[Federal Register Volume 72, Number 45 (Thursday, March 8, 2007)]
[Rules and Regulations]
[Pages 10404-10419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-4002]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 30

RIN 0991-AB18


Claims Collection

AGENCY: Department of Health and Human Services.

ACTION: Final rule.

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SUMMARY: This final rule amends the Department of Health and Human 
Services' (HHS) regulations to implement the provisions of the Debt 
Collection Improvement Act of 1996 (DCIA), as implemented by the 
Department of Justice (Justice) and the Department of the Treasury 
(Treasury) as the Federal Claims Collection Standards (FCCS). This 
final rule implements the final rule promulgated by Justice and 
Treasury, and amends the process by which HHS can administratively 
collect, offset, compromise, suspend and terminate collection activity 
for civil claims for money, funds, or property, and the rules and 
process by which HHS can refer civil claims to Treasury, Treasury-
designated debt collection centers, or Justice for collection by 
further administrative action or litigation, as applicable.

DATES: Effective Date: March 8, 2007.

FOR FURTHER INFORMATION CONTACT: Jeffrey S. Davis, Associate General 
Counsel, General Law Division, Office of the General Counsel, 
Department of Health and Human Services, Room 4760 Cohen Building, 330 
Independence Avenue SW., Washington, DC 20201.

SUPPLEMENTARY INFORMATION:

Background

    The Debt Collection Act of 1982 (DCA), Public Law No. 97-365, was 
implemented on a government-wide basis by the FCCS, set forth at 4 CFR 
part 101 et seq., issued by Justice and the General Accounting Office 
on March 9, 1984. See 49 FR 8889 (1984). HHS implemented the FCCS at 45 
CFR part 30. As mandated by the DCIA, Justice and Treasury jointly 
promulgated the revised FCCS at 31 CFR parts 900-904 to reflect the 
legislative changes to the Federal debt collection procedures enacted 
by the DCIA. The revised FCCS superseded the current FCCS, and removed 
the Comptroller General as promulgator of the FCCS. HHS is required to 
implement regulations, consistent with the DCIA and the regulations 
promulgated by Justice and Treasury. The following changes to the 
Department's current debt collection regulation are incorporated in the 
proposed regulation to reflect the DCIA and the implementing final 
rule:
    1. Demand Letter. One demand should be sufficient. It will include 
the applicable standards for imposing any interest, penalties, or 
administrative costs; use of collection agencies, Federal salary 
offset, tax refund offset, administrative offset, and litigation; any 
rights the debtor may have to seek review of the Department's 
determination of the debt and to enter into a reasonable repayment 
agreement; and information regarding the Department's remedies to 
enforce payment of the debt.
    2. Mutual Releases. HHS and debtors will exchange mutual releases 
of non-tax liabilities, in all appropriate instances, when a claim is 
compromised.
    3. Increase in Amounts. The principal claim amount that HHS is 
authorized to compromise or to suspend or terminate collection activity 
thereon, without concurrence by Justice, is increased from $20,000 to 
$100,000. In addition, the minimum amount of a claim that may be 
referred to Justice for litigation is increased from $600 to $2,500.
    4. Transferring or Referring Delinquent Debt. There are new debt 
collection procedures for transferring or referring delinquent debt to 
Treasury or a Treasury-designated debt collection center for 
collection.
    5. Centralized Administrative Offset. There are new debt collection 
procedures for mandatory, centralized administrative offset by 
disbursing officials.
    6. Mandatory Credit Bureau Reporting. There are new debt collection 
procedures for mandatory credit bureau reporting.
    7. Prohibition Against Federal Financial Assistance. There are new 
debt collection procedures prohibiting Federal financial assistance in 
the form of loans, loan guarantees, or loan insurance to debtors, 
unless waived by the Secretary. Disaster loans are exempt from this 
prohibition.
    8. Army Hold-up List. The use of the Army hold-up list to report 
indebted contractors to the Department of the Army has been 
discontinued.
    Additionally, we note that the current HHS claims collection 
regulations at 45 CFR 30.13(d) provided: ``[u]nless specifically 
authorized by statute, regulation or written agreement, or unless the 
debts arise from, or involve, fraud or criminal activity, the Secretary 
will not charge interest on debts arising from payments to 
beneficiaries under Titles II, XVI, and XVIII of the Social Security 
Act.'' This rule will not change this Departmental practice. For debts 
arising from payments to beneficiaries under Titles XVI and XVIII of 
the Social Security Act (Title II is now administered by the Social 
Security Administration), the Secretary will not assess interest unless 
specifically required to do so by statute, regulation or written 
agreement, or unless the debts arise from, or involve, fraud or 
criminal activity.
    To the extent any provision of this rule is inconsistent with a 
more specific provision (e.g., certain provisions in 45 CFR parts 31, 
32, and 33 and 42 CFR parts 401 and 405), the more specific provision 
shall apply.

Basic Provisions

    In accordance with the requirements of the DCIA and the 
implementing regulations promulgated by Justice and Treasury at 31 CFR 
parts 900-904, this final rule establishes the procedures for the 
administrative collection, offset, compromise, suspension and 
termination of collection activity for civil claims for money, funds, 
or property, as defined by 31 U.S.C. 3701(b), and the process by which 
HHS can refer civil claims to Treasury, Treasury-designated debt 
collection centers, or Justice for collection by further administrative 
action or litigation, as applicable. The rule does not apply to claims 
between Federal agencies. The rule affects HHS's debtors. This rule 
revises the current Department regulation in accordance with the 
substantive and procedural requirements of the DCIA and the 
implementing final rule.

(Authority: 31 U.S.C. 3711.)

Public Comments

    We received the following comments on the proposed rule.
    Comment: One commenter asserted that the mandatory demand letter 
statements required by Sec.  30.11 of the proposed rule potentially 
conflicted with validation disclosures of Sec.  809 of the Fair Debt 
Collection Practices Act (FDCPA) that private collection contractors 
are required to deliver in their initial demand letters.

[[Page 10405]]

    Response: We do not agree that the requirements of Sec.  30.11 of 
the final rule conflict with the FDCPA and have made no changes to the 
final rule based on this comment. Section 30.11(b)(1) provides a 
listing of the information that must be included in a demand letter. 
The specific clauses that concerned the commenter are found in Sec.  
30.11(b)(2) which provides the listing of the information which should 
be included in a demand letter, including the statements of fact that: 
(1) A debtor delinquent on a debt is ineligible for Government loans, 
loan guarantees, or loan insurance until the debtor resolves the debt; 
(2) when seeking to collect statutory penalties, forfeiture or other 
similar types of claims, the debtor's licenses, permits, or other 
privileges may be suspended or revoked if failure to pay the debt is 
inexcusable or willful; and (3) knowingly making false statements or 
bringing frivolous actions may subject the debtor to civil or criminal 
penalties under 31 U.S.C. 3729-3731, 18 U.S.C. 286, 287, 1001, and 
1002, or any other applicable statutory authority, and, if the debtor 
is a Federal employee, to disciplinary action under 5 CFR part 752 or 
other applicable authority.
    Comment: One commenter noted that in the Medicare Secondary Payer 
(MSP) context, the Centers for Medicare & Medicaid Services (CMS) 
currently utilizes two demand letters and requested either the section 
30.11(b) statement, ``[g]enerally one demand letter should suffice * * 
*'' be deleted or recognize that in the MSP context two demand letters 
are generally appropriate.
    Response: We are making no changes to the final rule based on this 
comment. Under the FCCS, agencies are permitted to use more than one 
demand letter to meet the requirements at 31 CFR 901.2. Therefore, 
there is no need to change the current language of Sec.  30.11(b) to 
accommodate the use of more than one demand letter.
    Comment: One commenter stated that in the MSP context, initial 
demand letters and intent to refer letters are not often directed to 
the appropriate, responsible party. As a result, the entity bearing 
responsibility for the debt may not have an opportunity to respond 
prior to the referral of the debt to Treasury for collection. The 
commenter recommended HHS:
    (1) Amend proposed Sec.  30.11(a)(2) to state that demand letters 
``shall be sent by first class mail to the debtor's last known address, 
as confirmed through reasonable efforts'';
    (2) Add a new sentence stating that if a letter is returned as 
undeliverable, the Secretary shall take reasonable steps to determine 
the appropriate address of the alleged debtor and send a second letter; 
and
    (3) Add a new provision stating that the Secretary shall provide 
alleged debtors (generally employers, insurers or third party 
administrators) with the opportunity to designate a central agent (at a 
specific location) to receive MSP demand letters.
    Response: We are making no changes to the final rule based on this 
comment. As to the first two suggestions, CMS uses the most recent 
address information in its system specific to a particular debt. As to 
the third suggestion, the final rule would not prohibit an employer, 
insurer, or third party administrator from reaching an agreement with 
CMS on a designated agent for the receipt of MSP demand letters to the 
extent that CMS systems can handle the request and the specific debtor 
information can be appropriately matched. Employers, insurers, and 
third party administrators should have internal procedures which ensure 
correct internal routing of such letters if the letter is received at 
any address of the entity.
    Comment: In another comment relating to MSP debts, a commenter 
urged HHS to amend proposed Sec.  30.11(b)(1) to state that the written 
demand for payment ``shall include sufficient information to allow the 
recipient to identify the specific debt involved.'' The commenter noted 
in the MSP context, sufficient information includes: beneficiary name, 
HIC number, basis for Medicare eligibility, policy number, services 
included in the claim, dates of service, provider type, amount due, and 
member name/company.
    Response: We are making no changes to the final rule based on this 
comment. The current CMS process is adequate because most of the 
information listed is already included in the demand letter package. 
The demand package contains sufficient information to allow the 
recipient to identify the specific debt involved. The intent to refer 
letter package includes the initial demand letter (including 
attachments) when it is issued. However, the content of the initial 
demand letter is dependent on the debtor responding to CMS's requests, 
if any, for additional information. Finally, CMS has no control over 
what information Treasury includes in its first letter to the debtor 
and the information Treasury instructs the private collection agency to 
include in its collection letter.
    Comment: One commenter requested HHS to modify proposed Sec.  30.11 
to add new text (modeled directly on the FCCS at 31 CFR 901.2(e)) that 
reads ``the Secretary 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.''
    Response: We have made this change requested by the commenter and 
have added a new 30.11(f) providing: Communications from debtors. The 
Secretary should respond promptly to communications from debtor, within 
30 days where feasible, and should advise debtors who dispute debts to 
furnish available evidence to support their contentions.
    Comment: One commenter noted that Sec.  30.11(b)(1)(ii) would 
require that demand letters state ``[t]he date by which payment should 
be made to avoid late charges and enforced collection, which generally 
shall be no later than 30 days from the date the demand letter is 
mailed.'' The commenter sought confirmation that the proposed 
regulation will not (1) Require CMS to shorten the period allowed by 
the MSP statute for entities to respond to demands for payment before 
the imposition of interest or (2) prohibit the Secretary from 
exercising discretion to waive interest, where appropriate.
    Response: We are making no changes to the final rule based on this 
comment. We confirm that the regulation does not require CMS to shorten 
the period allowed by the MSP statute for MSP debtors to respond to 
demands for payment before the imposition of interest, or prohibit the 
Secretary from exercising discretion to waive interest, where 
appropriate (see Sec.  30.18(g), Waiver). Proposed Sec.  
30.11(b)(1)(ii) is not intended to alter any existing CMS policies and 
procedures on when entities must respond to demands for payment to 
avoid interest in the MSP context (currently, 60 days), nor is it 
intended to limit the Secretary from waiving interest where appropriate 
and where consistent with government-wide and agency-specific debt 
collection standards. The language in proposed 30.11(b)(1)(ii) states 
payment ``should'' be made ``generally'' no later than 30 days to avoid 
late charges and enforced collection. Based on this language, CMS may 
exercise discretion in extending the time frame for entities to respond 
for specific types of debt such as MSP debts.
    Comment: Proposed Sec.  30.10(c)(1) states that ``[t]he Secretary 
shall transfer debts 180 days or more delinquent to the Treasury in 
accordance with the requirements of 31 CFR 285.12.'' A commenter 
requested that the regulation

[[Page 10406]]

be amended, consistent with the Treasury regulations, to make clear 
that debt is not required to be transferred to Treasury unless and 
until a final agency determination has been made. Accordingly, the 
commenter requested that HHS amend section 30.10 to read: ``(c) The 
Secretary shall transfer debts 180 days or more delinquent to Treasury, 
where appropriate, in accordance with the requirements of 31 CFR 285.12 
when there is a final agency determination that the debt, in the amount 
stated, is due and there are no legal bars to collection action.'' The 
commenter believed that premature referral of debt would not only 
violate the terms of the Treasury regulation, but also undermine 
efficient administration of debt collection since alleged MSP debtors, 
whom the commenter incorrectly asserted do not receive final agency 
determinations prior to referral, generally seek reconsideration at the 
Treasury level. The commenter contended that this adds an unnecessary 
level of complication to the debt collection process and typically 
results in claims being sent back to CMS for further review and 
verification of the validity of the debt.
    Response: We are making no changes to the final rule based on this 
comment. It is implicit in the regulatory language that, before 
transfer to Treasury, there will have been a final agency determination 
that the debt, in the amount stated, is due.
    Comment: One commenter urged HHS to modify the proposed regulation 
to clearly state the specific process with which CMS must comply before 
transferring MSP debt to Treasury for administrative offset and/or 
other cross-servicing. The commenter believed that the proposed 
regulations do not include all of the criteria set forth in the 
Treasury regulations as prerequisites to transfer, and recommended that 
HHS amend proposed Sec.  30.12(b)(2) to state: ``When referring 
delinquent debt to the Secretary of the Treasury for centralized 
administrative offset or other debt collection activity, the 
appropriate agency official must certify, in written form acceptable to 
the Secretary of the Treasury, that (i) The debt is valid, past due and 
legally enforceable; and (ii) the Department has complied with all due 
process requirements under 31 U.S.C. 3716(a) and paragraph (c)(2) of 
this section and all prerequisites to a particular collection action 
under the laws, regulations or policies applicable to the agency 
(unless the Secretary of the Treasury has agreed to comply with such 
requirements on the Department's behalf).''
    Response: We are making three changes to the final rule based on 
this comment. First, we are changing the definition of ``Legally 
enforceable'' in Sec.  30.2 to add on to the end ``(for example, the 
debt is not the subject of a pending administrative review required by 
statute or regulation and collection action during the review process 
is prohibited.)'' Second, we are adding ``legally enforceable'' before 
the word ``debts'' in 30.10(c)(1). While we believe the requirement 
that the debt not be transferred, under mandatory transfer, if it is 
the subject of a pending administrative review required by statute or 
regulation and collection action during the review process is 
prohibited was clear, as previously drafted, since this is a 
requirement of 31 CFR 285.12(c)(3)(i) and 30.10(c)(1) specified that 
transfers to Treasury would be made in accordance with the requirements 
of 31 CFR 285.12, the regulation is more complete with this 
clarification. Related to the part of the comment that 30.10(c)(2) did 
not include all of the criteria set forth in the Treasury regulations 
as prerequisites to transfer, we are also amending 30.10(c)(2) to 
include ``in accordance with the requirements of 31 CFR 285.12.'' 
Therefore, the requirements of Treasury's regulations are clearly 
included.
    Comment: One commenter suggested that the Claims Collection 
regulations be amended to state that the Secretary may, where 
appropriate, in the MSP debt context, explore the use of alternative 
dispute resolution to resolve disputed debt.
    Response: We are making no changes to the final rule based on this 
comment because we believe that CMS's current regulations and processes 
provide adequate opportunity for the debtor to dispute a debt.
    Comment: One commenter recommended that HHS define the term ``valid 
debt'' under Sec.  30.2 to mean debt where the government has a 
reasonable expectation of being able to prove the existence of the debt 
in court, based on the legal issues and the facts.
    Response: We are making no changes to the Final Rule based on this 
comment. We do not agree that it is necessary to define ``valid debt.''
    Comment: One commenter noted the proposed Claims Collection 
regulations state that the term ``legally enforceable'' means ``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.'' 
Proposed Sec.  30.2, Definitions. The commenter requested HHS amend the 
proposed regulations to expressly state that, when an alleged debtor 
has disputed a debt, the appropriate agency official may not refer the 
debt to Treasury unless and until a written determination explaining 
the basis for the decision has been issued (and a copy provided to the 
alleged debtor) concerning the validity of the alleged debt.
    Response: We are making no changes to the final rule based on this 
comment. First, in response to a previously discussed comment, we are 
changing the definition of ``Legally enforceable'' in Sec.  30.2 to add 
on to the end ``(for example, the debt is not the subject of a pending 
administrative review required by statute or regulation and collection 
action during the review process is prohibited.)'' Also, a final 
determination that a debt, in the amount stated, is due and there are 
no legal bars to collection action does not require issuing a formal 
written determination, separate from and in addition to the demand 
letter, explaining the basis for such decision. Also, the regulations 
provide, in the definition of a debt (Sec.  30.2, Definitions) that an 
appropriate official of the Federal Government determined an amount of 
funds or other property is owed to the Government. Such a 
determination, therefore, is needed before a demand letter would be 
sent and before the debt would be referred to Treasury for collection.
    Comment: One commenter noted that proposed section 30.12(b) states 
that when referring delinquent debts to the Secretary of Treasury for 
centralized administrative offset, the Department must certify that the 
Department has complied with all due process requirements under 31 
U.S.C. 3716(a) and Sec.  30.12(c)(2) of the proposed rule. 31 U.S.C. 
3716(a)(3) states that the head of an administrative agency may collect 
by offset only after, among other things, giving the debtor ``an 
opportunity for a review within the agency of the decision of the 
agency related to the claim.'' The commenter noted that the proposed 
HHS regulations state that where review is required, the Secretary must 
afford the alleged debtor an oral or paper hearing. See Proposed Sec.  
30.12(e). The commenter supported this provision of the regulation, but 
noted the need for clarification regarding the specific due process 
rights that will be afforded to employers/unions and health plans/
insurers disputing alleged MSP debt. The commenter noted that CMS has 
published proposed Medicare claims appeal regulations which expressly 
allow beneficiaries and providers/suppliers to appeal Medicare 
contractor determinations that they owe the government monies under the 
MSP

[[Page 10407]]

statute, but has not provided any specific due process appeal rights to 
employers/unions or health plans/insurers in similar circumstances. See 
67 FR 69311, 69317-20 (Nov. 15, 2003). The commenter asserted that, as 
a matter of law, employers/unions and health plans/insurers are 
entitled to independent review of an alleged MSP debt determination by 
a Medicare contractor prior to referral of the debt to Treasury for 
offset. The commenter strongly urged HHS to identify the specific due 
process rights to be afforded such entities challenging the existence 
of MSP debt, particularly the nature of any associated appeal rights. 
The commenter noted that the FCCS encourages agencies to use ``all 
authorized remedies, including alternative dispute resolution,'' for 
claims collection, 31 CFR 900.1(c), and requested HHS to amend the 
Claims Collection regulation to state that the Secretary may, in 
appropriate circumstances, explore the use of alternative dispute 
resolution mechanisms to resolve disputed debt. While the commenter 
does not request that CMS be required to use such alternative dispute 
resolution mechanisms, the commenter believes CMS should be granted the 
flexibility through regulation to develop creative and cost-effective 
ways of resolving disputed claims short of transfer to Treasury (and 
without incurring the significant costs associated with use of private 
collection agencies).
    Response: We are making no changes to the final rule based on this 
comment. We believe that current CMS procedures provide adequate 
opportunity for the non-beneficiary or non-provider/supplier MSP debtor 
(e.g., employers/unions or health plans/insurers) to dispute a debt. 
Employers, insurers, third party administrators, plans, or other plan 
sponsors that are issued a demand letter are provided adequate notice 
of the debt and an opportunity to rebut the debt prior to CMS referring 
the MSP debt to Treasury.
    Comment: One commenter stated that it is aware of numerous 
situations in which offset of a claim occurred after CMS had determined 
that monies were not in fact due with respect to the particular claim. 
Accordingly, the commenter recommended HHS amend the Claims Collection 
regulations to include the following language adapted from 31 CFR 
285.12 of the Treasury regulations: ``Once a debt is referred to 
Treasury, the Secretary must promptly notify Treasury of any change in 
the status of the debt, including any decision that the debt is not in 
fact owed.''
    Response: We are making no changes to the final rule based on this 
comment. As noted by the commenter, Treasury's current regulations 
already provide for notification to Treasury of changes in the status 
of the legal enforceability of a debt. Since 30.10(c) states that the 
transfer of debts be in accordance with 31 CFR 285.12, and 31 CFR 
285.12(i) includes this notification of status requirement, it is 
unnecessary to restate that requirement here.
    Comment: One commenter noted that proposed Sec.  30.18 requires the 
Department to assess administrative costs incurred for processing and 
handling delinquent debts and, ``[u]nless otherwise established by 
contract, repayment agreement, or statute,'' to impose a penalty of six 
percent a year on the amount due on a debt that is delinquent for more 
than 90 days. The commenter asserted that the mandatory imposition of 
administrative costs and penalties is not appropriate for MSP debt 
since the interest and penalty provision of the Debt Collection 
Improvement Act, 31 U.S.C. 3717, does not (with limited exceptions not 
here relevant) apply to ``a claim or debt under, or an amount payable 
under * * * the Social Security Act,'' 31 U.S.C. 3701(d). Accordingly, 
commenter requested that HHS amend Sec.  30.18 to incorporate language 
from the current HHS Claims Collection regulations which states: 
``[t]he Secretary will charge administrative costs or late payment 
penalties on debts arising under the Social Security Act where 
authorized by statute, regulations, or written agreement.'' See 45 CFR 
30.13(d)(2).
    Response: We are making no changes to the final rule based on this 
comment. The proposed regulation did not change the current CMS process 
for assessing administrative fees. As to comments on MSP debts not 
being subject to the interest and penalties provisions of the DCIA, the 
MSP provisions of the Medicare statute (section 1862(b) of the Social 
Security Act) and implementing regulations (42 CFR 411.24(m)) provide 
CMS separate, independent authority for assessing interest on 
delinquent MSP debts.
    Comment: One commenter noted that proposed Sec.  30.24(b) states 
``[t]he Secretary will ensure that a compromise agreement with one 
debtor does not release the Department's claim against the remaining 
debtors.'' The commenter requested that given the unique nature of MSP 
claims, HHS delete or modify the text of the proposed regulation to 
expressly authorize the Secretary to release all potential debtors, 
where appropriate with respect to a particular debt. The commenter 
expressed a belief that historically, MSP settlements with the 
government have released claims against all potential debtors. The 
commenter urged HHS to amend the regulations to allow the Secretary to 
retain the flexibility to execute similar agreements in the future. The 
commenter believed that such comprehensive settlements are particularly 
appropriate in the MSP context where it is not cost-effective to 
adjudicate claims twice and health plans/insurers will have 
significantly less incentive to enter into MSP settlement agreements if 
potential claims against their group health plan customers are not 
released.
    Response: The proposed regulation is intended to govern situations 
where agency (in this case, CMS) regulations are silent or fail to 
govern a specific debt situation. The proposed language in Sec.  
30.24(b) would not prohibit the Secretary from executing a compromise 
of selected debts where an insurer is negotiating on its own behalf and 
on behalf of others as authorized. However, HHS will insert the word 
``automatically'' before the word ``release'' to make clear that some 
action could take place which would release all parties.
    Comment: A commenter requested that HHS amend proposed Sec.  
30.11(b)(2)(vi) to provide that ``[a]ny amounts collected and 
ultimately found not to have been owed by the debtor will be refunded 
promptly.'' The commenter explained the proposed modification is fair 
and appropriate where monies are not in fact due. In addition, the 
commenter requested that HHS modify the proposed regulation to require 
individual agencies, including CMS, to establish clearly publicized 
processes for debtors to request reimbursement of disputed amounts that 
were paid in order to avoid the imposition of interest or were taken by 
offset and specific timelines for prompt adjudication of the amounts in 
dispute.
    Response: We are making no changes to the final rule based on this 
comment. Applicable statutes and regulations do not mandate that the 
above quoted language be included in demand letters, nor do they 
mandate a specific time frame or published process for debtors to 
request reimbursement of disputed amounts or for refunding amounts 
previously collected. HHS will revisit this suggestion if it is 
problematic in practice.
    Comment: One commenter stated that, when a debt is contested at the 
Treasury/private collection agency level, Treasury will often seek 
input from CMS concerning the validity of the

[[Page 10408]]

underlying debt. The commenter submitted that when this occurs, it is 
appropriate for Treasury to suspend all collection efforts, including 
offset. Accordingly, the commenter requested that HHS add a provision 
to the regulation authorizing suspension of all collection activities 
by Treasury or a private collection agency when Treasury seeks guidance 
from HHS regarding the validity of a particular debt in dispute.
    Response: We are making no changes to the final rule based on this 
comment. This comment addresses current Treasury procedures and is 
outside the scope of the Claims Collection regulations.
    Comment: One commenter supported HHS's proposed modifications of 
the regulations which would authorize HHS to compromise, suspend or 
terminate collection activity on a debt under $100,000 in principal 
amount without the concurrence of Justice. See Proposed Sec. Sec.  
30.21 and 30.28. The commenter also supports amendments set forth in 
proposed Sec.  30.36 which raise the minimum amount of debt necessary 
for referral for litigation.
    Response: No response to this comment is necessary.
    Comment: One commenter supported proposed Sec.  30.22(a)(3)(i) 
which authorizes the Secretary to compromise a debt where the cost of 
collecting the debt does not justify the enforced collection of the 
full amount, but requested that the regulation be amended to state that 
``[t]he amount accepted in compromise of such cases may reflect an 
appropriate discount for the administrative and litigation costs of 
collection, with consideration given to the time it will take to effect 
collection and the age of the delinquent debt.'' Likewise, the 
commenter requested that proposed Sec.  30.19 be amended to direct that 
the age of delinquent debt be considered in developing data on costs 
and corresponding recovery rates to be used (among other things) in 
establishing guidelines with respect to points at which costs of 
further collection efforts are likely to exceed recoveries. The 
commenter believed the age of alleged MSP debt directly affects the 
demand letter processing and collection costs for both the government 
and the alleged debtors and should be expressly considered in 
establishing collection guidelines. The commenter requested that HHS 
amend the Claims Collection regulation to expressly recognize that it 
is appropriate for agencies to (1) Take the age of a debt into account 
when determining what documentation must be provided by the alleged 
debtor to mount a defense, and (2) exercise flexibility in determining 
whether additional collection efforts are appropriate or justified 
concerning old debt.
    Response: We are making no changes to the final rule based on this 
comment. We do not agree that it is necessary or appropriate to 
specifically require consideration of the age of the delinquent debt as 
a factor in pursuing or compromising a debt.
    Comment: There were several comments related to the rule's impact 
on state collection activities when states seek to collect debts due 
under a program authorized under the Social Security Act for which 
Federal funds were provided (i.e., Temporary Assistance to Needy 
Families (TANF), State Children's Health Insurance Program (SCHIP) and 
Medicaid). Certain commenters explained the difficulties and increased 
burdens on states in following the proposed rule. For example, one 
commenter offered that the particular state would need to change its 
computer system and the current way it did business. Other commenters 
explained the benefits of interpreting the rule to allow TANF debts to 
be collected pursuant to the rule and strongly recommended the rule be 
interpreted to include state debts and authorize states to submit TANF 
debts to the Treasury Offset Program.
    Response: We are making no changes to the final rule based on these 
comments, but draw the commenters' attention to several points. In the 
TANF program, there is no direct Federal share in recipient 
overpayments because TANF is a block grant program. Therefore, these 
regulations would not affect state collection activities with respect 
to recipient families. In addition, states are not subject to the FCCS 
when seeking to collect state overpayments made to providers in the 
Medicaid and SCHIP programs. Because we do not believe that this 
regulation imposes any new requirement related to state collection 
activities in the referenced Social Security Act programs that are 
related to overpayments or other debts to or on behalf of individual 
recipients, we do not find any burden on states related to such 
collection activities.
    Comment: One commenter recommended that many mandates in the 
regulation be made permissive (i.e., changing ``shall'' to ``may'' in 
certain places in the regulation text) so as not to mandate certain 
state action.
    Response: We are making no changes to the final rule based on this 
comment because, as explained in the response to the previous comments 
(directly above), the HHS regulation does not place these mandates on 
states.
    Comment: One commenter asked whether states administering TANF, 
SCHIP or Medicaid should refer cases to the HHS Office of the Inspector 
General.
    Response: The proposed rule was not intended to change the current 
way states refer to law enforcement entities claims that are suspected 
to involve fraud, false information, or misrepresentation on the part 
of the debtor. States should continue to refer such claims to the 
appropriate governmental entity pursuant to applicable Federal and 
State laws and agency guidance.

Other Changes Made to the Final Rule

    We have also changed Sec.  30.18(b)(2), regarding the percentage of 
interest to be charged on debts. The NPRM requirement that the 
Department document in writing the reasons for charging a higher rate 
was omitted and the following language was added: ``Any such higher 
rate of interest charged will be based on Treasury's quarterly rate 
certification to the U.S. Public Health Service for delinquencies in 
the National Research Services Awards and the National Health Services 
Corps Scholarship Program. The Department publishes this rate in the 
Federal Register quarterly.''

Federalism

    We have analyzed this final rule in accordance with the principles 
set forth in Executive Order (EO) 13132 (Federalism). We have 
determined that the rule does not contain policies that have 
substantial direct effects on the States, on the relationship between 
National Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Accordingly, 
we have concluded that the rule does not contain policies that have 
federalism implications as defined in the EO and, consequently, a 
federalism summary impact statement is not required.

Analysis of Impacts

    For purposes of the Paperwork Reduction Act, 44 U.S.C. chapter 35, 
this proposed rule will impose no new reporting or recordkeeping 
requirements on any member of the public.

Economic Impact

    We have examined the impact of this rule as required by EO 12866 
(Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) 
(September 19, 1980; Pub. L. No. 96-354); the Unfunded Mandates Reform 
Act of 1995 (UMRA, Pub. L. No. 104-4); and the Truth in Regulating Act 
of 2000 (5 U.S.C. 801 note). EO 12866

[[Page 10409]]

directs agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize the benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). A regulatory impact analysis (RIA) must be 
prepared for major rules with economically significant effects ($100 
million or more in 1 year). We have determined that the rule is 
consistent with the principles set forth in EO 12866, and we find that 
the rule would not have an effect on the economy that exceeds $100 
million in any one year. In addition, this rule is not a major rule as 
defined at 5 U.S.C. 804(2). In accordance with the provisions of the EO 
12866, the rule was reviewed by the Office of Management and Budget.
    Under the RFA, 5 U.S.C. 605(b), if a rule has a significant impact 
on a substantial number of small entities, an agency must analyze 
regulatory options that would minimize any significant impact of the 
rule on small entities. The agency has considered the effect that this 
rule would have on small entities. I hereby certify, under 5 U.S.C. 
605(b), that the rule will not have a significant economic impact on a 
substantial number of small entities, including small businesses, small 
organizations and small local governments. Therefore, a regulatory 
flexibility analysis is not required by 5 U.S.C. 603. Section 202 of 
the UMRA also requires that agencies assess anticipated costs and 
benefits before issuing any rule that may result in expenditure in any 
one year by State, local, or tribal governments, in the aggregate, or 
by the private sector, of $100 million. As noted above, we find that 
the rule would not have an effect of this magnitude on the economy. 
Therefore, no further analysis is required under the UMRA.

Plain Language

    EO 12866 and the President's memorandum of June 1, 1998, require 
all rules to be written in plain language. We believe we have done so.

List of Subjects in 45 CFR Part 30

    Administrative practice and procedure, Claims, Debts, Appeals, 
Government employees, Privacy. xxxxxxxxxxxxxxxxxxxxxxxxxx

0
HHS revises 45 CFR part 30 to read as follows:

PART 30--CLAIMS COLLECTION

Subpart A--General Provisions
Sec.
30.1 Purpose, authority, and scope.
30.2 Definitions.
30.3 Antitrust, fraud, exception in the account of an accountable 
official, and interagency claims excluded.
30.4 Compromise, waiver, or disposition under other statutes not 
precluded.
30.5 Other administrative remedies.
30.6 Form of payment.
30.7 Subdivision of claims.
30.8 Required administrative proceedings.
30.9 No private rights created.
Subpart B--Standards for the Administrative Collection of Debts
30.10 Collection activities.
30.11 Demand for payment.
30.12 Administrative offset.
30.13 Debt reporting and the use of credit reporting agencies.
30.14 Contracting with private collection contractors and with 
entities that locate and recover unclaimed assets.
30.15 Suspension or revocation of eligibility for loans and loan 
guarantees, licenses, permits or privileges.
30.16 Liquidation of collateral.
30.17 Collection in installments.
30.18 Interest, penalties, and administrative costs.
30.19 Review of cost effectiveness of collection.
30.20 Taxpayer information.
Subpart C--Debt Compromise
30.21 Scope and application.
30.22 Basis for compromise.
30.23 Enforcement policy.
30.24 Joint and several liability.
30.25 Further review of compromise offers.
30.26 Consideration of tax consequences to the Government.
30.27 Mutual release of the debtor and the Government.
Subpart D--Suspending and Terminating Collection Activities
30.28 Scope and application.
30.29 Suspension of collection activity.
30.30 Termination of collection activity.
30.31 Exception to termination.
30.32 Discharge of indebtedness; reporting requirements.
Subpart E--Referrals to the Department of Justice
30.33 Prompt referral.
30.34 Claims Collection Litigation Report.
30.35 Preservation of evidence.
30.36 Minimum amount of referrals.

    Authority: 31 U.S.C. 3711(d).

Subpart A--General Provisions


Sec.  30.1  Purpose, authority, and scope.

    (a) Purpose. This part prescribes the standards and procedures for 
the Department's use in the administrative collection, offset, 
compromise, and suspension or termination of collection activity for 
claims for funds or property, as defined by 31 U.S.C. 3701(b) and this 
part. Covered activities include the collection of debts in any amount; 
the compromise and suspension or termination of collection activity of 
debts that do not exceed $100,000, or such higher amount as the 
Attorney General may prescribe, exclusive of interest, penalties, and 
administrative costs; and the referral of debts to the Department of 
the Treasury (Treasury), the Treasury-designated debt collection 
centers, or the Department of Justice (Justice) for collection by 
further administrative action or litigation, as applicable.
    (b) Authority. The Secretary is issuing the regulations in this 
part under the authority contained in 31 U.S.C. 3711(d). The standards 
and procedures prescribed in this part are authorized under the Federal 
Claims Collection Act, as amended, Public Law No. 89-508, 80 Stat. 308 
(July 19, 1966), the Debt Collection Act of 1982, Public Law No. 97-
365, 96 Stat. 1749 (October 25, 1982), the Debt Collection Improvement 
Act of 1996, Public Law No. 104-134, 110 Stat. 1321, 1358 (April 26, 
1996) and the Federal Claims Collection Standards at 31 CFR parts 900 
through 904.
    (c) Scope. (1) The standards and procedures prescribed in this part 
apply to all officers and employees of the Department, including 
officers and employees of the various Operating Divisions and Regional 
Offices of the Department, charged with the collection and disposition 
of debts owed to the United States.
    (2) The standards and procedures set forth in this part will be 
applied except where specifically excluded herein or where a statute, 
regulation or contract prescribes different standards or procedures.
    (3) Regulations governing the use of certain debt collection 
procedures created under the Debt Collection Improvement Act of 1996, 
including tax refund offset, administrative wage garnishment, and 
Federal salary offset, are contained in parts 31 through 33 of this 
chapter.


Sec.  30.2.  Definitions.

    In this part--
    Administrative offset means withholding funds payable by the United 
States to, or held by the United States for, a person to satisfy a 
debt.
    Agency means a department, agency, court, court administrative 
office, or instrumentality in the executive, judicial, or legislative 
branch of the Government, including Government corporations.
    Appropriate official means the Department official who, by statute 
or delegation of authority, determines the existence and amount of 
debt.

[[Page 10410]]

    Business day means Monday through Friday. For purposes of 
computation, the last day of the period will be included unless it is a 
Federal holiday, in which case the next business day following the 
holiday will be considered the last day of the period.
    Claim see the definition for the term ``debt.'' The terms ``claim'' 
and ``debt'' are synonymous and interchangeable.
    Creditor agency means an agency to which a debt is owed, including 
a debt collection center acting on behalf of a creditor agency.
    Day means calendar day. For purposes of computation, the last day 
of the period will be included unless it is a Saturday, Sunday, or a 
Federal holiday, in which case the next business day will be considered 
the last day of the period.
    Debt or claim means an amount of funds or other property determined 
by an appropriate official of the Federal Government to be owed to the 
United States from any person, organization, or entity, except another 
Federal agency. For the purpose of administrative offset, the term 
includes an amount owed by an individual to a State, the District of 
Columbia, American Samoa, Guam, the United States Virgin Islands, the 
Commonwealth of the Northern Mariana Islands, or the Commonwealth of 
Puerto Rico. Debts include, but are not limited to, amounts owed 
pursuant to: Loans insured or guaranteed by the United States; fees; 
leases; rents; royalties; services; sales of real or personal property; 
Federal salary overpayments; overpayments to program beneficiaries, 
contractors, providers, suppliers, and grantees; audit disallowance 
determinations; civil penalties and assessments; theft or loss; 
interest; fines and forfeitures (except those arising under the Uniform 
Code of Military Justice); and all other similar sources.
    Debt collection center means the Department of the Treasury, or 
other Federal agency, subagency, unit, or division designated by the 
Secretary of the Treasury to collect debts owed to the United States.
    Debtor means an individual, organization, association, partnership, 
corporation, or State or local government or subdivision indebted to 
the Government, or the person or entity with legal responsibility for 
assuming the debtor's obligation.
    Debts arising under the Social Security Act are overpayments to, or 
contributions, reimbursements, penalties or assessments owed by, any 
entity, individual, or State under the Social Security Act. Such 
amounts include amounts owed to the Medicare program under section 
1862(b) of the Social Security Act. Salary overpayments and other debts 
that result from the administration of the provisions of the Social 
Security Act are not deemed to ``arise under'' the Social Security Act 
for purposes of this part.
    Delinquent debt means a debt which the debtor does not pay or 
otherwise resolve by the date specified in the initial demand for 
payment, or in an applicable written repayment agreement or other 
instrument, including a post-delinquency repayment agreement.
    Department means the Department of Health and Human Services, and 
its Operating Divisions and Regional Offices.
    Disbursing official means an officer or employee who has authority 
to disburse public money pursuant to 31 U.S.C. 3321 or another law.
    Disposable pay means that part of the debtor's current basic, 
special, incentive, retired, and retainer pay, or other authorized pay, 
remaining after deduction of amounts required by law to be withheld. 
For purposes of calculating disposable pay, legally required deductions 
that must be applied first include: Tax levies pursuant to the Internal 
Revenue Code (title 26, United States Code); properly withheld taxes, 
FICA, Medicare; health and life insurance premiums; and retirement 
contributions. Amounts deducted under garnishment orders, including 
child support garnishment orders, are not legally required deductions 
for calculating disposable pay.
    Evidence of service means information retained by the Department 
indicating the nature of the document to which it pertains, the date of 
mailing of the document, and the address and name of the debtor to whom 
it is being sent. A copy of the dated and signed written notice 
provided to the debtor pursuant to this part may be considered evidence 
of service for purposes of this part. Evidence of service may be 
retained electronically so long as the manner of retention is 
sufficient for evidentiary purposes.
    FMS means the Financial Management Service, a bureau of the 
Department of the Treasury.
    Hearing means a review of the documentary evidence to confirm the 
existence or amount of a debt or the terms of a repayment schedule. If 
the Secretary determines that the issues in dispute cannot be resolved 
by such a review, such as when the validity of the claim turns on the 
issue of credibility or veracity, the Secretary may provide an oral 
hearing. (See 45 CFR 33.6(c)(2) for oral hearing procedures that may be 
provided by the Secretary).
    IRS means the Internal Revenue Service, a bureau of the Department 
of the Treasury.
    Late charges means interest, penalties, and administrative costs 
required or permitted to be assessed on delinquent debts.
    Legally enforceable means that 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.
    Local government means a political subdivision, instrumentality, or 
authority of any State, the District of Columbia, American Samoa, Guam, 
the United States Virgin Islands, the Commonwealth of the Northern 
Mariana Islands, or the Commonwealth of Puerto Rico, or an Indian 
tribe, band or nation.
    Operating Division means each separate component, agency, 
subagency, and unit within the Department of Health and Human Services, 
including, but not limited to, the Administration for Children and 
Families, the Administration on Aging, the Centers for Disease Control 
and Prevention, the Centers for Medicare & Medicaid Services, the Food 
and Drug Administration, the National Institutes of Health, Substance 
Abuse and Mental Health Services Administration, Indian Health Service, 
Health Resources and Services Administration, Agency for Toxic 
Substances and Disease Registry, Agency for Healthcare Research and 
Quality, and the Office of the Secretary.
    OPM means the Office of Personnel Management.
    Payment authorizing agency means an agency that transmits a voucher 
to a disbursing official for the disbursement of public money.
    Payments made under the Social Security Act means payments by this 
Department or other agencies to beneficiaries, providers, 
intermediaries, physicians, suppliers, carriers, States, or other 
contractors or grantees under a Social Security Act program, including: 
Title I (Grants to States for Old-Age Assistance for the Aged); Title 
II (Federal Old-Age, Survivors, and Disability Insurance Benefits); 
Title III (Grants to States for Unemployment Compensation 
Administration); Title IV (Grants to States for Aid and Services to 
Needy Families with Children and for Child-Welfare Services); Title V 
(Maternal and Child Health Services Block Grant); Title IX 
(Miscellaneous Provisions Relating to Employment Security); Title X 
(Grants to States for Aid to the Blind); Title XI, Part B (Peer Review 
of the Utilization and Quality of Health Care Services); Title XII 
(Advances to State Unemployment Funds); Title XIV (Grants to States for

[[Page 10411]]

Aid to Permanently and Totally Disabled); Title XVI (Grants to States 
for Aid to the Aged, Blind, and Disabled); Title XVII (Grants for 
Planning Comprehensive Action to Combat Mental Retardation); Title 
XVIII (Health Insurance for the Aged and Disabled); Title XIX (Grants 
to States for Medical Assistance Programs); Title XX (Block Grants to 
States for Social Services); and Title XXI (State Children's Health 
Insurance Program). Federal employee salaries and other payments made 
by the Department or other agencies in the course of administering the 
provisions of the Social Security Act are not deemed to be ``payable 
under'' the Social Security Act for purposes of this part.
    Private collection contractors means private debt collection under 
contract with the Department to collect a nontax debt or claim owed to 
the Department. The term includes private debt collectors, collection 
agencies, and commercial attorneys.
    Salary offset means an administrative offset to collect a debt owed 
by a Federal employee through deductions at one or more officially 
established pay intervals from the current pay account of the employee 
without his or her consent.
    Secretary means the Secretary of Health and Human Services, or the 
Secretary's designee.
    Taxpayer identification number means the identifying number 
described under section 6109 of the Internal Revenue Code of 1986 (26 
U.S.C. 6109). For an individual, the taxpayer identifying number is the 
individual's Social Security Number.
    Tax refund offset means withholding or reducing a tax refund 
payment by an amount necessary to satisfy a debt.


Sec.  30.3  Antitrust, fraud, exception in the account of an 
accountable official, and interagency claims excluded.

    (a) Claims involving antitrust violations or fraud. (1) The 
standards in this part relating to compromise, suspension, and 
termination of collection activity do not apply to any debt based in 
whole or in part on conduct in violation of antitrust laws, or to any 
debt involving fraud, presentation of a false claim, or 
misrepresentation on the part of the debtor or any party having an 
interest in the claim, unless the Department of Justice returns a 
referred claim to the Department for further handling in accordance 
with parts 31 CFR 900 through 904 and this part.
    (2) Upon identification of a debt suspected of involving an 
antitrust violation or fraud, a false claim, misrepresentation, or 
other criminal activity or misconduct, the Secretary shall refer the 
debt to the Office of the Inspector General for review.
    (3) Upon the determination of the Office of the Inspector General 
that a claim is based in whole or in part on conduct in violation of 
the antitrust laws, or involves fraud, the presentation of a false 
claim, or misrepresentation on the part of the debtor or any party 
having an interest in the claim, the Secretary shall promptly refer the 
case to the Department of Justice for action.
    (b) Exception in the account of an accountable official. The 
standards in this part do not apply to compromise of an exception in 
the account of an accountable official.
    (c) Interagency claims. This part does not apply to claims between 
Federal agencies. The Department will attempt to resolve interagency 
claims by negotiation in accordance with EO 12146.


Sec.  30.4  Compromise, waiver, or disposition under other statutes not 
precluded.

    Nothing in this part precludes the Department from disposing of any 
claim under statutes and implementing regulations other than subchapter 
II of chapter 37 of Title 31 of the United States Code and the Federal 
Claims Collection Standards, 31 CFR parts 900 through 904. Any statute 
and implementing regulation specifically applicable to the claims 
collection activities of the Department will take precedence over this 
part.


Sec.  30.5  Other administrative remedies.

    The remedies and sanctions available under this part for collecting 
debts are not intended to be exclusive. Nothing contained in this part 
precludes using any other administrative remedy which may be available 
for collecting debts owed to the Department, such as converting the 
method of payment under a grant from an advancement to a reimbursement 
method or revoking a grantee's letter-of-credit.


Sec.  30.6  Form of payment.

    Claims may be paid in the form of money or, when a contractual 
basis exists, the Department may demand the return of specific property 
or the performance of specific services.


Sec.  30.7  Subdivision of claims.

    Debts may not be subdivided to avoid the monetary ceiling 
established by 31 U.S.C. 3711(a)(2). A debtor's liability arising from 
a particular transaction or contract shall be considered a single debt 
in determining whether the debt, exclusive of interest, penalties and 
administrative costs, does not exceed $100,000, or such higher amount 
as prescribed by the Attorney General for purposes of compromise, or 
suspension or termination of collection activity.


Sec.  30.8  Required administrative proceedings.

    This part does not supersede, or require omission or duplication of 
administrative proceedings required by contract, or other laws or 
regulations. See for example, 42 CFR part 50 (Public Health Service), 
45 CFR part 16 (Departmental Grant Appeals Board), and 48 CFR part 33 
(Federal Acquisition Regulation) and part 333 (HHS Acquisition 
Regulation).


Sec.  30.9  No private rights created.

    The standards in this part do not create any right or benefit, 
substantive or procedural, enforceable at law or in equity by a party 
against the United States, the Department, its officers, or any other 
person, nor shall the failure of the Department to comply with any of 
the provisions of this part be available to any debtor as a defense.

Subpart B--Standards for the Administrative Collection of Debts


Sec.  30.10  Collection activities.

    (a) General rule. The Secretary shall aggressively and timely 
collect all debts arising out of activities of, or referred or 
transferred for collection actions to, the Department. Normally, an 
initial written demand for payment shall be made no later than 30 days 
after a determination by an appropriate official that a debt exists.
    (b) Cooperation with other agencies. The Department shall cooperate 
with other agencies in their debt collection activities.
    (c) Transfer of delinquent debts. (1) Mandatory transfer. The 
Department shall transfer legally enforceable debts 180 days or more 
delinquent to Treasury in accordance with the requirements of 31 CFR 
285.12. This requirement does not apply to any debt that:
    (i) Is in litigation or foreclosure;
    (ii) Will be disposed of under an approved asset sale program 
within one year of becoming eligible for sale;
    (iii) Has been referred to a private collection contractor for a 
period of time acceptable to the Secretary of the Treasury;
    (iv) Is at a debt collection center for a period of time acceptable 
to the Secretary of the Treasury (see paragraph (c)(2) of this 
section);
    (v) Will be collected under internal offset procedures within three 
years after the debt first became delinquent; or
    (vi) Is exempt from this requirement based on a determination by 
the

[[Page 10412]]

Secretary of the Treasury that exemption for a certain class of debt is 
in the best interest of the United States.
    (2) Permissive transfer. The Secretary may refer debts less than 
180 days delinquent, including debts referred to the Department by 
another agency, to the Treasury in accordance with the requirements of 
31 CFR 285.12, or with the consent of the Treasury, to a Treasury-
designated debt collection center to accomplish efficient, cost 
effective debt collection. Referrals to debt collection centers shall 
be at the discretion of, and for a time period acceptable to, the 
Secretary of the Treasury. Referrals may be for servicing, collection, 
compromise, suspension, or termination of collection action.


Sec.  30.11  Demand for payment.

    (a) Written demand for payment. (1) Written demand, as described in 
paragraph (b) of this section, shall be made promptly upon a debtor in 
terms that inform the debtor of the consequences of failing to 
cooperate with the Department to resolve the debt.
    (2) Normally, the demand letter will be sent no later than 30 days 
after the appropriate official determines that the debt exists. The 
demand letter shall be sent by first class mail to the debtor's last 
known address.
    (3) When necessary to protect the Government's interest, for 
example to prevent the running of a statute of limitations, the written 
demand for payment may be preceded by other appropriate action under 
this part, including immediate referral to Justice for litigation.
    (b) Demand letters. 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 Department's letters or telephone 
calls. Generally, one demand letter should suffice; however, more may 
be used.
    (1) The written demand for payment shall include the following 
information:
    (i) The nature and amount of the debt, including the basis for the 
indebtedness;
    (ii) The date by which payment should be made to avoid late charges 
and enforced collection, which generally shall be no later than 30 days 
from the date the demand letter is mailed;
    (iii) The applicable standards for imposing any interest, 
penalties, or administrative costs (see Sec.  30.18);
    (iv) The rights, if any, the debtor may have to:
    (A) Seek review of the Department's determination of the debt, and 
for purposes of administrative wage garnishment or salary offset, to 
request a hearing (see 45 CFR parts 32 and 33); and
    (B) Enter into a reasonable repayment agreement.
    (v) An explanation of how the debtor may exercise any of the rights 
described in paragraph (b)(1)(iv) of this section;
    (vi) The name, address, and phone number of a contact person or 
office within the Department to address any debt-related matters; and
    (vii) The Department's remedies to enforce payment of the debt, 
which may include:
    (A) Garnishing the debtor's wages through administrative wage 
garnishment;
    (B) Offsetting any Federal payments due the debtor, including 
income tax refunds, salary, certain benefit payments such as Social 
Security, retirement, and travel reimbursements and advances;
    (C) Referring the debt to a private collection contractor;
    (D) Reporting the debt to a credit bureau or other automated 
database;
    (E) Referring the debt to Justice for litigation; and
    (F) Referring the debt to Treasury for any of the collection 
actions described in paragraphs (b)(1)(vii)(A) through (E) of this 
section, advising the debtor that such referral is mandatory if the 
debt is 180 or more days delinquent.
    (2) The written demand for payment should also include the 
following information:
    (i) The debtor's right to inspect and copy all records of the 
Department pertaining to the debt, or if the debtor or the debtor's 
representative cannot personally inspect the records, to request and 
receive copies of such records;
    (ii) The Department's willingness to discuss with the debtor 
alternative methods of payment;
    (iii) A debtor delinquent on a debt is ineligible for Government 
loans, loan guarantees, or loan insurance until the debtor resolves the 
debt;
    (iv) When seeking to collect statutory penalties, forfeiture or 
other similar types of claim, the debtor's licenses, permits, or other 
privileges may be suspended or revoked if failure to pay the debt is 
inexcusable or willful. Such suspension or revocation shall extend to 
programs or activities 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;
    (v) Knowingly making false statements or bringing frivolous actions 
may subject the debtor to civil or criminal penalties under 31 U.S.C. 
3729-3731, 18 U.S.C. 286, 287, 1001, and 1002, or any other applicable 
statutory authority, and, if the debtor is a Federal employee, to 
disciplinary action under 5 CFR part 752 or other applicable authority;
    (vi) Any amounts collected and ultimately found not to have been 
owed by the debtor will be refunded;
    (vii) For salary offset, up to 15% of the debtor's current 
disposable pay may be deducted every pay period until the debt is paid 
in full; and
    (viii) Dependent upon applicable statutory authority, the debtor 
may be entitled to consideration for a waiver.
    (c) The Secretary will retain evidence of service indicating the 
date of mailing of the demand letter. The evidence of service, which 
may include a certificate of service, may be retained electronically so 
long as the manner of retention is sufficient for evidentiary purposes.
    (d) Prior to, during, or after the completion of the demand 
process, if the Secretary determines to pursue, or is required to 
pursue offset, the procedures applicable to offset should be followed 
(see Sec.  30.12). The availability of funds for debt satisfaction by 
offset and the Secretary's determination to pursue collection by offset 
shall release the Secretary from the necessity of further compliance 
with paragraphs (a), (b), and (c) of this section.
    (e) Finding debtors. The Secretary will use every reasonable effort 
to locate debtors, using such sources as telephone directories, city 
directories, postmasters, drivers license records, automobile title and 
license records in State and local government agencies, the IRS, credit 
reporting agencies and skip locator services. Referral of a confess-
judgment note to the appropriate United States Attorney's Office for 
entry of judgment will not be delayed because the debtor cannot be 
located.
    (f) Communications from debtors. The Secretary should respond 
promptly to communications from debtor, within 30 days where feasible, 
and should advise debtors who dispute debts to furnish available 
evidence to support their contentions.
    (g) Exception. This section does not require duplication of any 
notice already contained in a written agreement, letter or other 
document signed by, or provided to, the debtor.


Sec.  30.12  Administrative offset.

    (a) Scope. (1) Administrative offset is the withholding of funds 
payable by the United States to, or held by the United States for, a 
person to satisfy a debt.
    (2) This section does not apply to:

[[Page 10413]]

    (i) Debts arising under the Social Security Act, except as provided 
in 42 U.S.C. 404;
    (ii) Payments made under the Social Security Act, except as 
provided for in 31 U.S.C. 3716(c), and implementing regulation at 31 
CFR 285.4;
    (iii) Debts arising under, or payments made under, the Internal 
Revenue Code or the tariff laws of the United States;
    (iv) Offsets against Federal salaries to the extent these standards 
are inconsistent with regulations published to implement such offsets 
under 5 U.S.C. 5514 and 31 U.S.C. 3716 (see 5 CFR part 550, subpart K; 
31 CFR 285.7; and part 33 of this chapter);
    (v) Offsets under 31 U.S.C. 3728 against a judgment obtained by a 
debtor against the United States;
    (vi) Offsets or recoupments under common law, State law, or Federal 
statutes specifically prohibiting offsets or recoupments for particular 
types of debts; or
    (vii) Offsets in the course of judicial proceedings, including 
bankruptcy.
    (3) 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.
    (4) Unless otherwise provided by law, collection by administrative 
offset under the authority of 31 U.S.C. 3716 may not be conducted more 
than 10 years after the Department's right to collect the debt first 
accrued, unless facts material to the Department's right to collect the 
debt were not known and could not reasonably have been known by the 
Secretary. This limitation does not apply to debts reduced to judgment.
    (5) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, the Office of the General Counsel 
should be contacted for legal advice concerning the impact of the 
Bankruptcy Code, particularly 11 U.S.C. 106, 362 and 553, on pending or 
contemplated collections by offset.
    (b) Centralized administrative offset. (1) Except as provided in 
the exceptions listed in Sec.  30.10(c)(1), legally enforceable debts 
which are 180 days delinquent shall be referred to the Secretary of the 
Treasury for collection by centralized administrative offset pursuant 
to and in accordance with 31 CFR 901.3(b). Debts which are less than 
180 days delinquent, including debts referred to the Department by 
another agency, also may be referred to the Secretary of the Treasury 
for collection by centralized administrative offset.
    (2) When referring delinquent debts to the Secretary of the 
Treasury for centralized administrative offset, the Department must 
certify, in a form acceptable to the Secretary of the Treasury, that:
    (i) The debt is past due and legally enforceable; and
    (ii) The Department has complied with all due process requirements 
under 31 U.S.C. 3716(a) and paragraph (c)(2) of this section.
    (3) Payments that are prohibited by law from being offset are 
exempt from centralized administrative offset. The Secretary of the 
Treasury shall exempt payments under means-tested programs from 
centralized administrative offset when requested in writing by the head 
of the payment certifying or authorizing agency. Also, the Secretary of 
the Treasury may exempt other classes of payments from centralized 
offset upon the written request of the head of the payment certifying 
or authorizing agency.
    (c) Non-centralized administrative offset. (1) Unless otherwise 
prohibited by law, when centralized administrative offset under 
paragraph (b) of this section is not available or appropriate, the 
Secretary may collect a delinquent debt by conducting non-centralized 
administrative offset internally or in cooperation with the agency 
certifying or authorizing payments to the debtor.
    (2) Except as provided in paragraph (c)(3) of this section, 
administrative offset may be initiated only after:
    (i) The debtor has been sent written notice of the type and amount 
of the debt, the intention of the Department to initiate administrative 
offset to collect the debt, and an explanation of the debtor's rights 
under 31 U.S.C. 3716; and
    (ii) The debtor has been given:
    (A) The opportunity to inspect and copy Department records related 
to the debt;
    (B) The opportunity for a review within the Department of the 
determination of indebtedness; and
    (C) The opportunity to make a written agreement to repay the debt.
    (3) The due process requirements under paragraph (c)(2) of this 
section may be omitted when:
    (i) Offset is in the nature of a recoupment, i.e., the debt and the 
payment to be offset arise out of the same transaction or occurrence;
    (ii) The debt arises under a contract as set forth in Cecile 
Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and 
other procedural protections set forth in 31 U.S.C. 3716(a) do not 
supplant or restrict established procedures for contractual offsets 
covered by the Contracts Disputes Act); or
    (iii) In the case of non-centralized administrative offset 
conducted under paragraph (c)(1) of this section, the Department 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 Secretary shall give the 
debtor such notice and an opportunity for review as soon as practical 
and shall promptly refund any money ultimately found not to have been 
owed to the Government.
    (4) When the debtor previously has been given any of the required 
notice and review opportunities with respect to a particular debt, such 
as under Sec.  30.11 of this part, the Department need not duplicate 
such notice and review opportunities before administrative offset may 
be initiated.
    (5) Before requesting that a payment authorizing agency to conduct 
non-centralized administrative offset, the Department shall:
    (i) Provide the debtor with due process as set forth in paragraph 
(c)(2) of this section; and
    (ii) Provide the payment authorizing agency written certification 
that the debtor owes the past due, legally enforceable delinquent debt 
in the amount stated, and that the Department has fully complied with 
this section.
    (6) When a creditor agency requests that the Department, as the 
payment authorizing agency, conduct non-centralized administrative 
offset, the Secretary shall comply with the request, unless the offset 
would not be in the best interest of the United States with respect to 
the program of the Department, 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, including 
salary offset.
    (7) When collecting multiple debts by non-centralized 
administrative offset, the Department will 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.
    (d) Requests to OPM to offset a debtor's anticipated or future 
benefit payments under the Civil Service Retirement and Disability Fund 
and the Federal Employee Retirement System. Upon providing OPM written 
certification that a debtor has been

[[Page 10414]]

afforded the procedures provided in paragraph (c)(2) of this section, 
the Department 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 5 CFR part 831, subpart R, or 
under the Federal Employee Retirement System (FERS) in accordance with 
5 CFR part 845, subpart D. 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 or under FERS. This will satisfy any requirement that offset 
be initiated prior to the expiration of the time limitations referenced 
in 31 CFR 901.3(b)(4).
    (e) Review requirements. (1) For purposes of this section, whenever 
the Secretary is required to afford a debtor a review within the 
Department, the debtor shall be provided with a reasonable opportunity 
for an oral hearing when the debtor requests reconsideration of the 
debt and the Secretary 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.
    (2) Unless otherwise required by law, an oral hearing under this 
section is not required to be a formal evidentiary hearing, although 
the Department will carefully document all significant matters 
discussed at the hearing.
    (3) An oral hearing is not required with respect to debt collection 
systems where determinations of indebtedness rarely involve issues of 
credibility or veracity, and the Secretary has determined that a review 
of the written record is adequate to correct prior mistakes.
    (4) In those cases when an oral hearing is not required by this 
section, the Secretary shall accord the debtor a ``paper hearing,'' 
that is, a determination of the request for reconsideration based upon 
a review of the written record.


Sec.  30.13  Debt reporting and use of credit reporting agencies.

    (a) Reporting delinquent debts. (1) The Secretary will report 
delinquent debts over $100 to credit bureaus or other automated 
databases. Debts arising under the Social Security Act are excluded 
from paragraph (a).
    (2) Debts owed by individuals will be reported to consumer 
reporting agencies pursuant to 5 U.S.C. 552a(b)(12).
    (3) Once a debt has been referred to Treasury for collection, any 
subsequent reporting to or updating of a credit bureau or other 
automated database may be handled by the Treasury.
    (4) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, the Office of the General Counsel 
should be contacted for legal advice concerning the impact of the 
Bankruptcy Code, particularly with respect to the applicability of the 
automatic stay, 11 U.S.C. 362, and the procedures for obtaining relief 
from such stay prior to proceeding under paragraph (a) of this section.
    (5) If the debtor has not received prior written notice under Sec.  
30.11(b), before reporting a delinquent debt under this section, the 
Secretary shall provide the debtor at least 60 days written notice of 
the amount and nature of the debt; that the debt is delinquent and the 
Department intends to report the debt to a credit bureau (including the 
specific information that will be disclosed); that the debtor has the 
right to dispute the accuracy and validity of the information being 
disclosed; and, if a previous opportunity was not provided, that the 
debtor may request review within the Department of the debt or 
rescheduling of payment. The Secretary may disclose only the 
individual's name, address, and social security number and the nature, 
amount, status and history of the debt.
    (b) Use of credit reporting agencies. The Secretary may also use 
credit reporting agencies to obtain credit reports to evaluate the 
financial status of loan applicants, potential contractors and 
grantees; to determine a debtor's ability to repay a debt; and to 
locate debtors. In the case of an individual, the Secretary may 
disclose, as a routine use under 5 U.S.C 552a(b)(3), only the 
individual's name, address, and Social Security number and the purpose 
for which the information will be used.


Sec.  30.14  Contracting with private collection contractors and with 
entities that locate and recover unclaimed assets.

    (a) Subject to the provisions of paragraph (b) of this section, the 
Secretary may contract with private collection contractors to recover 
delinquent debts, provided that:
    (1) The Secretary retains the authority to resolve disputes, 
compromise debts, suspend or terminate collection action, and refer 
debts to Justice for litigation;
    (2) The private collection contractor is not allowed to offer the 
debtor, as an incentive for payment, the opportunity to pay the debt 
less the private collection contractor's fee unless the Secretary has 
granted such authority prior to the offer;
    (3) The contract provides that the private collection contractor is 
subject to the Privacy Act of 1974 to the extent specified in 5 U.S.C. 
552a(m), and to applicable Federal and State laws and regulations 
pertaining to debt collection practices, including but not limited to 
the Fair Debt Collection Practices Act, 15 U.S.C. 1692; and
    (4) The private collection contractor is required to account for 
all amounts collected.
    (b) The Secretary shall use government-wide debt collection 
contracts to obtain debt collection services provided by private 
collection contractors. However, the Secretary may refer debts to 
private collection contractors pursuant to a contract between the 
Department and the private collection contractor only if such debts are 
not subject to the requirement to transfer debts to the Department of 
the Treasury for debt collection under 31 U.S.C. 3711(g) and 31 CFR 
285.12(e).
    (c) Debts arising under the Social Security Act (which can be 
collected by private collection contractors only by Treasury after the 
debt has been referred to Treasury for collection) are excluded from 
this section.
    (d) The Secretary may fund private collection contractor contracts 
in accordance with 31 U.S.C. 3718(d), or as otherwise permitted by law. 
A contract under paragraph (a) of this section may provide that the fee 
a private collection contractor charges the Department for collecting 
the debt is payable from the amounts collected.
    (e) The Department may enter into contracts for locating and 
recovering assets of the United States including unclaimed assets. 
However, before entering into a contract to recover assets of the 
United States that may be held by a State government or financial 
institution, the Department must establish procedures that are 
acceptable to the Secretary of Treasury.
    (f) The Secretary may enter into contracts for debtor asset and 
income search reports. In accordance with 31 U.S.C. 3718(d), such 
contracts may provide that the fee a contractor charges the Department 
for such services may be payable from the amounts recovered, unless 
otherwise prohibited by statute.


Sec.  30.15  Suspension or revocation of eligibility for loans and loan 
guarantees, licenses, permits, or privileges.

    (a)(1) Unless waived by the Secretary, financial assistance in the 
form of loans, loan guarantees, or loan insurance shall not be extended 
to any person delinquent on a non-tax debt owed to the United States. 
This prohibition does not apply to disaster loans. Grants,

[[Page 10415]]

cooperative agreements, and contracts are not considered to be loans.
    (2) The authority to waive the application of this section may be 
delegated to the Chief Financial Officer and re-delegated only to the 
Deputy Chief Financial Officer.
    (3) States that manage Federal activities, pursuant to approval 
from the Secretary, should ensure that appropriate steps are taken to 
safeguard against issuing licences, permits, or other privileges to 
debtors who fail to pay their debts to the Federal Government.
    (b) The Secretary will report to Treasury any surety that fails to 
honor its obligations under 31 U.S.C. 9305.
    (c) In non-bankruptcy cases, when seeking to collect statutory 
penalties, forfeitures, or other types of claims, the Secretary may 
suspend or revoke licenses, permits, or other privileges of a 
delinquent debtor if the failure to pay the debt is found to be 
inexcusable or willful. Such suspension or revocation will extend to 
programs or activities 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.
    (d) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, before taking any action to 
suspend or revoke under paragraph (c) of this section, the Office of 
the General Counsel should be contacted for legal advice concerning the 
impact of the Bankruptcy Code, particularly 11 U.S.C. 362 and 525, 
which may restrict such action.


Sec.  30.16  Liquidation of collateral.

    (a)(1) The Secretary will liquidate security or collateral through 
the exercise of a power of sale in the security instrument or a non-
judicial 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 interests of the United 
States.
    (2) 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.
    (3) The Secretary will give the debtor reasonable notice of the 
sale and an accounting of any surplus proceeds and will comply with 
other requirements under law or contract.
    (b) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, the Office of the General Counsel 
should be contacted for legal advice concerning the impact of the 
Bankruptcy Code, particularly with respect to the applicability of the 
automatic stay, 11 U.S.C. 362, and the procedures for obtaining relief 
from such stay prior to proceeding under paragraph (a) of this section.


Sec.  30.17  Collection in installments.

    (a) Whenever feasible, the total amount of a debt shall be 
collected in one lump sum payment. If a debtor is financially unable to 
pay a debt in one lump sum, either by funds or administrative offset, 
the Secretary may accept payment in regular installments. The Secretary 
will obtain financial statements from debtors who represent that they 
are unable to pay in one lump sum and independently verify such 
representations as described in Sec.  30.22(a)(1).
    (b)(1) When the Secretary agrees to accept payments in regular 
installments, a legally enforceable written agreement should be 
obtained from the debtor that specifies all the terms and conditions of 
the agreement, and that includes a provision accelerating the debt in 
the event of a default.
    (2) The size and frequency of the payments should reasonably relate 
to the size of the debt and the debtor's ability to pay. Whenever 
feasible, the installment agreement will provide for full payment of 
the debt, including interest and charges, in three years or less.
    (3) In appropriate cases, the agreement should include a provision 
identifying security obtained from the debtor for the deferred 
payments.


Sec.  30.18  Interest, penalties, and administrative costs.

    (a) Generally. Except as provided in paragraphs (g), (h), and (i) 
of this section, the Department shall charge interest, penalties, and 
administrative costs on delinquent debts owed to the United States. 
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) Interest. The Department shall charge interest on delinquent 
debts owed the United States as follows:
    (1) Interest shall accrue from the date of delinquency, or as 
otherwise provided by law. For debts not paid by the date specified in 
the written demand for payment made under Sec.  30.11, the date of 
delinquency is the date of mailing of the notice. The date of 
delinquency for an installment payment is the due date specified in the 
payment agreement.
    (2) Unless a different rate is prescribed by statute, contract, or 
a repayment agreement, the rate of interest charged shall be the rate 
established annually by the Secretary of the Treasury pursuant to 31 
U.S.C. 3717. The Department may charge a higher rate if necessary to 
protect the rights of the United States and the Secretary has 
determined and documented a higher rate for delinquent debt is required 
to protect the Government's interests. Any such higher rate of interest 
charged will be based on Treasury's quarterly rate certification to the 
U.S. Public Health Service for delinquencies in the National Research 
Services Awards and the National Health Services Corps Scholarship 
Program. The Department publishes this rate in the Federal Register 
quarterly.
    (3) Unless prescribed by statute or contract, 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 Department may require payment of 
interest at a new rate that reflects the Treasury rate in effect 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, unless prescribed by 
statute or contract. If, however, the 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) Administrative costs. The Department shall assess 
administrative costs incurred for processing and handling delinquent 
debts. The calculation of administrative costs should be based on 
actual costs incurred or a valid estimate of the actual costs. 
Calculation of administrative costs shall include all direct 
(personnel, supplies, etc.) and indirect collection costs, including 
the cost of providing a hearing or any other form of administrative 
review requested by a debtor, and any costs charged by a collection 
agency under Sec.  30.14. These charges will be assessed monthly, or 
per payment period, throughout the period that the debt is overdue. 
Such costs may also be in addition to other administrative costs if 
collection is being made for another Federal agency or unit.
    (d) Penalty. Unless otherwise established by contract, repayment 
agreement, or statute, the Secretary will charge a penalty of six 
percent a year on the amount due on a debt that is

[[Page 10416]]

delinquent for more than 90 days. This charge shall accrue from the 
date of delinquency.
    (e) Cost of living adjustment. 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, an 
administrative debt may be increased 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 guaranties. 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. Such increases to administrative debts shall be computed 
annually.
    (f) Priority. When a debt is paid in partial or installment 
payments, amounts received shall be applied first to outstanding 
penalties, second to administrative charges, third to interest, and 
last to principal.
    (g) Waiver. (1) The Secretary 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. The Secretary may extend this 30-day 
period on a case-by-case basis if the Secretary determines that such 
action is in the best interest of the Government, or otherwise 
warranted by equity and good conscience.
    (2) The Secretary also may waive interest, penalties, and 
administrative charges charged under this section, in whole or in part, 
without regard to the amount of the debt, based on:
    (i) The criteria set forth at Sec.  30.22(a)(1) through (4) for the 
compromise of debts; or
    (ii) A determination by the Secretary that collection of these 
charges is:
    (A) Against equity and good conscience; or
    (B) Not in the best interest of the United States.
    (h) Review. (1) Except as provided in paragraph (h)(2) of this 
section, administrative review of a debt will not suspend the 
assessment of interest, penalties, and administrative costs. While 
agency review of a debt is pending, the debtor either may pay the debt 
or be liable for interest and related charges on the uncollected debt. 
When agency review results in a final determination that any amount was 
properly a debt and the debtor chose to retain the amount in dispute, 
the Secretary shall collect from the debtor the amount determined to be 
due, plus interest, penalties and administrative costs on such debt 
amount, as calculated under this section, starting from the date the 
debtor was first made aware of the debt and ending when the debt is 
repaid.
    (2) Exception. Interest, penalties, and administrative cost charges 
will not be imposed on a debt for periods during which collection 
activity has been suspended under Sec.  30.29(c)(1) pending agency 
review or consideration of waiver if statute prohibits collection of 
the debt during this period.
    (i) Common law or other statutory authority. The Department may 
impose and waive interest and related charges on debts not subject to 
31 U.S.C. 3717 in accordance with the common law or other statutory 
authority.


Sec.  30.19  Review of cost effectiveness of collection.

    Periodically, the Secretary will compare costs incurred and amounts 
collected. Data on costs and corresponding recovery rates for debts of 
different types and in various dollar ranges will be used to compare 
the cost effectiveness of alternative collection techniques, establish 
guidelines with respect to points at which costs of further collection 
efforts are likely to exceed recoveries, assist in evaluating offers in 
compromise, and establish minimum debt amounts below which collection 
efforts need not be taken.


Sec.  30.20  Taxpayer information.

    (a) When attempting to locate a debtor in order to collect or 
compromise a debt under this part or any other authority, the Secretary 
may send a request to Treasury in accordance with 31 CFR 901.11 to 
obtain a debtor's mailing address from the records of the IRS.
    (b) Mailing addresses obtained under paragraph (a) of this section 
may be used to enforce collection of a delinquent debt and may be 
disclosed to other agencies and to collection agencies for collection 
purposes.

Subpart C--Debt Compromise


Sec.  30.21  Scope and application.

    (a) Scope. The standards set forth in this subpart apply to the 
compromise of debts pursuant to 31 U.S.C. 3711. The Secretary may 
exercise such compromise authority for debts arising out of activities 
of, or referred or transferred for collection services to, the 
Department when the amount of the debt then due, exclusive of interest, 
penalties, and administrative costs, does not exceed $100,000, or any 
higher amount authorized by the Attorney General.
    (b) Application. Unless otherwise provided by law, when the 
principal balance of a debt, exclusive of interest, penalties, and 
administrative costs, exceeds $100,000 or any higher amount authorized 
by the Attorney General, the authority to accept a compromise rests 
with Justice. The Secretary shall evaluate the compromise offer, using 
the factors set forth in this subpart. If an offer to compromise any 
debt in excess of $100,000 is acceptable to the Department, the 
Secretary shall refer the debt to the Civil Division or other 
appropriate litigating division in Justice using a Claims Collection 
Litigation Report (CCLR), which may be obtained from Justice's National 
Central Intake Facility. The referral shall include appropriate 
financial information and a recommendation for the acceptance of the 
compromise offer. Justice approval is not required if the Secretary 
rejects a compromise offer.


Sec.  30.22  Bases for compromise.

    (a) Compromise. The Secretary may compromise a debt if the full 
amount cannot be collected based upon inability to pay, inability to 
collect the full debt, cost of collection, or doubt debt can be proven 
in court.
    (1) Inability to pay. The debtor is unable to pay the full amount 
in a reasonable time, as verified through credit reports or other 
financial information. In determining a debtor's inability to pay the 
full amount of the debt within a reasonable time, the Secretary will 
obtain and verify the debtor's claim of inability to pay by using 
credit reports or a current financial Statement from the debtor, 
executed under penalty of perjury, showing the debtor's assets, 
liabilities, income, and expenses. The Secretary may use a Departmental 
financial information form or may request suitable forms from Justice 
or the local United States Attorney's Office. The Secretary also may 
consider other relevant factors such as:
    (i) Age and health of the debtor;
    (ii) Present and potential income;
    (iii) Inheritance prospects;
    (iv) The possibility that assets have been concealed or improperly 
transferred by the debtor; and
    (v) The availability of assets or income that may be realized by 
enforced collection proceedings.
    (2) Inability to collect full debt. The Government is unable to 
collect the debt in full within a reasonable time by enforced 
collection proceedings.

[[Page 10417]]

    (i) In determining the Government's ability to enforce collection, 
the Secretary will consider the applicable exemptions available to the 
debtor under State and Federal law, and may also consider uncertainty 
as to the price the collateral or other property will bring at a forced 
sale.
    (ii) A compromise effected under this section should be for an 
amount that bears a reasonable relation to the amount that can be 
recovered by enforced collection procedures, with regard to the 
exemptions available to the debtor and the time that collection will 
take.
    (3) Cost of collection. The cost of collecting the debt does not 
justify the enforced collection of the full amount.
    (i) The Secretary may compromise a debt if the cost of collecting 
the debt does not justify the enforced collection of the full amount. 
The amount accepted in compromise of such cases may reflect an 
appropriate discount for the administrative and litigation costs of 
collection, with consideration given to the time it will take to effect 
collection. Collection costs may be a substantial factor in the 
settlement of small debts.
    (ii) In determining whether the costs of collection justify 
enforced collection of the full amount, the Secretary will consider 
whether continued collection of the debt, regardless of cost, is 
necessary to further an enforcement principal, such as the Government's 
willingness to pursue aggressively defaulting and uncooperative 
debtors.
    (4) Doubt debt can be proven in court. There is significant doubt 
concerning the Government's ability to prove its case in court.
    (i) If there is significant doubt concerning the Government's 
ability to prove its case in court for the full amount claimed, either 
because of the legal issues involved or because of a bona fide dispute 
as to the facts, then the amount accepted in compromise of such cases 
should fairly reflect the probabilities of successful prosecution to 
judgment, with due regard to the availability of witnesses and other 
evidentiary support for the Government's claim.
    (ii) In determining the litigation risks involved, the Secretary 
will consider the probable amount of court costs and attorney fees 
pursuant to the Equal Access to Justice Act, 28 U.S.C. 2412, that may 
be imposed against the Government if it is unsuccessful in litigation.
    (b) Installments. The Secretary generally will not accept 
compromises payable in installments. This is not an advantageous form 
of compromise in terms of time and administrative expense. If, however, 
payment of a compromise in installments is necessary, the Secretary 
shall, except in the case of compromises based on paragraph (a)(4) of 
this section, obtain a legally enforceable written agreement providing 
that, in the event of default, the full original principal balance of 
the debt prior to compromise, less sums paid thereon, is reinstated. 
The Office of the General Counsel should be consulted concerning the 
appropriateness of including such a requirement in the case of 
compromises based on paragraph (a)(4) of this section. Whenever 
possible, the Secretary will obtain security for repayment in the 
manner set forth in subpart B of this part.


Sec.  30.23  Enforcement policy.

    The Secretary may compromise statutory penalties, forfeitures, or 
claims established as an aid to enforcement and to compel compliance if 
the Department's enforcement policy, in terms of deterrence and 
securing compliance, present and future, will be adequately served by 
the Secretary's acceptance of the sum to be agreed upon.


Sec.  30.24  Joint and several liability.

    (a) When two or more debtors are jointly and severally liable, the 
Secretary will pursue collection against all debtors, as appropriate. 
The Secretary will not attempt to allocate the burden of payment 
between the debtors but will proceed to liquidate the indebtedness as 
quickly as possible.
    (b) The Secretary will ensure that a compromise agreement with one 
debtor does not automatically release the Department's claim against 
the remaining debtor(s). The amount of a compromise with one debtor 
shall not be considered a precedent or binding in determining the 
amount that will be required from other debtors jointly and severally 
liable on the claim.


Sec.  30.25  Further review of compromise offers.

    If the Secretary is uncertain whether to accept a firm, written, 
substantive compromise offer on a debt that is within the Secretary's 
delegated compromise authority, the Secretary may refer the offer to 
the Civil Division or other appropriate litigating division in Justice, 
using a CCLR accompanied by supporting data and particulars concerning 
the debt. Justice may act upon such an offer or return it to the 
Secretary with instructions or advice.


Sec.  30.26  Consideration of tax consequences to the Government.

    In negotiating a compromise, the Secretary will consider the tax 
consequences to the Government. In particular, the Secretary will 
consider requiring a waiver of tax-loss-carry-forward and tax-loss-
carry-back rights of the debtor. For information on discharge of 
indebtedness reporting requirements see Sec.  30.32.


Sec.  30.27  Mutual release of the debtor and the Government.

    In all appropriate instances, a compromise that is accepted by the 
Secretary will be implemented by means of a mutual release. The terms 
of such mutual release shall provide that the debtor is released from 
further non-tax liability on the compromised debt in consideration of 
payment in full of the compromise amount and the Government and its 
officials, past and present, are released and discharged from any and 
all claims and causes of action arising from the same transaction that 
the debtor may have. In the event a mutual release is not executed when 
a debt is compromised, unless prohibited by law, the debtor is still 
deemed to have waived any and all claims and causes of action against 
the Government and its officials related to the transaction giving rise 
to the compromised debt.

Subpart D--Suspending and Terminating Collection Activities


Sec.  30.28  Scope and application.

    (a) Scope. The standards set forth in this subpart apply to the 
suspension or termination of collection activity pursuant to 31 U.S.C. 
3711 on debts that do not exceed $100,000, or such other amount as the 
Attorney General may direct, exclusive of interest, penalties, and 
administrative costs, after deducting the amount of partial payments or 
collections, if any. Prior to referring a debt to Justice for 
litigation, the Secretary may suspend or terminate collection under 
this subpart with respect to debts arising out of activities of, or 
referred or transferred for collection services to, the Department.
    (b) Application. (1) If, after deducting the amount of partial 
payments or collections, the principal amount of the debt exceeds 
$100,000, or such other amount as the Attorney General may direct, 
exclusive of interest, penalties, and administrative costs, the 
authority to suspend or terminate rests solely with Justice.
    (2) If the Secretary believes that suspension or termination of any 
debt in excess of $100,000 may be appropriate,

[[Page 10418]]

the Secretary shall refer the debt to the Civil Division or other 
appropriate litigating division in Justice, using the CCLR. The 
referral will specify the reasons for the Secretary's recommendation. 
If, prior to referral to Justice, the Secretary determines that a debt 
is plainly erroneous or clearly without merit, the Secretary may 
terminate collection activity regardless of the amount involved without 
obtaining Justice concurrence.


Sec.  30.29  Suspension of collection activity.

    (a) Generally. The Secretary may suspend collection activity on a 
debt when:
    (1) The Department cannot locate the debtor;
    (2) The debtor's financial condition is expected to improve; or
    (3) The debtor has requested a waiver or review of the debt.
    (b) Financial condition. Based on the current financial condition 
of a debtor, the Secretary may suspend collection activity on a debt 
when the debtor's future prospects justify retention of the debt for 
periodic review and collection activity, and:
    (1) The applicable statute of limitations has not expired;
    (2) Future collection can be effected by administrative offset, 
notwithstanding the expiration of the applicable statute of limitations 
for litigation of claims, with due regard to the 10-year limitation for 
administrative offset prescribed by 31 U.S.C. 3716(e)(1); or
    (3) The debtor agrees to pay interest on the amount of the debt on 
which collection will be suspended, and such suspension is likely to 
enhance the debtor's ability to pay the full amount of the principal of 
the debt with interest at a later date.
    (c) Waiver or review. (1) The Secretary shall suspend collection 
activity during the time required for consideration of the debtor's 
request for waiver or administrative review of the debt if the statute 
under which the request is sought prohibits the Secretary from 
collecting the debt during that time.
    (2) If the statute under which the waiver or administrative review 
request is sought does not prohibit collection activity pending 
consideration of the request, the Secretary may use discretion, on a 
case-by-case basis, to suspend collection. Collection action ordinarily 
will be suspended upon a request for waiver or review if the Secretary 
is prohibited by statute or regulation from issuing a refund of amounts 
collected prior to agency consideration of the debtor's request. 
However, collection will not be suspended when the Secretary determines 
that the request for waiver or review is frivolous or was made 
primarily to delay collection.
    (d) Bankruptcy. Upon learning that a bankruptcy petition has been 
filed with respect to a debtor, in most cases the Secretary must 
suspend collection activity on the debt, pursuant to the provisions of 
11 U.S.C. 362, 1201, and 1301, unless the Secretary can clearly 
establish that the automatic stay has been lifted or is no longer in 
effect. The Office of the General Counsel should be contacted 
immediately for legal advice, and the Secretary will take the necessary 
legal steps to ensure that no funds or money are paid by the Department 
to the debtor until relief from the automatic stay is obtained.


Sec.  30.30  Termination of collection activity.

    (a) The Secretary may terminate collection activity when:
    (1) The Department is unable to collect any substantial amount 
through its own efforts or through the efforts of others;
    (2) The Department is unable to locate the debtor;
    (3) Costs of collection are anticipated to exceed the amount 
recoverable;
    (4) The debt is legally without merit or enforcement of the debt is 
barred by any applicable statute of limitations;
    (5) The debt cannot be substantiated; or
    (6) The debt against the debtor has been discharged in bankruptcy.
    (b)(1) Collection activity will not be terminated before the 
Secretary has pursued all appropriate means of collection and 
determined, based upon the results of the collection activity, that the 
debt is uncollectible.
    (2) Termination of collection activity ceases active collection of 
the debt. The termination of collection activity does not preclude the 
Secretary from retaining a record of the account for purposes of:
    (i) Selling the debt, if the Secretary of the Treasury determines 
that such sale is in the best interest of the United States;
    (ii) Pursuing collection at a subsequent date in the event there is 
a change in the debtor's status or a new collection tool becomes 
available;
    (iii) Offsetting against future income or assets not available at 
the time of termination of collection activity; or
    (iv) Screening future applicants for prior indebtedness.
    (c) Generally, the Secretary shall terminate collection activity on 
a debt that has been discharged in bankruptcy, regardless of the 
amount. The Secretary may continue collection activity, however, 
subject to the provisions of the Bankruptcy Code, for any payments 
provided under a plan of reorganization. Offset and recoupment rights 
may survive the discharge of the debtor in bankruptcy and, under some 
circumstances, claims also may survive the discharge. For example, when 
the Department is a known creditor of a debtor the claims of the 
Department may survive a discharge if the Department did not receive 
formal notice of the bankruptcy proceedings. When the Department 
believes that it has claims or offsets that may have survived the 
discharge of the debtor, the Office of the General Counsel should be 
contacted for legal advice.


Sec.  30.31  Exception to termination.

    When a significant enforcement policy is involved, or recovery of a 
judgment is a prerequisite to the imposition of administrative 
sanctions, the Secretary may refer debts to Justice for litigation even 
though termination of collection activity may otherwise be appropriate.


Sec.  30.32  Discharge of indebtedness; reporting requirements.

    (a)(1) Before discharging a delinquent debt, also referred to as 
close out of the debt, the Secretary shall take all appropriate steps 
to collect the debt in accordance with 31 U.S.C. 3711(g)(9), and parts 
30 through 33 of this chapter, including, as applicable, administrative 
offset; tax refund offset; Federal salary offset; credit bureau 
reporting; administrative wage garnishment; litigation; foreclosure; 
and referral to Treasury, Treasury-designated debt collection centers, 
or private collection contractors.
    (2) Discharge of indebtedness is distinct from termination or 
suspension of collection activity under this subpart, and is governed 
by the Internal Revenue Code. When collection action on a debt is 
suspended or terminated, the debt remains delinquent and further 
collection action may be pursued at a later date in accordance with the 
standards set forth in this part and 31 CFR parts 900 through 904.
    (3) When the Department discharges a debt in full or in part, 
further collection action is prohibited. Therefore, before discharging 
a debt, the Secretary must:
    (i) Make the determination that collection action is no longer 
warranted; and
    (ii) Terminate debt collection action.
    (b) In accordance with 31 U.S.C. 3711(i), the Secretary shall use 
competitive procedures to sell a delinquent debt upon termination of 
collection action if the Secretary of the

[[Page 10419]]

Treasury determines such a sale is in the best interests of the United 
States. Since the discharge of a debt precludes any further collection 
action, including the sale of a delinquent debt, the Secretary may not 
discharge a debt until the requirements of 31 U.S.C. 3711(i) have been 
meet.
    (c) Upon discharge of an indebtedness, the Secretary must report 
the discharge to the IRS in accordance with the requirements of 26 
U.S.C. 6050P and 26 CFR 1.6050P-1. The Secretary may request that 
Treasury or Treasury-designated debt collection centers file such a 
discharge report to the IRS on the Department's behalf.
    (d) When discharging a debt, the Secretary must request that 
litigation counsel release any liens of record securing the debt.

Subpart E--Referrals to the Department of Justice


Sec.  30.33  Prompt referral.

    (a)(1) The Secretary promptly shall refer to Justice for litigation 
debts on which aggressive collection activity has been taken in 
accordance with subpart B of this part, and that cannot be compromised, 
or on which collection activity cannot be suspended or terminated, in 
accordance with subpart D of this part.
    (2) The Secretary may refer to Justice for litigation those debts 
arising out of activities of, or referred or transferred for collection 
services to, the Department.
    (b)(1) Debts for which the principal amount is over $1,000,000, or 
such other amount as the Attorney General may direct, exclusive of 
interest, penalties, and administrative costs shall be referred to the 
Civil Division or other division responsible for litigating such debts 
at the Department of Justice, Washington DC.
    (2) Debts for which the principal amount is $1,000,000 or less, or 
such other amount as the Attorney General may direct, exclusive of 
interest, penalties, and administrative costs shall be referred to the 
Nationwide Central Intake Facility at Justice as required by the CCLR 
instructions.
    (c)(1) Consistent with aggressive agency collection activity and 
the standards contained in this part and 31 CFR parts 900 through 904, 
debts shall be referred to Justice as early as possible, and, in any 
event, well within the period for initiating timely lawsuits against 
the debtors.
    (2) The Secretary shall make every effort to refer delinquent debts 
to Justice for litigation within one year of the date such debts last 
became delinquent. In the case of guaranteed or insured loans, the 
Secretary will make every effort to refer these delinquent debts to 
Justice for litigation within one year from the date the loan was 
presented to the Department for payment or re-insurance.
    (d) Justice has exclusive jurisdiction over debts referred to it 
pursuant to this subpart. Upon referral of a debt to Justice, the 
Secretary shall:
    (1) Immediately terminate the use of any administrative collection 
activities to collect the debt;
    (2) Advise Justice of the collection activities utilized to date, 
and their result; and
    (3) Refrain from having any contact with the debtor and direct all 
debtor inquiries concerning the debt to Justice.
    (e) After referral of a debt under this subpart, the Secretary 
shall immediately notify the Department of Justice of any payments 
credited by the Department to the debtor's account. Pursuant to 31 CFR 
904.1(b), after referral of the debt under this subpart, Justice shall 
notify the Secretary of any payment received from the debtor.


Sec.  30.34  Claims Collection Litigation Report.

    (a)(1) Unless excepted by Justice, the Secretary will complete the 
CCLR, accompanied by a signed Certificate of Indebtedness, to refer all 
administratively uncollectible claims to the Department of Justice for 
litigation.
    (2) The Secretary shall complete all of the sections of the CCLR 
appropriate to each debt as required by the CCLR instructions, and 
furnish such other information as may be required in specific cases.
    (b) The Secretary shall indicate clearly on the CCLR the actions 
that the Department wishes Justice to take with respect to the referred 
debt. The Secretary may indicate specifically any of a number of 
litigation activities which Justice may pursue, including enforced 
collection, judgement lien only, renew judgement lien only, renew 
judgement lien and enforced collection, program enforcement, 
foreclosure only, and foreclosure and deficiency judgment.
    (c) The Secretary also shall use the CCLR to refer a debt to 
Justice for the purpose of obtaining approval of a proposal to 
compromise the debt, or to suspend or terminate administrative 
collection activity of the debt.


Sec.  30.35  Preservation of evidence.

    The Secretary will maintain and preserve all files and records that 
may be needed by Justice to prove the Department's claim in court. When 
referring debts to Justice for litigation, certified copies of the 
documents that form the basis for the claim should be provided along 
with the CCLR. Upon its request, the original documents will be 
provided to Justice.


Sec.  30.36  Minimum amount of referrals.

    (a) Except as in paragraph (b) of this section, claims of less than 
$2,500 exclusive of interest, penalties, and administrative costs, or 
such other amount as the Attorney General may prescribe, shall not be 
referred for litigation.
    (b) The Secretary shall not refer claims of less than the minimum 
amount unless:
    (1) Litigation to collect such smaller amount is important to 
ensure compliance with the policies and programs of the Department;
    (2) The claim is being referred solely for the purpose of securing 
a judgment against the debtor, which will be filed as a lien against 
the debtor's property pursuant to 28 U.S.C. 3201 and returned to the 
Department for enforcement; or
    (3) The debtor has the clear ability to pay the claim and the 
Government effectively can enforce payment, with due regard for the 
exemptions available to the debtor under State and Federal law and the 
judicial remedies available to the Government.
    (c) The Secretary should consult with the Financial Litigation 
Staff of the Executive Office for United States Attorneys in Justice 
prior to referring claims valued at less than the minimum amount.

    Dated: November 27, 2006.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received at the Office of the 
Federal Register on March 2, 2007.
[FR Doc. E7-4002 Filed 3-7-07; 8:45 am]
BILLING CODE 4150-26-P