Federal Claims Collection Standards

SUMMARY: This document proposes to revise the Federal Claims Collection

Standards issued by the Department of Justice and the General

Accounting Office on March 9, 1984. The proposed revisions clarify and

simplify Federal debt collection standards contained in the Federal

Claims Collection Standards and reflect changes to Federal debt

collection procedures under the Debt Collection Improvement Act of 1996

and the General Accounting Office Act of 1996.

DATES: Comments must be received on or before March 2, 1998.

ADDRESSES: All comments should be addressed 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; or John W. Showalter, Assistant

Director, Commercial Litigation Branch, Civil Division, Department of

Justice, P.O. Box 875, Ben Franklin Station, Washington, D.C. 20044. A

copy of this proposed rule is being made available for downloading from

the Financial Management Service web site at the following address:

http://www.fms.treas.gov.

FOR FURTHER INFORMATION CONTACT: Gerry Isenberg, Financial Program

Specialist, Financial Management Service, Department of the Treasury,

at (202) 874-6660; Ronda L. Kent or Ellen Neubauer, Senior Attorneys,

Financial Management Service, Department of the Treasury, at (202) 874-

6680; or John W. Showalter, Assistant Director, Commercial Litigation

Branch, Civil Division, Department of Justice, at (202) 307-0244.

SUPPLEMENTARY INFORMATION: The Federal Claims Collection Standards

(FCCS) are being revised for two primary reasons: (1) to clarify and

simplify the Federal debt collection standards contained in the FCCS;

and (2) to reflect changes to Federal debt collection procedures under

the Debt Collection Improvement Act of 1996 (DCIA), Pub. L. 104-134,

110 Stat. 1321, 1358 (Apr. 26, 1996), as part of the Omnibus

Consolidated Rescissions and Appropriations Act of 1996.

Some of the changes made to clarify and simplify the FCCS were

suggested by Federal officials in numerous Government agencies in the

five years prior to the enactment of the DCIA. We appreciate their

substantial efforts toward this revision. The revised FCCS provide

agencies with greater latitude to adopt agency specific regulations

considering the legal and policy requirements applicable to the various

types of Federal debt and maximize the effectiveness of Federal debt

collection procedures.

The DCIA is the most significant legislation for the administrative

collection of Federal debt since the Debt Collection Act of 1982, Pub.

L. 97-365, 96 Stat. 1749 (Oct. 25, 1982). The revised FCCS conform with

relevant statutory changes to Federal debt collection procedures under

the DCIA. The DCIA authorizes the issuance of rules concerning new debt

collection procedures, including centralized administrative offset, the

transfer or referral of delinquent debt to Treasury or Treasury-

designated debt collection centers for collection (cross-servicing),

administrative wage garnishment, and publication of debtor information.

Additional rules concerning these new debt collection procedures will

be issued separately in accordance with the DCIA.

While this revision of the FCCS is being issued as a proposed rule,

readers are reminded that most of the provisions of the DCIA became

effective upon enactment on April 26, 1996. Publication of this

proposed rule does not delay the effective date of the DCIA, nor does

it postpone the duty of Federal agencies to comply with the provisions

of the DCIA.

The Secretary of the Treasury has been added as a co-promulgator of

the FCCS in accordance with section 31001(g)(1)(C) of the DCIA. The

Comptroller General has been removed as a co-promulgator in accordance

with section 115(g) of the General Accounting Office Act of 1996 (GAO

Act), Pub. L. 104-316, 110 Stat. 3826 (Oct. 19, 1996). The Department

of the Treasury and the Department of Justice are establishing a new

joint chapter IX in Title 31 of the Code of Federal Regulations. The

Department of the Treasury and the Department of Justice will publish

the revised FCCS as a joint rule in this new chapter. The current FCCS

are found at 4 CFR parts 101-105.

Discussion of Major Changes

The revised FCCS contain numerous changes and amendments throughout

the rule. Major changes contained in these revised FCCS are highlighted

below. The various provisions of the FCCS that have been redrafted for

clarity but that do not substantively change debt collection procedures

are not discussed here. A detailed section-by-section analysis

comparing the revised FCCS to the current FCCS is available at the

addresses noted above. Readers are encouraged to read the revised FCCS

carefully to assure knowledge and understanding of all the changes and

not rely solely on the changes highlighted in this discussion.

The following major changes to the FCCS have been incorporated into

these revised FCCS:

1. The Comptroller General was removed as a co-promulgator of the

FCCS. The revised FCCS will be published in parts 900-904 of chapter IX

of Title 31 of the Code of Federal Regulations because the Secretary of

the Treasury was added as a co-promulgator of the FCCS. See 4 CFR

101.1.

2. The revised FCCS reflect the elimination of the Comptroller

General's role in Federal debt collection.

3. The revised FCCS provide agencies with greater latitude to

streamline and customize debt collection procedures to accommodate

agency specific requirements or unique circumstances.

4. The revised FCCS reflect the requirement that agencies use

government-wide debt collection contracts (with certain exceptions) for

referrals to private collection contractors.

5. The revised FCCS contain a new requirement that agencies and

debtors exchange mutual releases of non-tax liabilities, in all

appropriate instances, when a claim is compromised.

6. The revised FCCS reflect the increase in the principal claim

amount, from $20,000 to $100,000, that agencies are authorized to

compromise or to suspend or terminate collection activity thereon,

without concurrence by the Department of Justice. In addition, the

minimum amount of a claim that may be referred to the Department of

Justice is increased from $600 to $2,500. The circumstances under which

the Department of Justice will litigate when the claim amount does not

meet the minimum threshold have not been changed.

7. The revised FCCS reflect several new debt collection procedures

under the DCIA, including, but not limited to:

(a) transfer or referral of delinquent debt to the Department of

the Treasury

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or Treasury-designated debt collection centers for collection, known as

``cross-servicing;''

(b) mandatory, centralized administrative offset by disbursing

officials;

(c) mandatory credit bureau reporting; and

(d) mandatory prohibition against extending Federal financial

assistance in the form of a loan or loan guarantee to delinquent

debtors.

The Department of the Treasury and the Department of Justice have

determined that this regulation is not a significant regulatory action

as defined in Executive Order 12866 and accordingly this regulation has

not been reviewed by the Office of Management and Budget. It is hereby

certified that this regulation will not have a significant economic

impact on a substantial number of small entities because the regulation

either (1) results in greater flexibility for Federal agencies to

streamline their own debt collection regulations, or (2) reflects the

statutory language contained in the DCIA. Accordingly, a Regulatory

Flexibility Analysis is not required.

This regulation will not have a substantial direct effect on the

states, on the relationship between the national government and the

states, or on distribution of power and responsibilities among the

various levels of government. Therefore, in accordance with Executive

Order 12612, it is determined that this regulation does not have

sufficient federalism implications to warrant the preparation of a

Federalism Assessment.

This regulation will not result in the expenditure by state, local

and tribal governments, in the aggregate, or by the private sector, of

$100,000,000 or more in any one year, and it will not significantly or

uniquely affect small governments. Therefore, no actions were deemed

necessary under the provisions of the Unfunded Mandates Reform Act of

1995.

List of Subjects

31 CFR Part 900

Antitrust, Claims, Fraud, Taxes.

31 CFR Part 901

Administrative practice and procedure, Claims, Federal Employees,

Penalties, Privacy.

31 CFR Part 902

Claims.

31 CFR Part 903

Claims.

31 CFR Part 904

Claims.

For the reasons set out in the preamble, chapter IX, consisting of

parts 900 through 904, is proposed to be established in title 31 of the

Code of Federal Regulations to read as follows:

CHAPTER IX--FEDERAL CLAIMS COLLECTION STANDARDS

(DEPARTMENT OF THE TREASURY--DEPARTMENT OF JUSTICE)

Part

900 Scope of standards

901 Standards for the administrative collection of claims

902 Standards for the compromise of claims

903 Standards for suspending or terminating collection activity

904 Referrals to the Department of Justice

PART 900--SCOPE OF STANDARDS

Sec.

900.1 Prescription of standards.

900.2 Definitions and construction.

900.3 Antitrust, fraud, and tax and interagency claims excluded.

900.4 Compromise, waiver, or disposition under other statutes not

precluded.

900.5 Form of payment.

900.6 Subdivision of claims not authorized.

900.7 Required administrative proceedings.

900.8 No private rights created.

Authority: 31 U.S.C. 3711.

Sec. 900.1 Prescription of standards.

(a) The Secretary of the Treasury and the Attorney General of the

United States are issuing the regulations in parts 900-904 of this

chapter under 31 U.S.C. 3711(d)(2). The regulations in this chapter

prescribe standards for Federal agency use in the administrative

collection, offset, compromise, and the suspension or termination of

collection activity for civil claims for money, funds, or property, as

defined by 31 U.S.C. 3701(b), unless specific agency statutes or

regulations apply to such activities or, as provided for by Title 11 of

the United States Code, when the claims involve bankruptcy. Federal

agencies include agencies of the executive, legislative, and judicial

branches of the Government, including Government corporations. These

regulations in this chapter also prescribe standards for referring

claims to the Department of Justice for litigation. Additional guidance

is contained in the Office of Management and Budget's Circular A-129

(Revised) ``Policies for Federal Credit Programs and Non-Tax

Receivables,'' the Department of the Treasury's ``Managing Federal

Receivables,'' and other publications concerning debt collection and

debt management. These publications are available from the Debt

Management Services, Financial Management Service, Department of the

Treasury, 401 14th Street S.W., Room 151, Washington, D.C. 20227.

(b) Additional rules governing disbursing official administrative

offset and the transfer of delinquent debt to the Department of the

Treasury or Treasury-designated debt collection centers for collection

(cross-servicing) under the Debt Collection Improvement Act of 1996,

Pub. L. 104-134, 110 Stat. 1321, 1358 (Apr. 26, 1996), are issued in

separate regulations by the Department of the Treasury. Rules governing

the use of certain debt collection tools created under the Debt

Collection Improvement Act of 1996, such as administrative wage

garnishment and dissemination of information regarding delinquent

debtors, also are issued in separate regulations by the Department of

the Treasury.

(c) Agencies are not limited to the remedies contained in parts

900-904 of this chapter and are encouraged to use all authorized

remedies, including alternative dispute resolution and arbitration, to

collect civil claims, to the extent that such remedies are not

inconsistent with the Federal Claims Collection Act, as amended, Pub.

L. 89-508, 80 Stat. 308 (July 19, 1966), the Debt Collection Act of

1982, Pub. L. 97-365, 96 Stat. 1749 (Oct. 25, 1982), the Debt

Collection Improvement Act of 1996, or other relevant statutes. These

regulations in this chapter are not intended to impair agencies' common

law rights to collect claims.

Sec. 900.2 Definitions and construction.

(a) For the purposes of the standards in this chapter, the terms

``claim'' and ``debt'' are synonymous and inter-changeable. They refer

to an amount of money, funds, or property that has been determined by

an agency official to be due the United States from any person,

organization, or entity, except another Federal agency. For the

purposes of administrative offset under 31 U.S.C. 3716, the terms

``claim'' and ``debt'' include an amount of money, funds, or property

owed by a person to a State (including past-due support being enforced

by 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.

(b) A claim is ``delinquent'' if it has not been paid by the date

specified in the agency's initial written demand for payment or

applicable agreement or instrument (including a post-delinquency

payment agreement),

[[Page 68478]]

unless other satisfactory payment arrangements have been made.

(c) In parts 900-904 of this chapter, words in the plural form

shall include the singular and vice versa, and words signifying the

masculine gender shall include the feminine and vice versa. The terms

``includes'' and ``including'' do not exclude matters not listed but do

include matters that are in the same general class.

(d) Recoupment is a special method for adjusting claims arising

under the same transaction or occurrence. For example, obligations

arising under the same contract are generally subject to recoupment.

(e) For purposes of the standards in this chapter, unless otherwise

stated, ``Secretary'' means the Secretary of the Treasury or the

Secretary's delegate.

Sec. 900.3 Antitrust, fraud, and tax and interagency claims excluded.

(a) The standards in parts 900-904 of this chapter relating to

compromise, suspension, and termination of collection activity do not

apply to any claim based in whole or in part on conduct in violation of

the antitrust laws or to any claim involving fraud, the presentation of

a false claim, or misrepresentation on the part of the debtor or any

party having an interest in the claim. Only the Department of Justice

has the authority to compromise, suspend, or terminate collection

activity on such claims. The standards in parts 900-904 of this chapter

relating to the administrative collection of claims do apply, but only

to the extent authorized by the Department of Justice in a particular

case. Upon identification of a claim based in whole or in part on

conduct in violation of the antitrust laws or any claim involving

fraud, the presentation of a false claim, or misrepresentation on the

part of the debtor or any party having an interest in the claim,

agencies shall promptly refer the case to the Department of Justice for

action. At its discretion, the Department of Justice may return the

claim to the forwarding agency for further handling in accordance with

the standards in parts 900-904 of this chapter.

(b) Parts 900-904 of this chapter do not cover tax claims.

(c) Parts 900-904 of this chapter do not apply to claims between

Federal agencies. Federal agencies should attempt to resolve

interagency claims by negotiation in accordance with Executive Order

12146 (3 CFR, 1980 Comp., pp. 409-412).

Sec. 900.4 Compromise, waiver, or disposition under other statutes not

precluded.

Nothing in parts 900-904 of this chapter precludes agency

disposition of any claim under statutes and implementing regulations

other than subchapter II of chapter 37 of Title 31 of the United States

Code (Claims of the United States Government) and these standards. See,

e.g., the Federal Medical Care Recovery Act, Pub. L. 87-693, 76 Stat.

593 (Sept. 25, 1962) (codified at 42 U.S.C. 2651 et seq.), and

applicable regulations, 28 CFR part 43. In such cases, the laws and

regulations that are specifically applicable to claims collection

activities of a particular agency generally take precedence over parts

900-904 of this chapter.

Sec. 900.5 Form of payment.

Claims may be paid in the form of money or, when a contractual

basis exists, the Government may demand the return of specific property

or the performance of specific services.

Sec. 900.6 Subdivision of claims not authorized.

Claims 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 claim

in determining whether the claim is one of less than $100,000

(excluding interest, penalties, or administrative costs) or such higher

amount as the Attorney General shall from time to time prescribe for

purposes of compromise or suspension or termination of collection

activity.

Sec. 900.7 Required administrative proceedings.

Agencies are not required to omit, foreclose, or duplicate

administrative proceedings required by contract or other laws or

regulations.

Sec. 900.8 No private rights created.

The standards in this chapter do not create any right or benefit,

substantive or procedural, enforceable at law or in equity by a party

against the United States, its agencies, its officers, or any other

person, nor shall the failure of an agency to comply with any of the

provisions of parts 900-904 of this chapter be available to any debtor

as a defense.

PART 901--STANDARDS FOR THE ADMINISTRATIVE COLLECTION OF CLAIMS

Sec.

901.1 Aggressive agency collection activity.

901.2 Demand for payment.

901.3 Collection by administrative offset.

901.4 Administrative offset against amounts payable from Civil

Service Retirement and Disability Fund and the Federal Employee

Retirement System.

901.5 Reporting claims.

901.6 Contracting for debt collection agencies and to locate and

recover unclaimed assets.

901.7 Suspension or revocation of eligibility for loans and loan

guaranties, licenses, permits, or privileges.

901.8 Liquidation of collateral.

901.9 Collection in installments.

901.10 Interest, penalties, and administrative costs.

901.11 Analysis of costs.

901.12 Use and disclosure of mailing addresses.

901.13 Exemptions.

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

Sec. 901.1 Aggressive agency collection activity.

(a) Federal agencies shall aggressively collect all claims arising

out of activities of, or referred or transferred for collection

services to, that agency. Collection activities shall be undertaken

promptly with follow-up action taken as necessary depending upon the

circumstances. Nothing contained in parts 900-904 of this chapter

requires the Department of Justice, the Department of the Treasury, or

other Treasury-designated debt collection center, to duplicate

collection activities previously undertaken by other agencies or to

perform collection activities that other agencies should have

undertaken.

(b) Claims referred or transferred shall be serviced, collected, or

compromised, or the collection action will be suspended or terminated,

in accordance with the statutory requirements and authorities otherwise

applicable to the collection of such claims.

(c) Agencies shall cooperate with one another in their debt

collection activities.

(d) Agencies should consider referring claims that are less than

180 days delinquent to ``debt collection centers'' of the Federal

Government to accomplish efficient, cost effective debt collection. The

Department of the Treasury is a debt collection center, is authorized

to designate other debt collection centers within the Federal

Government based on the debt collection centers' performance in

collecting delinquent claims owed to the Government, and may withdraw

such designations. Referrals to debt collection centers shall be at the

discretion of, and for a time period acceptable to, the Secretary.

Referrals may be for servicing, collection, compromise, suspension, or

termination of collection action.

[[Page 68479]]

(e) Agencies shall transfer to the Secretary any claim that has

been delinquent for a period of 180 days or more so that the Secretary

may take appropriate action to collect the claim or terminate

collection action. This requirement does not apply to any claim that:

(1) Is in litigation or foreclosure;

(2) Will be disposed of under an approved asset sale program;

(3) Has been referred to a private collection contractor for a

period of time acceptable to the Secretary;

(4) Is at a debt collection center for a period of time acceptable

to the Secretary (see paragraph (d) of this section);

(5) Will be collected under internal offset procedures within three

years after the debt first became delinquent; or

(6) To other classes of claims for which the Secretary has

determined that an exemption from this requirement is in the best

interest of the Government. Agencies may request that the Secretary

exempt specific classes of claims.

(f) Agencies operating debt collection centers are authorized to

charge a fee for services rendered regarding referred or transferred

claims. The fee may be paid out of amounts collected and may be added

on the claim as an administrative cost (see Sec. 901.10).

Sec. 901.2 Demand for payment.

(a) Written demand as described in paragraph (b) of this section

shall be made promptly upon a debtor of the United States in terms that

inform the debtor of the consequences of failing to cooperate with the

agency to resolve the claim. The specific content, timing, and number

of demand letters shall depend upon the type and amount of the claim

and the debtor's response, if any, to the agency's letters or calls.

Generally, one demand letter should suffice. In determining the timing

of the demand letter or letters, agencies should give due regard to the

need to refer claims promptly to the Department of Justice for

litigation, in accordance with Sec. 904.1 of this chapter or otherwise.

When necessary to protect the Government's interest (for example, to

prevent the running of a statute of limitations), written demand may be

preceded by other appropriate actions under parts 900-904 of this

chapter, including immediate referral for litigation.

(b) Demand letters shall inform the debtor of:

(1) The basis for the indebtedness and the rights, if any, the

debtor may have to seek review within the agency;

(2) The applicable standards for imposing any interest, penalties,

or administrative costs;

(3) The date by which payment should be made to avoid late charges

and enforced collection, which generally should not be more than 30

days from the date that the demand letter is mailed or hand-delivered;

and

(4) The name, address, and phone number of a contact person or

office within the agency.

(c) Agencies should exercise care to ensure that demand letters are

mailed or hand-delivered on the same day that they are dated. There is

no prescribed format for demand letters. Agencies should utilize demand

letters and procedures that will lead to the earliest practicable

determination of whether the claim can be resolved administratively or

must be referred for litigation.

(d) Agencies should include in demand letters such items as the

agency's willingness to discuss alternative methods of payment; its

policies with respect to the use of credit bureaus, debt collection

centers, and collection agencies; the agency's remedies to enforce

payment of the claim (including assessment of interest, administrative

costs and penalties, administrative garnishment, the use of collection

agencies, Federal salary offset, tax refund offset, administrative

offset, and litigation); the requirement that any debt delinquent for

more than 180 days be transferred to the Department of the Treasury for

collection; and, depending on applicable statutory authority, the

debtor's entitlement to consideration of a waiver.

(e) Agencies should respond promptly to communications from

debtors, within 30 days whenever feasible, and should advise debtors

who dispute claims to furnish available evidence to support their

contentions.

(f) Prior to the initiation of the demand process or at any time

during or after completion of the demand process, if an agency

determines to pursue or is required to pursue offset, the procedures

applicable to offset should be followed (see Sec. 901.3). The

availability of funds or money for debt satisfaction by offset and the

agency's determination to pursue collection by offset shall release the

agency from the necessity of further compliance with paragraphs (a),

(b), (c), and (d) of this section.

(g) Prior to referring a claim for litigation, agencies should

advise each person determined to be liable for the claim that, unless

the claim can be collected administratively, litigation may be

initiated. This notification should comply with Executive Order 12988

and may be given as part of a demand letter under paragraph (b) of this

section or in a separate document. Litigation counsel for the

Government should be advised that this notice has been given.

(h) When an agency learns that a bankruptcy petition has been filed

with respect to a debtor, before proceeding with further collection

action, the agency should immediately seek legal advice from its agency

counsel concerning the impact of the Bankruptcy Code on any pending or

contemplated collection activities. Unless the agency determines that

the automatic stay imposed at the time of filing pursuant to 11 U.S.C.

362 has been lifted or is no longer in effect, in most cases collection

activity against the debtor should stop immediately.

(1) After seeking legal advice, a proof of claim should be filed in

most cases with the bankruptcy court or the Trustee. Agencies should

refer to the provisions of 11 U.S.C. 106 relating to the consequences

on sovereign immunity of filing a proof of claim.

(2) If the agency is a secured creditor, it may seek relief from

the automatic stay regarding its security, subject to the provisions

and requirements of 11 U.S.C. 362.

(3) Offset is stayed in most cases by the automatic stay. However,

agencies should seek legal advice from their agency counsel to

determine whether their payments to the debtor and payments of other

agencies available for offset may be frozen by the agency until relief

from the automatic stay can be obtained from the bankruptcy court.

Agencies also should seek legal advice from their agency counsel to

determine whether recoupment is available.

Sec. 901.3 Collection by administrative offset.

(a) In general. Two types of administrative offset exist under this

section: Administrative offset by non-disbursing officials and

administrative offset by disbursing officials. The standards contained

in paragraph (a) apply to both types of administrative offset. The

standards contained in paragraph (b) of this section apply solely to

non-disbursing official offset, and the standards contained in

paragraph (c) of this section apply solely to disbursing official

offset. Collection by administrative offset shall be undertaken in

accordance with Secs. 901.3 and 901.4 and implementing regulations

established by each agency on all claims where such collection is

determined to be feasible and not otherwise prohibited.

(1) Agencies shall prescribe regulations for the exercise of

administrative offset consistent with

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this section or adopt this section without change by cross-reference.

(2) For purposes of this section, the term ``administrative

offset'' has the meaning provided in 31 U.S.C. 3701(a)(1).

(3) This section applies to administrative offsets undertaken by

agencies pursuant to 31 U.S.C. 3716 against funds or money payable to,

or held for, a debtor. It does not apply to:

(i) Claims 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);

(iii) Claims 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;

(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 of particular

types of claims; or

(vii) Offsets in the course of judicial proceedings, including

bankruptcy.

(4) Unless otherwise provided for by contract or law, claims 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.

(5) Agency regulations for offsets pursuant to 31 U.S.C. 3716 shall

provide also that, except as is provided in paragraph (b)(2) of this

section, offsets may be initiated only after the debtor has received:

(i) Written notice of the type and amount of the claim and that the

agency intends to use administrative offset to collect the claim;

(ii) An opportunity to inspect and copy agency records related to

the claim;

(iii) An opportunity for a hearing or review within the agency of

the determination of indebtedness; and

(iv) An opportunity to make a written agreement to repay the claim.

(6) When an agency previously has given a debtor any of the

required notice and review opportunities with respect to a particular

claim, the agency need not give notice and review opportunities

duplicating those previously given before initiating administrative

offset with respect to that claim.

(7) (i) For purposes of this section, whenever an agency is

required to afford a debtor a hearing or review within the agency, the

agency shall provide the debtor with a reasonable opportunity for an

oral hearing when:

(A) An applicable statute authorizes or requires the agency to

consider waiver of the indebtedness involved, the debtor requests

waiver of the indebtedness, and the waiver determination turns on an

issue of credibility or veracity; or

(B) The debtor requests reconsideration of the claim and the agency

determines that the question of the indebtedness 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) Unless otherwise required by law, an oral hearing under this

section is not required to be a formal evidentiary-type hearing,

although the agency should carefully document all significant matters

discussed at the hearing.

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

debt collection systems in which a determination of indebtedness or

waiver 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, a determination of the request for waiver or

reconsideration based upon a review of the written record.

(8) Unless otherwise provided by law, agencies may not initiate

administrative offset to collect a claim under 31 U.S.C. 3716 more than

10 years after the Government's right to collect the claim first

accrued, unless facts material to the Government's right to collect the

claim were not known and could not reasonably have been known by the

official or officials of the Government who were charged with the

responsibility to discover and collect such claims.

(b) Administrative offset by non-disbursing officials. Generally,

administrative offsets by non-disbursing officials are offsets that an

agency conducts internally or in cooperation with the agency certifying

or authorizing payments to the debtor. Disbursing agencies also are

authorized to conduct offsets in accordance with this paragraph on a

case-by-case basis.

(1) The creditor agency is responsible for determining, in its

discretion on a case-by-case basis, whether collection by

administrative offset under this subsection is feasible. Creditor

agencies should consider whether administrative offset may be

accomplished practically and legally and whether offset furthers and

protects the Government's interests. In appropriate circumstances, such

as when a debtor is unable to pay the full amount that could be

collected by offset (see Sec. 902.2(b) of this chapter), the agency may

consider the debtor's financial condition and is not required to use

offset in every instance in which there is an available source of funds

or money. Agencies also may consider whether offset would tend to

interfere substantially with, or defeat the purposes of, the program

authorizing the payments against which offset is contem plated. For

example, under a grant program in which payments are made in advance of

the grantee's performance, offset may be inappropriate. This concept

generally does not apply, however, when payment is in the form of

reimbursement.

(2) Agency regulations may provide for the omission of the

procedures set forth in paragraph (a)(5) of this section when:

(i) The offset is in the nature of a recoupment;

(ii) The claim arises under a contract as set forth in Cecile

Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993); or

(iii) The agency 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 to allow for prior notice and an opportunity for

review. When prior notice and an opportunity for review are omitted,

the agency shall give the debtor such notice and an opportunity for

review as soon as practicable and shall promptly refund any money

ultimately found not to have been owed to the Government.

(3) Agencies shall comply with requests from other agencies to

collect claims owed to the United States by administrative offset,

unless the offset would not be in the best interests of the Government

with respect to the program of the agency conducting the offset as

determined by the head of the agency, or would be otherwise contrary to

law. Appropriate use should be made of the cooperative efforts of other

agencies in effecting collection by administrative offset.

(4) Agency regulations shall provide that the agency making a

payment against which administrative offset is sought should not make

the requested offset until it has been provided with a written

certification by the creditor agency that the debtor owes the claim in

the amount specified and that the creditor agency has fully complied

with

[[Page 68481]]

its regulations concerning administrative offset.

(5) When collecting multiple claims by administrative offset,

agencies should apply the recovered amounts to those claims in

accordance with the best interests of the United States, as determined

by the facts and circumstances of the particular case, particularly the

applicable statutes of limitation.

(c) Administrative offset by disbursing officials. Disbursing

officials of the Department of the Treasury, the Department of Defense,

the United States Postal Service, other Government corporations, and

disbursing officials of the United States designated by the Secretary

are required to conduct administrative offset to collect claims that

agencies have certified to the Secretary for collection by

administrative offset. Agencies shall certify claims to the Secretary

and the Secretary shall share information concerning delinquent claims

with the aforesaid disbursing officials so that offsets may occur

government-wide. If an agency has not certified a specific claim to the

Secretary, an agency still may collect the claim by administrative

offset in accordance with paragraph (b) of this section by contacting

the payment certifying agency or the disbursing agency directly.

(1) Certification of claims to the Secretary shall be in a form

acceptable to the Secretary and shall include, at a minimum:

(i) A statement that the claim(s) is past due and legally

enforceable; and

(ii) A statement that the agency certifying the claim has complied

with all the due process requirements enumerated in 31 U.S.C. 3716(a)

and the agency's regulations.

(2) Federal agencies that are owed past due, legally enforceable

claims over 180 days delinquent shall certify those claims to the

Secretary for collection through the disbursing official offset

program. In addition to claims that, by law, may not be collected by

administrative offset, the Secretary may exempt any claim or class of

claims from this requirement if the Secretary determines exemption is

in the best interest of the United States.

(3) Payments that are prohibited by law from being offset are

exempt from offset by disbursing officials. Means-tested benefit

payments shall be exempted from offset by the Secretary at the request

of the head of the agency administering the means-tested benefit

program. For the purposes of this section, ``means-tested benefit

payments'' are payments made to an individual under a program where

eligibility is based on a determination that the income, assets, and/or

resources of the beneficiary are inadequate to provide the beneficiary

with an adequate standard of living without program assistance. The

Secretary may exempt other classes of payments upon the written request

of the head of the payment certifying or authorizing agency. Such

requests may be granted if the Secretary determines that exemption is

in the best interests of the Government. For example, offsets that

would tend to interfere substantially with, or defeat the purposes of,

the payment agency's program may qualify for an exemption.

(4) Benefit payments made under the Social Security Act (42 U.S.C.

301 et seq.), part B of the Black Lung Benefits Act (30 U.S.C. 921 et

seq.), and any law administered by the Railroad Retirement Board (other

than tier 2 benefits) may be offset only in accordance with Department

of the Treasury regulations, issued in consultation with the Social

Security Administration, the Railroad Retirement Board, and the Office

of Management and Budget.

(5) The disbursing official shall notify the debtor/payee in

writing that an offset has occurred. The notice shall include a

description of the payment from which the offset was taken, the amount

of offset that was taken, the identity of the creditor agency

requesting the offset, and a contact point within the creditor agency

who will respond to questions regarding the offset.

(6) If more than one claim is owed by a debtor, funds or money

collected by offset shall be applied to the claims in an order that is

in the best interests of the United States as determined by the

Secretary.

(7) In accordance with 31 U.S.C. 3716(f), the Secretary may waive

the provisions in the Computer Matching and Privacy Protection Act of

1988 concerning matching agreements and post-match notification and

verification (5 U.S.C. 552a(o) and (p)) for administrative offset under

paragraph (c) of this section upon receipt of a certification from a

creditor agency that the due process requirements enumerated in 31

U.S.C. 3716(a) have been met. The certification of a claim in

accordance with paragraph (c)(1) of this section will satisfy this

requirement. If such a waiver is granted, only the Data Integrity Board

of the Department of the Treasury is required to oversee any matching

activities, in accordance with 31 U.S.C. 3716(g).

(8) Under 31 U.S.C. 3716(h), the Secretary may enter into

reciprocal agreements with states for Federal disbursing officials to

collect state debts through offset of Federal payments and for state

disbursing officials to collect Federal debts through offset of state

payments. States shall have regulations or procedures concerning

offsets consistent with those contained in these standards. This

section shall not apply to claims or payments that are not subject to

offset by Federal law. The Secretary may exempt additional claims and/

or payments from these reciprocal agreements if the Secretary

determines such exemptions are in the best interest of the Federal

Government.

(d) In bankruptcy cases, agencies should seek legal advice from

their agency counsel concerning the impact of the Bankruptcy Code,

particularly 11 U.S.C. 106, 362, and 553, on pending or contemplated

collections by offset.

Sec. 901.4 Administrative offset against amounts payable from Civil

Service Retirement and Disability Fund and the Federal Employee

Retirement System.

(a) For claims that have not been certified to the Secretary for

administrative offset by disbursing officials, unless otherwise

prohibited by law, agencies may request that moneys that are due and

payable to a debtor from the Civil Service Retirement and Disability

Fund (CSRD) or the Federal Employee Retirement System (FERS) be

administratively offset, in amounts authorized under 5 CFR 831.1807, to

collect claims owed to the United States by the debtor. Because

disbursing officials of the Department of the Treasury are authorized

to offset these payments under Sec. 901.3, requests under this section

should be limited to those instances in which offset cannot be

accomplished by certification to the Secretary. Requests under this

section shall be made to appropriate officials of the Office of

Personnel Management (OPM) in accordance with such regula tions as are

prescribed by the Director of that office at 5 CFR 831.1801-831.1808.

(b) Agencies that decide to request administrative offset under

paragraph (a) of this section should make the request as soon as

practical after completion of the applicable procedures. Unless the

debtor has filed for a refund, there is no specific time period for

filing an offset request (see 5 CFR 831.1805), other than the 10-year

limitation period described in Sec. 901.3(a)(6). The filing of the

request for offset within the 10-year period shall satisfy any

requirement that offset be initiated prior to expiration of the statute

of limitations. The OPM shall retain the claim for future recovery and

make the collection when the debtor

[[Page 68482]]

applies for a refund or benefits from the retirement fund. The OPM

shall notify the agency if it does not have an application for a refund

or benefits from the debtor so that the agency may continue to attempt

recovery using other collection mechanisms. The agency shall notify the

OPM if it collects the claim using alternative means and wishes to

modify or terminate its offset request.

(c) If the offset request has been pending for a year or more when

the debtor files an application for a refund or benefits, the OPM shall

contact the agency to determine if the claim is still due and the

current balance of the claim. If the claim is still due, the agency

shall allow the debtor to offer a satisfactory repayment plan in lieu

of the offset, upon establishing that changes in the debtor's financial

condition would render the offset unjust (see Sec. 901.9 and

Sec. 902.2(b) of this chapter).

(d) This section does not authorize the OPM or the Merit Systems

Protection Board to review the merits of the requesting agency's

determination with respect to the amount and validity of the claim, its

determination as to waiver under an applicable statute, or its

determination whether to provide a hearing. The Merit Systems

Protection Board or any other review panel is not precluded from

providing hearing officials, on a reimbursable basis, to other Federal

agencies where hearing officials are required by law.

(e) In bankruptcy cases, agencies should seek legal advice from

their agency counsel concerning the impact of the Bankruptcy Code,

particularly 11 U.S.C. 106, 362 and 553, on pending or contemplated

collections by offset.

Sec. 901.5 Reporting claims.

(a) Agencies shall develop and implement procedures for reporting

delinquent claims to credit bureaus and other automated databases.

Agencies also may develop procedures to report non-delinquent claims to

credit bureaus.

(1) In developing procedures for reporting claims to credit

bureaus, agencies shall comply with the Bankruptcy Code and the Privacy

Act of 1974, 5 U.S.C. 552a, as amended. Credit bureaus are not subject

to the Privacy Act.

(2) Agency procedures for reporting consumer claims to credit

bureaus shall be consistent with the due process and other requirements

contained in 31 U.S.C. 3711(e). When an agency has given a debtor any

of the required notice and review opportunities with respect to a

particular claim, the agency need not give notice and review

opportunities duplicating those previously given before reporting that

consumer claim to credit bureaus.

(b) Agencies should report delinquent claims to the Department of

Housing and Urban Development's Credit Alert Interactive Voice Response

System (CAIVRS). For information about participating in the CAIVRS

program, agencies should contact the Director of Information Resources

Management Policy and Management Division, Office of Information

Technology, Department of Housing and Urban Development, 451 7th

Street, S.W., Washington, DC 20410.

Sec. 901.6 Contracting for debt collection agencies and to locate and

recover unclaimed assets.

(a) Agencies may contract with collection agencies to recover

delinquent claims provided that:

(1) Agencies retain the authority to resolve disputes, compromise

claims, suspend or terminate collection activity, and refer claims for

litigation;

(2) The collection agency is not allowed to offer the debtor, as an

incentive for payment, the opportunity to pay the claim less the

collection agency's fee unless the agency has granted such authority

prior to the offer;

(3) The collection agency 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 collection agency is required to account for all amounts

collected.

(b) Except for those agencies specifically exempted by procurement

statutes or with collection contracts in effect prior to the award of

the government-wide contracts, agencies shall use government-wide debt

collection contracts to obtain debt collection services provided by

collection agencies.

(c) Agencies may fund collection agency contracts on a fixed-fee

basis, that is, by providing for payment of a fixed fee determined

without regard to the amount actually collected under the contract,

provided that the payment of the fee under this type of contract shall

be charged to available agency appropriations or funds.

(d) Unless prohibited by statute, agencies may fund collection

agency contracts on a contingent-fee basis, that is, by including a

provision in the contract permitting the collection agency to deduct a

fee, consistent with prevailing commercial practice, based on a

percentage of the amount collected under the contract.

(e) Agencies also may enter into contracts for locating and

recovering unclaimed assets of the United States. Agencies must

establish procedures that are acceptable to the Secretary before

entering into contracts to recover assets of the United States held by

a state government or a financial institution.

Sec. 901.7 Suspension or revocation of eligibility for loans and loan

guaranties, licenses, permits, or privileges.

(a) Unless waived by the head of the agency, agencies are not

permitted to extend financial assistance in the form of a loan, loan

guarantee, or loan insurance to any person delinquent on a non-tax

claim owed to a Federal agency. This prohibition does not apply to

disaster loans. The authority to waive the application of this section

may be delegated to the Chief Financial Officer and redelegated only to

the Deputy Chief Financial Officer of the agency. Agencies may extend

credit after the delinquency has been resolved. The Secretary may

exempt classes of claims from this prohibition and shall prescribe

standards defining when a ``delinquency'' is ``resolved'' for purposes

of this prohibition.

(b) In non-bankruptcy cases, agencies seeking the collection of

statutory penalties, forfeitures, or other types of claims should give

serious consideration to the suspension or revocation of licenses,

permits, or other privileges for any inexcusable or willful failure of

a debtor to pay such a claim in accordance with the agency's

regulations or governing procedures. The debtor should be advised in

the agency's written demand for payment of the agency's ability to

suspend or revoke licenses, permits, or privileges. Any agency making,

guaranteeing, insuring, acquiring, or participating in loans should

give consideration to suspending or disqualifying any lender,

contractor, or broker from doing further business with it or engaging

in programs sponsored by it if such a debtor fails to pay its claims to

the Government within a reasonable time or if such debtor has been

suspended, debarred, or disqualified from participation in a program or

activity by another Federal agency. The failure of any surety to honor

its obligations in accordance with 31 U.S.C. 9305 should be reported to

the Department of the Treasury. The Department of the Treasury shall

forward to all interested agencies notification that a surety's

certificate of authority to do business with the Government has been

revoked or forfeited by the Department.

[[Page 68483]]

(c) The suspension or revocation of licenses, permits, or

privileges should also extend to Federal programs or activities that

are administered by the states on behalf of the Federal Government, to

the extent that they affect the Government's ability to collect money

or funds owed by debtors. Therefore, states that manage Federal

activities, pursuant to approval from the agencies, should ensure that

appropriate steps are taken to safeguard against issuing licenses,

permits, or privileges to debtors who fail to pay their claims to the

Government.

(d) In bankruptcy cases, before advising the debtor of an agency's

intention to suspend or revoke licenses, permits, or privileges,

agencies should seek legal advice from their agency counsel concerning

the impact of the Bankruptcy Code, particularly 11 U.S.C. 362 and 525,

which may restrict such action by the Government.

Sec. 901.8 Liquidation of collateral.

(a) Agencies should liquidate security or collateral and apply the

proceeds to the applicable claim(s) due through the exercise of a power

of sale in the security instrument or a nonjudicial foreclosure if

debtors fail to pay the claim(s) within a reasonable time after demand

and such action is in the Government's best interest. 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.

(b) When an agency learns that a bankruptcy petition has been filed

with respect to a debtor, the agency should seek legal advice from

their agency counsel concerning the impact of the Bankruptcy Code,

including, but not limited to, 11 U.S.C. 362, to determine

applicability of the automatic stay and the procedures for obtaining

relief from such stay prior to proceeding under paragraph (a) of this

section.

Sec. 901.9 Collection in installments.

(a) Whenever feasible, agencies shall collect the total amount of a

claim in one lump sum regardless of the collection mechanism being

used. If a debtor is financially unable to pay a claim in one lump sum,

agencies may accept payment in regular installments. Agencies should

obtain financial statements from debtors who represent that they are

unable to pay in one lump sum and independently verify such

representations whenever possible (see Sec. 902.2(g) of this chapter).

Agencies that agree to accept payments in regular installments should

obtain a legally enforceable written agreement from the debtor that

specifies all of the terms of the arrangement and that contains a

provision accelerating the claim in the event of default.

(b) The size and frequency of installment payments should bear a

reasonable relation to the size of the claim and the debtor's ability

to pay. If possible, the installment payments should be sufficient in

size and frequency to liquidate the Government's claim in three years

or less.

(c) Security for deferred payments should be obtained in

appropriate cases. Agencies may accept installment payments

notwithstanding the refusal of the debtor to execute a written

agreement or to give security, at the agency's option.

Sec. 901.10 Interest, penalties, and administrative costs.

(a) Except as provided in paragraphs (g), (h), and (i) of this

section, agencies shall charge interest, penalties, and administrative

costs on claims owed to the United States pursuant to 31 U.S.C. 3717.

An agency shall mail or hand-deliver a written notice to the debtor, at

the debtor's most recent address available to the agency, explaining

the agency's requirements concerning these charges except where these

requirements are included in a contractual or repayment agreement.

These charges shall continue to accrue until the claim is paid in full

or otherwise resolved through compromise, termination, or waiver of the

charges.

(b) Agencies shall charge interest on claims owed the United States

as follows:

(1) Interest shall accrue from the date of delinquency when all

circumstances have occurred to give rise to the claim or as otherwise

provided by law.

(2) Unless otherwise established in a contract, repayment

agreement, or by statute, the rate of interest charged shall be the

rate established annually by the Secretary in accordance with 31 U.S.C.

3717. Pursuant to 31 U.S.C. 3717, an agency may charge a higher rate of

interest if it reasonably determines that a higher rate is necessary to

protect the rights of the United States. The agency should document the

reasons for its determination that the higher rate is necessary.

(3) The rate of interest, as initially charged, shall remain fixed

for the duration of the indebtedness. When a debtor has defaulted on a

repayment agreement and seeks to enter into a new agreement, the agency

may require payment of interest at a new rate that reflects the current

value of funds to the Treasury 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. If, however, a debtor defaults on a previous repayment

agreement, charges that accrued but were not collected under the

defaulted agreement shall be added to the principal to be paid under

the new repayment agreement.

(c) Agencies shall assess administrative costs incurred for

processing and handling delinquent claims. The calculation of

administrative costs should be based on actual costs incurred or upon

estimated costs as determined by the assessing agency.

(d) Unless otherwise established in a contract, repayment

agreement, or by statute, agencies shall charge a penalty, pursuant to

31 U.S.C. 3717(e)(2), not to exceed six percent a year on the amount

due on a claim that is delinquent for more than 90 days. This charge

shall accrue from the date of delinquency.

(e) Agencies may increase an ``administrative claim'' by the cost

of living adjustment in lieu of charging interest and penalties under

this section. Such increases shall be computed annually. Agencies

should use this alternative only when there is a legitimate reason to

do so, such as when calculating interest and penalties on a claim would

be extremely difficult because of the age of the claim.

``Administrative claim'' includes, but is not limited to, a claim based

on fines, penalties, and overpayments, but does not include a claim

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 claim was

determined or last adjusted.

(f) When a claim 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

lastly to principal.

(g) Agencies shall waive the collection of interest and

administrative charges imposed pursuant to this section on the portion

of the claim that is paid within 30 days after the date on which

interest began to accrue. Agencies may extend this 30-day period on a

case-by-case basis. In addition, agencies may waive interest,

penalties, and administrative costs charged under this section, in

[[Page 68484]]

whole or in part, without regard to the amount of the claim, either

under the criteria set forth in these standards for the compromise of

claims, or if the agency determines that collection of these charges is

against equity and good conscience or is not in the best interests of

the United States.

(h) Agencies shall set forth in their regulations the circumstances

under which interest and related charges will not be imposed for

periods during which collection activity has been suspended pending

agency review.

(i) Agencies are authorized to impose interest and related charges

on claims not subject to 31 U.S.C. 3717 in accordance with the

applicable common law.

Sec. 901.11 Analysis of costs.

Agency collection procedures should provide for periodic comparison

of costs incurred and amounts collected. Data on costs and

corresponding recovery rates for claims of different types and in

various dollar ranges should 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 claim amounts below which collection efforts need not

be taken.

Sec. 901.12 Use and disclosure of mailing addresses.

(a) When attempting to locate a debtor in order to collect or

compromise a claim under parts 900-904 of this chapter or other

authority, agencies may send a request to the Secretary of the Treasury

(or designee) to obtain a debtor's mailing address from the records of

the Internal Revenue Service.

(b) Agencies are authorized to use mailing addresses obtained under

paragraph (a) of this section to enforce collection of a delinquent

claim and may disclose such mailing addresses to other agencies and to

collection agencies for collection purposes.

Sec. 901.13 Exemptions.

(a) The preceding sections of this part, to the extent they reflect

remedies or procedures prescribed by the Debt Collection Act of 1982

and the Debt Collection Improvement Act of 1996, such as administrative

offset, use of credit bureaus, contracting for collection agencies, and

interest and related charges, do not apply to claims arising under, or

payments made under, the Internal Revenue Code of 1986 as amended (26

U.S.C. 1 et seq.); the Social Security Act (42 U.S.C. 301 et seq.),

except to the extent provided under 42 U.S.C. 404 and 31 U.S.C.

3716(c); or the tariff laws of the United States. These remedies and

procedures, however, may be authorized with respect to claims that are

exempt from the Debt Collection Act of 1982 and the Debt Collection

Improvement Act of 1996, to the extent that they are authorized under

some other statute or the common law.

(b) This section should not be construed as prohibiting the use of

these authorities or requirements when collecting claims owed by

persons employed by agencies administering the laws cited in paragraph

(a) of this section unless the claim arose under those laws.

PART 902--STANDARDS FOR THE COMPROMISE OF CLAIMS

Sec.

902.1--Scope and application.

902.2--Bases for compromise.

902.3--Enforcement policy.

902.4--Joint and several liability.

902.5--Further review of compromise offers.

902.6--Consideration of tax consequences to the Government.

902.7--Mutual releases of debtor and the Government.

Authority: 31 U.S.C. 3711.

Sec. 902.1 Scope and application.

(a) The standards set forth in this part apply to the compromise of

claims pursuant to 31 U.S.C. 3711. An agency may exercise such

compromise authority for claims arising out of activities of, or

referred or transferred for collection services to, that agency when

the amount of the claim then due, exclusive of interest, penalties, and

administrative costs, does not exceed $100,000 or any higher amount

authorized by the Attorney General. Agency heads may designate

officials within their respective agencies to exercise the authorities

referred to in this section.

(b) Unless otherwise provided by law, when the principal balance of

a claim, exclusive of interest, penalties, and administrative costs,

exceeds $100,000 or any higher amount authorized by the Attorney

General, the authority to accept the compromise rests with the

Department of Justice. The agency should evaluate the offer, using the

factors set forth in this part. If the agency decides that an offer to

compromise any claim in excess of $100,000 is acceptable to the agency,

it shall refer the claim to the appropriate litigating division in the

Department of Justice using a Claims Collection Litigation Report

(CCLR). Agencies may obtain the CCLR from the Department of Justice or

local United States Attorney's Office. The referral shall include

appropriate financial information and a recommendation for the

acceptance of the compromise offer. Justice Department approval is not

required if the agency decides to reject a compromise offer.

Sec. 902.2 Bases for compromise.

(a) Agencies may compromise a claim if the Government cannot

collect the full amount because:

(1) The debtor is unable to pay the full amount in a reasonable

time, as verified through credit reports or other financial

information;

(2) The Government is unable to collect the claim in full within a

reasonable time by enforced collection proceedings;

(3) The cost of collecting the claim does not justify the enforced

collection of the full amount; or

(4) There is significant doubt concerning the Government's ability

to prove its case in court.

(b) In determining the debtor's inability to pay, among other

relevant factors, agencies should consider the following:

(1) Age and health of the debtor;

(2) Present and potential income;

(3) Inheritance prospects;

(4) The possibility that assets have been concealed or improperly

transferred by the debtor; and

(5) The availability of assets or income that may be realized by

enforced collection proceedings.

(c) Agencies should verify the debtor's claim of inability to pay

by using a credit report and other financial information as provided in

paragraph (g) of this section. Agencies may use their own financial

information form or may request suitable forms from the Department of

Justice or local United States Attorney's Office. Agencies should

consider the applicable exemptions available to the debtor under state

and Federal law in determining the Government's ability to enforce

collection. Agencies also may consider uncertainty as to the price that

collateral or other property will bring at forced sale in determining

the Government's ability to enforce collection. 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.

(d) 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

[[Page 68485]]

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 given to the availability of witnesses and other

evidentiary support for the Government's claim. In determining the

litigative risks involved, agencies should 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.

(e) Agencies may compromise a claim if the cost of collecting the

claim does not justify the enforced collection of the full amount. The

amount accepted in compromise in such cases may reflect an appropriate

discount for the administrative and litigative 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

claims. In determining whether the cost of collecting justifies

enforced collection of the full amount, agencies should consider

whether continued collection of the claim, regardless of cost, is

necessary to further an enforcement principle, such as the Government's

willingness to pursue aggressively defaulting and uncooperative

debtors.

(f) Agencies generally should 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, agencies should obtain a

legally enforceable written agreement providing that, in the event of

default in payment of the compromise, the full original principal

balance of the claim prior to compromise, less sums paid thereon, is

reinstated. Whenever possible, agencies should also obtain security for

repayment in the manner set forth in part 901 of this title.

(g) Agencies should obtain a current financial statement from the

debtor, executed under penalty of perjury, showing the debtor's assets

and liabilities, income and expenses, as a basis for assessing the

merits of a compromise proposal. Agencies also may obtain credit

reports or other financial information to assess compromise offers.

Agencies may use their own financial information form or may request

suitable forms from the Department of Justice or the local United

States Attorney's Office.

Sec. 902.3 Enforcement policy.

Agencies may compromise statutory penalties, forfeitures, or claims

established as an aid to enforcement and to compel compliance, pursuant

to this part, if the agency's enforcement policy in terms of deterrence

and securing compliance, present and future, will be adequately served

by the agency's acceptance of the sum to be agreed upon. Accidental or

technical violations may be dealt with less severely than willful and

substantial violations.

Sec. 902.4 Joint and several liability.

(a) When two or more debtors are jointly and severally liable,

agencies should pursue collection activity against all debtors, as

appropriate. Agencies should not attempt to allocate the burden of

payment between the debtors but should proceed to liquidate the

indebtedness as quickly as possible.

(b) Agencies should ensure that a compromise agreement with one

debtor does not release the agency's claim against the remaining

debtors. 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. 902.5 Further review of compromise offers.

If an agency receives a firm, written, substantive compromise offer

on a claim that comes within its own delegated compromise authority,

but is uncertain whether the offer should be accepted, it may refer the

offer, using a CCLR accompanied by supporting data and particulars

concerning the claim, to the appropriate litigating division in the

Department of Justice. The Department of Justice may act upon such an

offer or return it to the agency with instructions or advice.

Sec. 902.6 Consideration of tax consequences to the Government.

In negotiating a compromise with a business concern, agencies

should consider the tax consequences to the Government. In particular,

agencies should consider requiring a waiver of tax-loss-carry-forward

and tax-loss-carry-back rights of the debtor.

Sec. 902.7 Mutual releases of debtor and the Government.

In all appropriate instances, a compromise that is accepted by an

agency should be implemented by means of a mutual release, whereby the

debtor is released from further non-tax liability on the compromised

claim in consideration of payment in full of the compromise amount. The

Government and its officials, past and present, are released and

discharged from any and all claims arising from the same transaction

the debtor may have against them.

PART 903--STANDARDS FOR SUSPENDING OR TERMINATING COLLECTION

ACTIVITY

Sec.

903.1 Scope and application.

903.2 Suspension of collection activity.

903.3 Termination of collection activity.

903.4 Exception to termination.

Authority: 31 U.S.C. 3711.

Sec. 903.1 Scope and application.

(a) The standards set forth in this part apply to the suspension or

termination of collection activity pursuant to 31 U.S.C. 3711 on claims

that do not exceed $100,000, or such other amount as the Attorney

General may direct, ex-clusive of interest, penalties, and

administrative costs, after deducting the amount of partial payments or

collec-tions, if any. Prior to referring a claim to the Department of

Justice for litigation, agencies may suspend or terminate collection

under this part with respect to claims arising out of activities of, or

referred or transferred for collection services to, that agency.

(b) If, after deducting the amount of any partial payments or

collections, the principal amount of a claim 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 the Department of Justice. If the agency

believes that suspension or termination of any claim in excess of

$100,000 may be appropriate, it shall refer the claim to the

appropriate litigating division in the Department of Justice, using the

Claims Collection Litigation Report. The referral should specify the

reasons for the agency's recommendation. If, prior to referral to the

Department of Justice, an agency determines that a claim is plainly

erroneous or clearly without legal merit, the agency may terminate

collection activity regardless of the amount involved without obtaining

Department of Justice concurrence.

Sec. 903.2 Suspension of collection activity.

(a) Agencies may suspend collection activity on a claim when:

(1) The agency 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 claim.

(b) Based on the current financial condition of the debtor,

agencies may

[[Page 68486]]

suspend collection activity on a claim when the debtor's future

prospects justify retention of the claim for periodic review and

collection activity and:

(1) The applicable statute of limitations has not expired; or

(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 claim 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 claim with interest at a later date.

(c) (1) Agencies shall suspend collection activity during the time

required for consideration of the debtor's request for waiver or

administrative review of the claim if the statute under which the

request is sought prohibits the agency from collecting the debt during

that time.

(2) If the statute under which the request is sought does not

prohibit collection activity pending consideration of the request,

agencies may use discretion, on a case-by-case basis, to suspend

collection. Further, an agency ordinarily should suspend collection

action upon a request for waiver or review if the agency is prohibited

by statute or regulation from issuing a refund of amounts collected

prior to agency consideration of the debtor's request. However, an

agency should not suspend collection when the agency determines that

the request for waiver or review is frivolous or was made primarily to

delay collection.

(d) When an agency learns that a bankruptcy petition has been filed

with respect to a debtor, in most cases the collection activity on a

claim must be suspended, pursuant to the provisions of 11 U.S.C. 362,

1201, and 1301, unless the agency can clearly establish that the

automatic stay has been lifted or is no longer in effect. Agencies

should seek legal advice immediately from their agency counsel and, if

legally permitted, take the necessary legal steps to ensure that no

funds or money are paid by the agency to the debtor until relief from

the automatic stay is obtained.

Sec. 903.3 Termination of collection activity.

(a) Agencies may terminate collection activity when:

(1) The agency is unable to collect any substantial amount through

its own efforts or through the efforts of a debt collection center;

(2) The agency is unable to locate the debtor;

(3) Costs of collection are anticipated to exceed the amount

recoverable;

(4) The claim is legally without merit or enforcement of the claim

is barred by any applicable statute of limitations;

(5) The claim cannot be substantiated; or

(6) The claim against the debtor has been discharged in bankruptcy.

(b) Before terminating collection activity, the agency should have

pursued all appropriate means of collection and determined, based upon

the results of the collection activity, that the claim is

uncollectible. Termination of collection activity ceases active

collection of the claim. The termination of collection activity does

not preclude the agency from retaining a record of the account for

purposes of:

(1) Selling the debt, if the Secretary determines that such sale is

in the best interests of the United States;

(2) 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;

(3) Offsetting against future income or assets not available at the

time of termination of collection activity; or

(4) Screening future applicants for prior indebtedness.

(c) Generally, agencies shall terminate collection activity on a

claim that has been discharged in bankruptcy, regardless of the amount.

Agencies 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, the claims of an

agency that is a known creditor of a debtor may survive a discharge if

the agency did not receive formal notice of the proceedings. Agencies

should seek legal advice from their agency counsel if they believe they

have claims or offsets that may survive the discharge of a debtor.

Sec. 903.4 Exception to termination.

When a significant enforcement policy is involved, or recovery of a

judgment is a prerequisite to the imposition of administrative

sanctions, agencies may refer such a claim for litigation even though

termination of collection activity might otherwise be appropriate.

PART 904--REFERRALS TO THE DEPARTMENT OF JUSTICE

Sec.

904.1 Prompt referral.

904.2 Claims Collection Litigation Report.

904.3 Preservation of evidence.

904.4 Minimum amount of referrals to the Department of Justice.

Authority: 31 U.S.C. 3711.

Sec. 904.1 Prompt referral.

(a) Agencies promptly shall refer to the Department of Justice for

litigation claims on which aggressive collection activity has been

taken in accordance with part 901 of this title and that cannot be

compromised, or on which collection activity cannot be suspended or

terminated, in accordance with parts 902 and 903 of this chapter.

Agencies may refer those claims arising out of activities of, or

referred or transferred for collection services to, that agency. Claims

for which the principal amount is over $1,000,000, or such other amount

as the Attorney General may direct, exclusive of interest and

penalties, shall be referred to the division responsible for litigating

such claims at the Department of Justice, Washington, D.C. Claims for

which the principal amount is $1,000,000, or less, or such other amount

as the Attorney General may direct, exclusive of interest or penalties,

shall be referred to the Department of Justice's Nationwide Central

Intake Facility as required by the CCLR instructions. Claims should be

referred as early as possible, consistent with aggressive agency

collection activity and the observance of the standards contained in

parts 900-904 of this chapter, and, in any event, well within the

period for initiating timely lawsuits against the debtors. Agencies

shall make every effort to refer delinquent claims to the Department of

Justice for litigation within one year of the date such claims last

became delinquent. In the case of guaranteed or insured loans, agencies

should make every effort to refer these delinquent claims to the

Department of Justice for litigation within one year from the date the

loan was presented to the agency for payment or re-insurance.

(b) The Department of Justice has exclusive jurisdiction over the

claims referred to it pursuant to this section. The referring agency

shall refrain from having any contact with the debtor and shall direct

all debtor inquiries concerning the claim to the Department of Justice.

The referring agency shall notify immediately the Department of Justice

of any payments credited by the agency to the debtor's account after

referral of a claim under this section.

[[Page 68487]]

The Department of Justice shall notify the referring agency, in a

timely manner, of any payments it receives from the debtor.

Sec. 904.2 Claims Collection Litigation Report.

(a) Unless excepted by the Department of Justice, agencies shall

complete the Claims Collection Litigation Report (CCLR) (See

Sec. 902.1(b) of this chapter.), accompanied by a signed Certificate of

Indebtedness, to refer all administratively uncollectible claims to the

Department of Justice for litigation. Referring agencies shall complete

all of the sections of the CCLR appropriate to each claim as required

by the CCLR instructions and furnish such other information as may be

required in specific cases.

(b) Agencies shall indicate clearly on the CCLR the actions they

wish the Department of Justice to take with respect to the referred

claim. The CCLR permits the agency to indicate specifically any of a

number of litigative activities which the Department of Justice may

pursue, including enforced collection, judgment lien only, renew

judgment lien only, renew judgment lien and enforce collection, program

enforcement, foreclosure only, and foreclosure and deficiency judgment.

(c) Agencies also shall use the CCLR to refer claims to the

Department of Justice to obtain that Department's approval of any

proposals to compromise the claims or to suspend or terminate agency

collection activity.

Sec. 904.3 Preservation of evidence.

Referring agencies must take care to preserve all files and records

that may be needed by the Department of Justice to prove their claims

in court. Agencies ordinarily should include certified copies of the

documents that form the basis for the claim in the packages referring

their claims to the Department of Justice for litigation. Agencies

shall provide originals of such documents immediately upon request by

the Department of Justice.

Sec. 904.4 Minimum amount of referrals to the Department of Justice.

(a) Agencies shall not refer for litigation claims of less than

$2,500, exclusive of interest, penalties, and administrative costs, or

such other amount as the Attorney General shall from time to time

prescribe. The Department of Justice promptly shall notify referring

agencies if the Attorney General changes this minimum amount.

(b) Agencies shall not refer claims of less than the minimum amount

unless:

(1) Litigation to collect such smaller claims is important to

ensure compliance with the agency's policies or programs;

(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

referring agency 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. Agencies should consult

with the Financial Litigation Staff of the Executive Office for United

States Attorneys in the Department of Justice prior to referring claims

valued at less than the minimum amount.

Dated: December 16, 1997.

Robert E. Rubin,

Secretary of the Treasury.

Dated: November 28, 1997.

Janet Reno,

Attorney General of the United States.

[FR Doc. 97-33338 Filed 12-30-97; 8:45 am]

BILLING CODE 4810-35-P, 4410-26-P