collection centers to
collect debts transferred under this section. Thus, by transferring
debt to FMS or to a Treasury-designated debt collection center under
this section, Federal agencies will satisfy the requirement to notify
the Secretary of debts for purposes of administrative offset and
duplicate referrals are not required. A debt which is not transferred
to FMS for purposes of debt collection, however, such as a debt which
falls within one of the exempt categories listed in paragraph (d) of
this section, nevertheless may be subject to the DCIA requirement of
notification to the Secretary for purposes of administrative offset.
(h) Voluntary referral of debts less than 180 days delinquent. A
creditor agency may refer any debt that is less than 180 days
delinquent to FMS or, with the consent of FMS, to a Treasury-designated
debt collection center for debt collection services.
* * * * *
(j) Fees. FMS and other debt collection centers (as defined in
paragraph (a) of this section) may charge fees sufficient to cover the
full cost of providing debt collection services authorized by this
section. Fees paid to recover amounts owed may not exceed amounts
collected. Nothing in this rule precludes a creditor agency from
agreeing to pay fees for debt collection services which are not based
on amounts collected. FMS and debt collection centers are authorized to
retain fees from amounts collected and may deposit and use such fees in
accordance with 31 U.S.C. 3711(g). Fees charged by FMS and other debt
collection centers may be added to the debt as an administrative cost
if authorized under 31 U.S.C. 3717(e).
Dated: November 2, 1998.
Kenneth R. Papaj,
Acting Commissioner.
[FR Doc. 99-10136 Filed 4-27-99; 8:45 am]
BILLING CODE 4810-35-P