Debt Settlement Policies and Procedures

SUMMARY: This proposed rule would amend the Commodity Credit

Corporation's (CCC's) debt settlement policies and procedures to remove

references to Internal Revenue Service Notices of Levy, except to

exempt them from coverage, and to revise the rate of interest to be

charged on delinquent debts. This proposed rule would also amend the

Agricultural Stabilization and Conservation Service's (ASCS') and CCC's

debt settlement policies and procedures to provide for offset of a

debtor's pro rata share of payments due any entity which the debtor

participates in, either directly or indirectly. This regulation is

necessary to protect the financial integrity of many Federal

agricultural programs by ensuring the Government will be able to

collect, or otherwise settle, debts owed it by any person,

organization, corporation, or other legal entity.

DATES: Comments must be received by September 23, 1994 in order to be

assured of consideration.

ADDRESSES: Comments concerning this proposed rule should be addressed

to Director, Financial Management Division, ASCS, U.S. Department of

Agriculture, P.O. Box 2415, Washington, DC 20013-2415. All comments

submitted in response to this proposed rule will be available for

public inspection in room 1206, Park Office Center, 3101 Park Center

Drive, Alexandria, VA, between 8:30 a.m. and 4:00 p.m., Monday through

Friday, except holidays.

FOR FURTHER INFORMATION CONTACT: Paula Roney, Debt Management and

Contract Procedures Branch, Financial Management Division, ASCS, at

703-305-1424.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This proposed rule has been reviewed in conformance with Executive

Order 12866 and has been determined to be a significant regulatory

action.

Paperwork Reduction Act

This action will not increase the Federal paperwork burden for

individuals, small businesses, and others and will not have a

significant impact on a substantial number of small entities.

Regulatory Flexibility Act

Neither ASCS nor CCC is required by 5 U.S.C. 553 or any other

provision of law to publish a notice of proposed rulemaking with

respect to the subject matter of this final rule. Therefore this action

is exempt from the provision of the Regulatory Flexibility Act and no

Regulatory Flexibility Analysis was prepared.

Executive Order 12778

This proposed rule has been reviewed in accordance with Executive

Order 12778. It is not retroactive and preempts State and local laws.

Before any judicial action may be brought regarding the provisions of

this rule, administrative appeal remedies set forth at 7 CFR parts 24

and 780 must be exhausted.

Executive Order 12372

This action will not have a significant impact specifically upon

area and community development; therefore, review as established by

Executive Order 12372 (July 14, 1982) was not used to assure that units

of local government are informed of this action.

Background

The Federal Claims Collection Act of 1966, as amended by the Debt

Collection Act of 1982 (31 U.S.C. 3711, et seq.), and the joint

regulations promulgated thereunder by the Comptroller General and the

Attorney General (4 CFR parts 101-105) provide minimum standards for

the administrative collection of claims by the United States. The Act

also provides that nothing therein shall diminish the existing

authority of the head of an agency to settle, compromise, or close

claims. The CCC Charter Act, as amended (15 U.S.C. 714, et seq.),

provides that CCC shall have the authority to make final and conclusive

settlement and adjustment of any claims by or against it irrespective

of the amount at issue. CCC is, therefore, not subject to the

provisions of the Federal Claims Collection Act of 1966 or its

implementing regulations. However, it has been CCC policy to follow the

Federal Claims Collection Standards (FCCS) to the maximum practicable

extent. The FCCS require each Federal agency to take aggressive action

to collect debts owed it.

Discussion of Proposed Rule

1. Impact of Interest Rate Change on ASCS and CCC and Affected Private

Interests

This rule would amend 7 CFR part 1403 to change the rate of

interest which CCC charges on its delinquent debts from a rate equal to

that assessed under the Prompt Payment Act, to a rate equal to the

higher of the Treasury Department's current value of funds rate or the

rate of interest assessed under the Prompt Payment Act. CCC currently

charges interest on delinquent debts at a rate equal to that charged

under the Prompt Payment Act. That rate was chosen because it was

generally a higher rate than the current value of funds rate required

under the Debt Collection Act, and would ensure that CCC, at a minimum,

would always recoup the cost of CCC borrowing. It was also believed to

be equitable since it is the same rate which CCC is required to pay

when its payments are late. This proposed rule would amend the rate

which CCC charges on delinquent debts to the higher of the Treasury

Department's current value of funds rate or the rate assessed under the

Prompt Payment Act. Concerning the difference in interest rates, over

the past 10 years the current value of funds rate was higher than the

Prompt Payment Act rate for only one 6-month period. The economic

effect of this proposed rate change is likely to be minimal. This

change, however, would allow the late payment interest rate assessed by

CCC to conform to the late payment interest rate assessed by ASCS, as

well as, conforming to the rate required by the Federal Claims

Collection Act of 1966, as amended. As both CCC and ASCS programs are

administered by the same offices, administrative costs should be

reduced by having the same interest rates apply to both programs.

2. References to IRS Notices of Levy

This rule would also amend 7 CFR part 1403 regarding references to

Internal Revenue Service (IRS) Notices of Levy. It was the past policy

of CCC to treat IRS Notices of Levy the same as requests for

administrative offset from other Federal agencies. This was agreed to

in 1970 by CCC and IRS, and was documented in former regulations

dealing with offset at 7 CFR part 13. However, due to a change in

policy by IRS, changes in our previous regulations, certain court

decisions, and advice from the Office of the General Counsel, it has

been determined that IRS Notices of Levy can no longer be treated as

offset requests, but should be honored only as required by statute,

including taking priority over assignments of ASCS and CCC payments.

Therefore, this proposed rule would amend the CCC debt settlement

regulations to remove all references to IRS Notices of Levy, except to

specifically exempt them from coverage in 7 CFR 1403.7. This change

should create little cost or benefit to CCC.

3. Expanded Offset

Finally, this rule would amend 7 CFR parts 792 and 1403 to provide

for an expanded ability to offset payments from debtors to collect

delinquent debt. During 1993, ASCS and CCC collected approximately $76

million, of which $32 million or 42 percent of the total was through

administrative offset. As such, it is the most effective debt

collection tool. However, in the past debtors have avoided offset of

their program payments by reorganizing their farming operations,

changing the name of their operations, transferring ownership of their

operations, receiving payments under more than one entity, or by

changing the payee in some other manner. In order to increase ASCS' and

CCC's ability to collect delinquent debts, without adversely affecting

other non-debtors, the regulations would be amended to provide for

offset of a debtor's pro rata share of payments due any entity which

the debtor participates in, either directly or indirectly.

This rule would also provide for offset when ASCS or CCC determines

that a debtor has established an entity, or transferred ownership of,

reorganized, or changed in some other manner, his or her operations in

order to avoid a debt. By allowing for this expanded ability to offset,

ASCS and CCC should substantially increase their ability to collect

delinquent debt in an efficient and effective manner. This would also

help ensure that those owing delinquent debts are not continuing to

receive government payments, without first satisfying their debts.

While it is not feasible to estimate the exact amount by which ASCS and

CCC collections would be increased, it is likely that these

circumstances arise most often with debtors who have debts of $50,000

or more. Therefore, increased collections could be sizeable in relation

to past collections. There should be no cost to the government created

by this proposed change.

This regulation is necessary to protect the financial integrity of

many Federal agricultural programs by ensuring the Government will be

able to collect, or otherwise settle, debts owed it by any person,

organization, corporation, or other legal entity.

List of Subjects

7 CFR Part 792

Claims, Income taxes.

7 CFR Part 1403

Claims, Income taxes, Loan programs-agriculture.

Accordingly, 7 CFR parts 792 and 1403 are amended as follows:

PART 792--DEBT SETTLEMENT POLICIES AND PROCEDURES

1. The authority citation for 7 CFR part 792 continues to read as

follows:

Authority: 31 U.S.C. 3701, 3711, 3716-3719, 3728; 4 CFR Parts

101-105; 7 CFR 3.21(b).

2. Section 792.7(l) is revised to read as follows:

Sec. 792.7 Collection by administrative offset.

* * * * *

(l) Any action authorized by the provisions of this section may be

taken:

(1) Against a debtor's pro rata share of payments due any entity

which the debtor participates in, either directly or indirectly, as

determined by ASCS.

(2) When ASCS determines that the debtor has established an entity,

or reorganized, transferred ownership of, or changed in some other

manner, their operation, for the purpose of avoiding the payment of the

claim or debt.

* * * * *

PART 1403--DEBT SETTLEMENT POLICIES AND PROCEDURES

3. The authority citation for 7 CFR part 1403 continues to read as

follows:

Authority: 7 U.S.C. 1445b-2(b); 15 U.S.C. 714b and 714c.

4. Section 1403.7 is amended by:

A. Removing the word ``and'' at the end of paragraph (a)(3),

B. Removing the period at the end of paragraph (a)(4) and inserting

a semicolon in its place and adding the word ``and'',

C. Adding paragraph (a)(5),

D. Removing paragraph (m)(4),

E. Redesignating paragraphs (m)(5) and (m)(6) as paragraphs (m)(4)

and (m)(5), respectively, and

F. Revising paragraph (q) to read as follows:

Sec. 1403.7 Collection by administrative offset.

(a) * * *

(5) IRS Notices of Levy which shall be honored in accordance with

IRS statutes and regulations.

* * * * *

(q) Any action authorized by the provisions of this section may be

taken:

(1) Against a debtor's pro rata share of payments due any entity

which the debtor participates in, either directly or indirectly, as

determined by CCC.

(2) When CCC determines that the debtor has established an entity,

or reorganized, transferred ownership of, or changed in some other

manner, their operation, for the purpose of avoiding the payment of the

claim or debt.

* * * * *

5. Section 1403.9(c) is revised to read as follows:

Sec. 1403.9 Late payment interest and administrative charges.

* * * * *

(c) The late payment interest shall be expressed as an annual rate

of interest which CCC charges on delinquent debts. The late payment

interest rate shall be equal to the higher of the Treasury Department's

current value of funds rate or the rate of interest assessed under the

Prompt Payment Act, determined as of the date specified in paragraphs

(d)(1) and (d)(2) of this section. The rate of interest assessed under

the Prompt Payment Act was chosen as an alternative rate to ensure that

the Government would recoup interest at a rate which was at least as

high as that which it pays for late payments.

* * * * *

Signed at Washington, DC, on August 11, 1994.

Bruce R. Weber,

Administrator, Agricultural Stabilization and Conservation Service,

Executive Vice President, Commodity Credit Corporation.

[FR Doc. 94-20780 Filed 8-23-94; 8:45 am]

BILLING CODE 3410-05-P