[Federal Register Volume 71, Number 243 (Tuesday, December 19, 2006)]
[Rules and Regulations]
[Pages 75851-75854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9763]



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 Rules and Regulations
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  Federal Register / Vol. 71, No. 243 / Tuesday, December 19, 2006 / 
Rules and Regulations  

[[Page 75851]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1951


Servicing and Collections--Unauthorized Recipients of Financial 
Assistance

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

ACTION: Final rule.

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

SUMMARY: This action amends the servicing regulations that apply when 
it is determined that unauthorized recipients have received financial 
assistance under USDA Business, Cooperative, and Community Facility 
loan and grant programs. The changes make clear that the first demand 
letter notifying the recipient of the Agency's determination serves as 
the initial step in the Agency's collection efforts, and that it may 
serve as the basis for the recipient's appeal rights. The terms of the 
first demand letter remain in full force and effect, unless the demand 
letter is subsequently amended in writing by the Agency after 
discussions with the recipient or modified as a result of judicial 
proceedings.

DATES: Effective Date: This rule is effective on December 19, 2006.

FOR FURTHER INFORMATION CONTACT: Bill Hagy, Deputy Administrator, Rural 
Development Business Programs, USDA, Stop 3220, Room 5811, 1400 
Independence Ave., SW., Washington, DC 20250, telephone (202) 720-7287, 
or internet e-mail ``[email protected]''.

SUPPLEMENTARY INFORMATION:

Classification

    This action is not subject to the provisions of Executive Order 
12866 because it pertains to internal Agency management only. 
Accordingly, public notice and comment are not warranted, and this 
action is published as a final rule rather than as a proposed 
rulemaking.

Programs Affected

    The Catalog of Federal Domestic Assistance Program numbers assigned 
to these programs are: 10.352 Value-Added Producer Grants, 10.353 
National Rural Development Partnership, 10.767 Intermediary Relending 
Program, 10.768, Business and Industrial Loans, 10.769 Rural Business 
Enterprise Grants, 10.771 Rural Cooperative Development Grants, 10.772 
Empowerment Zones Program, 10.773 Rural Business Opportunity Grants, 
10.775 Renewable Energy Systems and Energy Efficiency Improvements 
Program, 10.776 Agriculture Innovation Centers, 10.854 Rural Economic 
Development Loans and Grants, and 10.766 Community Facilities Loans and 
Grants,

Paperwork Reduction Act

    This rule is not subject to the Paperwork Reduction Act.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
Subpart G, Environmental Program. It is the determination of the Rural 
Business and Cooperative Services that this action does not constitute 
a major Federal action significantly affecting the environment. 
Therefore, in accordance with the National Environmental Policy Act of 
1969, an Environmental Impact Statement is not required.

Executive Order 12988

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

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. Under section 202 of the UMRA, USDA must prepare a 
written statement, including a cost benefit analysis, for proposed and 
final rules with ``Federal mandates'' that may result in expenditures 
to State, local or tribal governments, in the aggregate, or to the 
private sector, of $100 million or more in any one year. When such a 
statement is needed for a rule, section 205 of UMRA generally requires 
USDA to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, more cost effective, or least 
burdensome alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, and tribal 
governments or the private sector. Therefore, this rule is not subject 
to the requirements of sections 202 and 205 of UMRA.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the undersigned has determined and certified by signature of this 
document that this rule will not have a significant economic impact on 
a substantial number of small entities. The Regulatory Flexibility Act 
is intended to encourage Federal agencies to utilize innovative 
administrative procedures in dealing with individuals, small 
businesses, small organizations, and small governmental bodies that 
would otherwise be unnecessarily adversely affected by Federal 
regulations. No regulatory flexibility analysis under the Regulatory 
Flexibility Act is necessary.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, the relationship between the national 
government and the States, or the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule

[[Page 75852]]

impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Discussion

    This rule revises the servicing regulations that apply when it has 
been determined that an unauthorized recipient has received financial 
assistance under the USDA Rural Development Business and Industry 
Direct Loan program, all other applicable grant and loan programs, and 
the USDA Rural Development Community Facilities Loan and Grant 
programs. Those parts of the Code of Federal Regulations that relate 
solely to internal Agency processes are removed, and procedures that 
apply to Agency notification to the recipient and decisionmaking with 
respect the Agency's determination(s) are clarified to state that an 
account receivable will be established to recover the amounts claimed 
by the Agency.

List of Subjects 7 CFR Part 1951

    Accounting, Account servicing, Credit, Debt, Loan programs--
agriculture, Low and moderate income housing loans--servicing, Rent 
subsidies.

0
Accordingly, chapter VXIII, title 7 of the Code of Federal Regulations, 
is amended as follows:

PART 1951--SERVICING AND COLLECTIONS

0
1. The authority citation for part 1951 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31 
U.S.C. 3716; 42 U.S.C. 1480.

0
2. Subpart O of part 1951 is revised to read as follows:

Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other 
Financial Assistance Was Received--Community and Insured Business 
Programs.

Sec.
1951.701 Purpose.
1951.702 Definitions.
1951.703 Policy.
1951.704-1951.705 [Reserved].
1951.706 Initial determination that unauthorized assistance was 
received.
1951.707 Determination of the amount of unauthorized assistance.
1951.708 Notification to recipient.
1951.709 Decision on servicing actions.
1951.710 [Reserved].
1951.711 Servicing options in lieu of liquidation or legal action to 
collect.
1951.712-1951.716 [Reserved].
1951.717 Exception authority.
1951.718-1951.750 [Reserved].


Sec.  1951.701  Purpose.

    This subpart prescribes the policies and procedures for servicing 
Community and Business Program loans and/or grants made by Rural 
Development when it is determined that the borrower or grantee was not 
eligible for all or part of the financial assistance received in the 
form of a loan, grant, or subsidy granted, or any other direct 
financial assistance. It does not apply to guaranteed loans. Loans sold 
without insurance by Rural Development to the private sector will be 
serviced in the private sector and will not be serviced under this 
subpart. The provisions of this subpart are not applicable to such 
loans. Future changes to this subpart will not be made applicable to 
such loans.


Sec.  1951.702  Definitions.

    As used in this subpart, the following definitions apply:
    Active borrower. A borrower who has an outstanding account in the 
records of the Office of the Deputy Chief Financial Officer (ODCFO), 
including collection-only or an unsatisfied account balance where a 
voluntary conveyance was accepted without release from liability of 
foreclosure did not satisfy the indebtedness.
    Assistance. Finance assistance in the form of a loan, grant, or 
subsidy received.
    Debt instrument. Used as a collective term to include promissory 
note, assumption agreement, grant agreement, or bond.
    False information. Information, known to be incorrect, provided 
with the intent to obtain benefits which would not have been obtainable 
based on correct information.
    Inaccurate information. Incorrect information provided 
inadvertently without intent to obtain benefits fraudulently.
    Inactive borrower. A former borrower whose loan(s) has been paid in 
full or assumed by another party(ies) and who does not have an 
outstanding account in the records of the ODCFO.
    Recipient. ``Recipient'' refers to an individual or entity that 
received a loan, or portion of a loan, an interest subsidy, a grant, or 
a portion of a grant which was unauthorized.
    Rural Development. A mission area within the U.S. Department of 
Agriculture consisting of the Office of the Under Secretary for Rural 
Development, Office of Community Development, Rural Business-
Cooperative Service, Rural Housing Service, and Rural Utilities Service 
and their successors.
    Unauthorized assistance. Any loan, interest subsidy, grant, or 
portion thereof received by a recipient for which there was no 
regulatory authorization or for which the recipient was not eligible. 
Interest subsidy includes subsidy benefits received because a loan was 
closed at a lower interest rate than that to which the recipient was 
entitled, whether the incorrect interest rate was selected erroneously 
by the approval official or the documents were prepared in error.


Sec.  1951.703  Policy.

    When unauthorized assistance has been received, an expeditious 
effort must be made to collect from the recipient the sum which is 
determined to be unauthorized, regardless of amount.


Sec. Sec.  1951.704-1951.705  [Reserved].


Sec.  1951.706  Initial determination that unauthorized assistance was 
received.

    Unauthorized assistance may be identified through audits conducted 
by the USDA Office of Inspector General (OIG), through reviews made by 
Rural Development personnel, or through other means such as information 
provided by a private citizen who documents that unauthorized 
assistance has been received by a recipient of Rural Development 
assistance.


Sec.  1951.707  Determination of the amount of unauthorized assistance.

    (a) Unauthorized loan amount. The unauthorized loan amount will be 
the unauthorized principal plus any interest accruing on the 
unauthorized principal at the note interest rate until the date paid 
unless otherwise agreed in writing by Rural Development.
    (b) Unauthorized grant amount. The unauthorized amount will be the 
unauthorized grant amount actually expended under the grant agreement 
plus interest accrued beginning on the date of the demand letter at the 
interest rate stipulated in the applicable grant agreement, or, if none 
is stated, the default rate established by the U.S. Department of the 
Treasury, until the date paid unless otherwise agreed in writing by 
Rural Development.


Sec.  1951.708  Notification to recipient.

    (a) Upon determination that unauthorized assistance was received, 
Rural Development will send a demand letter to the recipient that:
    (1) Specifies the amount of unauthorized assistance, including any 
accrued interest to be repaid, and the standards for imposing accrued 
interest;
    (2) States the amount of penalties and administrative costs to be 
paid, the

[[Page 75853]]

standards for imposing them, and the date on which they will begin to 
accrue;
    (3) Provides detailed reason(s) why the assistance was determined 
to be unauthorized;
    (4) States the amount is immediately due and payable to Rural 
Development;
    (5) Describes the rights the recipient has for seeking review of 
Rural Development's determination pursuant to 7 CFR part 11;
    (6) Describes the Agency's available remedies regarding enforced 
collection, including referral of debt delinquent more than 180 days 
for Federal salary, benefit, and tax offset under the Department of 
Treasury Offset Program (TOP); and
    (7) Provides an opportunity for the recipient to meet with Rural 
Development to provide facts, figures, written records, or other 
information which might refute Rural Development's determination.
    (b) If the recipient meets with Rural Development, Rural 
Development will outline to the recipient why the assistance was 
determined to be unauthorized. The recipient will be given an 
opportunity to provide information to refute Rural Development's 
findings. When requested by the recipient, Rural Development may grant 
additional time for the recipient to assemble documentation. Such 
extension of time for payment will be valid only if Rural Development 
documents the extension in writing and specifies the period in days 
during which period the payment obligation created by the demand letter 
(but not the ongoing accrual of interest) will be suspended. Interest 
and other charges will continue to accrue pursuant to the demand letter 
during any extension period unless the terms of the demand letter are 
modified in writing by Rural Development.
    (c) Unless Rural Development modifies the original demand, it will 
remain in full force and effect.


Sec.  1951.709  Decision on servicing actions.

    (a) Payment in full. If the recipient agrees with Rural 
Development's determination or will pay the amount in question, Rural 
Development may allow a reasonable period of time (usually not to 
exceed 90 days) for the recipient to arrange for repayment. The amount 
due will be determined according to Sec.  1951.707.
    (b) Continuation with recipient. If the recipient agrees with Rural 
Development's determination or is willing to pay the amount in question 
but cannot repay the unauthorized assistance within a reasonable period 
of time, continuation is authorized and servicing actions outlined in 
Sec.  1951.711 may be taken provided all of the following conditions 
are met:
    (1) The recipient did not provide false information as defined in 
Sec.  1951.702.
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance.
    (3) Failure to collect the unauthorized assistance in full will not 
adversely affect Rural Development's financial interest.
    (c) Appeals. Appeals resulting from the letter prescribed in Sec.  
1951.708 will be handled according to 7 CFR Part 11. All appeal 
provisions will be concluded before proceeding with further actions.
    (d) Liquidation of loan(s) or legal action to enforce collection. 
When a case cannot be handled according to the provisions of paragraph 
(a) or (b) of this section, or if the recipient refuses to execute the 
documents necessary to establish an obligation to repay the 
unauthorized assistance as provided in Sec.  1951.711, one or more of 
the following actions will be taken:
    (1) Active borrower with a secured loan. (i) Rural Development will 
attempt to have the recipient liquidate voluntarily. If the recipient 
does not agree to voluntary liquidation, or agrees but it cannot be 
accomplished within a reasonable period of time (usually not more than 
90 days), forced liquidation action will be initiated in accordance 
with applicable provisions of subpart A of part 1955 of this chapter 
unless:
    (A) The amount of unauthorized assistance outstanding, including 
principal, accrued interest, and any recoverable costs charged to the 
account, is less than $1,000; or
    (B) It would not be in the best financial interest of the 
Government to force liquidation.
    (ii) When all of the conditions of paragraph (a) or (b) of this 
section are met, but the recipient does not repay or refuses to execute 
documents to effect necessary account adjustments according of the 
provisions of Sec.  1951.711, forced liquidation action will be 
initiated as provided in paragraph (d)(1)(i) of this section.
    (iii) When forced liquidation would be initiated, except that the 
loan is being handled in accordance with paragraph (d)(1)(i)(A) or 
(d)(1)(i)(B) of this section, continuation with the loan on existing 
terms may be provided.
    (iv) If the debt is not otherwise resolved, Rural Development will 
take appropriate debt collection actions in accordance with 7 CFR Part 
3, subparts B and C, and the Federal Claims Collection Standards at 31 
CFR Chapter IX, Parts 900-904.
    (2) Grantee, inactive borrower, or active borrower with unsecured 
loan (such as collection-only, or unsatisfied balance after 
liquidation). Rural Development may pursue all reasonable legal 
remedies.


Sec.  1951.710  [Reserved].


Sec.  1951.711  Servicing options in lieu of liquidation or legal 
action to collect.

    When the conditions outlined in Sec.  1951.709(b) are met, the 
servicing options outlined in this section will be considered.
    (a) Continuation on modified terms. When the recipient has the 
legal and financial capabilities, the case will be serviced according 
to one of the following, as appropriate.
    (1) Unauthorized loan. A loan for the unauthorized amount 
determined according to Sec.  1951.707(a) will remain accelerated per 
the demand letter sent in accordance with Sec.  1951.708 unless 
modified terms are timely reached with the recipient and accrued at the 
interest rate specified in the outstanding debt instrument or at the 
present market interest rate, whichever is greater, for the respective 
Community and Business program area. The loan will be amortized per a 
repayment schedule satisfactory to Rural Development, but in no event 
may the revised repayment schedule exceed a period of fifteen (15) 
years, the remaining term of the original loan, or the remaining useful 
life of the facility, whichever is shorter.
    (2) Unauthorized grant. The unauthorized grant amount determined 
according to Sec.  1951.707(b) will be converted to an account 
receivable, with interest payable at the market interest rate for the 
respective Community Facilities or Business and Industry Program area 
in effect on the date the financial assistance was provided. In all 
cases, the receivable will be amortized per a repayment schedule 
satisfactory to Rural Development, but in no event may the amortization 
period exceed fifteen (15) years. The recipient will be required to 
execute a debt instrument to evidence this receivable, and the best 
security position available to adequately protect Rural Development's 
interest during the repayment period will be taken as security.
    (3) Unauthorized subsidy benefits received. When the recipient was 
eligible for the loan but should have been charged a higher interest 
rate than that in the debt instrument, which resulted in the receipt of 
unauthorized subsidy benefits, the case will be handled as follows:
    (i) The recipient will be given the option to submit a written 
request that

[[Page 75854]]

the interest rate be corrected to the lower of the rate for which they 
were eligible that was in effect at the date of loan approval or loan 
closing.
    (ii) Any accrued unauthorized subsidy will be handled in accordance 
with Sec.  1951.709.
    (b) Continuation on existing terms. When the recipient does not 
have the legal and/or financial capabilities for the options outlined 
in paragraph (a)(1), (a)(2), or (a)(3) of this section, the recipient 
may be allowed to continue to meet the loan obligations outlined in the 
existing loan instruments. Rural Development will not continue with 
unauthorized grants on existing terms.


Sec. Sec.  1951.712-1951.716  [Reserved].


Sec.  1951.717  Exception authority.

    The Administrator may, in individual cases, make an exception to 
any requirement or provision of this subpart, provided that any such 
exception is not inconsistent with any applicable law or opinion of the 
Comptroller General, and provided further, the Administrator determines 
that the application of the requirement or provision would adversely 
affect the Government's interest.


Sec. Sec.  1951.718-1951.750  [Reserved].

    Dated: December 11, 2006.
Jackie J. Gleason,
Administrator, Rural Business-Cooperative Service.
    Dated: December 13, 2006.
Russell T. Davis,
Administrator, Rural Housing Service.
[FR Doc. 06-9763 Filed 12-18-06; 8:45 am]
BILLING CODE 3410-XY-P