[Federal Register Volume 73, Number 46 (Friday, March 7, 2008)]
[Rules and Regulations]
[Pages 12272-12274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-4586]


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DEPARTMENT OF THE TREASURY

DEPARTMENT OF JUSTICE

31 CFR Part 901

[A.G. Order No. 2918-2007]
Treasury RIN 1510-AA91
Justice RIN 1105-AB26


Standards for the Administrative Collection of Claims

AGENCIES: Department of the Treasury; Department of Justice.

ACTION: Interim rule with request for comments.

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SUMMARY: The Federal Claims Collection Standards (FCCS), provide 
governmentwide debt collection procedures and policies for agencies 
collecting non-tax debts owed to the United States. This rule revises 
part 901, which specifies the order in which a federal agency is 
required to apply a partial or installment payment to the various 
components of a delinquent, non-tax debt owed to the United States. 
Under the current rule, payments are required to be applied first to 
penalties, then to administrative costs, then to interest, and last to 
principal. As revised, the rule would require agencies to apply 
payments first to administrative costs that are paid out of amounts 
collected from the debtor (referred to as ``contingency fees'') when 
such costs are added to the debt, second to penalties, third to 
administrative costs other than contingency fees, fourth to interest, 
and last to principal. Additionally, the term ``administrative 
charges'' is being replaced with ``administrative costs'' for 
consistency and clarity.

DATES: This rule is effective April 7, 2008. Comments must be received 
by April 7, 2008.

ADDRESSES: All comments should be addressed to Thomas Dungan, Policy 
Analyst, Debt Management Services, Financial Management Service, 
Department of the Treasury, 401 14th Street, SW., Room 435, Washington, 
DC 20227. A copy of this interim rule is being made available for 
downloading from the Financial Management Service Web site at the 
following address: http://www.fms.treas.gov/debt. Comments also may be 
sent electronically through http://www.regulations.gov using the 
electronic comment form provided on that site. An electronic copy of 
this document is also available at the http://www.regulations.gov Web 
site.

FOR FURTHER INFORMATION CONTACT: Thomas Dungan, Policy Analyst,

[[Page 12273]]

Financial Management Service, Department of the Treasury, at (202) 874-
6660; Ellen Neubauer, Senior Attorney, Financial Management Service, 
Department of the Treasury, at (202) 874-6680; or Ruth Harvey, 
Commercial Litigation Branch, Civil Division, Department of Justice, at 
(202) 307-0388.

SUPPLEMENTARY INFORMATION: The Federal Claims Collection Standards 
(FCCS), codified at 31 CFR parts 900 through 904, provide 
governmentwide debt collection procedures and policies for agencies 
collecting non-tax debts owed to the United States. Part 901 of the 
FCCS governs how agencies assess interest, penalties, and 
administrative costs on delinquent debts. Paragraph (f) of section 
901.9 of the FCCS governs how a debtor's partial or installment 
payments are to be applied to the various components of a debt. 
Specifically, section 901.9(f) states: ``When a debt is paid in partial 
or installment payments, amounts received by the agency shall be 
applied first to outstanding penalties, second to administrative 
charges, third to interest, and last to principal.'' This rule revises 
section 901.9(f) of the FCCS by changing the order in which partial or 
installment payments are to be applied to certain administrative 
charges, also known as ``administrative costs.''
    Administrative costs are the costs incurred by a federal agency to 
collect a delinquent debt. Such costs include fees paid to another 
federal agency or to a private collection contractor for debt 
collection services when those fees are paid from amounts collected 
from the debtor. See 31 U.S.C. 3711(g)(6) and 31 CFR 901.1(f) 
(authorizing agencies operating Treasury-designated debt collection 
centers to charge fees that may be paid out of amounts collected) and 
31 U.S.C. 3718(d) and 31 CFR 901.5(c) (authorizing agencies to pay 
private collection contractors out of amounts collected). Such fees, 
commonly referred to as ``contingency fees,'' must be added to the debt 
as an administrative cost to the Government, except as otherwise 
provided by law. See 31 U.S.C. 3717(e)(1) and 31 CFR 901.9(a) and (c). 
Agencies may calculate the amount to be added to the debt as an 
administrative cost based either on the actual costs incurred or on 
cost analyses establishing an average cost for processing and handling 
the agency's delinquent debts. Adding the contingency fee to the 
delinquent debt based on actual cost provides the best method of 
ensuring that the components of the debt balance accurately reflect how 
the amounts collected from the debtor were actually applied by the 
agency. This revision to the rule affects how an agency applies partial 
or installment payments only in those cases in which the agency adds 
the actual amount of the contingency fee to the debt as an 
administrative cost.
    As revised, section 901.9(f) will require agencies to apply partial 
or installment payments first to contingency fees added to the debt, 
second to penalties, third to administrative costs other than 
contingency fees, fourth to interest, and last to principal. The 
revision will provide consistency between how contingency fees are 
actually paid out of a debtor's payments and how a debtor's payments 
are applied to debt components, thereby allowing agencies to more 
accurately account for the payment of contingency fees from amounts 
collected.
    Example: To illustrate the effect of this change, the following 
example is provided. Assume a debtor owes $1,500 to the Government, as 
follows:

  $200  Penalty
   100  Administrative Costs (excluding contingency fees of $20)
   200  Accrued Interest
 1,000  Principal
-------
 1,500  Balance Due
 

    If a private collection agency (PCA) that charges the Government a 
20% contingency fee collects $100 from a debtor, the PCA is paid $20 
from the $100 collection before the remaining $80 is returned to the 
federal agency collecting the debt. The debtor receives a credit of 
$100 for the amount paid.
    Under the current FCCS, the $100 paid by the debtor in this example 
would be applied first to any penalties owed by the debtor, rather than 
to the contingency fee paid from the amount collected. Since the debtor 
in our example owed $200 in penalties, the entire $100 collection would 
be applied to the debtor's penalties even though the federal agency 
would have only received $80 in actual cash to apply toward that part 
of the debt. Additionally, the agency would add the fee charged by the 
PCA ($20) to the debt as an administrative cost, thereby not reflecting 
the fact that the debtor had, in effect, paid the contingency fee at 
the time of making the payment on the debt. Thus, after application of 
the entire payment to the penalty under the current FCCS, the 
outstanding balance on the debt would be $1,420, as follows:

  $100  Penalty (after applying the $100 received from the debtor);
   120  Administrative Costs (after adding the PCA charge of $20);
   200  Accrued Interest
 1,000  Principal
-------
 1,420  Balance Due
 

    As revised, the FCCS would require the federal agency to apply $20 
to the contingency fee paid, and to apply the remaining $80 to 
penalties. After application of the payment to the contingency fee and 
the penalty, the outstanding balance on the debt would be $1,420, as 
follows:

    $0  Contingency fee (after adding $20 to the debt, and then
         subtracting $20 as paid);
   120  Penalty (after applying the remaining $80 paid by the debtor,
         the net amount actually received by the agency);
   100  Administrative Costs (other than contingency fees);
   200  Accrued Interest
 1,000  Principal
-------
 1,420  Balance Due
 

    For an agency that does not add the cost of the contingency fee to 
the debt, this revision to the FCCS will have no practical effect. If 
the debt in our example was owed to an agency that does not add the 
contingency fee to the debt, the $100 payment made by the debtor would 
be applied entirely to the penalty as follows:

  $100  Penalty (after applying the $100 paid by the debtor without
         deduction for the contingency fee paid by the agency to the
         PCA);
   100  Administrative Costs (other than contingency fees);
   200  Accrued Interest
 1,000  Principal
-------
 1,400  Total
 

    This rule also replaces the term ``administrative charges'' in 
paragraphs 901.9(f) and 901.9(g) with the term ``administrative costs'' 
for consistency and clarity.

Regulatory Flexibility Act

    The Department of the Treasury and Department of Justice are 
promulgating this interim rule without opportunity for prior public 
comment pursuant to the Administrative Procedure Act, 5 U.S.C. 553 (the 
``APA'' ). The notice and comment requirements of the APA do not apply 
to the interim rule for two reasons. First, the interim rule concerns 
accounting methods as applied to a component of a debt (that is, 
certain administrative costs) and does not result

[[Page 12274]]

in any change to balances due by a debtor on any debt owed to the 
United States. The interim rule therefore addresses an internal 
``agency * * * procedure, or practice'' within the meaning of section 
553(b)(3)(A). Second, and relatedly, the Departments have determined 
that a comment period would be ``unnecessary'' under section 
553(b)(3)(B), as the interim rule does not alter or affect the rights, 
interests, or duties of any person or entity. Because no notice of 
proposed rulemaking is required, the provisions of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) do not apply.
    The public is invited to submit comments on the interim rule, which 
will be taken into account before a final rule is issued.

Regulatory Analysis

    This action is limited to agency organization and management as 
described by Executive Order 12866 ((3(d)(3) and, therefore, is not a 
``regulation'' as defined by that Executive Order. Accordingly, review 
of this action by the Office of Management and Budget is not required.

Congressional Review Act

    This action pertains to agency organization and management and does 
not substantially affect the rights or obligations of non-agency 
parties and, accordingly, is not a ``rule'' as that term is used by the 
Congressional Review Act (Subtitle E of the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA)). Therefore, the reporting 
requirement of 5 U.S.C. 801 does not apply.

List of Subjects in Part 901

    Administrative practice and procedure, Claims, Federal employees, 
Penalties, Privacy.

Authority and Issuance

0
For the reasons set forth in the preamble, part 901 of title 31 of the 
Code of Federal Regulations is amended as follows:

PART 901--STANDARDS FOR THE ADMINISTRATIVE COLLECTION OF CLAIMS

0
1. The authority citation for part 901 continues to read as follows:

    Authority: 31 U.S.C. 3701, 3711, 3716, 3717, 3718 and 3720B.

0
2. In Sec.  901.9, revise paragraph (f) to read as follows:


Sec.  901.9  Interest, penalties and administrative costs.

* * * * *
    (f) When a debt is paid in partial or installment payments, amounts 
received by the Government shall be applied first to any contingency 
fees added to the debt, second to outstanding penalties, third to 
administrative costs other than contingency fees, fourth to interest, 
and last to principal. For purposes of this paragraph (f), 
``contingency fees'' are administrative costs resulting from fees paid 
by a Federal agency to other Federal agencies or private collection 
contractors for collection services rendered when the fees are paid 
from the amounts collected from a debtor.
* * * * *

0
3. In Sec.  901.9, revise paragraph (g) by removing the word 
``charges'' in the first sentence and adding in its place the word 
``costs''.

    Dated: February 28, 2008.
Henry M. Paulson, Jr.,
Secretary of the Treasury.
    Dated: November 6, 2007.
Peter D. Keisler,
Acting Attorney General.
[FR Doc. E8-4586 Filed 3-6-08; 8:45 am]
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