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Department of the Interior

Effective Date: 12/3/84

Series: Financial Management

Part 344: Debt Collection

Chapter 2: Guidance for Collection Effort

Originating Office: Office of Financial Management

2.1 Demand for Payment.

A. Appropriate written demands will be made upon a debtor of the United States in terms which inform the debtor of the consequences of his/her failure to cooperate. Bureaus will send three progressively stronger demands over a period of not more than 60 days notifying the debtor of his/her obligation.

(1) Initial Demand. Bureaus will make an initial demand in writing advising that the full amount due should be paid by s specified due date (in most cases, not more than 30 days after the date of the demand). The initial demand letter should inform the debtor of: (a) the basis for the indebtedness and whatever rights the debtor may have to seek review within the bureau, and (b) interest, penalties, and administrative costs (see 344 DM 2.11).

(2) Subsequent Demands. If the debt is not paid by the due date, or if a repayment program acceptable to the bureau has not been arranged with the debtor, then the initial demand will be followed by two progressively stronger written demands at not more than 15-day intervals, unless a response to the initial or subsequent demands indicates that further demands would be futile and a rebuttal to the response is not required. However, in determining the timing of demand letters, bureaus should give due regard to the need to act promptly so that ordinarily referrals to Justice for litigation are made within a year (bureaus are encouraged to take such action in less time when circumstances permit) of the bureau final determination of the fact and the amount of the debt.

(3) Alternative Methods of Payment. As appropriate, a bureau may consider including, either in the initial demand letter or in subsequent letters, its willingness to discuss alternative methods of payment, its policies with respect to the use of consumer reporting agencies (344 DM 2.3), the use of collection services (344 DM 2.4), its intention to refer the debt to Justice for litigation, and depending on applicable statutory authority, the debtor=s entitlement to consideration of waiver.

(4) Contract Claims. If the claim arises from a contract executed before and in effect on October 25, 1982, the initial and subsequent demands shall not mention the imposition of penalties or interest.

(5) Federal Employee. When the debtor is an employee or former employee of the Federal Government, and all other means of recovery have been exhausted, collection by salary offset or by administrative offset against the Civil Service Retirement and Disability Fund will be initiated (see 5 U.S.C. 5514, 5 CFR 550, 344 DM 2.2, 3.1C, and 370 DM 550).

(6) Waiver of Subsequent Written Demands. To protect the Government=s interest, if there is a valid reason, the sending of a second or third demand letter may be preceded by other appropriate actions under this Chapter (for example, to keep the Statute of Limitations in 28 U.S.C. 2415 from expiring).

B. Except where prohibited or other charges are expressly provided by law, interest, penalties, and administrative charges will be assessed at a rate established by the Secretary of the Treasury under provisions se; forth in 31 U.S.C. 3717(a) (see 344 DM 2.11).

C. The reporting of delinquent debts to credit reporting agencies (credit bureaus) and commercial debt collection agencies will conform to the procedures contained in 344 DM 2.3 and 2.4.

D. Bureaus will respond promptly to communications from the debtor. Bureaus will advise debtors who dispute a debt to furnish available evidence to support their claim.

2.2 Collection by Salary Offset. Bureaus should institute collection action by salary offset if a current Federal employee has a delinquent debt to the United States under a program administered by the Department. The employee=s salary should be offset to satisfy that indebtedness provided bureaus have made demands in accordance with 344 DM 2.1A. Salary offset procedures must also conform to the Departmental policy guidance found in 370 DM 550.

2.3 Reporting Delinquent Debts to Consumer Reporting Agencies.

A. Bureaus will develop and implement procedures for reporting delinquent debt to consumer reporting agencies. These procedures will be consistent with the requirements specified in 31 U.S.C. 3711(f).

B. A debt is considered delinquent if it has not been paid by the date specified in the bureau initial written notification (344 DM 2.A(l)) or if the debtor fails to satisfy the obligation under a payment agreement with the bureau.

C. Procedures developed and implemented by each bureau must provide for compliance with the Privacy Act of 1974, as amended, 5 U.S.C. 552a.

D. Bureaus may report debtor information about individuals from a system of records to a consumer credit reporting agency if: (1) the systems notice required by the Privacy Act, 5 U.S.C. 552a(e)(4), states that information in the systems of records may be disclosed to a consumer reporting agency, (2) the bureau has determined that the claim is valid and overdue, and (3) notice has been hand delivered to the debtor or sent Registered Mail, Return Receipt Requested, informing him/her: (a) that payment is overdue; (b) that the bureau intends to disclose information about the individual=s debt to a consumer reporting agency within a stated period, not less than 60 days after the mailing of the notice; (c) that specific items of information to be released are limited to: the debtor=s name, last known address, and other information necessary to establish the identity of the individual; amount, status, and history of the outstanding claim; and the program(s) under which the claim arose; and (d) that the debtor has a right to a full explanation of the claim, to dispute any information in the records concerning the claim, and to have an administrative review. Additional requirements covering referrals are found in 31 U.S.C. 3711(f).

2.4 Contracting for Collection Services.

A. General Applications. Bureaus will develop and implement procedures for contracting for collection services which are consistent with 31 U.S.C. 3718(a). A bureau may enter into contract for this purpose when the contract meets the following conditions:

(1) The collection service supplements, but does not replace, the basic collection program of the bureau.

(2) The contractor is subject to the Privacy Act of 1974, as amended, to the extent specified in 5 U.S.C. 552a(m), and where applicable, Federal and State laws and regulations pertaining to debt collection practices, such as the Fair Debt Collection Practices Act, 15 U.S.C. 1692,

(3) The contractor must provide for protection of data derived from the Department of the Treasury=s (Treasury) taxpayer identity information files in accordance with 25 U.S.C. 6103 (p)(4) and 26 CFR Parts 301 and 601.

(4) The bureau retains authority under the contract to resolve disputes, compromise claims, suspend or terminate collection action, and refer the matter for litigation.

(5) The resolution of disputes relating to the debts will remain with the bureau. Resolution of disputes arising under the contract or with the contractors will remain with the bureau contracting officer who will handle such disputes in accordance with the Contract Disputes Act (P.L. 95-563).

(6) The contractor must agree to provide any data contained in its files relating to reports of prior collection actions, current address of debtors, and current credit data. (See 4 CFR 102.6(a)(4).)

(7) The contractor must be required to account for all amounts collected.

(8) The contracts will be subject to competition to the maximum practical extent.

B. Collection Service Contract Funding.

(1) A bureau may fund a collection service contract on a fixed-fee basis without regard to the amount actually collected under the contract. Payment of the contractor fee under a fixed-fee contract must be charged to available bureau appropriations. A bureau entering into a fixed-fee contract may do so only to the extent provided in advance an its appropriation act or other legislation. This requirement does not apply to the use of a revolving fund authorized by statute.

(2) A bureau may fund a collection service contract on a contingent fee basis by including a provision in the contract permitting the contractor to deduct its fee from amounts collected under the contract. The fee should be based on a percentage of the amount collected, consistent with prevailing commercial practice.

(3) Except for contingency fees to contractors deducted from the amounts collected or unless otherwise specifically provided by law, bureaus must deposit all amounts recovered under collection service contracts in the Treasury as miscellaneous receipts (See 31 U.S.C. 3302).

C. Cost Effectiveness of Service. Bureaus should consider the cost benefits and effectiveness of referring a debt to a collection service.

2.5 Personal Interview with Debtor. Authorized representatives of bureaus will undertake personal interviews with debtors, when feasible, after giving consideration to the amounts involved and the proximity of. representatives to such debtors.

2.6 Contact with Debtor’s Employing Agency. When a debtor is employed by the Government or is a member of the military, and collection by salary offset cannot be accomplished in accordance with 5 U.S.C. 5514, the employing agency will be contacted to arrange with the debtor for payment of the indebtedness. Bureaus must follow the salary offset procedure outlined in 370 DM 550 and 344 DM 2.1, when requesting offset from other Federal agencies. (Section 206 of Executive Order 11222 of May 8, 1965, provides that an employee is expected to meet all just financial obligations especially those such as Federal, State or local taxes which are imposed by law. See also the Department=s standards for employee responsibilities and conduct, 43CFR 20.735-16).

2.7 Suspension or Revocation of License or Eligibility.

A. Bureaus seeking the collection of statutory penalties, forfeitures, or debts provided for as an enforcement aid, or for compelling compliance, will give serious consideration to the suspension or revocation of licenses or other privileges. Such action will be taken for any inexcusable, prolonged, or repeated failure of a debtor to pay such a claim and the debtor will be so advised Any bureau making, guaranteeing, insuring, acquiring, or participating in loans will consider suspending or disqualifying any lender, contractor, broker, borrower, or other debtor from doing further business with it or engaging in programs sponsored by it if such debtor fails to pay his/her debts within a reasonable time. The debtor should be advised as to these consequences should payment and/or other suitable arrangement not be made.

B. The failure of any surety to honor its obligations in accordance with 31 U.S.C. 9305 will be reported to the Treasury at once. Notification that a surety=s certificate of authority to do business with the Government has been revoked or forfeited by Treasury will be forwarded by that Department to all interested agencies.

2.8 Liquidation of Collateral. Bureaus will sell any security or collateral which they are holding and which may be liquidated and apply the proceeds against debts due. Such action will be taken if the debtor fails to pay his/her debt within -a reasonable time after demand, unless the cost of disposing of the collateral will be disproportionate to its value, or special circumstances require judicial foreclosure. Collection from other sources, including liquidation of security or collateral, is not a prerequisite to requiring payment by a surety or insurance concern unless such action is expressly required by statute or contract. The bureau should provide the debtor with adequate notice of the sale, an accounting of any surplus proceeds, and any other procedures required by contract or law (See 4 CFR 102.10).

2.9 Collection in Installments.

A. Debts, including interest, penalties, and administrative costs in accordance with 344 DM 2.11, will be collected in one lump sum whenever possible. However, if the debtor is financially unable to pay the indebtedness in one lump sum, payment may be accepted in regular installments. Bureaus should obtain financial statements from debtors, except employees, who represent that they are unable to pay the debt in one lump sum. Additionally, bureaus which agree to accept payment in regular installments should obtain a legally enforceable written agreement from the debtor which specifies all terms of the arrangement and which contains a provision accelerating the debt in the event the debtor defaults. The size and frequency of installment payments will bear a reasonable relation to the size of the debt and the debtor=s ability to pay. If possible, the installment payments will be sufficient in size and frequency to liquidate the Government=s claim in not more than three years. Installment payments of less than $50 per month should be accepted only in the most unusual circumstances.

B. A bureau holding an unsecured claim for administrative collection will attempt to obtain from a debtor an executed confess-judgment note, comparable to the Department of Justice Form USA-70a, when the total amount of the deferred installments will exceed $750. Such notes may be sought when an unsecured obligation of a lesser amount is involved. A bureau should explain to the debtor it writing the consequences of signing the note and request a document from the debtor acknowledging the voluntary signing of the note.

C. Security for deferred payments other than a confess-judgment note may be accepted. Installment payments may be accepted notwithstanding the refusal of a debtor to execute a confess-judgment note or to give other security.

D. If the debtor owes more than one debt and designates how a voluntary installment payment is to be applied among those debts, that designation must be followed. If the debtor does not designate the application of the payment, bureaus should apply payments to the various debts in accordance with the best interest of the United States, as determined by the facts and circumstances of the particular case, paying special attention to applicable statutes of limitations.

2.10 Exploration of Compromise. Attempts may be made to effect compromises (preferably through personal interviews) of claims of $20,000 or less, exclusive of interest, penalties, and administrative costs, in accordance with the standards set forth in 344 DM 4. This action may be taken in all cases where it can be ascertained that the debtor’s financial ability will not permit payment of the claim in full, or in which the litigative risks or the costs of litigation dictate such action.

2.11 Interest, Penalties, and Administrative Costs.

A. Scope and Application. Bureaus will assess interest, penalties, and administrative costs on delinquent debts owed the United States pursuant to 31 U.S.C. 3717, and the guidelines established in this Chapter except as provided in 344 DM 2.11E and G. However, before assessing these charges, a bureau must mail or hand deliver a written notice to the debtor explaining the requirements concerning the charges (344 DM 2.1).

B. Interest. Bureaus will charge interest from the date on which notice of the assessment of interest is first mailed or hand delivered to the debtor. Care should be exercised to ensure that the notices required by this Chapter are dated and mailed or hand delivered on the same day. (This charge need not be calculated until the 31st day, but will accrue from the date the notice was first mailed or hand delivered.)

(1) Interest will be assessed at the rate of the current value of funds to the United States Treasury, as prescribed and published by the Secretary of the Treasury in the Federal Register and the Treasury Fiscal Requirements Manual Bulletins annually or quarterly, in accordance with 31 U.S.C. 3717. The rate of interest, as initially assessed, will remain fixed for the duration of the indebtedness, except where a debtor has defaulted on a repayment agreement and seeks to enter into a new agreement. In this case, a bureau may set a new interest rate, if higher, which reflects the current value of the funds to the Treasury at that time.

(2) Interest should not be assessed on other interest, penalties, or administrative costs. However, if the debtor defaults on a previous repayment agreement, charges which accrued but were not collected under the defaulted agreement will be added to the principal to be paid under a new repayment agreement.

C. Penalty Charges. Except in the situations described in 344 DM 2.llB(2), a penalty charge of six percent per annum will be charged on the unpaid portion of a debt which remains unpaid 90 days after the date described in 344 DM 2.11B. No penalty is to be charged if the debtor has entered into a satisfactory repayment agreement. (This charge need not be calculated until the 91st day of delinquency, but shall accrue from the first day the debt became delinquent.)

D. Administrative Charges. Bureaus will assess charges to cover administrative cost incurred as a result of a delinquent debt. These are the additional costs incurred in processing and handling the debt because it became delinquent. Calculation of administrative costs should be based upon actual additional costs incurred by a bureau in processing, handling, and collection of delinquent debt, and may include the fees of a collection agency to the extent the fees are attributable to the delinquency.

E. Waiver of Interest, Penalties, and Administrative Costs. Bureaus will waive the collection of interest on a debt or any portion of a debt which has been paid within 30 days after the date interest charges were initiated. On a case-by-case basis, a bureau may extend this 30-day period if they determine such action would be appropriate. Bureaus may waive, in whole or in part, the collection of interest, penalties, and/or administrative cost assessed under the guidelines for compromise specified in 344 DM 4, and in 4 CFR Part 103.

F. Payments. When a debt is paid in installments, the payments will first be applied to administrative cost and penalty charges; second, to accrued interest; and third, to outstanding principal.

G. Exemptions. The provisions of 344 DM 2.11 do not apply to: (1)debts arising under contracts which were executed prior to and were in effect on October 25, 1982; (2) debts where an applicable statute, regulation required by statute, loan agreement, or contract either prohibits such charges or explicitly fixes the charges that apply to the debts involved; or (3) debts arising under the Social Security Act, the Internal Revenue Code of 1954, or the tariff laws of the United States. Bureaus are authorized to assess interest and related charges on such debts to the extent authorized under the common law or applicable statutory authority other than 31 USC 3717.

H. State and Local Governments. The provisions of 344 DM 2.11 also do not apply to debts owed by State and. local governments. However, interest is to be charged on debts owed the Department by State and local governments in accordance with 4 CFR 102.13(i(2) to the extent there is common law or statutory authority other than 31 U.S.C. 3717. Also, see Comptroller General Decision B-212222 dated August 23, 1983 (unpublished).

2.12 Analysis of Costs. Bureau collection procedures will provide for periodic comparison of costs of collection incurred and amounts collected. Data on costs and corresponding recovery rates for debts of different types and in various ranges will be used to compare the cost effectiveness of alternative collection techniques. Guidelines will be established that (a) identify when cost of further collection efforts are likely to exceed recoveries, (b) assist in evaluating offers in compromise, and (c) establish minimum amounts below which collection efforts need not be taken. Cost and recovery data should be useful in justifying adequate resources for an effective collection program.

2.13 Documentation of Administrative Collection Action. All administrative collection actions will be documented and the basis for compromise, termination, or suspension of collection action will be set out in detail. Such documentation will be retained in the appropriate claims file.

2.14 Automation. The efficiency and effectiveness of collection efforts may be improved by automating the debt collection process. Bureaus will automate debt collection operations to the extent it is cost effective and feasible.

2.15 Prevention of Overpayments, Delinquencies, and Defaults. Bureaus will establish procedures to identify the causes of overpayments, delinquencies, and defaults and take the corrective actions needed.

2.16 Use and Disclosure of Mailing Addresses.

A. When attempting to locate a debtor in order to collect a debt, a bureau may send a written request to the Secretary of the Treasury or his/her designee in order to obtain a debtor=s mailing address from the records of the Internal Revenue Service, Washington, D.C. 20221.

B. A bureau may disclose a mailing address obtained under 344 DM 2.l6A to other agents, including collection service contractors, in order to facilitate the collection or compromise of debts covered in this Chapter, except that a mailing address may be disclosed to a consumer reporting agency only for the limited purpose of obtaining a commercial credit report on the particular taxpayer.

C. Each bureau will ensure, by appropriate policies, procedures, and contract administration, that the bureau and its agents, including consumer reporting agencies and collection service contractors, comply with the provision of 26 U.S.C. 6l03(p)(4) and applicable regulations of the Internal Revenue Service. (See also 0MB Guidelines on the Relationship of Debt Collection Act of 1982 to the Privacy Act of 1974, Section 4, April 11, 1983, 48 FR 15556).

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12/3/84 #3436

Replaces 12/3/84 #2607