Debt Settlement Policies and Procedures

SUMMARY: A proposed rule was published in the Federal Register on

August 24, 1994, at 59 FR 43504, amending 7 CFR parts 792 and 1403,

which set forth the debt settlement policies and procedures of the

Consolidated Farm Service Agency (CFSA) and the Commodity Credit

Corporation (CCC), respectively. This final rule adopts the provisions

of the proposed rule. This final rule amends CCC's debt settlement

policies and procedures to remove references to Internal Revenue

Service Notices of Levy, except to exempt them from coverage, and

revises the rate of interest to be charged on delinquent debts. This

final rule also amends CFSA's 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 protects 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.

EFFECTIVE DATE: August 23, 1995.

FOR FURTHER INFORMATION CONTACT: Carol Spencer, CFSA, USDA, P.O. Box

2415, Washington, DC 20013-2415, at 703-305-1422.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This final 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 CFSA 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 final 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 Final Rule

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

Interests

This rule amends 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 rule amends 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 rate change is

likely to be minimal. This change, however, allows the late payment

interest rate assessed by CCC to conform to the late payment interest

rate assessed by CFSA, as well as, conforming to the rate required by

the Federal Claims Collection Act of 1966, as amended. As both CCC and

CFSA programs are administered by the same

[[Page 43706]]

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 also amends 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 CFSA and CCC payments.

Therefore, this final rule amends 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 will create

little cost or benefit to CCC.

3. Expanded Offset

Finally, this rule amends 7 CFR parts 792 and 1403 to provide for

an expanded ability to offset payments from debtors to collect

delinquent debt. During 1993, CFSA 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 CFSA's

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

affecting other non-debtors, the regulations are 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 also provides for offset when CFSA 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,

CFSA and CCC will substantially increase their ability to collect

delinquent debt in an efficient and effective manner. This will 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 CFSA and

CCC collections will increase, 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

change.

This regulation will 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.

A description of the amendments made by this final rule was set

forth in the proposed rule at 59 FR 43504 (August 24, 1994). The

proposed rule requested comments with respect to the proposed

amendments. No comments were received and it has been determined that

the proposal should be adopted as a final rule with modifications to

reflect the reorganization of the Department of Agriculture, and for

purposes of clarity.

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 CFSA.

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

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) * * *

(3) Cases in which CCC must adjust, by increasing or decreasing, a

payment which is to be paid under a contract in order to properly make

other payments due by CCC;

(4) Any case in which collection of the type of debt involved by

administrative offset is explicitly provided for or prohibited by

statute; and

(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.

* * * * *

[[Page 43707]]

Signed at Washington, DC, on August 15, 1995.

Bruce R. Weber,

Acting Administrator, Consolidated Farm Service Agency and Acting

Executive Vice President, Commodity Credit Corporation.

[FR Doc. 95-20781 Filed 8-22-95; 8:45 am]

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