Debt Collection

FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 11

RIN 3067-AC77

Debt Collection

AGENCY: Federal Emergency Management Agency (FEMA).

ACTION: Interim final rule with request for comments.

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SUMMARY: Under this rule FEMA will refer delinquent debts owed to this

Agency to the Department of the Treasury for collection under the

Government-wide Treasury Offset Program (TOP) and for tax refund

offsets at the same time. FEMA amends its administrative offset

regulations to allow administrative offset against delinquent debtor

States and units of general local government. FEMA also amends its

regulations to change the method for calculating interest, penalty and

administrative charges assessed on delinquent debts and to make States

and units of general local government subject to such charges.

DATES: This interim final rule is effective January 1, 1998. We invite

comments on the rule, which should be submitted on or before March 9,

1998.

FOR FURTHER INFORMATION CONTACT: Richard S. Buck, IV, Financial Policy

Division, Office of Financial Management, Federal Emergency Management

Agency, 500 C Street SW., Washington, DC 20472, (202) 646-4091.

ADDRESSES: Please submit any comments to the Rules Docket Clerk, Office

of the General Counsel, Federal Emergency Management Agency, 500 C

Street SW., room 840, Washington, DC 20472. Comments may also be

submitted to the Rules Docket Clerk by facsimile at (202) 646-4536, or

by e:mail addressed to Crane.M[email protected]. Please refer to RIN 3067-

AC61, Debt Collection when submitting your comments.

SUPPLEMENTARY INFORMATION:

I. Background

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

Sec. 31001, 31 U.S.C. 3720A, provides that the Department of the

Treasury ensure that any Federal Government payment to a delinquent

non-tax Federal debtor is subject to automatic offset against any tax

refunds that may be owed to the debtor. Creditor Federal agencies are

to receive any funds that are offset and are to apply them against

outstanding debts. The DCIA also provides that the Department of the

Treasury manage the tax refund offset program, previously administered

by the Internal Revenue Service (IRS).

To implement these DCIA provisions, the Department of the

Treasury's Financial Management Service (FMS) published an interim

final rule at 62 FR 34175 on June 25, 1997, which added Sec. 285.2 to

31 CFR and covered both TOP and the tax refund offset programs. The FMS

rule requires that all Federal agencies revise their debt collection

regulations so that the agencies refer their delinquent debts to the

Department of the Treasury. This FMS rule also centralizes and

streamlines collection of delinquent non-tax Federal debt by having the

Department of the Treasury (Treasury) manage the tax refund offset

program as part of the Treasury's Government-wide offset program.

The FMS rule also requires Federal agencies to amend their debt

collection regulations on administrative offset and tax refund offset

by the end of 1997 to conform to the FMS rule. FEMA's interim final

rule complies with the FMS requirement.

Under the FMS rule, FEMA will refer delinquent debt to Treasury for

both TOP and tax refund offset. Under FEMA's previous tax refund offset

regulation, 44 CFR Sec. Sec. 11.61-11.65, FEMA referred to the IRS only

those delinquent debts that could not be recovered through

administrative or salary offset and that had been reported as

delinquent to consumer reporting agencies (commonly known as ``credit

bureaus''). The new FMS rule allows agencies to use the three

collection methods concurrently. The FMS rule allows agencies to report

delinquent consumer debt to credit bureaus either before or after

submitting a debt to the Treasury Offset Program, that is, credit

bureau reporting is not a prerequisite to tax refund offset under this

rule.

Under 31 U.S.C. 3701(c) the definition of ``persons'' who are

subject to the administrative offset provisions (31 U.S.C. 3716) of the

Debt Collection Act of 1982 (DCA), makes any individual, organization,

or entity except other Federal agencies subject to such offset,

including States and units of general local government. Under 31 U.S.C.

3717 Federal agencies assess interest, penalty and administrative

charges against unpaid claims of the United States, including debts

owed by States and units of general local government. FEMA's interim

final rule allows FEMA to use administrative offset and to assess

interest, penalty and administrative charges against these governments.

Previously, FEMA charged States and units of general local government

interest under principles of common law. However, principles of common

law did not allow creditors, such as Federal agencies, to assess

penalties or costs of collection against States and units of general

local government. FEMA debt collection regulations had provided for

common law offset against these entities.

FEMA amends Sec. 11.48 on interest, penalty and administrative

charges to change its methods for calculating these charges.

II. Section-by-Section Analysis of the Regulations

Section 11.43, Administrative Offset, is changed to allow FEMA to:

1. Take administrative offsets against States and units of general

local government;

2. Collect, through the use of administrative offset and tax refund

offset, debts owed by individuals and other private sector delinquent

debtors to States and local governments, which arise under programs

administered by FEMA. FEMA will take such action under the provisions

of 31 U.S.C. 3716(h)(1) and reciprocal agreements entered into by the

Secretary of the Treasury and the States concerned. For instance, FEMA

administers the Individual & Family Grant (IFG) program, which is

funded 75% by the FEMA and 25% by the States. If a debtor owed a debt

under the IFG Program, then FEMA could use administrative and tax

refund offsets to recover the State's 25% share;

3. Refer specifically delinquent debt to the Department of the

Treasury for TOP in addition to conducting Agency administrative

offset. Previously, the FEMA regulation (Sec. 11.43(a)) only allowed

FEMA to use administrative offset against any monies due to the debtor

from the United States;

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4. Change the period in which the debtor could request an

administrative review from 15 days after receipt of the administrative

offset notice to 60 days after FEMA mails such notice to the debtor.

Since the period is calculated from the date of mailing rather than

from date of receipt of notice, FEMA no longer has to use expensive

certified mail, return receipt requested, for mailing such notices. See

Sec. 11.43(c). Administrative review means that FEMA considers evidence

and arguments submitted by the debtor and takes a fresh look as to

whether FEMA should continue collection efforts for the full amount of

the debt. 31 U.S.C. 3716(a)(3) provides that agencies must afford

debtors a right to a ``review within the agency'' before taking

administrative offset;

5. Stay offset action where the debtor made a request for

administrative review within the 60-day request period until FEMA has

rendered a decision on the debtor's request;

6. Continue offset action where the debtor has made a late request

(after the 60-day period) for administrative review. Under such

circumstances, FEMA will review the debtor's evidence and arguments. If

the FEMA Administrative Review Official (ARO) finds that the debtor

owes less than amounts already offset at the time of the decision, then

FEMA will refund the difference to the debtor;

7. Use offset under principles of common law in addition to FEMA's

having the ability to collect by administrative offset. This implements

DCIA Sec. 31001 (d)(2), 31 U.S.C. 3716(d);

8. Determine that the debtor's failure to receive FEMA's notice of

administrative offset, where this Agency had mailed the notice to

debtors' last known address, will not affect the validity of the

administrative offset action;

9. Make debtors liable for all costs incurred by the Federal

Government administrative offsets. For instance, delinquent debtors

will have to pay the charges, now (in 1997) $7.02 per offset, that the

Department of the Treasury incurs in making a TOP offset.

Administrative offset costs are ``administrative costs'' provided for

in Sec. 11.48(d).

Section 11.44, Collection of debts from Federal agencies or States

or units of general local government by common law offset has been

removed and the section reserved. The DCIA now allows Federal agencies

to use DCA administrative offset against States and units of general

local government, and excepts Federal departments and agencies from

administrative offset. Before the enactment of the DCIA, FEMA provided

procedures by which FEMA would exercise common law offsets against

these entities.

Section 11.48, Interest, Penalty and Administrative Charges

The DCIA, by changing the definition of ``persons'' subject to

interest, penalty and administrative costs of collection under 31

U.S.C. 3717, now allows Federal agencies to assess such charges against

States and units of general local government. Previously, FEMA had

assessed interest against these entities only under principles of

common law. At common law, any creditor could charge interest against

debtors who were tardy in making payments of debts. In United States v.

Texas, 507 U.S. 529 (1993), the Supreme Court approved a Federal

department's charging a State interest on a past-due debt. However,

principles of common law did not permit creditors, or Federal agencies,

to assess penalties and administrative costs of collection against

delinquent debtors. FEMA's prior rule, Sec. 11.48(c), excluded States

and units of local government from penalty or administrative charge

assessments. Sections 11.48(b), 11.48(d) and 11.48(e) now allow FEMA to

assess interest, penalties and administrative charges against these

entities under the provisions of 31 U.S.C. 3717.

Section 11.48(a) contains a definition of ``delinquent debt'' to be

used in all FEMA's debt collection regulations (Sec. 11.30-11.65). A

debt becomes delinquent when it is not paid for by the due date or if a

debtor has entered into a payment plan and fails to make a payment when

due under the plan.

Waiver of Interest and Penalties

Section 11.48(f)(5) now provides that the FEMA Agency Collections

Officer (ACO) or the ACO's designee may waive assessment of interest

where such assessment would be against equity and good conscience and

not in the best interests of the United States. The section gives two

situations where such waiver may be granted. Under Sec. 11.34(a)(1)

FEMA's Chief Financial Officer also serves as FEMA's Agency Collections

Officer.

Penalty Charges

FEMA is changing its method of calculating penalty charges in

Sec. 11.48(d). Previously, FEMA deemed a debt to be delinquent if the

debtor did not pay the debt in full within 30 days after FEMA first

notified the debtor that the debt was due. Since the Debt Collection

Act of 1982, 31 U.S.C. 3717(e)(2), assesses penalty charges where a

debt is 90 days past due, FEMA did not begin charging penalty charges

until the 120th day after notification with accrual starting with the

31st day after notification.

Under revised Sec. 11.48(d), debtors will not be liable for penalty

charges so long as they pay their debts in full within 90 days after

the date that FEMA first sent notice that this Agency would assess

penalty. See 31 U.S.C. 3717(e)(2). The penalty accrual period will

start with the date of notification rather than 30 days after the date

of the notification letter. Penalty will accrue also on unpaid interest

as it accumulates and on administrative charges from the date that the

Federal Government incurred them.

Under the new Sec. 11.48(f)(5), if FEMA were to delay unduly in

rendering an administrative review decision, then the ACO may waive

assessment of penalty during the period of unreasonable delay.

Revised Sec. 11.48(f)(1)(iv) grants FEMA authority to waive

impositions of interest in accordance with standards set out in the

Federal Claims Collection Standards (FCCS) at 4 CFR 102.13(c) and

FEMA's debt collection regulations relating waiver, termination and

suspension of debts at Secs. 11.50 and 11.51. FEMA is eliminating as

grounds for waiver of interest and penalty the debtor's having a valid

dispute with FEMA on issues involved in the debt.

In the non-applicability of interest, penalty and administrative

charges subsection (Sec. 11.48(g)), FEMA provides that only Federal

agencies are exempt from these charges. As previously mentioned, with

the passage of the DCIA, States and units of general local government

no longer are exempt from assessment of such charges under the Debt

Collection Act of 1982 (31 U.S.C. 3717).

Where a debtor owes FEMA more than one debt and the debtor makes an

involuntary partial payment the FMS states that the payment should be

applied to the oldest debt first. FEMA has revised Sec. 11.48(h) to

require that such partial payments will be applied to the oldest debt

first. However, where the debtor makes a voluntary payment the debtor

may choose to which debt the payment may be credited. This latter rule

follows principles of common law.

FEMA has revised its rule, Sec. 11.48(i)(1), relating to waiver of

interest, penalty and administrative charge waivers as applied to

States and local governments. If such governments can demonstrate to

the satisfaction of the ACO or a designated deputy that the

government's revenues are insufficient to enable the government to

provide essential public services, then FEMA

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may waive these charges. However, FEMA may demand that the requesting

government provide accounting, economic, and demographic data to enable

the ACO or the deputy to reach an informed conclusion as to whether to

grant the waiver.

Under revised Sec. 11.48(i) States and local governments that

request review of proposed offsets will be charged interest, penalty or

administrative charges on the amounts found to be due and owing after

the completion of the administrative review process, just as any other

debtor would be. Where a statute or regulation provides for a mandatory

review, FEMA must waive interest and penalty charges (see the Federal

Claims Collection Standards, 4 CFR 102.13(h)). Under Sec. 11.48(j),

interest and penalty will continue to accrue on debts until debtors'

payments actually are received at the place of payment designated by

FEMA.

Sections 11.61 Through 11.65, Covering Tax Refund Offsets

Since the Department of the Treasury has assumed management of the

entire tax refund offset program in lieu of the IRS, FEMA has revised

Sec. Sec. 11.61-11.65 to substitute ``Department of the Treasury''

wherever ``Internal Revenue Service'' or ``IRS'' previously appeared.

These sections have been changed so that the procedures may be applied

against any tax refund, whether the refund is for customs, alcohol,

tobacco and firearms, or any other tax collected under the aegis of the

Department of the Treasury. FEMA's prior regulation only covered

``income tax refunds'' even though the Debt Collection Act of 1982 (31

U.S.C. 3720A) covered tax refunds generally.

The Debt Collection Act (31 U.S.C. 3720A(b)(2) requires agencies to

grant the debtor at least 60 days to present evidence that their debt

was not past-due or legally enforceable. FEMA's prior tax refund offset

regulations granted debtors 65 days from the mailing of notice that

FEMA was intending to use tax refund offset to collect delinquent debt.

The additional five days was to allow time for the mails. However, to

make times uniform for debtors to file requests for administrative

review and reviews within the agency throughout FEMA's debt collection

regulations, Sec. Sec. 11.30-11.65 set the time in which debtors may

make a timely request for such reviews at 60 days from the mailing of

the notice.

Section 11.61, Referral of Debt for Tax Refund Offset

Based on former IRS regulations, the previous Sec. 11.61(a) limited

referral of delinquent debts for tax refunds to those debts:

1. that had already been reported to consumer reporting agencies

(``credit bureaus'');

2. that were not collectable through Federal salary, uniformed

services pay, or Federal Government service retirements; or

3. that were not collectable by using administrative offsets under

31 U.S.C. 3716.

In this interim final rule FEMA no longer eliminates certain

debtors from the tax refund offset process. FEMA will continue

aggressive use of credit bureau reporting of delinquent debtors, of

collection by offsets against Federal employees, members of the

uniformed services, and Federal retirees, and of administrative

offsets, such as TOP.

Section 11.63, Notice to Debtor Before Tax Refund Offset

Aside from the amendments made to all FEMA's tax refund offset

regulations described above, this section has been amended to refer to

``tax refund offsets'' generically, rather than ``income tax refund

offsets'' as previously.

Under Sec. Sec. 11.63(a)(2)(iv) through 11.63(b) the FEMA Office of

General Counsel (OGC) will decide debtors' requests for review within

the Agency. Previously, the ACO rendered such decisions. This is to

transfer this quasi-adjudicatory function from the ACO to OGC, which

bears responsibility for legal interpretations of FEMA regulations.

Section 11.64, Review Within Federal Emergency Management Agency

Section 11.64 changes to 60 days after mailing of the notice the

time in which the debtor may make a timely request for a review within

FEMA. However, Sec. 11.64(c) allows FEMA to consider requests for

review filed after the 60-day period. If the request is filed late,

FEMA will consider the debtor's arguments and evidence but the Federal

Government will not stay offset while preparing a decision. If the

decision results in the debtor owing less (possibly zero) than amounts

previously offset, then FEMA will refund the difference to the debtor.

We amend 11.64 to substitute the OGC for the ACO as the office to

render decisions where debtors request administrative reviews. This

rule transfers an adjudicative function from the ACO, whose staff is

charged with collecting debts, to OGC where the staff is concerned with

legal interpretations and determining equities of situations.

Procedures for conducting reviews within the Agency will be the same as

those for administrative reviews under Sec. 11.43(d).

Section 11.65, Stay of Offset

This section is changed only to substitute ``Department of the

Treasury'' where IRS had previously been used.

Administrative Procedure Act Determination

FEMA is publishing this interim final rule without opportunity for

prior public comment under the Administrative Procedure Act, 5 U.S.C.

553. FEMA has determined that a comment period would be unnecessary,

impractical, and contrary to the public interest. This interim final

rule does not contain any significant, substantive changes from the

Internal Revenue Service regulations and does not change how the tax

refund offset program affects the taxpayer who owes delinquent nontax

debt. This interim rule reflects changes to internal procedures under

which FEMA as a creditor agency will submit delinquent debt information

to the Department of the Treasury in compliance with requirements of

the Debt Collection Improvement Act.

Procedures affecting debtors remain substantially unchanged. The

procedural changes do not affect the rights of the debtor to dispute

the nature or the amount of the debt or method of collection; they

reflect changes required by merger of the tax refund offset with the

Treasury Offset Program, or by enactment of the Debt Collection

Improvement Act. Further, the procedural changes in this interim final

rule primarily affect how FEMA will participate in the offset program.

In order to implement the offset programs for tax refund payments made

after January 1, 1998, FEMA needs to modify and publish its offset

regulations. FEMA determines that good cause exists and that it is in

the public interest to issue this interim final rule without

opportunity for prior public comment. We invite public comments on the

interim final rule, which comments will be taken into account when the

final rule is published.

Regulatory Flexibility Act

The Director certifies that this interim final rule is exempt from

the requirements of the Regulatory Flexibility Act because it makes

minor and technical amendments mandated by statute, 31 U.S.C. 3720A and

by Department of the Treasury Interim Rule. This interim final rule

does not contain any significant substantive changes from FEMA's

present debt collection regulations and does not

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substantially change how FEMA collects debts owed the United States

that arise under FEMA programs. The Regulatory Flexibility Act does not

apply to this interim final rule; no regulatory analysis has been

prepared.

Paperwork Reduction Act

The information collection requirements contained in this interim

final rule have been approved by the Office of Management & Budget

(OMB) under the provisions of the Paperwork Reduction Act of 1980 (44

U.S.C. 3501 et seq.) and have been assigned OMB control number 3067-

0122.

Executive Order 12866, Regulatory Planning and Review

Promulgation of this interim final rule is required by statute, 31

U.S.C. 3716 and 3720A, and is not a significant regulatory action

within the definition of E.O. 12866. To the extent possible under the

statutory requirements of 31 U.S.C. 3720A this interim final rule

adheres to the principles of regulation set forth in Executive Order

12866. This interim final rule was not reviewed by the Office of

Management and Budget under Executive Order 12866.

Congressional Review of Agency Rulemaking

FEMA has submitted this interim final rule to the Congress and to

the General Accounting Office under the Congressional Review of Agency

Rulemaking Act, Pub. L. 104-121. This interim final rule is not a

``major rule'' within the meaning of that Act. It does not result in

nor is it likely to result in an annual effect on the economy of

$100,000,000 or more; it will not result in a major increase in costs

or prices for consumers, individual industries, Federal, State, or

local government agencies, or geographic regions; and it will not have

``significant adverse effects'' on competition, employment, investment,

productivity, innovation, or on the ability of United States-based

enterprises to compete with foreign-based enterprises.

This interim final rule is exempt (1) from the requirements of the

Regulatory Flexibility Act, as certified previously, and (2) from the

Paperwork Reduction Act.

This interim final rule is not an unfunded Federal mandate within

the meaning of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4.

It does not meet the $100,000,000 threshold of that Act.

List of Subjects in 44 CFR Part 11

Administrative practices and procedures, Claims, Debts, Offsets,

Taxes, Refunds.

Accordingly, Secs. 11.43, 11.44, 11.48, and 11.61 through 11.65 of

44 CFR are amended as follows:

1. The authority citation for Part 11 is revised to read as

follows:

Authority: 31 U.S.C. 3701 et seq.

2. Section 11.43 is revised to read as follows:

Sec. 11.43 Collection by administrative offset.

(a) General. The Agency Collections Officer (ACO) or the ACO's

designee may collect debts owed to the United States by means of

offsets against monies due from the United States under provisions of

31 U.S.C. 3716 and the procedures set forth below. Under provisions of

31 U.S.C. 3716(h)(1) and reciprocal agreements entered into by the

Secretary of the Treasury and the States concerned, the ACO or the

ACO's designee may institute administrative offsets covered in this

section to collect debts that are owed to States and which arise under

programs administered by FEMA. The procedures prescribed by this

section shall not be used if the debtor has executed a written

agreement satisfactory to the ACO or the ACO's designee for the payment

of the debt so long as the debtor adheres to the provisions of the

agreement. Before using the procedures of this section, the ACO or the

ACO's designee shall examine the debt to determine whether the

likelihood of collecting such a debt and the best interests of the

United States justify the use of administrative offset. If the debt is

over 6 years old but is not 10 years old, the ACO or the ACO's designee

shall examine the debt and decide whether using these procedures is

cost effective. Further, FEMA shall not use administrative offset

procedures on debts existing for more than 10 years after the

Government's right to collect the debt first accrued unless facts

material to the Government's right to collect the debt were not known

and could not have been known by the officials of the Government who

were charged with responsibility to discover and collect the debt. FEMA

may refer debts to the Department of the Treasury for Government-wide

administrative offset under the provisions of 31 U.S.C. 3716(c) and for

offsets against Federal tax refunds under provisions of 31 U.S.C.

3720A.

(b) Written notice. After the ACO or the ACO's designee has

examined the debt under procedures set forth in paragraph (a) of this

section, FEMA shall hand deliver or send by mail a notice to the debtor

advising the debtor of:

(1) Nature and amount of the debt determined by the Agency to be

due, and of intention to collect by administrative offset;

(2) Rights available under this section;

(3) Opportunity to inspect and copy the records relating to the

debt;

(4) Opportunity for review within the Agency with respect to the

debt; and

(5) Opportunity to enter into an agreement with the ACO with

respect to the debt. Such agreement may include voluntary but

nonrevocable withholding of monies due from the United States to the

debtor.

(c) Review within the Federal Emergency Management Agency. The

debtor may request, within sixty calendar days after mailing or hand-

delivery of the written notice specified in paragraph (b) of this

section, review within the Agency as to the existence or amount of the

debt or terms of repayment. An attorney in the Office of General

Counsel, acting as an Administrative Review Official (ARO), shall

conduct the review. The ARO may determine that no debt is due, that the

amount of the debts should be reduced, that terms of repayment should

be set, or that the demanded amount should be paid in full.

(1) If the debtor has made a timely request for a review within the

Agency, then FEMA shall stay any offsets until the ARO has rendered a

decision. However, interest, penalties and administrative charges, as

specified in Sec. 11.48, shall continue to accrue during the pendency

of the review within the Agency. If the debtor files a request for a

review within the Agency after the 60 days specified above, then FEMA

shall continue with the offset action. However, if the ARO finds that

the debtor owes less than the amount offset, then FEMA will refund the

amount over-withheld. For purposes of determining whether the debtor

has filed a timely request for administrative review, the date of

FEMA's receipt of the debtor's request establishes the time of filing.

(2) The ARO shall transmit the decision on the debtor's request for

review within the Agency. The ARO may contact the debtor directly to

request additional information and data in order to allow the ARO to

reach a knowledgeable decision. The ARO's decision shall be final

insofar as FEMA's administrative processing of the debt is concerned.

(3) FEMA shall use procedures in this section to decide debtors'

requests for

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review within FEMA under the provisions of Sec. 11.64(d).

(d) If the debtor does not execute a written agreement, if the

debtor does not request review within the Agency, or if the review

within the Agency determines that a debt is due, then FEMA shall use

administrative offset against monies payable by the United States in

accordance with this section and appropriate regulations. However, if a

statute or FEMA agreement either prohibits or explicitly provides for

collection through administrative offset for the debt or the type of

debt involved then the provisions of that statute or FEMA agreement

rather than the provisions of this section shall be used for such

offset.

(e) If the debtor has a judgment against the United States, then

notice shall be provided to the General Accounting Office for offset in

accordance with 31 U.S.C. 3728.

(f) In addition to administrative offset remedies described above,

FEMA may use its rights to collect debts by offsets conducted under

principles of common law.

(g) The debtor's failure to receive notice, described in paragraph

(b) of this section, mailed by FEMA to the debtor's last-known address,

shall not impair the validity of offsets taken under this section.

(h) If FEMA or any other Federal department or agency incurs costs

in taking offsets to collect delinquent debts, then the debtor shall be

liable for such costs as administrative costs in accordance with

section 11.48(d).

Sec. 11.44 [Removed and reserved]

3. Section 11.44 is removed and reserved.

4. Section 11.48 is revised read as follows:

Sec. 11.48 Interest, penalties, and administrative charges.

(a) Definition. In Sec. Sec. 11.30 through 11.65 of this part, a

debt is deemed to be delinquent if the debtor has not paid the debt by

the collection due date and if the debtor has not entered into a

repayment agreement satisfactory to FEMA. A debt is also deemed

delinquent if the debtor has not made payment by the date specified in

the applicable agreement.

(b) Interest. FEMA's delinquent debtors shall be charged interest

on the outstanding principal balance due on debts owed the United

States at the rate published by the Secretary of the Treasury under

provisions of 31 U.S.C. 3717(a). The interest rate in effect at the

time that FEMA first mailed or hand delivered to the debtor written

notice, stating that the debt was due and that interest would be

assessed on the debt, shall be the rate applied throughout the duration

of the debt until the debt is paid in full.

(1) However, if the debtor defaults on a debt repayment agreement

made with the ACO or the ACO's designee, then interest shall accrue at

the rate published by the Secretary of the Treasury under the

provisions of 31 U.S.C. 3717(a)(1) that was in effect when the debtor

defaulted on the repayment agreement. Interest shall accrue either from

the date that FEMA first informed the debtor that the Agency would

assess interest on the debt or some subsequent date specified in the

written notice given by FEMA to the debtor stating that interest would

be assessed.

(2) However, where FEMA first sent the notice of indebtedness prior

to October 25, 1982, interest shall run from the date on or after that

date when FEMA first sent the debtor a letter notifying the debtor that

the Agency would assess interest.

(c) Exceptions to interest charges. However, no interest, described

in paragraph (a) of this section, shall be charged if:

(1) The amount due is paid in full within 30 days of the mailing of

the demand. However, the ACO or the ACO's designee, as documented by a

memorandum in the debt collection file, may extend this 30-day period

on a case-by-case basis for good cause shown in accordance with the

Federal Claims Collection Standards (4 CFR 102.13(g)), or

(2) The applicable statute, regulation required by statute, loan

agreement or contract either prohibits the charging of interest or

explicitly fixes interest or charges, which apply to the debt involved.

(d) Penalty charges. Except in the situation described in paragraph

(c) of this section, the debtor shall be liable for a penalty of 6%

annually on the unpaid principal, interest, and administrative charges

if the debtor fails to pay the debt in full within 90 days of the date

after the first written notice by FEMA that FEMA would assess penalty

charges. However, if the debtor enters into a repayment agreement,

satisfactory to the ACO or the ACO's designee within the 90-day period,

then FEMA will not assess penalty so long as the debtor adheres to the

provisions of the agreement. Penalty shall accrue starting on and

including the day of FEMA's first written notice where FEMA mentioned

that it would assess penalty charges on the debt. Penalty will not be

assessed against Federal agencies. Penalty charges shall accrue on

administrative charges, starting on the day that FEMA incurred the

administrative charge. However, if the debtor pays the debt in full

within 90 days of FEMA's first notice that the Agency would assess

penalty charges or if the debtor enters into a repayment agreement

satisfactory to the ACO or the ACO's designee within that time, then

FEMA will not assess penalty on accrued administrative charges.

(e) Administrative costs for processing delinquent debts. Debtors

shall pay the United States for costs incurred by the Government in

collecting the debt in accordance with 31 U.S.C. 3717(e)(1).

Administrative cost calculations will be based upon actual costs

incurred by FEMA or upon analyses establishing an average of actual

costs incurred by FEMA in processing debts in similar stages of

delinquency.

(f) Standards for waiver of interest, penalties, and administrative

charges.

(1) The ACO or the ACO's designee may waive interest, penalties and

administrative charges, either in whole or in part, if the ACO or the

ACO's designee finds that:

(i) The debtor is financially unable to pay;

(ii) The Agency's enforcement policy will be adequately served if

there is a waiver in whole or in part;

(iii) The debtor has shown good cause, satisfactory to the ACO,

that the claim was not timely paid. If waiver is granted, the

administrative claims file shall be adequately documented; or

(iv) The ACO or the ACO's designee may waive imposition of interest

in accordance with standards set forth in 4 CFR 102.13 and

Sec. Sec. 11.50 and 11.51 of this subpart.

(2) The ACO, with the concurrence of the General Counsel, may waive

interest, penalties and administrative costs based on criteria set

forth in paragraphs (f)(3) through (f)(5) of this section. When such

charges are waived, the Agency Collections Officer or the ACO's

designee shall prepare a memorandum for the debt collection file

stating the reasons for not collecting such charges.

(3) If the costs of collection exceed the projected recovery then

interest, penalties and administrative costs may be waived.

(4) If FEMA determines that the debtor is unable to pay, as shown

by complete and sworn statements as to his or her assets and projected

income, then the ACO or the ACO's designee may waive interest,

penalties and administrative charges in whole or in part. If the

principal outstanding amount of the debt exceeds $5,000, the

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determination shall be made by the ACO. If the principal outstanding

amount of the debt is $5,000 or less, the determination may be made by

the DCO, the ACO, or a person designated by the ACO.

(5) The ACO or the ACO's designee may waive assessing interest,

penalty, and administrative charges if such assessment would be against

equity and good conscience or not in the best interests of the United

States. Examples include, but are not limited to:

(i) FEMA's undue delay in rendering a decision where the debtor had

requested an administrative review or review within the Agency. Under

these circumstances, interest and penalty would be waived during the

period of undue delay.

(ii) The amount of interest is so large, in relation to the

debtor's ability to pay that assessment of interest would leave the

debtor perpetually indebted to the United States.

(g) Nonapplicability. The provisions of this section do not apply

to debts owed by Federal agencies.

(h) Installment collections or partial payments. When a debtor pays

a debt either partially or in installments, the payments shall first be

applied to administrative costs, second to penalty charges, third to

accrued interest, and finally to principal. Partial payments shall be

deemed to be made when received at the FEMA office designated to

receive the payments. If the debtor owes more than one debt, then the

ACO or the ACO's designee will apply the partial payment to the oldest

debt first unless the debtor is making a voluntary installment payment.

Under voluntary circumstances, the debtor may designate to which debt

the payment is to be applied.

(i) Collection of interest, penalties, and administrative charges

while an appeal is pending. If the debtor requests administrative

review of the existence or the amount of the debt, interest, penalties,

and administrative charges may be waived or suspended by the ACO or the

ACO's designee under the following circumstances:

(1) If a State or local government requests review within the

Agency of a proposed referral to the Treasury Offset Program or an

administrative review of a proposed administrative offset, then the ACO

or the ACO's designee may waive interest, penalty or administrative

charges if the State or local government shows to the satisfaction of

the ACO or the ACO's designee that its taxes and other revenues would

be insufficient to allow the State or local government to provide

essential public services if FEMA were to collect interest, penalty,

administrative charges, or any two or more, either in whole or in part.

The ACO or the ACO's designee may require that the State or local

government provide FEMA with such economic, accounting, financial or

demographic data as the ACO or the ACO's designee may deem necessary to

reach an informed decision as to waiver.

(2) If a debtor notes an appeal or requests an administrative

review that is mandated by law, then FEMA shall not assess interest and

penalties while the appeal is pending from the time that the debtor

requests an administrative review or an appeal until the Agency has

taken final action on the administrative review or the appeal.

(3) When a debtor notes an appeal or requests an administrative

review that is permissive under statute or regulation, then interest,

penalties and administrative charges may be waived if:

(i) There is no fault or lack of good faith on the part of the

debtor and if the amount of interest, penalties and administrative

charges is so high in relation to affordable installment repayments

that the debt would never be repaid. In determining whether interest

and penalties should be waived, the ACO, the ACO's designee, or the DCO

may demand that the debtor provide such financial data as he or she may

determine is necessary to reach an informed decision.

(ii) FEMA unreasonably delays in rendering a decision on a debtor's

request for an administrative review or review within the Agency, then

the ACO or the ACO's designee may waive assessment of interest,

penalty, and administrative charge during the period of the

unreasonable delay.

(iii) The ACO or the ACO's designee may waive or suspend the

collection of interest, penalty and administrative charges, for good

cause shown and if such waiver or suspension would serve FEMA's

interests. The FEMA official making such a waiver shall prepare a

memorandum describing the circumstances and stating the reasons for the

grant of a waiver or suspension.

(j) Accrual of interest and penalty. Interest and penalty will

accrue on delinquent FEMA debts until FEMA receives payment at the

address designated by the ACO or the ACO's designee.

5. Sections 11.61 through 11.65 are revised to read as follows:

Sec. 11.61 Referral of delinquent debts to Department of the Treasury

for offsets against tax refunds.

(a) FEMA may refer delinquent debts to the Department of the

Treasury for offset against tax refunds in accordance with 31 U.S.C.

3720A and that Department's implementing regulations.

(b) FEMA will provide information to the Department of the Treasury

within time limits prescribed by the Secretary of the Treasury or his

or her designee and in accordance with agreements entered into between

FEMA and the Department of the Treasury and its constituent agencies.

(1) Information submitted to the Department of the Treasury shall

include a description of:

(i) The size and age of FEMA's inventory of delinquent debts; and

(ii) The prior collection efforts that the inventory reflects; and

(2) In accordance with time limits and record transmission

requirements established by the Department of the Treasury or its

constituent agencies, FEMA may submit magnetic media containing

information on debtors being referred to that Department for tax refund

offset. FEMA may use the electronic data transmissions facilities of

other federal agencies in transmitting data on debtors or for referral

of debts to the Department of the Treasury.

(c) FEMA shall establish a collect-call or toll-free telephone

number that the Department of the Treasury or its constituent agencies

will furnish to debtors whose refunds have been offset to obtain

information from FEMA concerning the offsets taken.

(d) Tax refund offset procedures described in Secs. 11.61 through

11.64 shall apply to debts owed to the United States that are past-due

and legally enforceable, and

(1) Except in the case of a judgment debt, the debt has been

delinquent for at least three months but has not been delinquent for

more than ten years at the time the offset is made; and

(2) Where FEMA has given the debtor at least 60 days from the date

of mailing of the notification (described in Sec. 11.63 of this part)

to request a review within FEMA and to present evidence that all or

part of the debt is not past-due or legally enforceable. If the debtor

has requested a review and presented evidence, then FEMA has considered

the debtor's evidence and reasons and has determined that all or a part

of the debt is past-due and legally enforceable; and

(3) With respect to which FEMA has notified or has made a

reasonable attempt to notify the debtor that the debt is past-due and,

unless repaid within 60 days of the mailing of the notification the

debt will be referred to the Department of the Treasury for offset

against any overpayment of tax; and

(4) Is at least $25.00; and

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(5) Meets all other requirements of 31 U.S.C. 3720A and the

Department of the Treasury regulations relating to the eligibility of a

debt for tax refund offset have been satisfied.

Sec. 11.62 Administrative charges incurred in referrals for tax refund

offset.

In accordance with Sec. 11.48(e), all administrative costs incurred

in connection with the referral of the debts to the Department of the

Treasury for collection by tax refund offset shall be added to the

amount owed by the debtor. Such costs will include, but not be limited

to, a pro-rata share of total costs of taking offsets incurred by the

Department of the Treasury in accordance with agreements executed by

FEMA, the Department of the Treasury and the Department's constituent

agencies.

Sec. 11.63 Notice to debtor before tax refund offset.

(a) FEMA will refer a debt to the Department of the Treasury for

tax refund offset only after FEMA:

(1) Makes a determination that the debt is owed to the United

States;

(2) Sends the debtor a notice of FEMA's intent to use Department of

the Treasury tax refund offset that provides the debtor with items of

information described in paragraphs (a)(2) (i) through (vii) as

follows:

(i) Debtor owes FEMA an amount due; and

(ii) The debt is past due; and

(iii) Unless the debt is repaid within 60 days of the date of

FEMA's mailing the notice of intent described above, FEMA intends to

collect the debt by requesting the Department of the Treasury to take

offset to reduce the debtor's federal tax refund by the amount of the

principal amount of the debt and all accumulated interest, penalty, and

other charges; and

(iv) Debtor has an opportunity to present arguments and evidence

within 60 days of mailing of the notice of intent that all or a part of

the debt is not due. A debtor requesting a review within the Agency

shall send these arguments to the FEMA office that sent the notice of

intent under Sec. 11.63(a)(2); and

(v) Debtor has had an opportunity to arrange to inspect and copy

records relating to the debt by mailing a request to the FEMA office

sending the notice of intent under Sec. 11.63(a)(2); and

(vi) If no reply is received from the debtor within 60 days of

mailing of the notice, FEMA may refer the debt to the U.S. Department

of the Treasury after reviewing the file and determining that the debt

is due; and

(vii) Debtor may negotiate a repayment agreement, satisfactory to

FEMA, for the repayment of the debt.

(b) If the debtor has presented evidence and arguments as described

in subsection (a)(2)(iv) FEMA will refer the debt to the Department of

the Treasury only after the FEMA Office of General Counsel has rendered

a decision under provisions of Secs. 11.64 and 11.65 of this subpart

concerning the debtor's arguments and evidence, if any, and has

determined that the debt is due either in whole or in part. If the

debtor has submitted evidence in accordance with paragraph

(a)(2)(iv)(g) of this section, the FEMA Office of General Counsel shall

notify the debtor of the Agency's final determination.

(c) If the debtor has questions concerning the debt or procedures

being used, the debtor may contact FEMA at an address and telephone

number provided in the notice of intent under Sec. 11.63(a)(2).

Sec. 11.64 Review within Federal Emergency Management Agency.

(a) Notification by debtor. A debtor receiving notice of intent

under Sec. 11.63(a)(2) has the right to present evidence and arguments

within 60 days of mailing of the notice of intent that all of the debt

is not past-due or not legally enforceable. To exercise this right, the

debtor must:

(1) Send a written request for review of evidence to the FEMA

office sending the notice of intent; and

(2) State in the request the amount disputed and the reasons why

the debtor believes that the debt is not past-due or is not legally

enforceable; and

(3) Include in the request any documents that the debtor wishes to

be considered, or state that additional information will be submitted

within the remainder of the 60-day period. FEMA is not obligated to

consider any of debtor's evidence received after the 60-day period,

except as specified in paragraph (c) of this section.

(b) Submission of evidence. The debtor may submit evidence that all

or part of the debt is not past due or legally enforceable along with

the notification required by paragraph (a) of this section. Debtor's

failure to submit the notification and evidence within the 60-day

period may result in FEMA's referral of the debt to the Department of

the Treasury with only a review by the ACO or the ACO's designee that

FEMA's records show that the debt is actually due FEMA.

(c) Late filed requests for review within FEMA. If the debtor

submits a request for review after the 60-day time limit in paragraph

(a) of this section, FEMA shall render a decision as described in

paragraph (d) of this section, but FEMA shall not stay offset action as

described in Sec. 11.65. However, if FEMA, after the review of the

debtor's evidence and arguments, determines that the debtor owes less

than the amounts that FEMA has taken through offset, then FEMA shall

refund any difference between any amounts offset and amounts that the

review within the Agency determines is actually owed.

(d) Review of the evidence. FEMA will review the debtor's arguments

and evidence in accordance with procedures set forth in Sec. 11.43(c).

Sec. 11.65 Stay of tax refund offset action.

If the debtor notifies FEMA that the debtor is exercising rights

described in Sec. 11.64 and submits evidence within time limits

specified in Sec. 11.64, any notice to the Department of the Treasury

concerning tax refund offset will be stayed until the issuance of a

written decision that sustains, amends, or ends collection action

resulting from FEMA's original debt collection decision.

Dated: December 31, 1997.

James L. Witt,

Director.

[FR Doc. 98-310 Filed 1-7-98; 8:45 am]

BILLING CODE 6718-01-P