[Federal Register Volume 68, Number 104 (Friday, May 30, 2003)]
[Proposed Rules]
[Pages 32418-32432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13245]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 68, No. 104 / Friday, May 30, 2003 / Proposed 
Rules  

[[Page 32418]]



DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 3


Debt Management

AGENCY: Office of the Secretary, USDA.

ACTION: Proposed rule.

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SUMMARY: The United States Department of Agriculture (USDA) proposes to 
amend its regulations that govern the management of debts owed to it by 
program participants and other debtors. The rule proposes changes to 
existing regulations to further implement the Debt Collection 
Improvement Act of 1996 (DCIA) and the Federal Claims Collection 
Standards. The changes will affect USDA requirements for collection and 
settlement of debts, including administrative offset of eligible 
payments, and referral to the Department of the Treasury (Treasury) for 
collection. These changes are intended to ensure that USDA debt 
collection procedures comply with current laws and Treasury regulations 
governing Federal debt management.

DATES: Comments should be submitted on or before July 29, 2003, in 
order to be ensured of consideration. Comments received after this date 
may be considered to the extent practicable.

ADDRESSES: Comments should be sent to Dale Theurer, Credit, Travel, and 
Accounting Policy Division, Office of the Chief Financial Officer, 
Department of Agriculture, Mail Stop 9010, Room 3417 South, 1400 
Independence Avenue, SW., Washington, DC 20250. Comments may also be 
submitted via electronic mail to [email protected]. All comments, 
including names and addresses will become a matter of public record. A 
copy of this rule, and the comments received, may be obtained by 
contacting Mr. Theurer at (202) 720-1167.

FOR FURTHER INFORMATION CONTACT: Dale Theurer at (202) 720-1167. 
Persons with disabilities who require alternative means for 
communication (Braille, large print, audio tape, etc.) should contact 
the USDA Target Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION: 

Classification

    This rule is not a significant regulatory action as defined in 
Executive Order 12866.

Regulatory Flexibility Act

    USDA certifies that this proposed rule will not have a significant 
impact on a substantial number of small entities as defined in the 
Regulatory Flexibility Act, Public Law 96-354, as amended (5 U.S.C. 601 
et seq.).

Executive Order 12988

    The proposed rule has been reviewed in accordance with Executive 
Order 12988. If this proposed rule is adopted, it preempts State laws 
that are inconsistent with its provisions. Before a judicial action may 
be brought concerning this rule or action taken under this rule, all 
administrative remedies must be exhausted.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, requires Federal agencies to assess the effects of their 
regulatory actions on State, local, and tribal governments or the 
private sector. This rule contains no Federal mandates, as defined by 
title II of the UMRA, for State, local, and tribal governments or the 
private sector. Therefore, this rule is not subject to the requirements 
of sections 202 and 205 of UMRA.

Paperwork Reduction Act

    USDA has determined that the provisions of the Paperwork Reduction 
Act of 1995, as amended, 44 U.S.C. 3501, et seq., do not apply to any 
collections of information contained in this rule because any such 
collections of information are made during the conduct of 
administrative action taken by an agency against specific individuals 
or entities. 5 CFR 1320.4(a)(2).

Background and Purpose

    On November 7, 2001, USDA published an advanced notice of proposed 
rulemaking (66 FR 56247) for revision of the USDA debt management 
regulations, 7 CFR part 3, to reflect promulgation of the revised 
Federal Claims Collection Standards (FCCS) and to incorporate other 
USDA specific changes with respect to collection of debt by 
administrative offset. No comments were received on this notice.
    USDA now publishes a rule proposing revisions to 7 CFR part 3 to 
comply with FCCS and further implement the Debt Collection Improvement 
Act of 1996. The new regulation when final will apply to all USDA 
agencies and corporations of USDA, such as the Commodity Credit 
Corporation (CCC). The regulations at 7 CFR 3.21(b) currently provide 
that each USDA agency may adopt their own debt collection regulations 
to apply in lieu of 7 CFR part 3. However, this proposed rule does not 
contemplate the promulgation of separate USDA agency regulations in 
lieu of 7 CFR part 3. Instead, 7 CFR part 3 will establish general debt 
collection procedures for all USDA agencies, except where an agency 
needs supplemental regulations to meet program-specific legal 
requirements. A specific provision refers the reader to 7 CFR part 1403 
for CCC debt collection procedures, but it is the intent of CCC to 
adopt 7 CFR part 3 generally in a forthcoming revision of 7 CFR part 
1403.
    The current subpart A of part 3 is an original debt settlement 
authority provided specifically to USDA for specific credit and farm 
programs in the Act of December 20, 1944, as amended (12 U.S.C. 1150 et 
seq.) (1944 Act). The standards and sums in the 1944 Act are mostly 
obsolete, yet they remain in effect. At some point, the provisions of 
the 1944 Act were expanded upon with some additional regulatory 
requirements reflected in subpart A, and it apparently formed the core 
of USDA debt collection regulations until enactment of the Debt 
Collection Act of 1982, Public Law 97-365, and the subsequent 
promulgation of 7 CFR part 3, subpart B in implementation of that Act. 
However, subpart A still reads as if applicable to all USDA debt 
collection activities, and one program was recently added to the list 
of programs in Sec.  3.10 even though those programs are not designated 
by law in the 1944 Act.
    USDA finds that the authorities provided in the 1944 Act would be 
rarely used, if ever. Accordingly, this rule proposes to remove the 
text of the current 7 CFR part 3, subpart A, from 7 CFR part 3 
entirely. To the extent that

[[Page 32419]]

use of that authority may ever be appropriate, USDA has reserved the 
right to collect, compromise, suspend, or terminate the collection of 
debts as otherwise authorized by law in `` 3.1(a)(2) of the proposed 
rule.
    Subpart A of the proposed rule provides the purpose and scope of 
the rule, authority, definitions, and delegation of authority to USDA 
agency heads to exercise any of the functions provided by this part, 
except as otherwise provided.
    Subpart B sets forth the standards for the administrative 
collection and compromise of claims. This subpart is an adaption of the 
language of the corresponding portion of the FCCS, 31 CFR part 901, 
regarding the administrative collection of claims. For the compromise 
of claims, suspension or termination of collection activities, and 
referrals to the Department of Justice (DOJ), Sec. Sec.  3.19 to 3.21 
direct USDA agencies to follow the procedures provided in the FCCS, 31 
CFR parts 902-904. It also includes provisions for the reporting of 
debts to consumer or commercial credit reporting agencies; suspension 
or revocation of eligibility for loans and loan guarantees, licenses, 
permits, or privileges; liquidation of collateral; collection in 
installments; assessment of interest, penalties, and administrative 
costs; and use and disclosure of mailing addresses.
    With respect to the collection of claims, the intent of this 
revision of 7 CFR part 3 is to encourage USDA agencies to issue demand 
letters for payment of a delinquent debt that notifies the debtor of 
all options the USDA agency has for collection of the debt, including 
discussions for alternative methods of payment, reporting to credit 
bureaus, collection through collection agencies, administrative offset, 
administrative wage garnishment, Federal salary offset (where 
applicable), tax refund offset, referral to the Department of the 
Treasury (Treasury) for collection through the Treasury Offset Program 
(TOP) or through cross-servicing, and litigation. Demand letters will 
provide debtors with notice of their rights to review the records 
related to the debt and request administrative review of the debt.
    Subpart F of the proposed rule provides a consolidated 
administrative review process to review the validity and existence of 
the debt for all debt collection action authorized by DCIA for which 
DCIA requires due process prior to collection. The intent here is to 
provide agencies with the authority to have one notice and one 
administrative review as to the existence and validity of the debt for 
all debt collection tools, whether the debt is collected internally by 
USDA or prior to referral of the debt to Treasury for collection. This 
does not preclude a prior hearing on a substantive program matter that 
may have given rise to the claim owed to USDA. Additionally, for 
purposes of administrative wage garnishment, the administrative review 
will concern only the validity and existence of the debt prior to 
referral to Treasury. Treasury, or its contractors, will service and 
issue USDA administrative wage garnishment orders, including 
establishment of repayment schedules, for which Treasury will provide 
debtors with an additional opportunity to seek USDA review of the 
current status of the debt and the burden of the proposed repayment 
schedule upon notice to the debtor of the proposed garnishment order 
itself.
    Subpart C of the proposed rule describes the requirements for 
referral of debt to Treasury, and sets forth specific rules for 
referral to Treasury for cross-servicing. Under cross-servicing, 
Treasury acts on behalf of other Federal agencies to pursue collection 
of debts using a variety of means. All debts may be referred to 
Treasury for cross-servicing, including those that arise as a result of 
default under an instrument or agreement for which no further demand 
letter or due process review is required prior to initiating 
collection.
    Subpart D of the proposed rule provides procedures for 
administrative offset through the mandatory TOP program and through 
non-centralized offset with other Federal agencies or by internal 
administrative offset within USDA. The existing Farm Service Agency 
(FSA) and CCC debt collection regulations include a provision that 
authorizes those agencies, upon receipt of a request for an offset of a 
FSA or CCC payment to satisfy a debt owed a creditor agency, to take a 
debtor's pro rata share of a payment to an entity (such as a 
partnership or corporation) of which the debtor is a part. The proposed 
rule would authorize each agency of USDA to take pro rata shares of 
payments to entities in order to satisfy an offset request received 
from Federal or USDA creditor agency provided that the entity received 
notice of the proposed offset from the creditor agency.
    USDA will accomplish the administrative offset of tax refunds 
through referral to Treasury under TOP. Accordingly, to meet the 60-day 
notice and opportunity for review period required by law prior to 
offset of tax refunds, this rule provides that referrals to TOP will 
not be made until 60 days after notice of the administrative offset is 
sent to the debtor, or until after completion of a review under subpart 
F if that occurs later. However, USDA internal administrative offsets 
shall be made 31 days after the date the notice of administrative 
offset is sent if no request for review under subpart F is received.
    Subpart E of the proposed rule outlines the process USDA will use 
to collect debts using administrative wage garnishment. In demand 
letters sent to debtors, or separately, USDA will advise debtors that 
it will refer the debt to Treasury for collection through 
administrative wage garnishment if other sources for satisfaction of 
the debt are not available. Treasury requires that all debts referred 
to it for collection, using whatever collection tool, be legally 
enforceable. Accordingly, debtors will have the opportunity at this 
stage to seek review of the debt for purposes of assuring legal 
enforceability prior to referral to Treasury for administrative wage 
garnishment, administrative offset, tax refund offset, etc.
    Once at Treasury, if Treasury or its designee determines that 
administrative wage garnishment is appropriate, Treasury or its 
designee will issue a proposed garnishment order to the debtor and 
provide the debtor with the opportunity to request review of the debt 
and repayment schedule in accordance with the administrative wage 
garnishment hearing procedures in 31 CFR 285.11. If the debtor requests 
such a hearing, Treasury will refer the request to the USDA creditor 
agency to which the debt is owed and the creditor agency will contact 
OCFO for designation of a hearing official. In consultation with the 
USDA creditor agency to which the debt is owed, OCFO will designate a 
hearing official. OCFO will forward the final determination of the 
hearing official to Treasury for implementation with respect to the 
subject garnishment order.
    As discussed above, subpart F establishes procedures for a review 
or hearing on the validity and existence of the debt, if requested by 
the debtor upon receipt of a demand letter or notice to collect by one 
of the administrative mechanisms. For debt collection proceedings 
related to domestic programs initiated by FSA, CCC, the Rural Housing 
Service, the Rural Business-Cooperative Service, the Risk Management 
Agency, the Federal Crop Insurance Corporation, the Natural Resources 
Conservation Service, Rural Development, and the Rural Utilities 
Service (but not for programs authorized by the Rural Electrification 
Act of 1936

[[Page 32420]]

or the Rural Telephone Bank Act, 7 U.S.C. 901 et seq.), any 
administrative review will be conducted by the National Appeals 
Division (NAD) in accordance with 7 CFR part 11. For other USDA 
agencies, subpart E provides some flexibility as to how they will meet 
the administrative review requirement.
    Subpart G of the proposed rule provides rules for Federal salary 
offset, for which there are separate review and hearing procedures 
required by law. Subpart G includes the provisions of the current 7 CFR 
part 3, subpart C, as modified to reflect changes made to the 
government wide Federal salary offset rules, 5 CFR part 550, by the 
Office of Personnel Management (OPM) to conform to DCIA (see 63 FR 
72,099 (December 31, 1998)). While OPM requires its approval for 
significant changes to agency Federal salary offset regulations, OPM 
provided in the preamble to its December 31, 1998, final rule that such 
review and approval was not required for agency changes to conform to 
the changes it had made in that final rule. The changes to the USDA 
Federal salary offset rules proposed in this notice merely adopt the 
prior changes made by OPM, and thus, OPM approval is not required. 
These proposed rules also provide that the salaries of Farm Service 
Agency county executive directors and county office employees shall be 
subject to administrative offset in accordance with 7 CFR part 792 or 
part 1403.
    Subpart H of the proposed rule incorporates the current text of 7 
CFR part 3, subpart D, regarding reporting of discharge of debts to the 
Internal Revenue.
    The current text of 7 CFR part 3, subpart E, regarding adjustment 
of certain civil monetary penalties, is redesignated as subpart I. The 
Adjusted Civil Monetary Penalties in newly redesignated subpart I will 
be updated at a later date by the Department and are not republished at 
this time.

List of Subjects in 7 CFR Part 3

    Administrative practice and procedure, Agriculture, Claims, Debts, 
Garnishment of wages, Government employee, Hearing and appeal 
procedures, Pay Administration, Salaries, Wages.

    For the reasons stated in the preamble, USDA proposes to revise 7 
CFR part 3 as follows:

PART 3--DEBT MANAGEMENT

    1. The authority citation for 7 CFR part 3 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 3701, 3711, 3716-18, 3720B; 
31 CFR parts 285 and 901-904, unless otherwise noted.

    2. Subpart E is redesignated as subpart I.
    3. The table of contents and subparts A through D are revised, and 
subparts E through H are added, to read as follows:

PART 3--DEBT MANAGEMENT

Subpart A--General
Sec.
3.1 Purpose and scope.
3.2 Authority.
3.3 Definitions.
3.4 Delegations of authority.
Subpart B--Standards for the Administrative Collection and Compromise 
of Claims
3.10 Aggressive agency collection activity.
3.11 Demand for payment.
3.12 Reporting of consumer debts.
3.13 Contracting with private collection contractors and with 
entities that locate and recover unclaimed assets.
3.14 Suspension or revocation of eligibility for loans and loan 
guarantees, licenses, permits, or privileges.
3.15 Liquidation of collateral.
3.16 Collection in installments.
3.17 Interest, penalties, and administrative costs.
3.18 Use and disclosure of mailing addresses.
3.19 Standards for the compromise of claims.
3.20 Standards for suspending or terminating collection activities.
3.21 Referrals to the Department of Justice.
Subpart C--Referral of Debts to Treasury
3.30 General requirements.
3.31 Mandatory referral for cross-servicing.
3.32 Discretionary referral for cross-servicing.
3.33 Required certification.
3.34 Fees.
Subpart D--Administrative Offset
3.40 Scope.
3.41 Procedures for notification of intent to collect by 
administrative offset.
3.42 Debtor rights to inspect or copy records, submit repayment 
proposals, or request administrative review.
3.43 Non-centralized administrative offset.
3.44 Centralized administrative offset.
3.45 USDA payment authorizing agency offset of pro rata share of 
payments due entity in which debtor participates.
3.46 Offset against tax refunds.
3.47 Offset against amounts payable from Civil Service Retirement 
and Disability Fund.
Subpart E--Administrative Wage Garnishment
3.50 Purpose.
3.51 Scope.
3.52 Definitions.
3.53 Procedures.
Subpart F--Administrative reviews for administrative offset, 
administrative wage garnishment, and disclosed to credit reporting 
agencies
3.60 Applicability.
3.61 Presiding employee.
3.62 Procedures.
Subpart G--Federal Salary Offset
3.70 Scope of this subpart.
3.71 Definitions.
3.72 Coordinating offset with another Federal agency.
3.73 Determination of indebtedness.
3.74 Notice requirements before offset.
3.75 Request for a hearing.
3.76 Result if employee fails to meet deadlines.
3.77 Hearings.
3.78 Written decision following a hearing.
3.79 Review of USDA records related to debt.
3.80 Written agreement to repay debts as alternative to offset.
3.81 Procedures for salary offset: when deductions may begin.
3.82 Procedures for salary offset: types of collections.
3.83 Procedures for salary offset: methods of collections.
3.84 Procedures for salary offset: Imposition of interest, 
penalties, and administrative costs.
3.85 Non-waiver of rights.
3.86 Refunds.
3.87 Agency regulations.
Subpart H--Cooperation with the Internal Revenue Service
3.90 Reporting discharged debts to the Internal Revenue Service.
Subpart I--Adjusted Civil Monetary Penalties
3.91 Adjusted civil monetary penalties.

    Authority: 5 U.S.C. 301; 31 U.S.C. 3701, 3711, 3716-18, 3720B; 
31 CFR parts 285 and 901-904, unless otherwise noted.

Subpart A--General


Sec.  3.1  Purpose and scope.

    (a) In general. (1) The regulations in this part prescribe 
standards and procedures for use by USDA agencies in the collection, 
compromise, suspension, or termination of debts owed to the United 
States.
    (2) The regulations in this part apply to all debts of the United 
States subject to collection by USDA agencies, except as otherwise 
specified in this part or by statute.
    (3) The regulations in this part do not preclude the Secretary from 
collection, compromise, suspension, or termination of debts as 
otherwise authorized by law. In such cases the laws and implementing 
regulations that are specifically applicable to claims collection 
activities of a particular agency generally shall take precedence over 
this part.

[[Page 32421]]

    (b) Agency specific regulations. (1) The regulations of this part 
shall apply to the Commodity Credit Corporation (CCC) to the extent 
specified in 7 CFR part 1403.
    (2) USDA agencies may issue regulations to supplement this part in 
order to meet the specific requirements of individual programs.


Sec.  3.2  Authority.

    The regulations in this part are issued under the Debt Collection 
Act of 1982, as amended by the Debt Collection Improvement Act of 1996 
(DCIA) (31 U.S.C. 3701 et seq.) and the Federal Claims Collection 
Standards issued pursuant to the DCIA by the Departments of the 
Treasury and Justice (31 CFR parts 901 through 904) that prescribe 
government-wide standards for administrative collection, compromise, 
suspension, or termination of agency collection action, disclosure of 
debt information to credit reporting agencies, referral of claims to 
private collection contractors for resolution, and referral to the 
Department of Justice for litigation to collect debts owed the Federal 
government. The regulations under this part also are issued under 
Treasury regulations implementing DCIA (31 CFR part 285) and related 
statutes and regulations governing the offset of Federal salaries (5 
U.S.C. 5512 and 5514; 5 CFR part 550, subpart K) and administrative 
offset of tax refunds (31 U.S.C. 3720A).


Sec.  3.3  Definitions.

    For the purpose of this part, except as where otherwise 
specifically provided, the term or terms:
    (a) Agency means a subagency, office, or corporation within USDA 
subject to the authority or general supervision of the Secretary.
    (b) Centralized offset means referral of a debt to the Treasury 
Offset Program (TOP) for offset of payments made to a debtor by Federal 
agencies other than USDA.
    (c) Claim and debt are synonymous and interchangeable, and refer to 
an amount of money, funds, or property that has been determined by an 
agency official to be due the United States from any person, 
organization, or entity, except another Federal agency.
    (d) Contracting officer has the same meaning as in 41 U.S.C. 601.
    (e) Credit reporting agencies (also known as credit bureaus) means 
major consumer credit reporting agencies that have signed agreements 
with agencies to receive and integrate credit information (data) from 
voluntary subscribers (federal agencies and private sector entities) 
into their respective databases for the purpose of generating credit 
reports for sale to purchasers of credit data.
    (f) Creditor agency means a Federal agency or USDA agency to which 
a debtor owes a debt, including a debt collection center when acting in 
behalf of a creditor agency in matters pertaining to collection of the 
debt.
    (g) Debt collection center means Treasury or other government 
agency or division, designated by the Secretary of the Treasury with 
authority to collect debt on behalf of creditor agencies in accordance 
with 31 U.S.C. 3711(g).
    (h) Debtor means an individual, a public or private entity, a 
State, local or tribal government, or the person or entity with legal 
responsibility for assuming the obligation of the debtor, who owes a 
delinquent, nontax debt to the United States, but does not include 
another Federal agency.
    (i) Delinquent means a debt that 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.
    (j) FCCS means the Federal Claims Collection Standards published in 
31 CFR parts 901 through 904.
    (k) Federal agency means any other Department or entity within the 
Executive branch of the government.
    (l) Internal administrative offset means a non-centralized 
administrative offset between a USDA creditor agency and a USDA payment 
authorizing agency.
    (m) Non-centralized administrative offset means an agreement 
between a USDA creditor agency and a payment authorizing agency to 
offset the payments made by the payment authorizing agency to satisfy a 
USDA debt. An internal administrative offset is a type of non-
centralized administrative offset.
    (n) OCFO means the USDA Office of the Chief Financial Officer.
    (o) OGC means the USDA Office of the General Counsel.
    (p) Payment authorizing agency means a Federal agency or USDA 
agency that is authorized to disburse payments to a recipient.
    (q) Recoupment means a special method for adjusting debts arising 
under the same transaction or occurrence, such as obligations arising 
under the same contract.
    (r) Reviewing officer means a person designated by a creditor 
agency as responsible for conducting a hearing or providing documentary 
review on the existence of the debt and the propriety of an 
administrative collection action.
    (s) Secretary means the Secretary of Agriculture, unless otherwise 
specified.
    (t) Treasury means the United States Department of the Treasury.
    (u) USDA means the United States Department of Agriculture.


Sec.  3.4  Delegations of authority.

    The head of an agency is authorized to exercise any or all of the 
functions provided by this part with respect to programs for which the 
head of the agency has delegated responsibility, and may delegate and 
authorize the redelegation of any of the functions vested in the head 
of the agency by this part, except as otherwise provided by this part.

Subpart B--Standards for the Administrative Collection and 
Compromise of Claims


Sec.  3.10  Aggressive agency collection activity.

    An agency shall aggressively collect all debts arising out of 
activities of, or referred or transferred for collection services to, 
that agency. Collection activities shall be undertaken promptly with 
follow-up action taken as necessary.


Sec.  3.11  Demand for payment.

    (a) Demand letters. Generally, debt collection is initiated with a 
written demand for payment to the debtor unless an applicable agreement 
or instrument (including a post-delinquency payment agreement) provides 
otherwise (such as providing USDA an immediate right to collect upon 
delinquency). Written demand as described in paragraph (b) of this 
section shall be made promptly upon a debtor of the United States in 
terms that inform the debtor of the consequences of failing to 
cooperate with the agency to resolve the debt. The specific content, 
timing, and number of demand letters shall depend upon the type and 
amount of the debt and the debtor's response, if any, to the agency's 
letters or telephone calls. Where statutes or agency regulations are 
specific as to the requirements for demand letters, an agency should 
follow its own procedures in formulating demand letters. Generally, one 
demand letter should suffice. In determining the timing of the demand 
letter(s), an agency should give due regard to the need to refer debts 
promptly to the Department of Justice for litigation, in accordance 
with 31 CFR 904.1 or otherwise. When necessary to protect the 
Government's interest (for example, to prevent the running of a statute 
of

[[Page 32422]]

limitations), written demand may be preceded by other appropriate 
actions under this part, including immediate referral for litigation.
    (b) Required notices. In demand letters, the USDA creditor agency 
shall inform the debtor of:
    (1) The nature and amount of the debt; and the facts giving rise to 
the debt;
    (2) How interest, penalties, and administrative costs are added to 
the debt, the date by which payment should be made to avoid such 
charges, and that such assessments must be made unless excused in 
accordance with Sec.  3.17;
    (3) The date by which payment should be made to avoid the enforced 
collection actions described in paragraph (b)(6) of this section;
    (4) The willingness of the creditor agency to discuss alternative 
payment arrangements and how the debtor may enter into a written 
agreement to repay the debt under terms acceptable to the agency (see 
Sec.  3.16);
    (5) The name, address, telephone number and email address 
(optional) of a contact person or office within the creditor agency;
    (6) The intention of the creditor agency to enforce collection if 
the debtor fails to pay or otherwise resolve the debt, by taking one or 
more of the following actions:
    (i) Offset. Offset the debtor's USDA payments and refer the 
debtor's debt to the Treasury Offset Program for offset against other 
Federal payments, including income tax refunds, in accordance with 
subpart D of this part;
    (ii) Private collection agency. [Reserved].
    (iii) Credit reporting agency reporting. Report the debt to a 
credit reporting agency in accordance with Sec.  3.12;
    (iv) Administrative wage garnishment. Refer the debt to Treasury in 
accordance with subpart E of this part for possible collection by 
garnishing the debtor's wages through administrative wage garnishment;
    (v) Litigation. Refer the debt to the Department of Justice in 
accordance with 3.21 to initiate litigation to collection the debt;
    (vi) Referral to Treasury. Referral of the debt to Treasury for 
collection in accordance with subpart C of this part;
    (7) That USDA debts over 180 days delinquent must be referred to 
Treasury for the collection actions described in paragraph (b)(6) of 
this section;
    (8) How the debtor may inspect and copy records related to the 
debt;
    (9) How the debtor may request a review of the USDA creditor 
agency's determination that the debtor owes a debt and present evidence 
that the debt is not delinquent or legally enforceable (see subpart F 
of this part);
    (10) [Reserved].
    (11) How a debtor who is a Federal employee subject to Federal 
salary offset may request a hearing (see subpart G of this part);
    (12) How a debtor may request a waiver of the debt, if applicable;
    (13) How the debtor's spouse may claim his or her share of a joint 
income tax refund by filing Form 8379 with the Internal Revenue Service 
(see http://www.irs.gov);
    (14) How the debtor may exercise other statutory or regulatory 
rights and remedies available to the debtor;
    (15) That certain debtors may be ineligible for Federal Government 
loans, guarantees, and insurance (see Sec.  3.14);
    (16) If applicable, the creditor agency's intention to suspend or 
revoke licenses, permits, or privileges (see Sec.  3.14); and
    (17) That the debtor should advise the creditor agency of a 
bankruptcy proceeding of the debtor or of another person liable for the 
debt being collected.
    (c) Exceptions to notice requirements. A USDA creditor agency may 
omit from a demand letter one or more of the provisions contained in 
paragraphs (b)(6) through (b)(17) of this section if the USDA creditor 
agency, in consultation with OGC, determines that any provision is not 
legally required given the collection remedies to be applied to a 
particular debt.
    (d) Agencies should exercise care to ensure that demand letters are 
mailed or hand-delivered on the same day that they are dated. There is 
no prescribed format for demand letters. Agencies should utilize demand 
letters and procedures that will lead to the earliest practicable 
determination of whether the debt can be resolved administratively or 
must be referred for litigation.
    (e) Agencies should respond promptly to communications from 
debtors, within 30 days whenever feasible, and should advise debtors 
who dispute debts to furnish available evidence to support their 
contentions.
    (f) Prior to the initiation of the demand process or at any time 
during or after completion of the demand process, if an agency 
determines to pursue, or is required to pursue, internal administrative 
offset, the procedures applicable to offset should be followed (see 
subpart D of this part). The availability of funds or money for debt 
satisfaction by internal administrative offset, and the agency's 
determination to pursue collection by internal administrative offset, 
shall release the agency from the necessity of further compliance with 
paragraphs (a), (b), and (c) of this section.
    (g) Prior to referring a debt for litigation under 31 CFR part 904, 
agencies should advise each debtor determined to be liable for the debt 
that, unless the debt can be collected administratively, litigation may 
be initiated. This notification should comply with Executive Order 
12988 (3 CFR, 1996 Comp., p. 157) and may be given as part of a demand 
letter under paragraph (b) of this section or in a separate document. 
Litigation counsel for the Government should be advised that this 
notice has been given.
    (h) When an agency learns that a bankruptcy petition has been filed 
with respect to a debtor, before proceeding with further collection 
action, the agency should immediately seek legal advice from OGC 
concerning the impact of the Bankruptcy Code on any pending or 
contemplated collection activities. Unless the agency determines that 
the automatic stay imposed at the time of filing pursuant to 11 U.S.C. 
362 has been lifted or is no longer in effect, in most cases collection 
activity against the debtor should stop immediately. The agency should 
take the following steps:
    (1) After seeking legal advice, a proof of claim should be filed in 
most cases with the bankruptcy court or the Trustee. Agencies should 
refer to the provisions of 11 U.S.C. 106 relating to the consequences 
on sovereign immunity of filing a proof of claim.
    (2) If the agency is a secured creditor, it may seek relief from 
the automatic stay regarding its security, subject to the provisions 
and requirements of 11 U.S.C. 362.
    (3) Offset is stayed in most cases by the automatic stay. However, 
agencies should seek legal advice from OGC to determine whether their 
payments to the debtor and payments of other agencies available for 
offset may be frozen by the agency until relief from the automatic stay 
can be obtained from the bankruptcy court. Agencies also should seek 
legal advice from OGC to determine whether recoupment is available.


Sec.  3.12  Reporting consumer debts.

    (a) Notice. In demand letters to debtors sent in accordance with 
Sec.  3.11, agencies shall inform debtors:
    (1) The intent of the agency to report the delinquent consumer debt 
to credit reporting agencies after 60 calendar days;
    (2) The specific information to be transmitted (i.e., name, 
address, and taxpayers identification number, information about the 
debt);

[[Page 32423]]

    (3) The actions which may be taken by the debtor to prevent the 
reporting (i.e. repayment in full or a repayment agreement); and
    (4) The rights of the debtor to seek review of the existence of the 
debt in accordance with subpart F of this part.
    (b) Disclosure. Disclosure of delinquent consumer debts must be 
consistent with the requirements of 31 U.S.C. 3711(e), the Privacy Act 
of 1974 (5 U.S.C. 552a), the Bankruptcy Code, and 31 CFR 5901.4.
    (c) Non-duplication of hearings. When an agency has given a debtor 
any of the notices required by this part and an opportunity for 
administrative review under subpart F, the agency need not duplicate 
such notice and review opportunities before reporting the delinquent 
debt to credit bureaus.
    (d) Stay of disclosure. Agencies shall not disclose a delinquent 
debt to a credit reporting agency if a debtor requests review under 
subpart F until a final determination is made by a reviewing official 
that upholds the agency intent to disclose.
    (e) Commercial debt. The requirement of this section does not apply 
to commercial debts, although agencies should report commercial debts 
to commercial credit bureaus.


Sec.  3.13  Contracting with private collection contractors and with 
entities that locate and recover unclaimed assets. [Reserved.]


Sec.  3.14  Suspension or revocation of eligibility for loans and loan 
guaranties, licenses, permits, or privileges.

    (a) Agencies are not permitted to extend financial assistance in 
the form of a loan, loan guarantee, or loan insurance to any person 
delinquent on a nontax debt owed to a Federal agency, except as 
otherwise authorized by law or upon waiver of application of this 
section by the Chief Financial Officer or the Deputy Chief Financial 
Officer. This prohibition does not apply to disaster loans. Agencies 
may extend credit after the delinquency has been resolved. The 
Secretary of the Treasury may exempt classes of debts from this 
prohibition and has prescribed standards defining when a 
``delinquency'' is ``resolved'' for purposes of this prohibition. See 
31 CFR 285.13 (Barring Delinquent Debtors From Obtaining Federal Loans 
or Loan Insurance or Guarantees).
    (b) Similarly, agencies also are not permitted to extend financial 
assistance (either directly or indirectly) in the form of grants, 
loans, or loan guarantees to judgment debtors who have a judgment lien 
placed against their property until the judgment is satisfied, unless 
the agency grants a waiver in accordance with agency regulations. See 
31 U.S.C. 3201(e).
    (c) In non-bankruptcy cases, agencies seeking the collection of 
statutory penalties, forfeitures, or other types of claims should 
consider the suspension or revocation of licenses, permits, or other 
privileges for any inexcusable or willful failure of a debtor to pay 
such a debt in accordance with the agency's regulations or governing 
procedures. The debtor should be advised in the agency's written demand 
for payment of the agency's ability to suspend or revoke licenses, 
permits, or privileges.
    (d) Any agency making, guaranteeing, insuring, acquiring, or 
participating in, loans should consider suspending or disqualifying any 
lender, contractor, or broker from doing further business with the 
agency or engaging in programs sponsored by the agency if such lender, 
contractor, or broker fails to pay its debts to the Government within a 
reasonable time or if such lender, contractor, or broker has been 
suspended, debarred, or disqualified from participation in a program or 
activity by another Federal agency. Failure to pay a single substantial 
debt, or a number of outstanding debts (including disallowed costs and 
overrun payments, but not including sums owed to the Federal government 
under the Internal Revenue Code) owed to any Federal agency or 
instrumentality is grounds for nonprocurement suspension or debarment 
if the debt is uncontested and the debtor's legal administrative 
remedies for review of the debt are exhausted. See 7 CFR 3017.305(c)(3) 
and 3017.405(a)(2).
    (e) The failure of any surety to honor its obligations in 
accordance with 31 U.S.C. 9305 should be reported to Treasury. Treasury 
will forward to all interested agencies notification that a surety's 
certificate of authority to do business with the Government has been 
revoked.
    (f) The suspension or revocation of licenses, permits, or 
privileges also should extend to USDA programs or activities that are 
administered by the States on behalf of the Federal Government, to the 
extent that they affect the Federal Government's ability to collect 
money or funds owed by debtors. Therefore, States that manage USDA 
activities, pursuant to approval from the agencies, should ensure that 
appropriate steps are taken to safeguard against issuing licenses, 
permits, or privileges to debtors who fail to pay their debts to the 
Federal Government.
    (g) In bankruptcy cases, before advising the debtor of an agency's 
intention to suspend or revoke licenses, permits, or privileges, 
agencies should seek legal advice from OGC concerning the impact of the 
Bankruptcy Code, particularly 11 U.S.C. 362 and 525, which may restrict 
such action.


Sec.  3.15  Liquidation of collateral.

    (a) In accordance with applicable statutes and regulations, 
agencies should liquidate security or collateral through the exercise 
of a power of sale in the security instrument or a nonjudicial 
foreclosure, and apply the proceeds to the applicable debt(s), if the 
debtor fails to pay the debt(s) within a reasonable time after demand 
and if such action is in the best interest of the United States. 
Collection from other sources, including liquidation of security or 
collateral, is not a prerequisite to requiring payment by a surety, 
insurer, or guarantor unless such action is expressly required by 
statute or contract.
    (b) When an agency learns that a bankruptcy petition has been filed 
with respect to a debtor, the agency should seek legal advice from OGC 
concerning the impact of the Bankruptcy Code, including, but not 
limited to, 11 U.S.C. 362, to determine the applicability of the 
automatic stay and the procedures for obtaining relief from such stay 
prior to proceeding under paragraph (a) of this section.


Sec.  3.16  Collection in installments.

    (a) Whenever feasible, agencies shall collect the total amount of a 
debt in one lump sum. If a debtor is financially unable to pay a debt 
in one lump sum, agencies may accept payment in regular installments. 
Agencies should obtain financial statements from debtors who represent 
that they are unable to pay in one lump sum and independently verify 
such representations whenever possible (see 31 CFR 902.2(g) for methods 
of verification). Agencies that agree to accept payments in regular 
installments should obtain a legally enforceable written agreement from 
the debtor that specifies all of the terms of the arrangement and that 
contains a provision accelerating the debt in the event of default.
    (b) The size and frequency of installment payments should bear a 
reasonable relation to the size of the debt and the debtor's ability to 
pay. If possible, the installment payments should be sufficient in size 
and frequency to liquidate the debt in three years or less.
    (c) Security for deferred payments should be obtained in 
appropriate cases. Agencies may accept installment payments 
notwithstanding the refusal of the debtor to execute a written

[[Page 32424]]

agreement or to give security, at the agency's option.


Sec.  3.17  Interest, penalties, and administrative costs.

    (a) Except as provided in paragraphs (g), (h), and (i) of this 
section, agencies shall charge interest, penalties, and administrative 
costs on debts owed to the United States pursuant to 31 U.S.C. 3717. If 
not included in the agency's demand notice, an agency shall mail or 
hand-deliver a written notice to the debtor, at the debtor's most 
recent address available to the agency, explaining the agency's 
requirements concerning these charges except where these requirements 
are included in a contractual or repayment agreement. These charges 
shall continue to accrue until the debt is paid in full or otherwise 
resolved through compromise, termination, or waiver of the charges.
    (b) Agencies shall charge interest on debts owed the United States 
as follows, except as otherwise required by law:
    (1) Interest shall accrue from the date of delinquency, or as 
otherwise provided by law.
    (2) Unless otherwise established in a contract, repayment 
agreement, or by statute, the rate of interest charged shall be the 
rate established annually by the Secretary of the Treasury in 
accordance with 31 U.S.C. 3717. Pursuant to 31 U.S.C. 3717, an agency 
may charge a higher rate of interest if it reasonably determines that a 
higher rate is necessary to protect the rights of the United States. 
The agency should document the reason(s) for its determination that the 
higher rate is necessary.
    (3) The rate of interest, as initially charged, shall remain fixed 
for the duration of the indebtedness. When a debtor defaults on a 
repayment agreement and seeks to enter into a new agreement, the agency 
may require payment of interest at a new rate that reflects the current 
value of funds to the Treasury at the time the new agreement is 
executed. Interest shall not be compounded, that is, interest shall not 
be charged on interest, penalties, or administrative costs required by 
this section. If, however, a debtor defaults on a previous repayment 
agreement, charges that accrued but were not collected under the 
defaulted agreement shall be added to the principal under the new 
repayment agreement.
    (c) Agencies shall assess administrative costs incurred for 
processing and handling delinquent debts. The calculation of 
administrative costs should be based on actual costs incurred or upon 
estimated costs as determined by the assessing agency.
    (d) Unless otherwise established in a contract, repayment 
agreement, or by statute, agencies shall charge a penalty, pursuant to 
31 U.S.C. 3717(e)(2), not to exceed six percent a year on the amount 
due on a debt that is delinquent for more than 90 days. This charge 
shall accrue from the date of delinquency.
    (e) Agencies may increase an ``administrative debt'' by the cost of 
living adjustment in lieu of charging interest and penalties under this 
section. ``Administrative debt'' includes, but is not limited to, a 
debt based on fines, penalties, and overpayments, but does not include 
a debt based on the extension of Government credit, such as those 
arising from loans and loan guarantees. The cost of living adjustment 
is the percentage by which the Consumer Price Index for the month of 
June of the calendar year preceding the adjustment exceeds the Consumer 
Price Index for the month of June of the calendar year in which the 
debt was determined or last adjusted. Increases to administrative debts 
shall be computed annually. Agencies should use this alternative only 
when there is a legitimate reason to do so, such as when calculating 
interest and penalties on a debt would be extremely difficult because 
of the age of the debt.
    (f) When a debt is paid in partial or installment payments, amounts 
received by the agency shall be applied first to outstanding penalties, 
second to administrative charges, third to interest, and last to 
principal, except as otherwise required by law.
    (g) Agencies shall waive the collection of interest and 
administrative charges imposed pursuant to this section on the portion 
of the debt that is paid within 30 days after the date on which 
interest began to accrue. Agencies may extend this 30-day period on a 
case-by-case basis. In addition, agencies may waive interest, 
penalties, and administrative costs charged under this section, in 
whole or in part, without regard to the amount of the debt, either 
under the criteria set forth in the Federal standards for the 
compromise of debts (31 CFR part 902), or if the agency determines that 
collection of these charges is against equity and good conscience or is 
not in the best interest of the United States.
    (h) [Reserved.]
    (i) Agencies are authorized to impose interest and related charges 
on debts not subject to 31 U.S.C. 3717, in accordance with the common 
law. Agencies shall consult OGC before imposing interest and related 
charges under common law for any debt.


Sec.  3.18  Use and disclosure of mailing addresses.

    (a) When attempting to locate a debtor in order to collect or 
compromise a debt under this part or 31 CFR parts 902 through 904 or 
other authority, agencies may send a request Treasury to obtain a 
debtor's mailing address from the records of the Internal Revenue 
Service.
    (b) Agencies are authorized to use mailing addresses obtained under 
paragraph (a) of this section to enforce collection of a delinquent 
debt and may disclose such mailing addresses to other agencies and to 
collection agencies for collection purposes.


Sec.  3.19  Standards for the compromise of claims.

    An agency shall follow the standards set forth in 31 CFR part 902 
for the compromise of debts pursuant to 31 U.S.C. 3711 arising out of 
the activities of, or referred or transferred for collection services 
to, that agency, except where otherwise authorized or required by law.


Sec.  3.20  Standards for suspending or terminating collection 
activities.

    An agency shall follow the standards set forth in 31 CFR part 903 
for the suspension or termination of collection activity pursuant to 31 
U.S.C. 3711, except where otherwise authorized or required by law.


Sec.  3.21  Referrals to the Department of Justice.

    An agency shall promptly refer to the Department of Justice for 
litigation debts on which aggressive collection activity has been taken 
in accordance with this part, and that cannot be compromised by the 
agency or on which collection activity cannot be suspended or 
terminated in accordance with 31 CFR parts 902 and 903. Agencies shall 
follow the procedures set forth in 31 CFR part 904 in making such 
referrals.

Subpart C--Referral of Debts to Treasury.


Sec.  3.30  General requirements.

    (a) Agencies are required by law to transfer delinquent, nontax, 
legally enforceable debts to Treasury for collection through cross-
servicing and through centralized administrative offset. Additionally, 
USDA has chosen to transfer debts to Treasury for collection through 
administrative wage garnishment. Agencies need not make duplicate 
referrals to Treasury for all of these purposes; a debt may be referred 
simultaneously for purposes of collection by cross-servicing, 
centralized administrative offset, and administrative wage garnishment 
where

[[Page 32425]]

applicable. However, in some instances a debt exempt from collection 
via cross-servicing may be subject to collection by centralized offset 
so simultaneous referrals are not always the norm. This subpart sets 
forth rules applicable to the transfer of debts to Treasury for 
collection by cross-servicing. Rules for transfer to Treasury for 
centralized offset are set forth in subpart D of this part, and for 
administrative wage garnishment in subpart E of this part.
    (b) When debts are referred or transferred to Treasury, or 
Treasury-designated debt collection centers under the authority of 31 
U.S.C. 3711(g), Treasury shall service, collect, or compromise the 
debts, or Treasury will suspend or terminate the collection action, in 
accordance with the statutory requirements and authorities applicable 
to the collection of such debts.


Sec.  3.31  Mandatory referral for cross-servicing.

    (a) Agencies shall transfer to Treasury any legally enforceable 
nontax debt in excess of $25, or combination of debts less than $25 
that exceeds $25 (in the case of a debtor whose taxpayer identification 
number is unknown the applicable threshold is $100), that has or have 
been delinquent for a period of 180 days or more in accordance with 31 
CFR 285.12 so that Treasury may take appropriate action on behalf of 
the creditor agency to collect or compromise, or to suspend or 
terminate collection, of the debt, including use of debt collection 
centers and private collection contractors to collect the debt or 
terminate collection action.
    (b) The requirement of paragraph (a) of this section does not apply 
to any debt that:
    (1) Is in litigation or foreclosure (see 31 CFR 385.12(d)(2) for 
definition);
    (2) Will be disposed of under an approved asset sale program (see 
31 CFR 285.12(d)(3) for definition);
    (3) Has been referred to a private collection contractor for a 
period of time acceptable to Treasury;
    (4) Is at a debt collection center for a period of time acceptable 
to Treasury;
    (5) Will be collected under internal offset procedures within three 
years after the debt first became delinquent;
    (6) Is exempt from this requirement based on a determination by the 
Secretary of the Treasury that exemption for a certain class of debt is 
in the best interest of the United States. Federal agencies may request 
that the Secretary of the Treasury exempt specific classes of debts. 
Any such request by an agency must be sent to the Fiscal Assistant 
Secretary of the Treasury by the USDA Chief Financial Officer.
    (c) 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 Treasury and is not to be transferred even if the debt is 
more than 180 days past due. When a final agency determination is made 
after an administrative appeal or review process (including 
administrative review under subpart F of this part), the creditor 
agency must transfer such debt to Treasury, if more than 180 days 
delinquent, within 30 days after the date of the final decision.


Sec.  3.32  Discretionary referral for cross-servicing.

    Agencies should consider referring legally enforceable nontax debts 
that are less than 180 days delinquent to Treasury or to Treasury-
designated ``debt collection centers'' in accordance with 31 CFR 285.12 
to accomplish efficient, cost effective debt collection if no USDA 
payments will be available to collect the debt through internal 
administrative offset under Sec.  3.43.


Sec.  3.33  Required certification.

    Agencies referring delinquent debts to Treasury for collection via 
cross-servicing must certify, in writing, that:
    (a) The debts being transferred are valid and legally enforceable;
    (b) There are no legal bars to collection; and
    (c) That the agency has complied with all prerequisites to a 
particular collection action under the laws, regulations or policies 
applicable to the agency, unless the agency and Treasury agree that 
Treasury will do so on behalf of the agency.


Sec.  3.34  Fees.

    Federal agencies operating Treasury-designated debt collection 
centers are authorized to charge a fee for services rendered regarding 
referred or transferred debts. The fee may be paid out of amounts 
collected and may be added to the debt as an administrative cost.

Subpart D--Administrative Offset


Sec.  3.40  Scope.

    (a) This subpart sets forth the procedures to be used by agencies 
in collecting debts by administrative offset. The term ``administrative 
offset'' has the meaning provided in 31 U.S.C. 3701(a)(1).
    (b) This section does not apply to:
    (1) Debts arising under the Social Security Act, except as provided 
in 42 U.S.C. 404;
    (2) Payments made under the Social Security Act, except as provided 
for in 31 U.S.C. 3716(c) (see 31 CFR 285.4, Federal Benefit Offset);
    (3) Debts arising under, or payments made under, the Internal 
Revenue Code (except for offset of tax refunds) or the tariff laws of 
the United States;
    (4) Offsets against Federal salaries (such offsets are covered by 
subpart F of this part);
    (5) Offsets under 31 U.S.C. 3728 against a judgment obtained by a 
debtor against the United States;
    (6) Offsets or recoupments under common law, State law, or Federal 
statutes specifically prohibiting offsets or recoupments of particular 
types of debts;
    (7) Offsets in the course of judicial proceedings, including 
bankruptcy; or
    (8) Intracontractual offsets to satisfy contract debts taken by a 
contracting officer under the Contracts Disputes Act, 41 U.S.C. 601-
613.
    (c) Unless otherwise provided for by contract or law, debts or 
payments that are not subject to administrative offset under 31 U.S.C. 
3716 may be collected by administrative offset under the common law or 
other applicable statutory authority.
    (d) Supplemental provisions related to offsets by CCC may be found 
at 7 CFR part 1403 and for the Farm Service Agency (FSA) at 7 CFR part 
792.
    (e) Unless otherwise provided by law, administrative offset of 
payments under the authority of 31 U.S.C. 3716 to collect a debt may 
not be conducted more than 10 years after the Government's right to 
collect the debt first accrued, unless facts material to the 
Government's right to collect the debt were not known and could not 
reasonably have been known by the official or officials of the 
Government who were charged with the responsibility to discover and 
collect such debts. This limitation does not apply to debts reduced to 
a judgment.

[[Page 32426]]

    (f) In bankruptcy cases, agencies should seek legal advice from OGC 
concerning the impact of the Bankruptcy Code, particularly 11 U.S.C. 
106, 362, and 553, on pending or contemplated collections by offset.


Sec.  3.41  Procedures for notification of intent to collect by 
administrative offset.

    (a) Prior to initiation of collection by administrative offset, a 
creditor agency must:
    (1) Send the debtor a written Notice of Intent to Collect by 
Administrative Offset, by mail or hand-delivery, of the type and amount 
of the debt, the intention of the agency to use non-centralized 
administrative offset (which includes a USDA internal administrative 
offset) to collect the debt 30 calendar days after the date of the 
Notice, the name of the Federal agency or USDA agency from which the 
creditor agency wishes to collect in the case of a non-centralized 
offset, the intent to refer the debt to Treasury for collection through 
centralized offset (including possible offset of tax refunds) 60 
calendar days after the date of the Notice if the debt is not satisfied 
by offset within USDA or by agreement with another Federal agency, and 
an explanation of the debtor's rights under 31 U.S.C. 3716; and
    (2) Give the debtor the opportunity:
    (i) To inspect and copy agency records related to the debt;
    (ii) For a review within the agency of the determination of 
indebtedness in accordance with subpart F of this part; and
    (iii) To make a written agreement to repay the debt.
    (b) The procedures set forth in paragraph (a) of this section are 
not required when:
    (1) The offset is in the nature of a recoupment;
    (2) The debt arises under a contract subject to the Contracts 
Disputes Act;
    (3) The agency first learns of the existence of the amount owed by 
the debtor when there is insufficient time before payment would be made 
to the debtor/payee to allow for prior notice and an opportunity for 
review. When prior notice and an opportunity for review are omitted, 
the agency shall give the debtor such notice and an opportunity for 
review as soon as practicable and shall promptly refund any money 
ultimately found not to have been owed to the Government; or
    (4) The agency previously has given a debtor any of the notice and 
review opportunities required under this part, with respect to a 
particular debt (see, e.g., Sec.  3.11).
    (c) The Notice of Intent to Collect by Administrative Offset should 
be included as part of a demand letter issued under Sec.  3.11 to 
advise the debtor of all debt collection possibilities that the agency 
will seek to employ.


Sec.  3.42  Debtor rights to inspect or copy records, submit repayment 
proposals, or request administrative review.

    (a) A debtor who intends to inspect or copy agency or USDA records 
with respect to the debt must notify the creditor agency in writing 
within 20 calendar days of receipt of the Notice of Intent to Collect 
by Administrative Offset by the debtor. In response, the agency must 
notify the debtor of the location, time, and any other conditions, 
consistent with part 1, subpart A of this title, for inspecting and 
copying, and that the debtor may be liable for reasonable copying 
expenses.
    (b) The debtor may, in response to the Notice of Intent to Collect 
by Administrative Offset, propose to the creditor agency a written 
agreement to repay the debt as an alternative to administrative offset. 
Any debtor who wishes to do this must submit a written proposal for 
repayment of the debt, which must be received by the creditor agency 
within 20 calendar days of the date the notice was received by the 
debtor. In response, the creditor agency must notify the debtor in 
writing whether the proposed agreement is acceptable. In exercising its 
discretion, the creditor agency must balance the Government's interest 
in collecting the debt against fairness to the debtor.
    (c) A debtor must request an administrative review of the debt 
under subpart F of this part within 30 days for purposes of a proposed 
collection by non-centralized administrative offset and within 60 days 
for purposes of a proposed collection by referral to Treasury for 
offset against other Federal payments that would include tax refunds.


Sec.  3.43  Non-centralized administrative offset.

    (a) Scope. In cooperation with the Federal agency certifying or 
authorizing payments to the debtor, a creditor agency may make a 
request directly to a payment authorizing agency to offset a payment 
due a debtor to collect a delinquent debt, from for example, a Federal 
employee's lump sum payment upon leaving Government service in order to 
pay an unpaid advance. Also, non-centralized offsets include USDA 
internal administrative offsets, for example, of CCC payments to pay 
FSA delinquent debts. Unless prohibited by law, when centralized 
administrative offset is not available or appropriate, past due, 
legally enforceable nontax delinquent debts may be collected through 
non-centralized administrative offset.
    (b) Effectuation of offset. A non-centralized offset may be 
effected 31 days after the debtor receives a Notice of Intent to 
Collect by Administrative Offset, any time after the final 
determination in an administrative review conducted under subpart F of 
this part upholds the creditor agency's decision to offset, or any time 
after the creditor agency notifies the debtor that its repayment 
proposal submitted under Sec.  3.42(c) is not acceptable if the 30-day 
period for the debtor to seek review of the Notice has expired, unless 
the creditor agency makes a determination under Sec.  3.41(b)(3) that 
immediate action to effectuate the offset is necessary.
    (c) Certification. A payment authorizing agency may conduct a non-
centralized administrative offset only after certification by a 
creditor agency that:
    (1) The debtor has been provided notice and opportunity for review 
as set forth in Sec.  3.41; and
    (2) The payment authorizing agency has received written 
certification from the creditor agency that the debtor owes the past 
due, legally enforceable delinquent debt in the amount stated, and that 
the creditor agency has fully complied with its regulations concerning 
administrative offset.
    (d) Responsibilities of payment authorizing agencies. Payment 
authorizing agencies shall comply with offset requests by creditor 
agencies to collect debts owed to the United States, unless the offset 
would not be in the best interests of the United States with respect to 
the program of the payment authorizing agency, or would otherwise be 
contrary to law. Appropriate use should be made of the cooperative 
efforts of other agencies in effecting collection by administrative 
offset.
    (e) Application of recovered amounts to satisfaction of debts. When 
collecting multiple debts by non-centralized administrative offset, 
agencies should apply the recovered amounts to those debts in 
accordance with the best interests of the United States, as determined 
by the facts and circumstances of the particular case, particularly the 
applicable statute of limitations.


Sec.  3.44  Centralized administrative offset.

    (a) Mandatory referral. After the notice and review opportunity 
requirements of Sec.  3.41 are met, an agency shall refer debts which 
are over 180 days delinquent to Treasury for collection through 
centralized offset 60 days after the agency has provided the

[[Page 32427]]

notice and opportunity for review required under Sec.  3.41. If the 
debtor seeks review under subpart F of this part, referral of the debt 
must occur within 30 days of the final decision upholding the agency 
decision to offset the debt if the debt is more than 180 days 
delinquent.
    (b) Discretionary referral. After the notice and review opportunity 
requirements of Sec.  3.41 are met, and administrative review under 
subpart F is not sought or is unsuccessful on the part of the debtor, 
an agency may refer a debt that is less than 180 days delinquent.
    (c) Procedures for referral. Agencies shall refer debts to Treasury 
for collection in accordance with Treasury procedures set forth in 31 
CFR 285.5.
    (d) Payment authorizing agency responsibilities.
    (1) The names and taxpayer identifying numbers (TINs) of debtors 
who owe debts referred to Treasury under this section shall be compared 
to the names and TINs on payments to be made by Federal disbursing 
officials. Federal disbursing officials include disbursing officials of 
Treasury, the Department of Defense, the United States Postal Service, 
other Government corporations, and disbursing officials of the United 
States designated by Treasury. When the name and TIN of a debtor match 
the name and TIN of a payee and all other requirements for offset have 
been met, the payment authorizing agency must offset a payment to 
satisfy the debt.
    (2) Any USDA official serving as a Federal disbursing official for 
purposes of effecting centralized offset under this section must notify 
a debtor/payee in writing that an offset has occurred to satisfy, in 
part or in full, a past due, legally enforceable delinquent debt. The 
notice shall include a description of the type and amount of the 
payment from which the offset was taken, the amount of offset that was 
taken, the identity of the creditor agency requesting the offset, and a 
contact point within the creditor agency who will respond to questions 
regarding the offset.


Sec.  3.45  USDA payment authorizing agency offset of pro rata share of 
payments due entity in which debtor participates.

    (a) A USDA payment authorizing agency, to satisfy either a non-
centralized or centralized offset under Sec. Sec.  3.43 and 3.44, may 
offset:
    (1) A debtor's pro rata share of USDA payments due any entity in 
which the debtor participates, either directly or indirectly, as 
determined by the creditor agency or the payment authorizing agency; or
    (2) USDA payments due any entity that the debtor has established, 
or reorganized, transferred ownership of, or changed in some other 
manner the operation of, for the purpose of avoiding payment on the 
claim or debt, as determined by the creditor agency or the payment 
authorizing agency.
    (b) Prior to exercising the authority of this section to offset any 
portion of a payment due an entity, the creditor agency must have 
provided notice to that entity in accordance with Sec.  3.41 of its 
intent to offset payments to the entity in satisfaction of the debt of 
an individual debtor participating in that entity.


Sec.  3.46  Offset against tax refunds.

    USDA will take action to effect administrative offset against tax 
refunds due to debtors under 26 U.S.C. 6402 in accordance with the 
provisions of 31 U.S.C. 3720A through referral for centralized offset 
under Sec.  3.44.


Sec.  3.47  Offset against amounts payable from Civil Service 
Retirement and Disability Fund.

    Upon providing the Office of Personnel Management (OPM) written 
certification that a debtor has been afforded the procedures provided 
in Sec.  3.41, creditor agencies may request OPM to offset a debtor's 
anticipated or future benefit payments under the Civil Service 
Retirement and Disability Fund (Fund) in accordance with regulations 
codified at 5 CFR 831.1801 to 831.1808. Upon receipt of such a request, 
OPM will identify and ``flag'' a debtor's account in anticipation of 
the time when the debtor requests, or becomes eligible to receive, 
payments from the Fund. This will satisfy any requirement that offset 
be initiated prior to the expiration of the time limitations referenced 
in Sec.  3.40(e).

Subpart E--Administrative Wage Garnishment


Sec.  3.50  Purpose.

    This subpart provides USDA procedures for use of administrative 
wage garnishment to garnish a debtor's disposable pay to satisfy 
delinquent nontax debt owed to USDA creditor agencies.


Sec.  3.51  Scope.

    (a) This subpart applies to any agency that administers a program 
that gives rise to a delinquent nontax debt owed to the United States 
and to any agency that pursues recovery of such debt.
    (b) This subpart shall apply notwithstanding any provision of State 
law.
    (c) Nothing in this subpart precludes the compromise of a debt or 
the suspension or termination of collection action in accordance with 
the provisions of this part or other applicable law.
    (d) The receipt of payments pursuant to this subpart does not 
preclude an agency from pursuing other debt collection remedies under 
this part. An agency may pursue such debt collection remedies 
separately or in conjunction with administrative wage garnishment.
    (e) This subpart does not apply to the collection of delinquent 
nontax debt owed to the United States from the wages of Federal 
employees from their Federal employment. Federal pay is subject to the 
salary offset procedures of subpart G of this part.
    (f) Nothing in this subpart requires agencies to duplicate notices 
or administrative proceedings required by contract or other laws or 
regulations, or other provisions of this part.


Sec.  3.52  Definitions.

    As used in this subpart the following definitions shall apply:
    (a) Disposable pay means that part of the debtor's compensation 
(including, but not limited to, salary, bonuses, commissions, and 
vacation pay) from an employer remaining after the deduction of health 
insurance premiums and any amounts required by law to be withheld. For 
purposes of this section, ``amounts required by law to be withheld'' 
include amounts for deductions such as social security taxes and 
withholding taxes, but do not include any amount withheld pursuant to a 
court order.
    (b) Employer means a person or entity that employs the services of 
others and that pays their wages or salaries. The term employer 
includes, but is not limited to, State and local Governments, but does 
not include an agency of the Federal Government.
    (c) Garnishment means the process of withholding amounts from an 
employee's disposable pay and the paying of those amounts to a creditor 
in satisfaction of a withholding order.
    (d) Withholding order means any order for withholding or 
garnishment of pay issued by an agency, or judicial or administrative 
body. For purposes of this section, the terms ``wage garnishment 
order'' and ``garnishment order'' have the same meaning as 
``withholding order.''


Sec.  3.53  Procedures.

    (a) USDA has determined to pursue administrative wage garnishment 
of USDA debtors by referral of nontax legally enforceable debts to 
Treasury for

[[Page 32428]]

issuance of garnishment orders by Treasury or its contractors.
    (b) In the demand letter issued under Sec.  3.11, agencies must 
notify debtors of their intent to refer to pursue garnishment of their 
disposable pay through referral of the debt to Treasury for issuance of 
an administrative wage garnishment order and provide debtors with the 
opportunity for review of the existence of the debt under subpart F of 
this part within 60 days.
    (c) Upon expiration of the 60-day period for review, or upon 
completion of a review under subpart F that upholds the agency's 
determination of the debt, USDA will transfer the debt for collection 
through administrative wage garnishment as well as other means through 
cross-servicing or centralized offset.
    (d) If Treasury elects to pursue collection through administrative 
wage garnishment, Treasury, or its contractor, will notify the debtor 
of its intent to initiate garnishment proceedings and provide the 
debtor with the opportunity to inspect and copy agency records related 
to the debt, enter into a repayment agreement, or request a hearing as 
to the existence or amount of the debt or the terms of the proposed 
repayment schedule under the proposed garnishment order, in accordance 
with 31 CFR 285.11.
    (e) If the debtor requests a hearing at any time, Treasury will 
forward the request to the USDA creditor agency to which the debt is 
owed, and the creditor agency will contact OCFO for selection of a 
hearing official. The issuance of proposed garnishment orders by 
Treasury shall not be subject to appeal to the National Appeals 
Division. Hearings will be conducted in accordance with 31 CFR 
285.11(f).
    (f) OCFO shall provide a copy of the hearing official's final 
decision to Treasury for implementation with respect to the subject 
garnishment order.

Subpart F--Administrative reviews for administrative offset, 
administrative wage garnishment, and disclosed to credit reporting 
agencies.


Sec.  3.60  Applicability.

    (a) This section establishes consolidated administrative review 
procedures for debts subject to administrative offset, administrative 
wage garnishment, and disclosure to credit reporting agencies, under 
subparts D and E of this part. A hearing or review under this section 
shall satisfy the required opportunity for administrative review by the 
agency of the determination of a debt for both administrative offset 
and administrative wage garnishment that is required before transfer to 
Treasury for collection or collection by the agency through non-
centralized offset.
    (b) For debt collection proceedings initiated by FSA, CCC, the 
Rural Housing Service, the Rural Business-Cooperative Service, the Risk 
Management Agency, the Federal Crop Insurance Corporation, the Natural 
Resources Conservation Service, Rural Development, and the Rural 
Utilities Service (but not for programs authorized by the Rural 
Electrification Act of 1936 or the Rural Telephone Bank Act, 7 U.S.C. 
901 et seq.), unless otherwise specified, any administrative review 
will be conducted by the National Appeals Division in accordance with 7 
CFR part 11 and not the procedures of this subpart.


Sec.  3.61  Presiding employee.

    An agency reviewing officer may be an agency employee or the agency 
may provide for reviews to be done by another agency through an 
interagency agreement. No agency employee may act as a reviewing 
officer for the consideration of collection by administrative offset in 
a matter for which the employee was a contracting officer or a debt 
management officer.


Sec.  3.62  Procedures.

    (a) A debtor who receives a Notice of Intent to Collect by 
Administrative Offset, Notice of Disclosure to Credit Reporting 
Agencies, or Notice of Intent to Collect by Administrative Wage 
Garnishment, or more than one of these notices simultaneously, may 
request administrative review of the agency's determination that the 
debt exists and the amount of the debt. Any debtor who wishes to do 
this must submit a written explanation of why the debtor disagrees and 
seeks review. The request must be received by the creditor agency 
within 30 calendar days of the date the notice was delivered to the 
debtor.
    (b) In response, the creditor agency must notify the debtor in 
writing whether the review will be by documentary review or by hearing. 
An oral hearing is not necessary with respect to debt collection 
systems in which a determination of indebtedness rarely involves issues 
of credibility or veracity and the agency has determined that review of 
the written record is ordinarily an adequate means to correct prior 
mistakes. The agency shall provide the debtor with a reasonable 
opportunity for an oral hearing when the debtor requests 
reconsideration of the debt and the agency determines that the question 
of the indebtedness cannot be resolved by review of the documentary 
evidence, for example, when the validity of the debt turns on an issue 
of credibility or veracity. If the debtor requests a hearing, and the 
creditor agency decides to conduct a documentary review, the agency 
must notify the debtor of the reason why a hearing will not be granted. 
The agency must also advise the debtor of the procedures to be used in 
reviewing the documentary record, or of the date, location and 
procedures to be used if review is by a hearing.
    (c) An oral hearing may, at the debtor's option, be conducted 
either in-person or by telephone conference. All travel expenses 
incurred by the debtor in connection with an in-person hearing will be 
borne by the debtor. All telephonic charges incurred during the hearing 
will be the responsibility of the agency.
    (d) After the debtor requests a hearing, the hearing official shall 
notify the debtor of:
    (1) The date and time of a telephonic hearing;
    (2) The date, time, and location of an in-person oral hearing; or
    (3) The deadline for the submission of evidence for a documentary 
review.
    (e) Unless otherwise arranged by mutual agreement between the 
debtor and the agency, evidenced in writing, any documentary review or 
hearing will be conducted not less than 10 calendar days and no more 
than 45 calendar days after receipt of the request for review.
    (f) Unless otherwise arranged by mutual agreement between the 
debtor and the agency, evidenced in writing, a documentary review or 
hearing will be based on agency records plus other relevant documentary 
evidence which may be submitted by the debtor within 10 calendar days 
after the request for review is received.
    (g)(1) Hearings will be as informal as possible, and will be 
conducted by a reviewing officer in a fair and expeditious manner. The 
reviewing officer need not use the formal rules of evidence with regard 
to the admissibility of evidence or the use of evidence once admitted. 
However, clearly irrelevant material should not be admitted, whether or 
not any party objects. Any party to the hearing may offer exhibits, 
such as copies of financial records, telephone memoranda, or 
agreements, provided the opposing party is notified at least 5 days 
before the hearing.
    (2) Burden of proof. (i) The agency will have the burden of going 
forward to prove the existence or amount of the debt.
    (ii) Thereafter, if the debtor disputes the existence or amount of 
the debt, the

[[Page 32429]]

debtor must present by a preponderance of the evidence that no debt 
exists or that the amount of the debt is incorrect. In addition, the 
debtor may present evidence that repayment would cause a financial 
hardship to the debtor or that collection of the debt may not be 
pursued due to operation of law.
    (3) Witnesses must testify under oath or affirmation.
    (4) Debtors may represent themselves or may be represented at their 
own expense by an attorney or other person.
    (5) The substance of all significant matters discussed at the 
hearing must be recorded. No official record or transcript of the 
hearing need be created, but if a debtor requested that a transcript be 
made, it will be at the debtor's expense.
    (h) In the absence of good cause shown, a debtor who fails to 
appear at a hearing scheduled pursuant to paragraph (d) of this section 
will be deemed as not having timely filed a request for a hearing.
    (i)(1) Within no more than 30 calendar days after the hearing or 
receipt of documentation for the documentary review, the reviewing 
officer will issue a written decision to the debtor and the agency, 
including the supporting rationale for the decision. The deadline for 
issuance of the decision may be extended by the reviewing officer for 
good cause for no more than 30 calendar days.
    (2) The written decision shall include:
    (i) A summary of the facts presented;
    (ii) The hearing official's findings, analysis and conclusions; and
    (iii) Resolution of any significant procedural matter which was in 
dispute before or during the hearing or documentary review.
    (3) The reviewing officer's decision constitutes final agency 
action for purposes of judicial review under the Administrative 
Procedure Act (5 U.S.C. 701 et seq.) as to the following issues:
    (i) All issues of fact relating to the basis of the debt (including 
the existence of the debt and the propriety of administrative offset), 
in cases where the debtor previously had not been afforded due process; 
and
    (ii) The existence of the debt and the propriety of administrative 
offset, in cases where the debtor previously had been afforded due 
process as to issues of fact relating to the basis of the debt.
    (j) The reviewing officer will promptly distribute copies of the 
decision to the USDA Chief Financial Officer (CFO), the USDA agency 
CFO's, the agency debt management officer, the debtor, and the debtor's 
representative, if any.

Subpart G--Federal Salary Offset

    Authority: 5 U.S.C. 5514; 5 CFR part 550, subpart K.


Sec.  3.70  Scope of this subpart.

    (a) The provisions of this subpart set forth USDA procedures for 
the collection of a Federal employee's pay by salary offset to satisfy 
certain valid and past due debts owed the government.
    (b) These regulations apply to:
    (1) Current USDA employees and other agencies who owe debts to 
USDA; and
    (2) Current USDA employees who owe debts to other agencies.
    (c) These regulations do not apply to debts owed by Farm Service 
Agency county executive directors or county office employees. Salaries 
of those employees are subject to administrative offset as provided in 
7 CFR part 792 or part 1403.
    (d) These regulations do not apply to debts or claims arising under 
the Internal Revenue Code of 1954 (26 U.S.C. 1 et seq.); the tariff 
laws of the United States; or to any case where collection of a debt by 
salary offset is explicitly provided for or prohibited by another 
statute (e.g. travel advances in 5 U.S.C. 5705 or employee training 
expense in 5 U.S.C. 4108).
    (e) These regulations identify the types of salary offset available 
to USDA, as well as certain rights provided to the employee, which 
include a written notice before deductions begin, the opportunity to 
petition for a hearing and to receive a written decision if a hearing 
is granted. The rights provided by this section do not extend to:
    (1) Any adjustment to pay arising out of an employee's election of 
coverage or a change in coverage under a Federal benefits program 
requiring periodic deductions from pay, if the amount to be recovered 
was accumulated over 4 pay periods or less;
    (2) A routine intra-agency adjustment of pay that is made to 
correct an overpayment of pay attributable to clerical or 
administrative errors or delays in processing pay documents, if the 
overpayment occurred within the 4 pay periods preceding the adjustment 
and, at the time of such adjustment, or as soon thereafter as 
practical, the individual is provided written notice of the nature and 
the amount of the adjustment and point of contact for contesting such 
adjustment; or
    (3) Any adjustment to collect a debt amounting to $50 or less, if, 
at the time of such adjustment, or as soon thereafter as practical, the 
individual is provided written notice of the nature and the amount of 
the adjustment and a point of contact for contesting such adjustment.
    (f) These regulations do not preclude an employee from:
    (1) Requesting waiver of an erroneous overpayment under 5 U.S.C. 
5584, 10 U.S.C. 2774, or 32 U.S.C. 716;
    (2) Requesting waiver of any other type of debt, if waiver is 
available by statute; or
    (3) Questioning the amount or validity of a debt, in the manner 
prescribed by this part.
    (g) Nothing in these regulations precludes the compromise, 
suspension or termination of collection actions where appropriate under 
USDA regulations contained elsewhere.


Sec.  3.71  Definitions.

    As used in this subpart the following definitions shall apply:
    (a) Agency means an executive department or agency; a military 
department; the United States Postal Service; the Postal Rate 
Commission; the United States Senate; the United States House of 
Representatives; any court, court administrative office, or 
instrumentality in the judicial or legislative branches of the 
Government; or a Government corporation.
    (b) Debt means:
    (1) An amount owed to the United States from sources which include, 
but are not limited to, insured or guaranteed loans, fees, leases, 
rents, royalties, services, sales of real or personal property, 
overpayments, penalties, damages, interest, fines and forfeitures 
(except those arising under the Uniform Code of Military Justice).
    (2) An amount owed to the United States by an employee for 
pecuniary losses where the employee has been determined to be liable 
due to his or her negligent, willful, unauthorized or illegal acts, 
including but not limited to:
    (i) Theft, misuse, or loss of Government funds;
    (ii) False claims for services and travel;
    (iii) Illegal, unauthorized obligations and expenditures of 
Government appropriations;
    (iv) Using or authorizing the use of Government owned or leased 
equipment, facilities, supplies, and services for other than official 
or approved purposes;
    (v) Lost, stolen, damaged, or destroyed Government property;
    (vi) Erroneous entries on accounting records or reports; and
    (vii) Deliberate failure to provide physical security and control 
procedures for accountable officers, if such failure is determined to 
be the approximate cause for a loss of Government funds.

[[Page 32430]]

    (c) Disposable pay means that part of current basic pay, special 
pay, incentive pay, retired pay, retainer pay, or in the case of an 
employee not entitled to basic pay, other authorized pay remaining 
after the deduction of any amount required by law to be withheld (other 
than deductions to execute garnishment orders in accordance with 5 CFR 
parts 581 and 582). Among the legally required deductions that must be 
applied first to determine disposable pay are levies pursuant to the 
Internal Revenue Code (title 26, United States Code) and deductions 
described in 5 CFR 581.105(b) through (f).
    (d) Employee means a current employee of an agency, including a 
current member of the Armed Forces or a Reserve of the Armed Forces, 
but does not include a Farm Service Agency county executive director or 
county office employee.
    (e) Hearing official means a USDA administrative law judge or some 
other individual not under the control of the Secretary.
    (f) Salary offset means a reduction of a debt by offset(s) from the 
disposable pay of an employee without his or her consent.
    (g) Waiver means the cancellation, remission, forgiveness, or non-
recovery of a debt owed by an employee to an agency as permitted or 
required by 5 U.S.C. 5584, 10 U.S.C. 2774, or 32 U.S.C. 716, 5 U.S.C. 
8346(b) or any other law.


Sec.  3.72  Coordinating offset with another Federal agency.

    (a) When USDA is owed the debt. When USDA is owed a debt by an 
employee of another agency, the other agency shall not initiate the 
requested offset until USDA provides the agency with a written 
certification that the debtor owes USDA a debt (including the amount 
and basis of the debt and the due date of the payment) and that USDA 
has complied with this subpart.
    (b) When another agency is owed the debt. USDA may use salary 
offset against one of its employees who is indebted to another agency, 
if requested to do so by that agency. Such a request must be 
accompanied by a certification by the requesting agency that the person 
owes the debt (including the amount and basis of the debt and the due 
date of the payment) and that the agency has complied with its 
regulations required by 5 U.S.C. 5514 and 5 CFR part 550, subpart K.
    (c) Mandatory centralized offset. Debts may be referred to Treasury 
under Sec.  3.44 for collection through salary offset in accordance 
with 31 CFR 285.7.


Sec.  3.73  Determination of indebtedness.

    (a) In determining that an employee is indebted to USDA and that 31 
CFR parts 900 through 904 have been satisfied and that salary offset is 
appropriate, USDA will review the debt to make sure that it is valid 
and past due.
    (b) If USDA determines that any of the requirements of paragraph 
(a) of this section have not been met, no determination of indebtedness 
shall be made and salary offset will not proceed until USDA is assured 
that the requirements have been met.


Sec.  3.74  Notice requirements before offset.

    Except as provided in paragraph (b) of this section, salary offset 
will not be made unless USDA first provides the employee with a minimum 
of 30 calendar days written notice. This Notice of Intent to Offset 
Salary (Notice of Intent) will state:
    (a) That USDA has reviewed the records relating to the debt and has 
determined that a debt is owed, the amount of the debt, and the facts 
giving rise to the debt;
    (b) USDA's intention to collect the debt by means of deduction from 
the employee's current disposable pay until the debt and all 
accumulated interest are paid in full;
    (c) The approximate beginning date, frequency, and amount of the 
intended deduction (stated as a fixed dollar amount or as a percentage 
of pay, not to exceed 15 percent of disposable pay) and; and the 
intention to continue the deductions until the debt is paid in full or 
otherwise resolved;
    (d) An explanation of USDA requirements concerning interest, 
penalties and administrative costs; unless such payments are waived in 
accordance with 31 U.S.C. 3717 and Sec.  3.17;
    (e) The employee's right to inspect and copy USDA records relating 
to the debt;
    (f) The employee's right to enter into a written agreement with 
USDA for a repayment schedule differing from that proposed by USDA, so 
long as the terms of the repayment schedule proposed by the employee 
are agreeable to USDA;
    (g) The right to a hearing conducted by a hearing official on 
USDA's determination of the debt, the amount of the debt, or percentage 
of disposable pay to be deducted each pay period, so long as a petition 
is filed by the employee as prescribed by USDA;
    (h) That the timely filing of a petition for hearing will stay the 
collection proceedings;
    (i) That a final decision on the hearing will be issued at the 
earliest practical date, but not later than 60 calendar days after the 
filing of the petition requesting the hearing, unless the employee 
requests, and the hearing officer grants, a delay in the proceedings;
    (j) That any knowingly false or frivolous statements, 
representations, or evidence may subject the employee to:
    (1) Disciplinary procedures appropriate under 5 U.S.C. chapter 75, 
5 CFR part 752, or any other applicable statutes or regulations;
    (2) Penalties under the False Claims Act, 31 U.S.C. 3729-3731, or 
any other applicable statutory authority; or
    (3) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002 or 
any other applicable statutory authority;
    (k) Any other rights and remedies available to the employee under 
statutes or regulations governing the program for which the collection 
is being made;
    (l) That amounts paid on or deducted for the debt which are later 
waived or found not owed to the United States will be promptly refunded 
to the employee, unless there are applicable contractual or statutory 
provisions to the contrary;
    (m) The method and time period for requesting a hearing; and
    (n) The name and address of an official of USDA to whom 
communications should be directed.


Sec.  3.75  Request for a hearing.

    (a) Except as provided in paragraph (c) of this section, an 
employee must file a petition for a hearing, that is received by USDA 
not later than 30 calendar days from the date of the USDA notice 
described in Sec.  3.74, if an employee wants a hearing concerning:
    (1) The existence or amount of the debt; or
    (2) USDA's proposed offset schedule (including percentage).
    (b) The petition must be signed by the employee and should identify 
and explain with reasonable specificity and brevity the facts, evidence 
and witnesses which the employee believes support his or her position. 
If the employee objects to the percentage of disposable pay to be 
deducted from each check, the petition should state the objection and 
the reasons for it.
    (c) If the employee files a petition for hearing later than the 30 
calendar days as described in paragraph (a) of this section, the 
hearing officer may accept the request if the employee can show that 
the delay was because of circumstances beyond his or her control or 
because of failure to receive notice of the filing deadline (unless the 
employee has actual notice of the filing deadline).

[[Page 32431]]

Sec.  3.76  Result if employee fails to meet deadlines.

    An employee will not be granted a hearing and will have his or her 
disposable pay offset in accordance with USDA's offset schedule if the 
employee:
    (a) Fails to file a petition for a hearing as prescribed in Sec.  
3.75; or
    (b) Is scheduled to appear and fails to appear at the hearing.


Sec.  3.77  Hearings.

    (a) If an employee timely files a petition for a hearing under 
Sec.  3.75, USDA shall select the time, date, and location for the 
hearing.
    (b)(1) Hearings shall be conducted by hearing official designated 
in accordance with 5 CFR 550.1107; and
    (2) Rules of evidence shall not be adhered to, but the hearing 
official shall consider all evidence that he or she determines to be 
relevant to the debt that is the subject of the hearing and weigh it 
accordingly, given all of the facts and circumstances surrounding the 
debt.
    (c) USDA will have the burden of going forward to prove the 
existence of the debt.
    (d) The employee requesting the hearing shall bear the ultimate 
burden of proof.
    (e) The evidence presented by the employee must prove that no debt 
exists or cast sufficient doubt such that reasonable minds could differ 
as to the existence of the debt.


Sec.  3.78  Written decision following a hearing.

    Written decisions provided after a hearing will include:
    (a) A statement of the facts presented at the hearing to support 
the nature and origin of the alleged debt and those presented to refute 
the debt;
    (b) The hearing officer's analysis, findings and conclusions, 
considering all of the evidence presented and the respective burdens of 
the parties, in light of the hearing;
    (c) The amount and validity of the alleged debt determined as a 
result of the hearing; and
    (d) The payment schedule (including percentage of disposable pay), 
if applicable.
    (e) The determination of the amount of the debt at this hearing is 
the final agency action on this matter regarding the existence and 
amount of the debt for purposes of executing salary offset under 5 
U.S.C. 5514. However, even if the hearing official determines that a 
debt may not be collected by salary offset, but the creditor agency 
finds that the debt is still valid, the creditor agency may still seek 
collection of the debt by other means authorized by this part.
    (f) A final determination by the hearing official, regarding the 
existence and amount of a debt is subject to referral to Treasury under 
Sec.  3.33 in the same manner as any other delinquent debt.


Sec.  3.79  Review of USDA records related to the debt.

    (a) Notification by employee. An employee who intends to inspect or 
copy USDA records related to the debt must send a letter to USDA 
stating his or her intention. The letter must be received by USDA 
within 30 calendar days of the date of the Notice of Intent.
    (b) USDA response. In response to the timely notice submitted by 
the debtor as described in paragraph (a) of this section, USDA will 
notify the employee of the location and time when the employee may 
inspect and copy USDA records related to the debt.


Sec.  3.80  Written agreement to repay debts as alternative to salary 
offset.

    (a) Notification by employee. The employee may propose, in response 
to a Notice of Intent, a written agreement to repay the debt as an 
alternative to salary offset. Any employee who wishes to do this must 
submit a proposed written agreement to repay the debt that is received 
by USDA within 30 calendar days of the date of the Notice of Intent.
    (b) USDA response. USDA will notify the employee whether the 
employee's proposed written agreement for repayment is acceptable. USDA 
may accept a repayment agreement instead of proceeding by offset. In 
making this determination, USDA will balance the USDA interest in 
collecting the debt against hardship to the employee. If the debt is 
delinquent and the employee has not disputed its existence or amount, 
USDA will accept a repayment agreement, instead of offset, for good 
cause such as, if the employee is able to establish that offset would 
result in undue financial hardship or would be against equity and good 
conscience.


Sec.  3.81  Procedures for salary offset: When deductions may begin.

    (a) Deductions to liquidate an employee's debt will be by the 
method and in the amount stated in USDA's Notice of Intent to collect 
from the employee's current pay.
    (b) If the employee filed a petition for a hearing with USDA before 
the expiration of the period provided for in Sec.  3.75, then 
deductions will begin after the hearing officer has provided the 
employee with a hearing, and a final written decision has been rendered 
in favor of USDA.
    (c) If an employee retires or resigns before collection of the 
amount of the indebtedness is completed, the remaining indebtedness 
will be collected according to the procedures for administrative offset 
(see subpart D of this part).


Sec.  3.82  Procedures for salary offset: Types of collections.

    A debt will be collected in a lump-sum or in installments. 
Collection will be by lump-sum collection unless the employee is 
financially unable to pay in one lump-sum, or if the amount of the debt 
exceeds 15 percent of disposable pay for an ordinary pay period. In 
these cases, deduction will be by installments, as set forth in Sec.  
3.83.


Sec.  3.83  Procedures for salary offset: Methods of collections.

    (a) General. A debt will be collected by deductions at officially-
established pay intervals from an employee's current pay account, 
unless the employee and USDA agree to alternative arrangements for 
repayment under Sec.  3.80.
    (b) Installment deductions. Installment deductions will be made 
over a period not greater than the anticipated period of employment. 
The size and frequency of installment deductions will bear a reasonable 
relation to the size of the debt and the employee's ability to pay. 
However, the amount deducted for any period will not exceed 15 percent 
of the disposable pay from which the deduction is made, unless the 
employee has agreed in writing to the deduction of a greater amount. If 
possible, the installment payment will be sufficient in size and 
frequency to liquidate the debt in no more than three years. 
Installment payments of less than $25 per pay period or $50 a month 
will be accepted only in the most unusual circumstances.
    (c) Sources of deductions. USDA will make deductions only from 
basic pay, special pay, incentive pay, retired pay, retainer pay, or in 
the case of an employee not entitled to basic pay, other authorized 
pay.


Sec.  3.84  Procedures for salary offset: Imposition of interest, 
penalties and administrative costs.

    Interest, penalties and administrative costs will be charged in 
accordance with Sec.  3.17.


Sec.  3.85  Non-waiver of rights.

    So long as there are no statutory or contractual provisions to the 
contrary, no employee payment (or all or portion of a debt) collected 
under this subpart will be interpreted as a waiver of any

[[Page 32432]]

rights that the employee may have under 5 U.S.C. 5514.


Sec.  3.86  Refunds.

    USDA will refund promptly to the appropriate individual amounts 
offset under this subpart when:
    (a) A debt is waived or otherwise found not owing the United States 
(unless expressly prohibited by statute or regulation); or
    (b) USDA is directed by an administrative or judicial order to 
refund deducted from the employee's current pay.


Sec.  3.87  Agency regulations.

    USDA agencies may issue regulations or policies not inconsistent 
with Office of Personnel Management regulations (5 CFR part 550, 
subpart K) and regulations in this subpart governing the collection of 
a debt by salary offset.

Subpart H--Cooperation with the Internal Revenue Service.

    Authority: 26 U.S.C. 61; 31 U.S.C. 3720A; I TFRM 4055.50.


Sec.  3.90  Reporting discharged debts to the Internal Revenue Service.

    When USDA discharges a debt for less than the full value of the 
indebtedness, it will report the discharge to the Internal Revenue 
Service (IRS) in accordance with current IRS instructions.

    Signed in Washington, DC, on May 14, 2003.
Ann M. Veneman,
Secretary of Agriculture.
[FR Doc. 03-13245 Filed 5-29-03; 8:45 am]
BILLING CODE 3410-KS-P