[Federal Register Volume 65, Number 162 (Monday, August 21, 2000)]
[Rules and Regulations]
[Pages 50598-50603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21146]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1951

RIN 0560-AG24


Handling Payments From the Farm Service Agency (FSA) to 
Delinquent FSA Farm Loan Program Borrowers

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: The issuing USDA agencies are revising their regulations for 
the use of administrative offset to collect delinquent debts due under 
programs formerly administered by the Farmers Home Administration 
(FmHA). This rule finalizes an interim rule on this subject which was 
published in the Federal Register on August 1, 1997. This action 
eliminates the provisions in the regulation setting out separate set-
off regulations of the former Farmers Home Administration and provides 
that the Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service and Farm Service Agency (FSA), Farm Loan 
Programs (FLP) will adhere to the requirements in the United States 
Department of Agriculture (USDA) administrative offset regulations. 
This rule eliminates the requirement that a borrower's account be 
accelerated prior to offset of payments from a Federal agency to 
delinquent borrowers. This rule will improve collection procedures 
through an increase in the use of administrative offset to collect 
delinquent debts owed the Federal Government. The changes primarily 
affect Farm Loan Program (FLP) borrowers of the FSA. The Agencies' 
Federal salary offset regulations are not revised by this rule.

EFFECTIVE DATE: October 20, 2000.

FOR FURTHER INFORMATION CONTACT: Jerry P. Wishall, Senior Loan Officer, 
Farm Loan Programs Loan Servicing Division, USDA/FSA/LSPMD/STOP 0523, 
1400 Independence Avenue, SW., Washington, D.C. 20250-0523, telephone 
(202) 720-1651, facsimile (202) 690-0949 or (202) 720-7686, e-mail: 
Jerry [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been reviewed under Executive Order 12866, has been 
determined to be a significant regulatory action, and has been reviewed 
by the Office of Management and Budget.

Federal Assistance Program

    The titles and numbers of the Federal Assistance Programs as found 
in the Catalog of Domestic Assistance to which this rule may apply are:

10.404  Emergency Loans
10.405  Farm Labor Housing Loans and Grants
10.406  Farm Operating Loans
10.407  Farm Ownership Loans
10.410  Very Low to Moderate Income Housing Loans

[[Page 50599]]

10.411  Rural Housing Site Loans and Self-Help Housing Land 
Development Loans
10.415  Rural Rental Housing Loans
10.417  Very Low-Income Housing Repair Loans and Grants
10.420  Rural Self-Help Housing Technical Assistance
10.421  Indian Tribes and Tribal Corporation Loans
10.427  Rural Rental Assistance Payments
10.433  Rural Housing Preservation Grants
10.435  Certified Mediation Program

Executive Order 12372

    This activity is subject to provisions of Executive Order 12372, 
which requires intergovernmental consultation with State and local 
officials under the following numbers:

10.405  Farm Labor Housing Loans and Grants
10.407  Farm Ownership Loans
10.415  Rural Rental Housing Loans
10.421  Indian Tribes and Tribal Corporation Loans
10.427  Rural Rental Assistance Payments
10.433  Rural Housing Preservation Grants
10.435  Certified Mediation Program

    The Agency has complied with the intergovernmental consultation 
requirements. The following programs or activities are excluded from 
the scope of Executive Order 12372 which requires intergovernmental 
consultation with State and local officials, under the following 
numbers:

10.404  Emergency Loans
10.406  Farm Operating Loans

Environmental Evaluation

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' It is the determination of the 
issuing agencies that this action is not a major Federal action 
significantly affecting the environment and, in accordance with the 
National Environmental Policy Act of 1969, and 7 CFR part 1940, subpart 
G, an Environmental Impact Statement has not been prepared.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil Justice Reform. In accordance with this rule; (1) all 
State and local laws and regulations that are in conflict with this 
rule will be preempted; (2) no retroactive effect will be given to this 
rule unless otherwise specifically provided in the text of the rule; 
and (3) administrative proceedings in accordance with 7 CFR part 11 
must be exhausted before bringing suit in court challenging action 
taken under this rule unless those regulations specifically allow 
bringing suit at an earlier time.

Regulatory Flexibility Act

    The Farm Service Agency (FSA) certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities as defined in the Regulatory Flexibility Act, (5 U.S.C. 601). 
No actions are being taken under this rule that would favor large 
entities over small entities. According to the 1997 Census of 
Agriculture, 1.9 million farmers or over 99 percent of all farms in the 
United States are small entities as defined by the Small Business 
Administration (SBA). Under the SBA definition, few if any large 
entities are operators of family-sized farms who would be eligible for 
FSA credit. This rule is expected to result in the offset of payments 
from an average of approximately 4,000 borrowers per year, which is 
less than .2 percent of the 1.9 million small farmers. Also, this rule 
requires small entities to do no more than large entities to 
participate in the affected programs. Therefore, a Regulatory 
Flexibility Analysis has not been prepared.
    This rule does not affect administrative offset of direct single 
family housing borrowers who have loans from the RHS. Administrative 
offsets for these borrowers was the subject of a prior rule making on 
November 22, 1996 (61 FR 59762). This prior rulemaking adopted the 
offset procedures for direct single family housing loans that are being 
adopted in the current rule for debts due to the Agencies.

Paperwork Reduction Act

    The amendments to 7 CFR part 1951, subpart C, contained in this 
rule involve a change in existing information collection requirements 
that was approved by OMB under the provisions of 44 U.S.C. chapter 35 
and assigned OMB control number 0575-0119. A proposed rule containing 
an estimate of the burden impact of this rule was published on August 
30, 1996 (61 FR 45907), and updated information was published in the 
interim rule on August 1, 1997 (62 FR 41794). No comments on the burden 
estimate were received.

National Partnership for Reinventing Government

    This regulatory action is being taken as part of the National 
Partnership for the Reinvention of Government to eliminate unnecessary 
regulations and improve those that remain in force.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. L 
104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, 
agencies must prepare a written statement, including a cost-benefit 
assessment, before promulgating a notice of proposed rule making that 
includes any Federal mandates that may result in expenditures to State, 
local, and tribal governments, in the aggregate, or to the private 
sector, of $100 million or more in any 1 year. When such a statement is 
needed for a rule, section 205 of the UMRA generally requires agencies 
to identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome 
alternative that achieves the objectives of the rule. The rule contains 
no Federal mandates (under the regulatory provisions of title II of the 
UMRA) for State, local, and tribal governments or the private sector. 
Thus, this rule is not subject to the requirements of sections 202 and 
205 of the UMRA.

Discussion of the Final Rule

    This rule involves the credit programs formerly administered by 
FmHA. The Department of Agriculture Reorganization Act of 1994 
authorized the Secretary to abolish FmHA and on October 20, 1994, FmHA 
was abolished and its functions were transferred to the USDA Agencies 
that are issuing the rule.
    FSA took the action contained in this rule for several reasons. 
Most importantly, the change was made to increase the tools available 
to FSA's Farm Loan Programs (FSA, FLP) to collect delinquent FLP debts 
owed to the Government. Administrative offset was underutilized because 
the administrative offset regulations applicable to FSA's FLP prior to 
the August 1, 1997, interim rule required that a borrower's promissory 
note be accelerated before offset could be used to collect the debt. 
This resulted in the anomaly of USDA paying a delinquent debtor from 
one USDA program while at the same time it was trying to collect its 
delinquent debt. It restricted FSA's ability to collect from borrowers 
that defaulted on FLP debt by delaying the offset against FSA and 
Commodity Credit Corporation (CCC) program payments such as those 
derived from the Conservation Reserve Program (CRP), Production 
Flexibility Contracts (PFC), Livestock Indemnity Payments (LIP), 
Emergency Conservation Program (ECP), Environmental Quality Incentive 
Program (EQIP), Agriculture Conservation Program (ACP), or Stewardship 
Incentive Program (SIP).

[[Page 50600]]

Because of the procedures required for FSA to accelerate notes, a 
borrower's FSA loan may have been in default for years while the 
borrower continued to receive program payments from FSA. For example, 
CCC records indicate that in fiscal years 1994 and 1995, 711 CRP 
contract payments totaling over $5.5 million were made to seriously 
delinquent FSA borrowers that were not subject to offset. It is 
fiscally irresponsible for a Federal agency to continue making 
substantial program payments to someone who is seriously delinquent on 
his or her Government debts.
    Also, the Agencies made this change because the administrative 
offset provisions of the Federal Claims Collection Act (31 U.S.C. 3716) 
(DCA), which were amended by the Debt Collection Improvement Act (DCIA) 
of 1996 (Chapter 10 of Pub. L. 104-134, April 26, 1996), establish the 
requirement that Federal agencies must attempt administrative offset to 
collect delinquent debts soon after the debt becomes delinquent.
    The Agencies made this change by removing a portion of the existing 
administrative offset regulation used by the Agencies when they were a 
part of FmHA. USDA has an existing administrative offset regulation at 
7 CFR part 3, subpart B that satisfies the administrative offset needs 
of the Agencies and is consistent with the requirements of the DCA. 
Concerning FSA FLP borrowers, adoption of the departmental regulation 
and removal of the Agencies' regulation will also assist in efforts to 
streamline regulations and reduce paperwork by removing several pages 
of unnecessary regulations from chapter XVIII of the Code of Federal 
Regulations. This subpart contains provisions that are very similar to 
the previous administrative offset regulation of the former FmHA 
contained in 7 CFR part 1951, subpart C (1997 ed.), except it does not 
require a borrower's account to have been accelerated. Also, to further 
implement the provisions of the DCIA and the Department of Treasury 
regulations, ``Offset of Tax Refund Payments to Collect Past-Due 
Legally Enforceable Nontax Debt'', at 31 CFR part 285 (63 FR 46140) 
finalized on August 28, 1998, which require that the offset of 
Government payments, including Internal Revenue Service (IRS) tax 
refunds, be centralized in the Department of Treasury and made through 
the Treasury Offset Program (TOP) rather than the IRS, the Agency is 
removing 7 CFR 1951.121 through 1951.135.
    These sections in part state that FLP borrowers will not be 
referred for I RS offset until either the borrower receives the 
required loan servicing notices under 7 CFR part 1951, subpart S, and 
all appeal rights have been exhausted, or the borrower's account has 
been accelerated. Language has been added to 7 CFR 1951.102 and 7 CFR 
1951.106(b) to clarify when offset will be used to collect the 
delinquent debt of an individual FSA, FLP borrower when the FSA payment 
is made to an entity in which the FSA, FLP borrower is participating 
either directly or indirectly. Offset will be taken against the 
individual borrower's pro rata share of payments due any entity in 
which the borrower participates, either directly or indirectly, or when 
FSA, FLP has a legally enforceable right under state law, common law, 
or Federal law, including USDA regulations at 7 CFR 792.7(l) and 
1403.7(q), to pursue the entity payment. Situations when this may occur 
are when the borrower has created a shell corporation before receiving 
an FSA, FLP loan or after receiving a loan, established an entity, or 
reorganized, transferred ownership of, or otherwise changed in some 
manner, the borrower's operation or the operation of a related entity 
for the purpose of avoiding payment of the claim or otherwise avoiding 
Agency regulations. Offset will also be taken against the borrower's 
pro rata share when assets used in the entity's operation include 
assets pledged as security without payment to the Agency or without 
Agency consent to the asset transfer. When payment is to be made to a 
corporation, which is the alter ego of the borrower, or payment is made 
to the individual members of the entity which includes a delinquent 
borrower, pro rata offset will also be taken.
    These changes reflect FSA's and CCC's farm program policies as 
stated in the payment regulation at 7 CFR 792.7 and 1403.7. FSA, FLP 
had assumed that these policies already applied to FLP individual 
borrowers who created entities, transferred assets, ownership or 
otherwise reorganized to avoid repayment of their debt. However, 
several appeal decisions issued by USDA's National Appeals Division 
(NAD) to the contrary established the need to specifically adopt the 
requirements contained in 7 CFR 792.7 and 1403.7 and apply them to FSA, 
FLP delinquent borrowers. The Agency will provide the entity with 
appeal rights to the NAD as to the question of the debtor's interest in 
the entity when offsetting the program payments of delinquent 
borrowers.

Effect of National Appeals Division

    Appeal rights through NAD will be offered in accordance with 7 CFR 
part 11 and in conjunction with the internal review process as outlined 
in the USDA offset regulations. The feasibility of an offset must be 
determined on a case-by-case basis; the practicality of the offset must 
be determined; borrowers must generally be given 30 days notice prior 
to offset, except in instances as allowed in 7 CFR part 3; a borrower 
has 20 days to request a meeting after receiving notice; the borrower 
may request a review of the offset by an Agency reviewing official, or 
can request an appeal through NAD, the borrower may review the Agencies 
records; and the borrower may reach a payment agreement with the FSA, 
FLP in lieu of the offset.

Discussion of Comments Received

    This final rule considers the comments received on the interim rule 
published August 1, 1997 (62 FR 41794), with a comment period that 
ended September 30, 1997. The interim rule implemented the changes in a 
proposed rule published on August 30, 1996 (61 FR 45907), with a 
comment period ending September 16, 1996. Comments for the interim rule 
were received from 43 parties prior to expiration of the comment 
period. One comment was received 1 day after the deadline and was not 
formally considered, although it was similar to the other comments 
received. Comments were received from one United States Representative, 
39 banks, one lender commenting as an individual, one state banking 
organization, one State Department of Agriculture, and a national 
banking association. Two comments were identical form letters. Four 
comments reiterated the same comments made by the national banking 
association. Two commenters, a lender commenting as an individual and a 
bank, praised the Agencies' efforts to collect from delinquent 
borrowers. They believe more aggressive collection action would help 
curb abuse of farm loans by farmers and bankers. They also believe that 
the Government should cease subsidizing bad or unlucky farmers; that 
bankers should not collateralize loans with Government subsidies; and 
that borrowers should be required to repay their loans. One commenter 
did not have a problem with FSA offsetting Government payments ahead of 
an assignment to a lender as this was no different than a mechanic's 
lien superseding a lien.

[[Page 50601]]

    The respondents' comments are addressed as follows in an order 
based on the volume of responses received. Comments of a similar topic 
are grouped, paraphrased and addressed as one. General comments 
received regarding constitutionality, ethics, fairness and the general 
mission of the Agencies loan programs were considered and may be 
addressed in context.

Adverse Effect on Agriculture Lending Community and Restriction of 
Credit

    Thirty comments were received from private lenders and banking 
organizations expressing concern about the potential negative impact of 
this rule due to a reduced availability of bank credit. These 
commenters indicated that this rule will result in a restriction on 
loans to farmers for the production of crops because many of these 
loans are dependent upon assignment of FSA program payments for 
repayment. The respondents suggest that a lender will deny credit to a 
farm borrower due to inadequate cash flow as a result of not being able 
to include FSA program payments in their annual cash flow projections. 
Commenters requested that the Agency honor an assignment or abide by 
Uniform Commercial Code (UCC) lien priorities on payments, regardless 
of the legal status of the borrower's government loan. Respondents 
suggested that if the Agency proceeds with this change, FSA, FLP should 
inform creditors and suppliers of the status of an FSA, FLP borrower's 
loans. Many of these commenters recommended the assignments be honored 
for at least the 1997 crop year.
    One commenter indicated an inability to verify status of FSA loans. 
FSA is in the process of amending its credit reporting procedures to 
conform more closely to those in the commercial and consumer lending 
community by reporting delinquent farm loan program borrowers to credit 
reporting bureaus in accordance with the requirements of the DCA. This 
will reduce the likelihood of a lender extending credit without 
knowledge of the status of a borrower's FSA loan. In the case of a 
borrower who is current on his or her FSA, FLP loan, this rule is not 
likely to affect their ability to obtain credit.
    Seventeen commenters indicated that the offsets would reduce the 
availability of guaranteed loans to a borrower who has a direct FSA, 
FLP loan. FSA, FLP's guaranteed loan program, which guarantees a lender 
against up to 90 percent of any loss of principal and interest, may be 
used by lenders to reduce their risk. This program requires a positive 
cash flow considering all income sources and debt payments. As stated 
by several commenters, FSA typically requires lenders to take an 
assignment of farm program payments; but we expect few, if any, loans 
to be approved with FSA income enhancement program payments as the sole 
planned source of repayment. If the borrower becomes delinquent on a 
direct loan and the payment is offset, there is authority to assist the 
borrower by servicing the guaranteed loan under one or more of the 
authorities contained in 7 CFR part 762.
    With regard to assignments, lien position, and bankruptcy, this 
rule changes little. Administrative offset has been available and 
utilized for many years and the assignment forms which have been used 
by FSA have provided that offset to the Government has priority over an 
assignment to a lender. See 7 CFR 792.8 and 1403.8. Under this rule, 
the Government will continue to have priority over an assignment to a 
lender or supplier. In the case of bankruptcy, all creditor collection 
actions cease and the court will determine the uses of income, 
distribution of security and disposition of debt. In any event, the DCA 
requires non-tax accounts over 180 days delinquent to be forwarded to 
the Department of Treasury for offset, notwithstanding the action of 
FSA, FLP.
    Aside from reporting to credit bureaus, FSA, FLP will not 
automatically inform another lender that a borrower has become 
delinquent on a loan as requested by commenters. This notification 
would be inconsistent with the requirements of the Privacy Act (5 
U.S.C. 552(a)) unless FSA has specific approval from its borrower to 
release this information. However, as a result of farm visits and other 
routine servicing of the loan, it is likely that a lender that has 
extended operating credit will be aware of repayment problems that may 
result from a decline in production and the related risk of 
administrative offset. A natural disaster or unforeseen drop in sales 
would require a joint effort from all creditors. In addition, the 
occurrence of a natural disaster or financial disasters may allow FSA 
to use other FSA, FLP loan servicing authorities to correct the 
delinquency and maintain the operation.
    Under 31 U.S.C. 3720B(a), a person is precluded from obtaining any 
Federal financial assistance, including USDA assistance in the form of 
a loan (other than an emergency loan), loan insurance, or a loan 
guarantee, while that person is delinquent on a non-tax Federal debt, 
unless the Secretary of Agriculture or a designee waives this 
prohibition. If FSA, FLP finds that the increased use of administrative 
offset makes it more difficult for agricultural producers to obtain 
loans, it will review this action.
    Two commenters stated the FSA, FLP should abide by 7 CFR 1962.17 
and releases of normal income security should be made ahead of offsets. 
Administrative offset and releases for essential family living and farm 
operating expenses are separate issues and the requirements of 7 CFR 
1962.17 are not affected by this change. FSA program payments will be 
administratively offset prior to acceleration of the loan. However, 
offset is not the exercise of collection from FSA, FLP loan security. 
Offset is the administrative collection of an FSA, FLP debt due from 
funds due the borrower under another Government program. FSA may or may 
not have a security interest in that payment or may or may not have a 
first lien interest therein. FSA and CCC payments are not subject to 
attachment, garnishment or lien interest until paid. Offset intercepts 
these payments before they are made and before they are subject to any 
lien. The amounts when obtained are not normal income security and are 
not subject to the release provisions in 7 CFR 1962.17.
    Two respondents stated that if FSA, FLP had agreed to release 
program payments on Form FHA 1962-1, Agreement for the Use of Proceeds/
Release of Chattel Security, the Agency cannot alter this agreement. 
Funds obtained through administrative offset are not the result of the 
Government's foreclosure on or otherwise seizing security.
    At least two respondents commented that the Agency should attempt 
to correct a delinquency under 7 CFR part 1951, subpart S, prior to 
administrative offset. This comment is similar to others who suggested 
that the Agency more clearly define ``past due'' and not send the 
notice of intent to collect by administrative offset until the borrower 
is at least 90 days or up to 180 days past due. Notification 
requirements for administrative offset are separate from those of debt 
restructuring. When the required procedure has been completed, FSA, FLP 
has made the policy determination in accordance with the DCA that 
administrative offset will be taken regardless of the status of any 
request for servicing under the provisions of 7 CFR part 1951, subpart 
S.
    However, the comment that requested that borrowers be allowed to 
become at least 90 days or up to 180 days past due before offsetting a 
payment was

[[Page 50602]]

considered. As a practical matter the issuance of a Notice of Intent to 
Collect by Administrative Offset will normally correspond to the 
commenter's request for at least a 90-day delay. Notice of offset will 
not generally occur until notice under 331D of the Consolidated Farm 
and Rural Development Act (Con Act), 7 U.S.C. 1981d, has been provided. 
The FSA, FLP administrative requirements will provide for the Notice to 
be sent simultaneously with or subsequent to the notice required by 
331D of the Con Act. Because most FSA loan payments are due annually 
from January to May, if the recommendation that the Agency not begin 
offset procedures until the borrower is 180 days past due were adopted 
any FSA program payments made through at least June of every year would 
not be subject to offset on newly delinquent accounts. FSA could not 
wait until the expiration of the 180-day period and be consistent with 
the intent of the DCA, which requires that all FSA, FLP servicing be 
completed and debts be referred to the Department of Treasury as soon 
as possible after the account is 180 days past due. See 63 FR 16356, 
April 2, 1998, entitled ``Transfer of Debts to Treasury for 
Collection.'' Therefore, this recommendation was not adopted.
    Other miscellaneous comments were received that could be 
paraphrased as general opposition to the proposal. At least four 
commenters suggested that this change is not required to expedite 
administrative offset. They indicated that the Agency's loan servicing 
and appeal regulations have required timeframes for actions that, if 
properly followed, would result in account acceleration much earlier 
than the months or years cited in the proposed rule. FSA agrees that 
employee delay may be a factor in cases of extended loan servicing. 
However, even if every timeframe contained in regulations is precisely 
followed, the result would be that acceleration was delayed long enough 
to allow a seriously delinquent borrower to obtain several payments 
before offset could be put into place. Therefore, the agencies did not 
adopt this comment.

List of Subjects in 7 CFR Part 1951

    Accounting, Accounting servicing, Credit, Loan programs--
Agriculture, Low and moderate income housing loans--Servicing.

    Accordingly, for the reasons stated in the preamble, the interim 
rule published on August 1, 1997 (62 FR 41794), is adopted as a final 
rule with the following changes:

PART 1951--SERVICING AND COLLECTIONS

    1. The authority citation for part 1951 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3716; and 42 
U.S.C. 1480.

Subpart C--Offsets of Federal Payments to USDA Agency Borrowers

    2. Revise Sec. 1951.101 to read as follows:


Sec. 1951.101  General.

    Federal debt collection statutes provide for the use of 
administrative, salary, and Internal Revenue Service (IRS) offsets by 
government agencies, including the Farm Service Agency (FSA), Rural 
Housing Service (RHS), Rural Utilities Service (RUS) for its water and 
waste programs, and Rural Business-Cooperative Service (RBS), herein 
referred to collectively as ``United States Department of Agriculture 
(USDA) Agency'', to collect delinquent debts. Any money that is or may 
become payable from the United States to an individual or entity 
indebted to a USDA Agency or other individual or entity indebted to a 
USDA Agency may be subject to offset for the collection of a debt owed 
to a USDA Agency. In addition, money may be collected from the debtor's 
retirement payments for delinquent amounts owed to the USDA Agency if 
the debtor is an employee or retiree of a Federal agency, the U.S. 
Postal Service, the Postal Rate Commission, or a member of the U.S. 
Armed Forces or the Reserve. Amounts collected will be processed as 
regular payments and credited to the borrower's account. USDA Agencies 
will process requests by other Federal agencies for offset in 
accordance with Sec. 1951.102 of this subpart. This subpart does not 
apply to RHS direct single family housing loans. Nothing in this 
subpart affects the agency's common law right of set off.

    3. Revise Sec. 1951.102 to read as follows:


Sec. 1951.102  Administrative offset.

    (a) General. Collections of delinquent debts through administrative 
offset will be taken in accordance with 7 CFR part 3, subpart B and 
Sec. 1951.106.
    (b) Definitions. In this subpart:
    (1) Agency means Farm Service Agency, Rural Housing Service, Rural 
Utilities Service, and Rural Business-Cooperative Service, or any 
successor agency.
    (2) Contracting officer is any person who, by appointment in 
accordance with applicable regulations, has the authority to enter into 
and administer contracts and make determinations and findings with 
respect thereto. The term also includes the authorized representative 
of the contracting officer, acting within the limits of the 
representative's authority.
    (3) County Committee means the local committee elected by farmers 
in the county, as authorized by the Soil Conservation and Domestic 
Allotment Act and the Department of Agriculture Reorganization Act of 
1994, to administer FSA programs approved for the county as 
appropriate.
    (4) Creditor agency means a Federal agency to whom a debtor owes a 
monetary debt. It need not be the same agency that effects the offset.
    (5) Debt management officer means an agency employee responsible 
for collection by administrative offset of debts owed the United 
States.
    (6) Delinquent means a payment that has not been paid within 30 
calendar days after the due date.
    (7) Entity means a corporation, joint stock company, association, 
general partnership, limited partnership, limited liability company, 
irrevocable trust, revocable trust, estate, charitable organization, or 
other similar organization participating in the farming operation.
    (8) FP means Farm Programs.
    (9) FLP means Farm Loan Programs.
    (10) FSA means Farm Service Agency.
    (11) National Appeals Division means the organization within the 
Department of Agriculture that conducts appeals of adverse decisions 
for program participants under the purview of 7 CFR part 11.
    (12) Offsetting agency means an agency that withholds from its 
payment to a debtor an amount owed by the debtor to a creditor agency, 
and transfers the funds to the creditor agency for application to the 
debt.
    (13) Propriety means the offset is feasible. It includes offsetting 
a debtor's payments due any entity in which the debtor participates 
either directly or indirectly equal to the debtor's interest in the 
entity. To be feasible the debt must exist and be 60 days delinquent or 
past due for 90 days or the borrower must be in default of other 
obligations to the Agency, which can be cured by the payment of money.
    (14) Reviewing officer means an agency employee responsible for 
conducting a hearing or documentary review on the existence of debt and 
the propriety of administrative offset in accordance with 7 CFR 3.29. 
FSA District Directors or other State Executive Director designees are

[[Page 50603]]

designated to conduct the hearings or reviews.

    4. Add Sec. 1951.106 to read as follows:


Sec. 1951.106  Offset of payments to entities related to debtors.

    (a) General. Collections of delinquent debts through administrative 
offset will be in accordance with 7 CFR part 3, subpart B, and 
paragraphs (b) and (c) of this section.
    (b) Offsetting entities. Collections of delinquent debts through 
administrative offset may be taken against a debtor's pro rata share of 
payments due any entity in which the debtor participates when:
    (1) It is determined that FSA has a legally enforceable right under 
state law or Federal law, including program regulations at 7 CFR 
792.7(l) and 1403.7(q), to pursue the entity payment;
    (2) A debtor has created a shell corporation before receiving a 
loan, or after receiving a loan, established an entity, or has 
reorganized, transferred ownership of, or otherwise changed in some 
manner the debtor's operation or the operation of a related entity for 
the purpose of avoiding payment of the FSA, FLP debt or otherwise 
circumventing Agency regulations;
    (3) Assets used in the entity's operation include assets pledged as 
security to the Agency which have been transferred to the entity 
without payment to the Agency of the value of the security or Agency 
consent to transfer of the assets;
    (4) A corporation to which a payment is due is the alter ego of a 
debtor; or
    (5) A debtor participates in, either directly or indirectly, the 
entity as determined by FSA.
    (c) Other remedies. Nothing in this section shall be deemed to 
limit remedies otherwise available to the Agency under other applicable 
law.

    5. Revise the introductory text and paragraph (b)(1) in 
Sec. 1951.111 to read as follows:


Sec. 1951.111  Salary offset.

    Salary offset may be used to collect debts arising from delinquent 
USDA Agency loans and other debts which arise through such activities 
as theft, embezzlement, fraud, salary overpayments, under withholding 
of amounts payable for life and health insurance, and any amount owed 
by former employees from loss of Federal funds through negligence and 
other matters. Salary offset may also be used by other Federal agencies 
to collect delinquent debts owed to them by employees of the USDA 
Agency, excluding county committee members. Administrative offset, 
rather than salary offset, will be used to collect money from Federal 
employee retirement benefits. Salary offset will not be initiated until 
after other servicing options available to the borrower have been 
utilized. In addition, for Farm Loan Programs loans, salary offset will 
not be instituted if the Federal salary has been considered on the Farm 
and Home Plan, and it was determined the funds were to be used for 
another purpose other than payment on the USDA Agency loan. When salary 
offset is used, payment for the debt will be deducted from the 
employee's pay and sent directly to the creditor agency. Not more than 
15 percent of the employee's disposable pay can be offset per pay 
period, unless the employee agrees to a larger amount. The debt does 
not have to be reduced to judgment or be undisputed, and the payment 
does not have to be covered by a security instrument. This section 
describes the procedures which must be followed before the USDA Agency 
can ask a Federal agency to offset any amount against an employee's 
salary.
* * * * *
    (b) * * *
    (1) Certifying Officials.--State Directors; State Executive 
Directors; the Assistant Administrator; Finance Office; Financial 
Management Director; Financial Management Division, and the Deputy 
Administrator for Management, National Office.
* * * * *


Secs. 1951.121 through 1951.135  [Removed and Reserved]

    6. Sections 1951.121 through 1951.135 are removed and reserved.

    Signed in Washington, D.C., on August 8, 2000.
August Schumacher, Jr.,
Under Secretary for Farm and Foreign Agricultural Services.

    Dated: August 13, 2000.

Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 00-21146 Filed 8-18-00; 8:45 am]
BILLING CODE 3410-05-P