Debt Collection Through Offset

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 134 and 140

Debt Collection Through Offset

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to amend

its regulations on Debt Collection Through Offset. SBA proposes to

amend these regulations to conform with the Debt Collection Procedures

Act of 1996 and the Debt Collection Improvement Act of 1996. The

amendments will allow other Federal agencies to offset debts owed to

SBA and will allow SBA to participate in the Government-wide Treasury

Offset Program administered by the Department of the Treasury.

SBA is currently publishing the proposed language for its

regulations on General Rules and Debt Collection Through Offset. At a

later date, SBA will publish the proposed language for its regulations

on Debt Collection Through Administrative Wage Garnishment and proposed

amendments that define terms used in that future proposal.

DATES: Submit comments on or before February 22, 1999.

ADDRESSES: Address all comments concerning this proposed rule to Arnold

S. Rosenthal, Assistant Administrator, Office of Portfolio Management,

Small Business Administration, 409 Third Street, SW., Washington, DC

20416.

FOR FURTHER INFORMATION CONTACT: Arnold S. Rosenthal, Assistant

Administrator, Office of Portfolio Management (202) 205-6481.

SUPPLEMENTARY INFORMATION: 13 CFR Part 140 established procedures for

SBA to collect past-due debts through administrative or salary offset.

SBA now proposes to amend this rule, pursuant to the Debt Collection

Improvement Act of 1996, Pub. L. 104-134, authorizing the Agency to:

participate in the mandatory Government-wide payment offset system

known as the Treasury Offset Program administered by the Department of

Treasury.

To participate in the Treasury Offset Program, the administrative

or salary offset procedures must be available not only to SBA, but to

other agencies as well. This proposed rule would make the changes

necessary to allow SBA or another Federal agency to collect past-due

debts through administrative or salary offset. This proposed rule also

amends SBA's offset procedures, and contains plain language revisions

and clarifications.

The following is a section by section analysis of each provision of

SBA's regulations that would be affected by this proposed rule:

Section 140.1 would be amended to incorporate plain

language principles.

Section 140.2 would be deleted and replaced with a

definition section.

Section 140.3 would be deleted. The offset procedures

would now be located in Sec. 140.6.

Section 140.5 would be added to explain the purpose and

scope of the offset procedures.

Section 140.6 would be added to set forth the offset

procedures. The new procedures establish two steps for offset. The

first entails the verification of a debt. SBA will send a notice to the

debtor and review any response to determine whether the debt is past

due and enforceable. The SBA Office of Hearings and Appeals would no

longer review administrative offsets, and would only review salary

offsets. The second steps involves SBA's implementation of an

administrative or salary offset or referral of a debt to the Department

of the Treasury or another Federal agency for offset. In addition, SBA

would now be able to implement an offset action upon referral from

another Federal agency.

Section 134.202 paragraph (b) would also be amended to

refer only to salary offsets.

Compliance With Executive Orders 12612, 12778, and 12866, the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and the

Paperwork Reduction Act (44 U.S.C. Ch. 35)

SBA certifies that this rule would not have a significant economic

impact on a substantial number of small entities within the meaning of

Executive Order 12866 or the Regulatory Flexibility Act, 5 U.S.C. 601

et seq. This proposed rule only applies to individuals who have

outstanding debts to the United States. It is not likely to have an

annual economic effect of $100 million or more, result in a major

increase in costs or prices, or have a significant adverse effect on

competition or the United States economy.

For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA

certifies that this rule contains no new reporting or record keeping

requirements.

For purposes of Executive Order 12612, SBA certifies that this rule

would not have any federalism implications warranting the preparation

of a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that this rule

is drafted, to the extent practicable, under the standards set forth in

Section 2 of that Order.

List of Subjects

13 CFR Part 134

Administrative practice and procedure.

13 CFR Part 140

Claims, Government employees, Income taxes, Wages.

Accordingly, under the authority contained in section 5(b)(6) of

the Small Business Act (15 U.S.C. 634(b)(6)), SBA proposes to amend 13

CFR parts 134 and 140 as follows:

PART 134--[AMENDED]

1. The authority citation for part 134 continues to read as

follows:

Authority: 5 U.S.C. 504, 15 U.S.C. 632, 634(b)(6), and 637(a).

2. Revise Sec. 134.202(b) to read as follows:

Sec. 134.202 Commencement of cases.

* * * * *

(b) In debt collection proceedings under part 140, subpart B, of

this chapter, no later than 15 days after you receive of a notice of

indebtedness and plan to collect such debt by salary offset;

* * * * *

PART 140--[AMENDED]

3. Amend the heading for part 140 to read as follows:

[[Page 3455]]

PART 140--DEBT COLLECTION

4. The authority citation for part 140 is revised to read as

follows:

Authority: 31 U.S.C. 3711, Collection and compromise; 31 U.S.C.

3720A, Reduction of tax refund by amount of debt; 5. U.S.C. 5514,

Installment deduction for indebtedness to the United States; 31

U.S.C. 3716, Administrative offset; 15 U.S.C. 634(b)(6), Small

Business Act; 31 U.S.C. 3720, the Debt Collection Improvement Act of

1996.

5-6. Add a subpart heading for Secs. 140.1 through 140.2, to read

as follows:

Subpart A--General Rules

7. Revise Sec. 140.1 to read as follows:

Sec. 140.1 What does this part cover?

This part establishes procedures we may use to collect past-due

debts owed to the Government. You cannot use our failure to follow

these regulations to defend against a suit to collect a debt.

8. Revise Sec. 140.2 to read as follows:

Sec. 140.2 Definitions.

Unless otherwise noted, the following definitions apply to subpart

B.

(a) Administrative offset. To satisfy a debt, we may withhold money

we owe you or another Federal agency owes you. This procedure is an

``administrative offset'' and is authorized by 31 U.S.C. 3716.

(b) Agency. Agency includes a department, agency, court, or court

administrative office, in the executive, judicial, or legislative

branch of the Federal Government, including Government corporations.

For purposes of this section, agency means either the agency

administering the program giving rise to the debt or the agency

attempting to recover the debt.

(c) Creditor agency. Creditor agency means any agency owed a debt

that seeks to collect that claim through administrative offset.

(d) Day. Day means calendar day. To count days, include the last

day of the period unless it is a Saturday, a Sunday, or a Federal legal

holiday.

(e) Debt. Debt means money owed to the United States for any

reason, including loans made or guaranteed by the United States, fees,

leases, rents, royalties, services, sales of real or personal property,

overpayments, fines, penalties, damages, interest, or forfeitures. A

debtor is someone who owes money to the United States from any source.

(f) Debtor/You/Your. Debtor/You/Your means a person, organization,

or entity, other than a Federal agency, that owes a debt.

(g) Disposable pay. As used in subpart B of this part (offset),

disposable pay means what remains of your pay after any amounts

required by law are deducted.

(h) Legally Enforceable. As used in subpart B of this part

(offset), a debt is legally enforceable if, on the date of offset,

SBA's claim would not be barred in even one forum, including a State or

Federal Court or administrative agency. Non-judgment debts are

enforceable for ten years; judgment debts are enforceable beyond 10

years.

(i) Non-tax. Non-tax means not related to an obligation under the

Internal Revenue Code of 1986, as amended.

(j) Past-Due. As used in subpart B of this part (offset), a debt is

past due if it has been reduced to judgment, accelerated, or due for at

least 90 days.

(k) Salary offset. If you are an active or retired Federal employee

(a civilian employee as defined by 5 U.S.C. 2105, an employee of the

U.S. Postal Service or Postal Rate Commission, or a member of the

Uniformed Services or Reserve of the Uniformed Services), we may deduct

payments owed to the United States from your paycheck. This procedure

is a ``salary offset'' and is authorized by 5 U.S.C. 5514 and 31 U.S.C.

3716.

(1) Any amount deducted from your salary in any one pay period will

not exceed 15 percent of your disposable pay, unless you agree in

writing to a greater percentage.

(2) A Federal agency also may collect against travel advances,

training expenses, disallowed payments, retirement benefits, or any

other amount due you, including lump sum payments. These collection

efforts are not salary offsets and are not subject to the 15-percent

limitation in paragraph (k)(1) of this section.

(l) Tax refund offset. We may request that the Department of the

Treasury (Treasury) reduce your tax refund by the amount of the debt as

authorized by 31 U.S.C. 3720A. A Federal agency, at the same time, may

take additional action against you to collect the debt. Even if SBA

refers your debt to other agencies (within 6 months of the initial

notice), it needs to review your debt only once under subpart B of this

part and its authorizing statutes.

(m) Treasury Offset Program. The Treasury Offset Program is a

centralized process which provides for the offset of Federal payments,

including Federal tax refunds, Federal salary payments, retirement

payments, and other types of payments, to collect debts you owe the

Federal Government. The Treasury operates the Treasury Offset Program

through the Financial Management Service.

(n) We/Our/Us. We/Our/Us refers to the SBA.

9. Remove Sec. 140.3 and add a subpart heading for Secs. 140.5

through 140.6 to read as follows:

Subpart B--Debt Collection Through Offset

10. Add Sec. 140.5 to read as follows:

Sec. 140.5 What does this subpart cover?

This subpart establishes procedures we may use to collect, through

offset, past-due debts you owe to the United States. An offset occurs

when we or another Federal agency withhold(s) money to which you may be

entitled to satisfy a debt that you owe to the United States. These

regulations set forth procedures for how we determine if a debt is past

due and legally enforceable, and thus appropriate for offset. These

regulations also set forth procedures we follow when implementing an

offset action or referring the debt to another agency for offset. You

cannot use our failure to follow these regulations to defend against a

suit to collect the debt

9. Add 9. Sec. 140.6 to read as follows:

Sec. 140.6 How does SBA verify whether I owe a debt, or collect a debt

from me through offset?

(a) Verifying a debt. (1) At least 30 days before starting an

offset action or referring a debt to another agency for offset, we must

send you a written notice .

(2) Our written notice must state the nature and amount of the

debt; that we or another Federal agency may attempt an offset; that you

may present evidence that the debt does not exist, is not past due, or

is not legally enforceable; that you may inspect and copy, at your

expense, Government records relating to the debt; that, to avoid the

offset, you may reach an agreement with us on a schedule for repayment;

and that, if you do not reach agreement on repayment or seek review of

the debt, we or another agency may offset without further notice. If we

propose a schedule for repayment of your debt, you may present evidence

that you cannot meet this schedule. If a written agreement establishes

this schedule, you cannot challenge the schedule.

(3) We also must tell you that, unless you respond to the notice as

provided in paragraph (a)(4) or (a)(5) of this section, we or the

agency to which we refer your debt may disclose to consumer reporting

agencies (also known as credit bureaus or credit agencies) that you are

responsible for the debt, and the specific information necessary to

establish your identity, including the amount, status, history of

[[Page 3456]]

the debt, and agency program under which it arose. If you respond to us

within the 15-or 60-day periods set forth in paragraphs (a)(4) and

(a)(5) of this section, we will not disclose the information to

consumer reporting agencies and will not refer the debt to another

Federal agency until we consider your response and determine that you

owe a past-due, legally enforceable debt.

(4) If we notify you that we intend to start a salary offset to

satisfy your debt, you may request a hearing from SBA's Office of

Hearings and Appeals (OHA). Part 134 of this title governs OHA

proceedings. To have a hearing before OHA, you must request a hearing

within 15 days of receiving the notice. If you file your request in

time, we must stop collection proceedings until OHA's Administrative

Law Judge (ALJ) decides your case. You must state in your request for

an OHA hearing the date you received the notice and present the

evidence you believe shows the debt is not past due or legally

enforceable. You also must send a copy of your submission to the SBA

Associate General Counsel for Litigation, Office of General Counsel, at

the Small Business Administration, 409 Third Street, SW., Washington,

DC 20416. OHA's ALJ will issue a decision within 60 days after you

filed your request for a hearing with OHA.

(5) If we notify you that we intend to start an administrative

offset or to refer your debt to another Federal agency for possible

offset, you may request review from the SBA official identified in the

notice. To obtain review of the debt, you must submit to the designated

official, within 60 days of the notice, the evidence showing the debt

is not past due or legally enforceable. By failing to request review

within this period, you waive any objection to the offset action. If

you request review of the debt, the relevant SBA official will notify

you in writing of the final decision and whether we will continue with

the offset action or refer your debt to another agency for offset.

(6) We need not follow these procedures to verify that a debt is

past due and legally enforceable if another Federal agency already has

made this determination.

(b) Actions after SBA verifies a past-due, legally enforceable

debt. (1) After verifying a past-due, legally enforceable debt, we

may--

(i) Begin an offset action to recover the debt;

(ii) Refer the debt to another agency for offset;

(iii) Notify consumer reporting agencies of the debt; or

(iv) Begin other appropriate action to attempt collection of the

debt.

(2) If you are subject to an offset action, you may be required to

pay, in addition to your debt, interest, penalties, and administrative

costs, such as the costs of collection. We or another Federal agency

will provide notice of any such interest, penalties, and administrative

costs.

(3) If another Federal agency asks us to offset a debt, we may rely

on the creditor agency's determination that a debt is past due and

legally enforceable. We will not begin an offset until the creditor

agency has provided written notice that you owe a past-due, legally

enforceable debt, and of its amount, and that the agency has fully

complied with its regulations concerning administrative offsets. After

receiving such notice, we will provide you notice that we will begin an

offset. You are not entitled to further review from us that the debt is

valid or the offset proper.

(4) If we refer the debt to a consumer reporting agency and the

status or amount of your debt substantially changes, we will report

that change promptly to each consumer reporting agency we originally

contacted. We will obtain satisfactory assurances from each consumer

reporting agency that the consumer reporting agency has complied with

all Federal laws relating to provision of consumer credit information.

(5) If another agency is beginning an offset of your debt and you

make any additional payments to us, we will notify the other agency of

these payments and your new balance as soon as reasonably possible.

(c) We or another Federal agency may make an offset prior to

completing the procedures described in this part, if failure to make an

offset would substantially prejudice the Government's ability to

collect the debt; and the time before the Government otherwise would

make payment to you does not reasonably permit the completion of the

procedures. If we initiate the offset action, we then must provide you

with an opportunity to present evidence that the debt is not past due

or legally enforceable and take appropriate action in response to this

evidence.

(d) If you owe us a past-due, legally enforceable debt that is over

180 days delinquent, including non-tax debt administered by a third

party acting as an agent for the Federal Government, we must, as

required by 31 U.S.C. 3716(c)(6), notify the Treasury of all such non-

tax debts for purposes of administrative offset.

Dated: January 6, 1999.

Aida Alvarez,

Administrator.

[FR Doc. 99-1240 Filed 1-21-99; 8:45 am]

BILLING CODE 8025-01-P