Administrative Wage Garnishment

SUMMARY: This proposed rule implements the administrative wage

garnishment provisions contained in the Debt Collection Improvement Act

of 1996 (DCIA). The DCIA authorizes Federal agencies to garnish the

disposable pay of an individual to collect delinquent nontax debts owed

to the United States in accordance with regulations issued by the

Secretary of the Treasury.

DATE: Comments must be received by December 22, 1997.

ADDRESSES: Comments should be sent to Gerry Isenberg, Financial Program

Specialist, Debt Management Services, Financial Management Service,

Department of the Treasury, 401 14th Street, S.W., Room 151,

Washington, D.C. 20227.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program

Specialist, at (202) 874-6660; Ronda Kent or Ellen Neubauer, Senior

Attorneys, or Laurie Levin, Attorney-Advisor, at (202) 874-6680. This

document is available for downloading from the Financial Management

Service web site at the following address: http://www.fms.treas.gov.

SUPPLEMENTARY INFORMATION:

Background

This proposed regulation implements the wage garnishment provision

in section 31001(o) of the Debt Collection Improvement Act of 1996

(DCIA), Pub. L. 104-134, 110 Stat. 1321-358 (Apr. 26, 1996), codified

at 31 U.S.C. 3720D. Under this provision Federal agencies may

administratively garnish up to 15 percent of the wages of a debtor to

satisfy delinquent nontax debt owed to the United States. Prior to the

enactment of the DCIA, agencies were required to obtain a court

judgment before garnishing the wages of non-Federal employees. Section

31001(o) of the DCIA preempts State laws that prohibit wage garnishment

or otherwise govern wage garnishment procedures.

As authorized by the DCIA, a Federal agency which is collecting

delinquent nontax debt may administratively garnish a delinquent

debtor's wages in accordance with regulations promulgated by the

Secretary of the Treasury. As the lead agency for the collection of

nontax debt in the Federal Government, the Financial Management Service

(FMS), a bureau of the Department of the Treasury, is responsible for

promulgating the regulations implementing this and other debt

collection tools established by the DCIA.

In accordance with the requirements of the DCIA, this proposed rule

establishes the following rules and procedures:

1. Notice. At least 30 days before an agency initiates garnishment

proceedings, the agency will give the debtor written notice informing

him or her of the nature and amount of the debt, the intention of the

agency to collect the debt through deductions from pay, and an

explanation of the debtor's rights regarding the proposed action.

2. Rights of the debtor. The agency will provide the debtor with an

opportunity to inspect and copy records related to the debt, to

establish a repayment agreement, and to receive a hearing concerning

the existence or amount of the debt and the terms of a repayment

schedule. The hearing will be held prior to the issuance of a

withholding order if the debtor's request is timely received. For

hearing requests that are not received in the specified time frame, an

agency need not delay issuance of the withholding order prior to

conducting a hearing. An agency may not garnish the wages of a debtor

who has been involuntarily separated from employment until that

individual has been reemployed continuously for at least 12 months.

3. Employer's responsibilities. The agency will send to the

employer of a delinquent debtor a wage garnishment order directing that

the employer pay a portion of the debtor's wages to the Federal

Government. This proposed regulation requires the debtor's employer to

certify certain payment information about the debtor. Employers will

not be required to vary their normal pay cycles in order to comply with

the garnishment order.

The DCIA prohibits employers from taking disciplinary actions

against the debtor based on the fact that the debtor's wages are

subject to administrative garnishment. In addition, the DCIA authorizes

an agency to sue an employer for amounts not properly withheld from the

wages payable to the debtor.

Section Analysis

(a) Purpose

The purpose of this section is to implement the wage garnishment

provision in the DCIA, codified at 31 U.S.C. 3720D, under which Federal

agencies may administratively garnish up to 15% of the wages of a

debtor to satisfy delinquent nontax debt owed to the United States.

(b) Scope

Paragraph (b)(1) states that all Federal agencies are authorized to

utilize this collection tool to collect delinquent nontax debt owed to

the United States. The term ``agency'' is defined in paragraph (c).

As provided in the DCIA, paragraph (b)(2) explains that State law

does not apply to the withholding of an employee's wages under this

section to the extent that such State law conflicts or interferes with

the procedures and requirements of this section.

Paragraph (b)(3) explains that an agency's use of this collection

tool does not interfere with an agency's discretion to compromise a

debt, or to suspend or terminate collection action of the debt.

Paragraph (b)(4) explains that administrative wage garnishment is

one of many debt collection tools available to an agency. An agency may

use administrative wage garnishment concurrently with other collection

tools, even if an agency receives payments through the use of wage

garnishment.

Paragraph (b)(5) distinguishes Federal salary offset from

administrative wage garnishment. Federal salary offset procedures,

whereby Federal salary payments payable to Federal employees who owe

debt to the United States are withheld to satisfy the outstanding

obligations, are set forth in 5 U.S.C. 5514 and the implementing

regulations.

(c) Definitions

Agency. The term ``agency'' has the same meaning as found in 31

U.S.C. 3701(a)(4). The term refers to an agency in the executive,

judicial or legislative branches of the Government, including

government corporations, that either administers the program that gave

rise to the debt or pursues recovery of the debt. For example, the

Department of the Treasury and Treasury-designated debt collection

centers may collect debts by administrative wage garnishment in

accordance with the provisions of this rule when collecting debts for

other agencies.

Business day. The term ``business day'' means Monday through Friday

and shall be calculated consistent with Rule

[[Page 62459]]

6(a) of the Federal Rules of Civil Procedure.

Certificate of service. A ``certificate of service'' refers to a

signed certificate that an agency is required to retain as evidence of

mailing of a document. A certificate may be retained electronically and

may contain a computer generated signature.

Day. Unless otherwise indicated, the term ``day'' means calendar

day and shall be calculated consistent with Rule 6(a) of the Federal

Rules of Civil Procedure.

Debt or claim. For the purposes of this rule, the terms ``debt''

and ``claim'' refer to delinquent nontax debt. The term ``delinquent

nontax debt'' refers to debt that is past-due.

Debtor. The term ``debtor'' refers to an individual who owes a

delinquent nontax debt to the United States.

Disposable pay. ``Disposable pay'' is all of a debtor's

compensation except health insurance premiums and those amounts

required to be withheld by law, such as social security taxes. Lump sum

payments, such as bonuses and back pay, are included in disposable pay.

For purposes of calculating disposable pay, voluntary withholdings,

such as savings allotments, are not deducted from a debtor's

compensation.

Employer. The term ``employer'' refers to a person or entity that

employs the services of others and includes State and local

Governments. For purposes of this section, however, the Federal

Government is not an ``employer'' because debts owed by Federal

employees are collected in accordance with the Federal salary offset

procedures.

Garnishment. The term ``garnishment'' refers to the process of

withholding amounts from an employee's pay and forwarding those amounts

to a creditor in satisfaction of a withholding order.

Withholding order. The term ``withholding order'' refers to any

order for withholding or garnishment of pay, whether issued under the

provisions of this section or otherwise. A withholding order may be

issued by an agency, or a judicial or administrative body. For purposes

of this proposed rule, the terms ``wage garnishment order'' and

``garnishment order'' have the same meaning as ``withholding order.''

(d) General Rule

Paragraph (d) sets forth the authority contained in the DCIA that

authorizes an agency to administratively garnish the wages of a

delinquent debtor. Agencies authorized to administratively garnish the

wages of a delinquent debtor include the Department of the Treasury and

Treasury-designated debt collection centers when collecting debt for

other agencies.

(e) Notice Requirements

Paragraph (e)(1) contains the DCIA requirement that the agency give

the debtor written notice at least 30 days before initiating

garnishment proceedings. The notice will inform the debtor of the

nature and amount of the debt, the intention of the agency to collect

the debt through deductions from pay, and an explanation of the

debtor's rights regarding the proposed action. The notice will include

the time frame within which a debtor may exercise his or her rights.

This notice may be combined with and made a part of any notice of

intent to use other collection tools that an agency sends to the

debtor.

Paragraph (e)(2) contains the DCIA requirement that the agency

provide the debtor with an opportunity to inspect and copy records

related to the debt, to establish a repayment agreement, and to receive

a hearing. Agencies should review a debtor's request to establish a

repayment agreement under paragraph (e)(2)(ii) of this section in

accordance with the requirements of the Federal Claims Collection

Standards (4 CFR Parts 101-105), or other applicable standards, to

ensure that the debtor's ability to pay is considered. The debtor is

entitled to a hearing only with respect to (1) the existence of the

debt; (2) the amount of the debt; or, (3) the terms of the proposed

repayment schedule under the garnishment order, e.g., that the amount

withheld would create a financial hardship. However, the debtor is not

entitled to a hearing concerning the terms of the proposed repayment

schedule if these terms have been established by written agreement

between the debtor and the agency. As discussed below, a debtor who is

subject to a wage garnishment order may request a review by the agency

of the amount garnished based on materially changed circumstances that

result in financial hardship. See paragraph (k) of this section.

Paragraph (e)(3) requires that the agency keep a copy of the

certificate of service indicating the date of mailing of the notice

required by this section as evidence of the agency having provided the

debtor with notice and the opportunity for review. This regulation does

not specify how the certificate should be retained by the agency, and

accordingly the certificate may be retained electronically. However,

agencies are advised to consult with the Department of Justice as to

the adequacy of computer generated records for evidentiary purposes.

(f) Hearing

The DCIA requires agencies to promulgate regulations concerning

procedures for the conduct of administrative wage garnishment hearings.

Agencies may use established hearing procedures so long as they meet

the requirements of this section. Paragraph (f)(1) allows agencies

either to prescribe their own regulations for this purpose or adopt

this section without change.

Under paragraph (f)(2), agencies may decide whether to hold an oral

or written hearing. The subject matter of the hearing is limited to the

existence or amount of the debt or the terms of an involuntary

repayment schedule as described under paragraph (e) of this section.

Paragraph (f)(3) sets forth factors an agency should consider in

determining the type of hearing or review to provide. If an agency

determines that an oral hearing is appropriate, the debtor may choose

an in-person hearing or a hearing by telephone conference.

As required by the DCIA, paragraph (f)(4) provides that a hearing

will be held prior to the issuance of a withholding order if the

debtor's request for a hearing is timely received by the agency. Timely

received means that the request for a hearing is received by the agency

on or before the 15th business day following the mailing of the notice

described in paragraph (e)(1) of this section. Agencies are required to

inform the debtor of the deadline for requesting a hearing prior to the

issuance of a withholding order.

Paragraph (f)(5) addresses hearing requests received after the 15th

business day following the mailing of the notice described in paragraph

(e)(1) of this section. As provided in the DCIA, an agency need not

delay issuance of the withholding order prior to conducting a hearing

if the request for a hearing is not timely received.

Paragraph (f)(6) authorizes the head of the agency to designate any

qualified individual as a hearing official.

Paragraph (f)(7) requires an agency to notify the debtor about the

hearing, including the date and time of the hearing or the deadlines

for the submission of evidence.

Paragraph (f)(8) describes the burden of proof on the respective

parties to a hearing. The agency must present evidence as to the

existence or amount of the debt. To dispute the debt, the debtor must

present clear and convincing evidence that no debt exists or that the

amount of the debt is

[[Page 62460]]

incorrect. If the terms of the repayment schedule are an issue, the

debtor must show that such terms are unreasonable or unlawful.

Paragraph (f)(9) describes the type of record required for a

hearing provided under this section.

As required by the DCIA, under paragraph (f)(10), the hearing

official is required to issue a written decision no later than sixty

(60) days after the request for a hearing was made. Thus, a hearing

must be held and a decision rendered within 60 days after the receipt

of a hearing request by the debtor. The agency may not issue a

withholding order until a hearing is held and a decision rendered. If

an agency has previously issued a withholding order and the agency is

unable to hold a hearing and issue a decision within the 60-day time

period, the agency must suspend the withholding order until a hearing

and a decision have been provided to the debtor. The provisions of this

paragraph (f)(10) do not apply to financial hardship reviews under the

provisions of paragraph (k) of this section.

Paragraph (f)(11) sets forth the information that must be included

in the hearing official's written decision.

Paragraph (f)(12) states that the hearing official's decision is

the final agency action for appeal purposes.

Paragraph (f)(13) provides that if a debtor, without good cause

shown, fails to appear at a scheduled hearing, an agency may issue a

withholding order prior to rescheduling or holding a subsequent

hearing.

(g) Wage Garnishment Order

In accordance with the provisions of the DCIA, paragraph (g)(1)

requires agencies to send to employers of delinquent debtors a wage

garnishment order directing the employer to pay a portion of the

debtor's wages to the Federal Government. The agency is required to

send the order within 30 days after the debtor fails to make a timely

request for a hearing, or if a timely request is made, within 30 days

after a final decision is made to proceed with the garnishment.

Paragraph (g)(2) describes the format and content of a withholding

order. A withholding order may contain a computer generated signature.

Paragraph (g)(3) requires that the agency retain a copy of the

certificate of service indicating the date of mailing of the

withholding order as evidence of the agency having served the employer

with the order. While a copy of the certificate may be retained

electronically, agencies are advised to consult with the Department of

Justice as to the adequacy of computer generated records for

evidentiary purposes.

(h) Certification by Employer

When a debtor's employer receives a withholding order, paragraph

(h) requires the employer to complete a certification in a form

prescribed by the Secretary of the Treasury. The certification will

address matters such as information about the debtor's employment

status and disposable pay available for withholding.

(i) Amounts Withheld

Paragraphs (i)(1), (i)(2), and (i)(3) describe the restrictions on

the amounts that can be withheld from an employee's pay to satisfy a

withholding order issued pursuant to this proposed rule. As provided in

the DCIA, under paragraph (i)(1) no more than 15% of the debtor's

disposable pay for each pay period may be garnished.

Special rules apply to calculating the amount to be withheld from a

debtor's pay that is subject to multiple withholding orders. Paragraph

(i)(2) describes the amount that may be garnished from a debtor's

disposable pay if, at the time of the withholding, the debtor's pay is

subject to other wage garnishment orders, whether issued under this

section or otherwise, e.g., a wage garnishment order issued pursuant to

the provisions of 28 U.S.C. 3205 (Garnishment) or a commercial wage

garnishment.

For garnishments issued under this section, an employer is required

to withhold from a debtor's pay the amounts set forth in paragraph

(i)(1). However, when the employee's pay is subject to multiple

withholding orders that would result in the withholding of more than

25% of a debtor's disposable pay, this proposed rule requires that the

amounts withheld under this section be reduced if the other withholding

orders are for family support or were served on the employer prior in

time. For example, if the employer is withholding 15% of a debtor's

disposable pay for a family support or prior withholding order, the

amount withheld for the subsequent withholding order issued under this

section is limited to 10% of the debtor's disposable pay. When the

family support or prior withholding order terminates, the amount

withheld for the subsequent withholding order issued under this section

may be increased to the maximum 15% allowed under (i)(1).

The following examples illustrate how the rules described in

paragraphs (i)(1) and (i)(2) work.

Examples: An agency issues a garnishment order under this

section setting the amount of garnishment at 15% of the debtor's

disposable pay.

(A) If the debtor's disposable pay is $200 weekly and is not

subject to other garnishment orders with priority, then the amount

of the garnishment under this section will be $30 weekly, 15% of

disposable pay (15% x $200=$30).

(B) If the debtor's disposable pay is $200 weekly and is subject

to a prior garnishment order in the amount of $40 weekly, then the

amount of the garnishment under this section will be $10 weekly. The

$10 amount is the lesser of 15% of disposable pay (15% x $200=$30)

or the maximum amount to be garnished where a debtor's pay is

subject to withholding orders with priority (25% x $200=$50;

$50-$40=$10). When the prior garnishment order terminates, the

amount of the garnishment shall be increased to $30 weekly because

the calculation regarding the prior withholding orders is no longer

necessary.

(C) If the debtor's disposable pay is $200 weekly and is subject

to a garnishment order with priority in the amount of $100 weekly,

then the amount of the garnishment under this section will be $0.

The $0 amount is the lesser of 15% of disposable pay

(15% x $200=$30) or the maximum amount to be garnished where a

debtor's pay is subject to withholding orders with priority

(25% x $200=$50; $50--$100$0). When the prior

garnishment order terminates, the amount of the garnishment shall be

increased to $30 weekly because the calculation regarding the prior

withholding orders is no longer necessary.

Paragraph (i)(3) allows the debtor to consent in writing to

withholding a greater amount than provided in paragraphs (i)(1) and

(i)(2).

Under paragraph (i)(4), the employer is required to promptly pay to

the agency amounts withheld under the garnishment order, generally

within 10 days.

As provided in the DCIA, under paragraph (i)(5) an employer is not

required to vary its pay cycle or disbursement cycle to comply with a

withholding order issued pursuant to this section.

Paragraph (i)(6) provides that a withholding order issued under

this section will take priority over any assignment or allotment by an

employee of his wages, except for an assignment or allotment made

pursuant to a family support judgment or order.

Paragraph (i)(7) requires the employer to continue to garnish an

employee's wages until the agency notifies the employer that

garnishment is no longer appropriate.

(j) Exclusions From Garnishment

As required by the DCIA, paragraph (j) provides that no withholding

of a debtor's wages may occur in the case of an individual who has been

involuntarily separated from

[[Page 62461]]

employment until that individual has been reemployed continuously for

at least 12 months. The debtor bears the burden of notifying the agency

of an involuntary separation and the circumstances surrounding any

separation from employment to avoid wage withholding based on this

provision.

(k) Financial Hardship

Paragraph (k)(1) allows a debtor to request a review by the agency

of the amount being garnished under a wage garnishment order based on

materially changed circumstances which result in a financial hardship.

Paragraph (k)(2) requires the debtor to explain and submit evidence

of the materially changed circumstances and the effect of the change on

the debtor's ability to pay.

Paragraph (k)(3) explains that an agency is required to adjust the

amounts withheld under the garnishment order if a financial hardship is

found to exist.

(l) Ending Garnishment

Paragraph (l)(1) requires an agency to instruct the employer to

discontinue garnishment upon its receipt of the full amount of the

debt, including interest, penalties, and administrative costs.

Paragraph (l)(2) requires an agency to review its debtors'

accounts, at least annually, to ensure that garnishment has been

terminated for accounts that have been paid in full.

(m) Actions Prohibited by the Employer

As mandated by the DCIA, paragraph (m) prohibits employers from

taking disciplinary actions against a debtor based on the fact that the

debtor's wages are subject to administrative garnishment.

(n) Refunds

Paragraph (n)(1) requires an agency to refund promptly to a debtor

amounts improperly withheld from wages.

Paragraph (n)(2) provides that, unless required by law or contract,

refunds shall not bear interest.

(o) Right of Action

As authorized by the DCIA, paragraph (o) provides that an agency

may sue an employer for the amounts that were not properly withheld

from the wages payable to the debtor. The agency may initiate action

against an employer only after terminating its collection efforts

against the debtor. For purposes of this section, this occurs when an

agency (1) has terminated collection action in accordance with the

Federal Claims Collection Standards or other applicable standards, or

(2) has not received any payments for the debt from any source for at

least one year.

Regulatory Analyses

This proposed rule is not a significant regulatory action as

defined in Executive Order 12866.

It is hereby certified that this proposed regulation, including the

certification referenced in this notice of proposed rulemaking (see

paragraph (h) of this section), will not have a significant economic

impact on a substantial number of small entities. Although a

substantial number of small entities will be subject to this proposed

regulation and to the certification requirement in this proposed rule,

the requirements will not have a significant economic impact on these

entities. Employers of delinquent debtors must certify certain

information about the debtor such as the debtor's employment status and

earnings. This information is contained in the employer's payroll

records. Therefore, it will not take a significant amount of time or

result in a significant cost for an employer to complete the

certification form. Even if an employer is served withholding orders on

several employees over the course of a year, the cost imposed on the

employer to complete the certifications would not have a significant

economic impact on that entity. Employers are not required to vary

their normal pay cycles in order to comply with a withholding order

issued pursuant to this proposed rule.

List of Subjects in 31 CFR Part 285

Administrative practice and procedure, Claims, Debts, Garnishment

of wages, Hearing and appeal procedures, Salaries, Wages.

Authority and Issuance

For the reasons set forth in the preamble, 31 CFR Part 285 is

proposed to be amended to read as follows:

PART 285--DEBT COLLECTION AUTHORITIES UNDER THE DEBT COLLECTION

IMPROVEMENT ACT OF 1996

1. The authority citation for Part 285 is revised to read as

follows:

Authority: 26 U.S.C. 6402; 31 U.S.C. 321, 3701, 3716, 3720A,

3720D; E.O. 13019

2. Subpart B consisting of Sec. 285.11 is added to Part 285 to read

as follows:

Subpart B--Authorities Other Than Offset

Sec. 285.11 Administrative wage garnishment.

(a) Purpose. This regulation provides procedures for Federal

agencies to collect money from a debtor's disposable pay by means of

administrative wage garnishment to satisfy delinquent nontax debt owed

to the United States.

(b) Scope. (1) This regulation applies to any Federal agency that

administers a program that gives rise to a delinquent nontax debt owed

to the United States and to any agency that pursues recovery of such

debt.

(2) This regulation shall apply notwithstanding any provision of

State law.

(3) Nothing in this regulation precludes the compromise of a debt

or the suspension or termination of collection action in accordance

with applicable law. See, for example, the Federal Claims Collection

Standards (FCCS), 4 CFR Parts 101-105.

(4) The receipt of payments pursuant to this regulation does not

preclude a Federal agency from pursuing other debt collection remedies,

including the offset of Federal payments to satisfy delinquent nontax

debt owed to the United States. A Federal agency may pursue such debt

collection remedies separately or in conjunction with administrative

wage garnishment.

(5) This regulation does not apply to the collection of delinquent

nontax debt owed to the United States from the wages of Federal

employees from their Federal employment. Federal pay is subject to the

Federal salary offset procedures set forth in 5 U.S.C. 5514 and the

implementing regulations.

(c) Definitions. As used in this section the following definitions

shall apply:

Agency means a department, agency, court, court administrative

office, or instrumentality in the executive, judicial, or legislative

branch of the Federal Government, including government corporations.

For purposes of this regulation, agency means either the agency that

administers the program that gave rise to the debt or the agency that

pursues recovery of the debt.

Business day means Monday through Friday. For purposes of

computation, the last day of the period will be included unless it is a

Federal legal holiday.

Certificate of service means a certificate signed by an agency

official indicating the nature of the document to which it pertains,

the date of mailing of the document, and to whom the document is being

sent.

Day means calendar day. For purposes of computation, the last day

of the period will be included unless it is a Saturday, a Sunday, or a

Federal legal holiday.

Debt or claim means any amount of money, funds or property that has

been

[[Page 62462]]

determined by an appropriate official of the Federal Government to be

owed to the United States by an individual. Delinquent nontax debt

means any nontax debt that has not been paid by the date specified in

the agency's initial written demand for payment, or applicable

agreement, unless other satisfactory payment arrangements have been

made. For purposes of this section, the terms ``debt'' and ``claim''

are synonymous and refer to delinquent nontax debt.

Debtor means an individual who owes a delinquent nontax debt to the

United States.

Disposable pay means that part of the debtor's compensation

(including, but not limited to, salary, bonuses, commissions, and

vacation pay) from an employer remaining after the deduction of health

insurance premiums and any amounts required by law to be withheld. For

purposes of this section, ``amounts required by law to be withheld''

include amounts for deductions such as social security taxes and

withholding taxes, but do not include any amount withheld pursuant to a

court order.

Employer means a person or entity that employs the services of

others and that pays their wages or salaries. The term employer

includes, but is not limited to, State and local Governments, but does

not include an agency of the Federal Government.

Garnishment means the process of withholding amounts from an

employee's disposable pay and the paying of those amounts to a creditor

in satisfaction of a withholding order.

Withholding order means any order for withholding or garnishment of

pay issued by an agency, or judicial or administrative body. For

purposes of this section, the terms ``wage garnishment order'' and

``garnishment order'' have the same meaning as ``withholding order.''

(d) General rule. Whenever an agency determines that a delinquent

debt is owed by an individual, the agency may initiate proceedings to

administratively garnish the wages of the delinquent debtor.

(e) Notice requirements. (1) At least 30 days before the initiation

of garnishment proceedings, the agency shall mail, by first class mail,

to the debtor's last known address a written notice informing the

debtor of:

(i) The nature and amount of the debt;

(ii) The intention of the agency to initiate proceedings to collect

the debt through deductions from pay until the debt and all accumulated

interest, penalties and administrative costs are paid in full; and

(iii) An explanation of the debtor's rights, including those set

forth in paragraph (e)(2) of this section, and the time frame within

which the debtor may exercise his or her rights.

(2) The debtor shall be afforded the opportunity:

(i) To inspect and copy agency records related to the debt;

(ii) To enter into a written repayment agreement with the agency

under terms agreeable to the agency; and

(iii) For a hearing in accordance with paragraph (f) of this

section concerning the existence or the amount of the debt or the terms

of the proposed repayment schedule under the garnishment order.

However, the debtor is not entitled to a hearing concerning the terms

of the proposed repayment schedule if these terms have been established

by written agreement under paragraph (e)(2)(ii) of this section.

(3) The agency will keep a copy of a certificate of service

indicating the date of mailing of the notice.

(f) Hearing.--(1) In general. Agencies shall prescribe regulations

for the conduct of administrative wage garnishment hearings or shall

adopt this section without change by reference.

(2) Request for hearing. The agency shall provide a hearing, which

at the agency's option may be oral or written, if the debtor submits a

written request for a hearing concerning the existence or amount of the

debt or the terms of the repayment schedule (for repayment schedules

established other than by written agreement under paragraph (e)(2)(ii)

of this section).

(3) Type of hearing or review. (i) For purposes of this section,

whenever an agency is required to afford a debtor a hearing, the agency

shall provide the debtor with a reasonable opportunity for an oral

hearing when the agency determines that the issues in dispute cannot be

resolved by review of the documentary evidence, for example, when the

validity of the claim turns on the issue of credibility or veracity.

(ii) If the agency determines that an oral hearing is appropriate,

the time and location of the hearing shall be established by the

agency. An oral hearing may, at the debtor's option, be conducted

either in-person or by telephone conference. All travel expenses

incurred by the debtor in connection with an in-person hearing will be

borne by the debtor. All telephonic charges incurred during the hearing

will be the responsibility of the agency.

(iii) This section does not require an oral hearing with respect to

debt collection systems in which a determination of indebtedness rarely

involves issues of credibility or veracity and the agency has

determined that review of the written record is ordinarily an adequate

means to correct prior mistakes.

(iv) In those cases when an oral hearing is not required by this

section, an agency shall nevertheless accord the debtor a ``paper

hearing,'' that is, an agency will decide the issues in dispute based

upon a review of the written record. The agency will establish a

reasonable deadline for the submission of evidence.

(4) Effect of timely request. Subject to paragraph (f)(13) of this

section, if the debtor's written request is received by the agency on

or before the 15th business day following the mailing of the notice

described in paragraph (e)(1) of this section, the agency shall not

issue a withholding order under paragraph (g) of this section until the

debtor has been provided the requested hearing and a decision in

accordance with paragraphs (f)(10) and (f)(11) of this section has been

rendered.

(5) Failure to timely request a hearing. If the debtor's written

request is received by the agency after the 15th business day following

the mailing of the notice described in paragraph (e)(1) of this

section, the agency shall provide a hearing to the debtor but will not

delay issuance of a withholding order unless the agency determines that

the delay in filing the request was caused by factors over which the

debtor had no control, or the agency receives information that the

agency believes justifies a delay or cancellation of the withholding

order.

(6) Hearing official. A hearing official may be any qualified

individual, as determined by the head of the agency, including an

administrative law judge.

(7) Procedure. After the debtor requests a hearing, the hearing

official shall notify the debtor of:

(i) The date and time of a telephonic hearing;

(ii) The date, time, and location of an in-person oral hearing; or

(iii) The deadline for the submission of evidence for a written

hearing.

(8) Burden of proof. (i) The agency will have the burden of going

forward to prove the existence or amount of the debt.

(ii) Thereafter, if the debtor disputes the existence or amount of

the debt, the debtor must present clear and convincing evidence that no

debt exists or that the amount of the debt is incorrect. In addition,

the debtor may present evidence that the terms of the repayment

schedule are unreasonable or unlawful.

[[Page 62463]]

(9) Record. The hearing official must maintain a summary record of

any hearing provided under this section. A hearing is not required to

be a formal evidentiary-type hearing, however, witnesses who testify in

oral hearings will do so under oath or affirmation.

(10) Date of decision. The hearing official shall issue a written

opinion stating his or her decision, as soon as practicable, but not

later than sixty (60) days after the date on which the request for such

hearing was received by the agency. If an agency is unable to provide

the debtor with a hearing and render a decision within 60 days after

the receipt of the request for such hearing:

(i) The agency may not issue a withholding order until the hearing

is held and a decision rendered; or

(ii) If the agency had previously issued a withholding order to the

debtor's employer, the agency must suspend the withholding order

beginning on the 61st day after the receipt of the hearing request and

continuing until a hearing is held and a decision is rendered.

(11) Content of decision. The written decision shall include:

(i) A summary of the facts presented;

(ii) The hearing official's findings, analysis and conclusions; and

(iii) The terms of any repayment schedules, if applicable.

(12) Final agency action. The hearing official's decision will be

the final agency action for the purposes of judicial review under the

Administrative Procedures Act (5 U.S.C. 701 et seq.).

(13) Failure to appear. In the absence of good cause shown, a

debtor who fails to appear at a hearing scheduled pursuant to paragraph

(f)(4) of this section, will be deemed as not having timely filed a

request for a hearing.

(g) Wage garnishment order. (1) Unless the agency receives

information that the agency believes justifies a delay or cancellation

of the withholding order, the agency shall send, by first class mail, a

withholding order to the debtor's employer within 30 days after the

debtor fails to make a timely request for a hearing (i.e., within 15

business days after the mailing of the notice described in paragraph

(e)(1) of this section), or, if a timely request for a hearing is made

by the debtor, within 30 days after a final decision is made by the

agency to proceed with garnishment.

(2) The withholding order sent to the employer under paragraph

(g)(1) of this section shall be in a form prescribed by the Secretary

of the Treasury on the agency's letterhead and signed by the head of

the agency or his/her delegatee. The order shall contain only the

information as may be necessary for the employer to comply with the

withholding order. Such information includes the debtor's name,

address, and social security number, as well as instructions for

withholding and information as to where payments should be sent.

(3) The agency will keep a copy of a certificate of service

indicating the date of mailing of the order.

(h) Certification by employer. Along with the withholding order,

the agency shall send to the employer a certification in a form

prescribed by the Secretary of the Treasury. The employer shall

complete and return the certification to the agency within the time

frame prescribed in the instructions to the form. The certification

will address matters such as information about the debtor's employment

status and disposable pay available for withholding.

(i) Amounts withheld. (1) Subject to the provisions of paragraph

(i)(3), after receipt of the garnishment order issued under this

section the employer shall deduct from all disposable pay paid to the

applicable debtor during each pay period the amount indicated on the

garnishment order up to 15% of the debtor's disposable pay.

(2) When a debtor's pay is subject to withholding orders with

priority the following shall apply:

(i) Unless otherwise provided by Federal law, withholding orders

issued under this section shall be paid in the amounts set forth under

paragraph (i)(1) of this section and shall have priority over other

withholding orders which are served later in time. Notwithstanding the

foregoing, withholding orders for family support shall have priority

over withholding orders issued under this section.

(ii) If amounts are being withheld from a debtor's pay pursuant to

a withholding order served on an employer before a withholding order

issued pursuant to this section, or if a withholding order for family

support is served on an employer at any time, the amounts withheld

pursuant to the withholding order issued under this section shall be

the lesser of:

(A) The amount calculated under paragraph (i)(1) of this section,

or

(B) An amount equal to 25% of the debtor's disposable pay less the

amount(s) withheld under the withholding order(s) with priority.

(3) An amount greater than that set forth in paragraphs (i)(1) and

(i)(2) of this section may be withheld upon the written consent of

debtor.

(4) The employer shall promptly pay to the agency all amounts

withheld in accordance with the withholding order issued pursuant to

this section.

(5) An employer shall not be required to vary its normal pay and

disbursement cycles in order to comply with the withholding order.

(6) Any assignment or allotment by an employee of his earnings

shall be void to the extent it interferes with or prohibits execution

of the withholding order issued under this part, except for any

assignment or allotment made pursuant to a family support judgment or

order.

(7) The employer shall withhold the appropriate amount from the

debtor's wages for each pay period until the employer receives

notification from the agency to discontinue wage withholding. The

garnishment order shall indicate a reasonable period of time within

which the employer is required to commence wage withholding.

(j) Exclusions from garnishment. The agency may not garnish the

wages of a debtor who it knows has been involuntarily separated from

employment until the debtor has been reemployed continuously for at

least 12 months. The debtor bears the burden of informing the agency of

the circumstances surrounding an involuntary separation from

employment.

(k) Financial hardship. (1) A debtor whose wages are subject to a

wage withholding order under this section, may, at any time, request a

review by the agency of the amount garnished, based on materially

changed circumstances such as disability, divorce, or catastrophic

illness which result in financial hardship.

(2) A debtor requesting a review under paragraph (k)(1) of this

section shall submit the basis for claiming that the current amount of

garnishment results in a financial hardship to the debtor, along with

supporting documentation. Agencies shall consider any information

submitted in accordance with procedures and standards established by

the agency.

(3) If a financial hardship is found, the agency shall downwardly

adjust, by an amount and for a period of time agreeable to the agency,

the amount garnished to reflect the debtor's financial condition. The

agency will notify the employer of any adjustments to the amounts to be

withheld.

(l) Ending garnishment. (1) Once the agency has fully recovered the

amounts owed by the debtor, including interest, penalties, and

administrative costs consistent with the FCCS, the agency shall send

the debtor's employer

[[Page 62464]]

notification to discontinue wage withholding.

(2) At least annually, an agency shall review its debtors' accounts

to ensure that garnishment has been terminated for accounts that have

been paid in full.

(m) Actions prohibited by the employer. An employer may not

discharge, refuse to employ, or take disciplinary action against the

debtor due to the issuance of a withholding order under this section.

(n) Refunds. (1) If a hearing official, at a hearing held pursuant

to paragraph (f)(3) of this section, determines that a debt is not

legally due and owing to the United States, the agency shall promptly

refund any amount collected by means of administrative wage

garnishment.

(2) Unless required by Federal law or contract, refunds under this

section shall not bear interest.

(o) Right of action. The agency may sue any employer for any amount

that the employer, after receipt of the garnishment order provided by

the agency under paragraph (g) of this section, fails to withhold from

wages owed and payable to an employee. However, a suit may not be filed

before the termination of the collection action, unless earlier filing

is necessary to avoid expiration of any applicable statute of

limitations period. For purposes of this section, ``termination of the

collection action'' occurs when the agency has terminated collection

action in accordance with the FCCS or other applicable standards. In

any event, termination of the collection action will have been deemed

to occur if the agency has not received any payments to satisfy the

debt, in whole or in part, from any source for a period of one (1)

year.

Dated: November 17, 1997.

Russell D. Morris,

Commissioner.

[FR Doc. 97-30611 Filed 11-20-97; 8:45 am]

BILLING CODE 4810-35-P