02-29050. Servicing and Collections

AGENCIES:

Rural Housing Service, Rural Business-Cooperative Service, Rural Utilities Service, and Farm Service Agency, USDA.

ACTION:

Final rule.

SUMMARY:

This rule explains the procedures used by certain Rural Development Agencies and the Farm Service Agency, Farm Loan Programs to refer accounts to the Department of the Treasury for administrative offset (TOP) and cross-servicing as required by the Debt Collection Improvement Act (DCIA), and by the Treasury Department's rules regarding the Federal Claims Collection Standards concerning administrative offset, cross-servicing procedures, and Treasury Offset of Internal Revenue Service (IRS) tax refund payments.

EFFECTIVE DATE:

December 19, 2002.

FOR FURTHER INFORMATION CONTACT:

Barry G. Sykes, Chief, Program Reporting Branch, Program Management Division, Rural Development, USDA, Office of the Deputy Chief Financial Officer, P.O. Box 200011, FC-351, St. Louis, Missouri 63120-0011, Telephone [phone].

SUPPLEMENTARY INFORMATION:

Classification

This action is not subject to the provisions of Executive Order 12866 since it involves only internal Agency management. This action is not published for prior notice and comment under the Administrative Procedure Act since it involves only internal Agency management and publication for comment is unnecessary and contrary to the public interest.

Programs Affected

The catalog of Federal Domestic Assistance programs impacted by this action are as follows:

10.404—Emergency Loans

10.405—Farm Labor Housing Loans and Grants

10.406—Farm Operating Loans

10.407—Farm Ownership Loans

10.410—Very Low to Moderate Income Housing Loans

10.411—Rural Housing Site Loans and Self-Help Housing Land Development Loans

10.415—Rural Rental Housing Loans

10.417—Very Low-Income Housing Repair Loans and Grants

10.420—Rural Self-Help Housing Technical Assistance

10.427—Rural Rental Assistance Payments

10.760—Water and Waste Disposal Systems for Rural Communities

10.766—Community Facilities Loans and Grants

10.767—Intermediary Relending Program

10.768—Business and Industry Loans

10.770—Water and Waste Disposal Loans and Grants (section 306C)

10.854—Rural Economic Development Loans and Grants

Civil Justice Reform

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. In accordance with this Executive Order: (1) Unless otherwise specifically provided, all State and local laws and regulations that are in conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule except as specifically prescribed in the rule; and (3) administrative proceedings of the National Appeals Division (7 CFR part 11) must be exhausted before litigation against the Department is instituted.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act (44 U.S.C. 3507), the information collection requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) under the provisions of 44 U.S.C. chapter 35 and have been assigned OMB control number 0575-0119. This rule does not revise or impose any new information collection requirements from those approved by OMB.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Agencies generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires the Agencies to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and tribal governments or the private sector. Thus, the rule is not subject to the requirements of sections 202 and 205 of the UMRA.

Environmental Impact Statement

This document has been reviewed in accordance with 7 CFR part 1940, subpart G, “Environmental Program.” The Agencies have determined that this action does not constitute a major Federal action significantly affecting the quality of human environment, and in accordance with the National Environmental Policy Act of 1969, Public Law 91-190, an Environmental Impact Statement is not required.

Executive Order 13132, Federalism

The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-602), the undersigned have determined and certified by signature of this document that this rule will not have a significant economic impact on a substantial number of small entities. New provisions included in this rule will not impact a substantial number of small entities to a greater extent than large entities. Thus, large entities are subject to these rules to the same extent as small entities. Therefore, a regulatory flexibility analysis was not performed.

Discussion of Final Rule

The final rule adopts the Department of Treasury (Treasury) Debt Collection procedures required by the Debt Collection Improvement Act (DCIA), Pub. L. 104-434, April 26, 1996, the Federal Claims Collection Standards concerning administrative offset at 31 CFR 901.3, cross-servicing procedures at 31 CFR part 285, subpart A and Treasury Offset of Internal Revenue Service (IRS) tax refund payments at 31 CFR 285.2. The Rural Business-Cooperative Service and the Rural Housing Service, Community Facilities program, both part of the Rural Development mission area, are adopting this rule to enable it to refer delinquent accounts to Treasury for administrative offset (TOP) and cross-servicing as required by the DCIA. A new section has been added explaining the Farm Service Agency (FSA), Farm Loan Programs (FLP) procedures for referring accounts to Treasury. Additional revisions have been made for readability and to make corrections to conform to Treasury regulations which have consolidated the IRS offset program with the Treasury Offset Program (TOP). Therefore, this rule revises the reference contained in the Rural Housing Service's regulations at 7 CFR 3550.210(a) to reference the correct authorities for conducting IRS offsets.

Rural Development is also revising its servicing and collections regulations to reflect that the Rural Housing Service, for its Single Family Housing and Multi-Family Housing programs and the Rural Utilities Service for its Water and Environmental program have developed their own servicing handbooks providing internal administrative guidance to agency personnel for their Treasury Offset and Cross-Servicing procedures. Farm Services Agency is amending its salary offset guidance to clarify when salary offset will begin and to clarify when notification will be sent to the borrower. There is no additional burden being imposed upon the public and no financial impact imposed on the Government or on the public as a result of this action.

List of Subjects

7 CFR Part 1951

• Accounting
• Accounting servicing
• Credit
• Loan programs—Agriculture
• Low and moderate income housing loans—Servicing

7 CFR Part 3550

Direct single family housing loan and grants.

PART 1951—SERVICING AND COLLECTIONS

1. The authority citation for part 1951 continues to read as follows:

Authority: 5 U.S.C. 301; 7 U.S.C. 1932 note; 7 U.S.C. 1989; 31 U.S.C. 3716; 42 U.S.C. 1480.

Subpart C—Offsets of Federal Payments to USDA Agency Borrowers

2. Section 1951.101 is revised to read as follows:

§ 1951.101

General.

Federal debt collection statutes provide for the use of administrative, salary, and Internal Revenue Service (IRS) offsets by government agencies, including the Farm Service Agency (FSA), Rural Housing Service (RHS) for its community facility program, and Rural Business-Cooperative Service (RBS), herein referred to collectively as “United States Department of Agriculture (USDA) Agency,” to collect delinquent debts. Any money that is or may become payable from the United States to an individual or entity indebted to a USDA Agency may be subject to offset for the collection of a debt owed to a USDA Agency. In addition, money may be collected from the debtor's retirement payments for delinquent amounts owed to the USDA Agency if the debtor is an employee or retiree of a Federal agency, the U.S. Postal Service, the Postal Rate Commission, or a member of the U.S. Armed Forces or the Reserve. Amounts collected will be processed as regular payments and credited to the borrower's account. USDA Agencies will process requests by other Federal agencies for offset in accordance with § 1951.102 of this subpart. This subpart does not apply to direct single family housing loans, direct multi-family housing loans, and the Rural Utilities Service. Section 1951.136 of this subpart only applies to RHS for its community facility program and RBS for the offset of Federal payments. Nothing in this subpart affects the common law right of set off available to USDA Agencies.

2a. In section 1951.102, paragraph (b)(1) is revised to read as follows:

§ 1951.102

Administrative offset.

* * * * *

(b) * * *

(1) Agency means Farm Service Agency, Farm Loan Programs; Rural Housing Service, except direct Single Family Housing loans and direct Multi-Family Housing loans; and Rural Business-Cooperative Service, or any successor agency.

* * * * *

3. In Section 1951.111 the introductory text and paragraph (d) (1) are revised to read as follows:

§ 1951.111

Salary offset.

Salary offset may be used to collect debts arising from delinquent USDA Agency loans and other debts which arise through such activities as theft, embezzlement, fraud, salary overpayments, under withholding of amounts payable for life and health insurance, and any amount owed by former employees from loss of federal funds through negligence and other matters. Salary offset may also be used by other Federal agencies to collect delinquent debts owed to them by employees of the USDA Agency, excluding county committee members. Administrative offset, rather than salary offset, will be used to collect money from Federal employee retirement benefits. For delinquent Farm Loan Programs direct loans, salary offset will not begin until the borrower has been notified of servicing options in accordance with 7 CFR 1951.907. In addition, for Farm Loan Programs direct loans, salary offset will not be instituted if the Federal salary has been considered on the Farm and Home Plan, and it was determined the funds were to be used for another purpose other than payment on the USDA Agency loan. For Farm Loan Programs guaranteed debtors, salary offset can not begin until a final loss claim has been paid. When salary offset is used, payment for the debt will be deducted from the employee's pay and sent directly to the creditor agency. Not more than 15 percent of the employee's disposable pay can be offset per pay period, unless the employee agrees to a larger amount. The debt does not have to be reduced to judgment or be undisputed, and the payment does not have to be covered by a security instrument. This section describes the procedures which must be followed before the USDA Agency can ask a Federal agency to offset any amount against an employee's salary.

* * * * *

(d) Notice to debtor.

(1) After the Certifying Official determines that collection by salary offset is feasible, the debtor should be notified within 15 calendar days after the salary offset determination. This notice will notify the debtor of intended salary offset at least 30 days before the salary offset begins. For Farm Loan Programs direct loans, this notice will be sent after the borrower is over 90 days past due and immediately after sending notification of servicing rights in accordance with 7 CFR 1951.907 of this subpart. For Farm Loan Programs guaranteed debtors, this notice will be sent after a final loss claim has been paid. The salary offset determination notice will be delivered to the debtor by regular mail.

* * * * *

4. Section 1951.136 and 1951.137 are added to read as follows:

§ 1951.136

Procedures for Department of Treasury Offset and Cross-Servicing for the Rural Housing Service (Community Facility Program only) and the Rural Business-Cooperative Service.

(a) The National Offices of the Rural Housing Service (RHS), Community Facilities (CF) and the Rural Business-Cooperative Service (RBS) will refer past due, legally enforceable debts which are over 180 days delinquent to the Secretary of the Treasury for collection by centralized administrative offset (TOP), Internal Revenue Service offset administered through TOP and Treasury's Cross-Servicing (Cross-Servicing) Program, which centralizes all Government debt collection actions. A borrower with a workout agreement in place, in bankruptcy or litigation, or meeting other exclusion criteria, may be excluded from TOP or Cross-Servicing.

(b) A 60 day due process notice will be sent to borrowers subject to TOP or Cross-Servicing. The borrower will be given 60 days to resolve any delinquency before the debt is reported to Treasury. The notice will include:

(1) The nature and amount of the debt, the intention of the Agency to collect the debt through TOP or Cross-Servicing, and an explanation of the debtor's rights;

(2) An opportunity to inspect and copy the records related to the debt from the Agency;

(3) An opportunity to review the matter within the Agency or the National Appeals Division, if there has not been a previous opportunity to appeal the offset; and

(4) An opportunity to enter into a written repayment agreement.

(c) In referring debt to the Department of Treasury the Agency will certify that:

(1) The debt is past due and legally enforceable in the amount submitted and the Agency will ensure that collections are properly credited to the debt;

(2) Except in the case of a judgment debt or as otherwise allowed by law, the debt is referred for offset within 10 years after the Agency's right of action accrues;

(3) The Agency has made reasonable efforts to obtain payment; and

(4) Payments that are prohibited by law from being offset are exempt from centralized administrative offset.

§ 1951.137

Procedures for Treasury Offset and Cross-Servicing for the Farm Service Agency (FSA) Farm Loan Programs

(a) The Farm Service Agency, Farm Loan Programs, will refer past due, legally enforceable debts which are over 180 days delinquent to the Secretary of the Treasury for collection by centralized administrative offset (TOP), Internal Revenue Service offset administered through TOP and Treasury's Cross-Servicing (Cross-Servicing) Program, which centralizes all Government debt collection actions. A borrower with a workout agreement in place, in bankruptcy or litigation, or meeting other exclusion criteria, may be excluded from TOP or Cross-Servicing. Guaranteed debtors will only be referred to TOP upon confirmation of payment on a final loss claim.

(b) A 60 day due process notice will be sent to borrowers subject to TOP or Cross-Servicing by the Director of Kansas City Finance Office. The borrower will be given 60 days to resolve any delinquency before the debt is reported to Treasury. The notice will include:

(1) The nature and amount of the debt, the intention of the Agency to collect the debt through TOP or Cross-Servicing, and an explanation of the debtor's rights;

(2) An opportunity to inspect and copy the records related to the debt, from the Agency;

(3) An opportunity to review the matter within the Agency; and

(4) An opportunity to enter into a written repayment agreement.

(c) In referring debt to the Department of Treasury the Agency will certify that:

(1) The debt is past due and legally enforceable in the amount submitted and the Agency will ensure that collections are properly credited to the debt;

(2) Except in the case of a judgment debt or as otherwise allowed by law, the debt is referred for offset within 10 years after the Agency's right of action accrues;

(3) The Agency has made reasonable efforts to obtain payment; and

(4) Payments that are prohibited by law from being offset are exempt from centralized administrative offset.

PART 3550—[AMENDED]

5. The authority citation for part 3550 continues to read as follows:

Authority: 5 U.S.C. 301 and 42 U.S.C. 1480.

6. In § 3550.210, paragraph (a) is revised to read as follows:

(a) IRS offset. RHS may take action to effect offset of claims due RHS against tax refunds due to RHS debtors under 31 U.S.C. 3720a and 31 CFR 285.2.

Dated: October 2, 2002.

William F. Hagy III,

Acting Administrator, Rural Business-Cooperative Service.

Dated: October 2, 2002.

Arthur A. Garcia,

Administrator, Rural Housing Service.

Dated: October 3, 2002.

Curtis M. Anderson,

Acting Administrator, Rural Utilities Service.

Dated: October 25, 2002.

James R. Little,

Administrator, Farm Service Agency.