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Purpose
Authority
Coverage
Rescissions
Effective Date
Inquiries
Definitions
I. RESPONSIBILITIES OF DEPARTMENTS AND AGENCIES
Office of Management and Budget
Department of the Treasury
Federal Credit Policy Working Group
Departments and Agencies
II. BUDGET AND LEGISLATIVE POLICY FOR CREDIT PROGRAMS
Program Justification
Form of Assistance
Financial Standards
Implementation
III. CREDIT MANAGEMENT AND EXTENSION POLICY
A. CREDIT EXTENSION POLICIES
Applicant Screening
Loan Documentation
Collateral RequirementsB. MANAGEMENT OF GUARANTEED LOAN LENDERS AND SERVICERS
Lender Eligibility
Lender Agreements
Lender and Servicer Reviews
Corrective Actions
IV. MANAGING THE FEDERAL GOVERNMENT'S RECEIVABLES
Accounting and Financial Reporting
Loan Servicing Requirements
Loan Asset Sales and Prepayment Programs
Standards for Defining Delinquent and Defaulted Debt
Collection Strategy for Delinquent Debt
Collection Techniques
Interest, Penalties, and Administrative Costs
Write-Off and Close-Out Procedures
Checklist for Credit Program Legislation, Testimony, and Budget Submissions
Model Bill Language for Credit Programs
SUBJECT: Policies for Federal Credit Programs and Non-Tax Receivables
Federal credit programs are created to accomplish a variety of social and economic goals. Agencies must implement budget policies and management practices that ensure that the goals of credit programs are met while properly identifying and controlling costs. In addition, Federal receivables, whether from credit programs or other non-tax sources, must be serviced and collected in an efficient and effective manner to protect the value of the Federal Government's assets.
GENERAL INFORMATION
1. Purpose. This Circular prescribes policies and procedures for
justifying, designing, and managing Federal credit programs
and for collecting non-tax receivables. It sets principles
for designing credit programs, including the preparation and
review of legislation and regulations; budgeting for the costs
of credit programs and minimizing unintended costs to the
Government; and improving the efficiency and effectiveness of
Federal credit programs. It also sets standards for extending
credit, managing lenders participating in the Government's
guaranteed loan programs, servicing credit and non-tax
receivables, and collecting delinquent debt.
2. Authority. This Circular is issued under the authority of the
Budget and Accounting Act of 1921, as amended; the Budget and
Accounting Act of 1950, as amended; the Debt Collection Act
of 1982, as amended; Section 2653 of Public Law 98-369; the
Federal Credit Reform Act of 1990; the Federal Debt Collection
Procedures Act of 1990; the Chief Financial Officers Act of
1990; Executive Order 8248; the Cash Management Improvement
Act Amendments of 1992; and pre-existing common law authority
to charge interest on debts and to offset debts
administratively.
3. Coverage.
(1) Direct loan programs;
(2) Guaranteed loan programs and loan insurance programs
in which the Federal Government bears a legal
liability to pay for all or part of the principal
or interest in the event of borrower default; and
(3) Loans or other financial assets acquired by a
Federal agency (or a receiver or conservator acting
for a Federal agency) as a result of a claim payment
on a defaulted guaranteed or insured loan or in
fulfillment of a Federal deposit insurance
commitment.
Sections IV and V of Appendix A (Managing the Federal
Government's Receivables and Delinquent Debt Collection)
also apply to receivables due to the Government from the
sale of goods and services; fines, fees, duties, leases,
rents, royalties, and penalties; overpayments to
beneficiaries, grantees, contractors, and Federal
employees; and similar debts.
b. Exclusions Under the Debt Collection Act. Certain debt
collection techniques authorized by the Debt Collection
Act of 1982, as amended, may not be applied to debts
arising under the Internal Revenue Code, the Social
Security Act, or the tariff laws of the United States,
or to debts owed to the United States Government by State
or local governments.
c. Other Statutory Exclusions. The policies and standards
of this Circular do not apply when statutorily prohibited
or inconsistent with statutory requirements. However,
agencies are required to review periodically legislation
affecting the form of assistance and/or financial
standards for credit programs and justify continuance of
any non-conformance (see section II.5.c).
4. Rescissions. This Circular rescinds and replaces OMB Circular
No. A-70, dated August 24, 1984, OMB Circular No. A-129, dated
November 25, 1988, and OMB Bulletin No. 91-05, dated November
26, 1990.
The Circular supplements, and does not supersede, the
requirements applicable to budget submissions under Circular
No. A-11 and to proposed legislation and testimony under
Circular No. A-19.
5. Effective Date. This Circular is effective immediately.
6. Inquiries. Further information on estimating credit subsidies
may be found in Appendix D to OMB Circular No. A-11. Further
information on the implementation of credit management and
debt collection policies may be found in the credit supplement
to the Treasury Financial Manual (TFM) and in OMB's
government-wide 5-year plan for financial management submitted
annually to Congress.
For inquiries concerning budget and legislative policy for
credit programs (Appendix A, section II), contact the Office
of Management and Budget, Budget Analysis Branch, Room 6025,
New Executive Office Building, 725 17th Street, NW,
Washington, DC 20503, 202/395-3930. For inquiries concerning
credit management and debt collection policies (Appendix A,
sections III - V), contact the Office of Management and
Budget, Credit and Cash Management Branch, Room 10236, New
Executive Office Building, 725 17th Street, NW, Washington,
DC 20503, 202/395-3066.
7. Definitions. Key terms used in this Circular are defined in
OMB Circulars No. A-11 and A-34.
Richard Darman
Appendices (3)
3. Federal Credit Policy Working Group. The Federal Credit
Policy Working Group is an inter-agency forum which provides
advice and assistance to OMB and Treasury in the formulation
and implementation of credit policy. Membership consists of
representatives from the Executive Office of the President,
the Council of Economic Advisers, the Office of Management and
Budget, and the Department of the Treasury. The major credit
and debt collection agencies represented include the
Departments of Agriculture, Commerce, Education, Health and
Human Services, Housing and Urban Development, Interior,
Justice, Labor, State, Transportation, and Veterans Affairs,
the Agency for International Development, the Export-Import
Bank, the Resolution Trust Corporation, and the Small Business
Administration. Other departments and agencies may be invited
to participate on the Working Group at the request of the
Chairperson. The Director of OMB designates the Chairperson
of the Group.
4. Departments and Agencies. Departments and agencies shall
manage credit programs and all non-tax receivables in
accordance with their statutory authorities and the provisions
of this Circular to protect the Government's assets, and to
minimize losses in relation to social benefits provided.
(2) The costs of credit programs covered by the Federal
Credit Reform Act of 1990 are budgeted for and
controlled in accordance with the principles of the
Act (the Act exempts deposit insurance agencies,
Tennessee Valley Authority, Pension Benefit Guaranty
Corporation, and certain other activities from
credit reform requirements);
(3) Every effort is made to prevent future delinquencies
by following appropriate screening standards and
procedures for determination of credit worthiness;
(4) Lenders participating in guaranteed loan programs
meet all applicable financial and programmatic
requirements;
(5) Informed and cost-effective decisions are made
concerning portfolio management, including full
consideration of contracting out for servicing or
selling the portfolio and transferring servicing to
the private sector;
(6) The full range of available techniques are used, as
appropriate, to collect delinquent debts, including
administrative offset, salary offset, tax refund
offset, private collection agencies, and litigation;
(7) Delinquent debts are written off as soon as they
are determined to be uncollectible; and
(8) Timely and accurate financial management and
performance data are submitted to OMB and the
Department of the Treasury so that the Government's
credit management and debt collection programs and
policies can be evaluated.
b. In achieving these objectives, agencies shall:
(2) Ensure that the standards set forth in this Circular
and supplementary guidance set forth in the Treasury
Financial Manual are incorporated into agency
regulations and procedures for credit programs and
debt collection activities;
(3) Propose new or revised legislation, regulations,
and forms as necessary to ensure consistency with
the provisions of this Circular;
(4) Submit legislation and testimony affecting credit
programs for review under the OMB Circular No. A-
19 legislative clearance process, and budget
proposals for review under the Circular No. A-11
budget justification process;
(5) Periodically evaluate Federal credit programs to
assess their effectiveness in achieving program
goals;
(6) Assign to the agency CFO, in accordance with the
Chief Financial Officers Act of 1990, responsibility
for directing, managing, and providing policy
guidance and oversight of agency financial
management personnel, activities, and operations,
including the implementation of asset management
systems for credit management and debt collection;
(7) Prepare, as part of the agency CFO Financial
Management 5-Year Plan, a Credit Management and Debt
Collection Plan for effectively managing credit
extension, account servicing and portfolio
management, and delinquent debt collection. The
plan must ensure agency compliance with the
standards in this Circular;
(8) Ensure that data in loan applications and documents
for individuals are managed in accordance with the
Privacy Act of 1974, as amended by the Computer
Matching and Privacy Protection Act of 1988 (the
Privacy Act does not apply to loans and debts of
commercial organizations); and the Right to
Financial Privacy Act; and
(9) Include in personnel evaluation criteria for senior
executives with major credit management and debt
collection responsibilities performance standards
in support of this Circular.
1. Program Justification. New programs and proposals for
reauthorizing, expanding, or significantly increasing funding
for credit programs should be accompanied by analysis which:
(2) An explanation as to whether, and why, these private
sources of financing and their terms and conditions
must be supplemented and subsidized;
b. Specifies whether the credit program is intended to:
(2) Subsidize borrowers or other beneficiaries, who
should be identified, or encourage certain
activities, which should be specified;
c. Explains why a credit subsidy is the most efficient way
of providing assistance, including how it provides
assistance in overcoming market imperfections, and/or
would redress the specific inadequate financing cited;
d. Estimates or, when the program exists, measures the
benefits expected from the program, including the amount
by which the distribution of credit is expected to be
altered and the favored activity is expected to increase.
Information on conducting a cost-benefit analysis can be
found in OMB Circular No. A-94;
e. Estimates the extent to which the program substitutes
directly or indirectly for private lending, and analyzes
any elements of program design that encourage and
supplement private lending activity, with the objective
that private lending is displaced to the smallest degree
possible by agency programs; and
f. Provides an explicit estimate of the subsidy, as required
by the Federal Credit Reform Act of 1990, and an estimate
of the expected annual administrative costs (including
extension, servicing, and collection) of the credit
program. If loan assets are to be sold or are to be
included in a prepayment program for programmatic or
other reasons, the sale/prepayment is classified as a
modification under the Federal Credit Reform Act. The
cost of this modification requires budget authority,
which must be appropriated or otherwise made available.
Loan asset sales/prepayment programs must be conducted
in accordance with policies in this Circular and
procedures in the credit supplement to the Treasury
Financial Manual, including the prohibitions against the
financing of prepayments by tax-exempt borrowing and
sales with recourse except where specifically authorized
by statute. The cost of any guarantee placed on the
asset sold requires budget authority.
2. Form of Assistance. When Federal credit assistance is
necessary to meet a Federal objective, loan guarantees should
be favored over direct loans, unless attaining the Federal
objective requires a subsidy, as defined by the Federal Credit
Reform Act of 1990, deeper than can be provided by a loan
guarantee.
b. Direct loans usually offer borrowers lower interest rates
and longer maturities than loans available from private
financial sources, even those with a Federal guarantee.
The use of direct loans, however, may displace private
financial sources and increase the possibility that the
terms and conditions on which Federal credit assistance
is offered will not reflect changes in financial market
conditions. The costs on the Government and the economy
are therefore likely to be greater.
c. Direct or indirect guarantees of tax-exempt obligations
are expressly prohibited under Section 149(b) of the
Internal Revenue Code. Guarantees of tax-exempt
obligations are an inefficient way of allocating Federal
credit. Assistance to the borrower, through the tax
exemption and the guarantee, provides interest savings
to the borrower that are smaller than the tax revenue
loss to the Government. Thus, the cost to the taxpayer
is greater than the benefit to the borrower.
d. To preclude the possibility that Federal agencies will
guarantee tax-exempt obligations, either directly or
indirectly, agencies will: (1) not guarantee federally
tax-exempt obligations; (2) not subordinate direct loans
to tax-exempt obligations; (3) provide that effective
subordination of a guaranteed loan to tax-exempt
obligations will render the guarantee void; (4) prohibit
use of a Federal guarantee as collateral to secure a
tax-exempt obligation; (5) prohibit Federal guarantees
of loans funded by tax-exempt obligations; and (6)
prohibit the linkage of Federal guarantees with
tax-exempt obligations.
e. Where a large degree of subsidy is justified, comparable
to that which would be provided by guaranteed tax-exempt
obligations, agencies should consider the use of direct
loans.
3. Financial Standards. In accordance with the Federal Credit
Reform Act of 1990, agencies must analyze and control the risk
and cost of their programs. Agencies must develop statistical
models predictive of defaults and other deviations from loan
contracts. Agencies are required to estimate subsidy costs
and to obtain budget authority to cover such costs before
obligating direct loans and committing loan guarantees.
Specific instructions for budget justification under the Act
are provided in OMB Circular No. A-11, and instructions for
budget execution are provided in OMB Circular No. A-34.
Agencies shall follow sound financial practices in the design
and administration of their credit programs. Where program
objectives cannot be achieved while following sound financial
practices, the cost of these deviations shall be justified in
agency budget submissions in comparison with expected
benefits. Unless a waiver is approved, agencies should follow
the financial practices discussed below.
(2) Borrowers should have an equity interest in any
asset being financed with the credit assistance,
and business borrowers should have substantial
capital or equity at risk in their business (see
section III.A.3.(b) for additional discussion).
b. Interest and fees on direct loans and fees on loan
guarantees should be set by reference to the cost to the
Government of making the direct loan or loan guarantee
and should be reviewed at least annually.
(2) When charging interest and/or fees at such levels
is statutorily prohibited or an agency considers it
inconsistent with program objectives, the difference
should be justified in relation to benefits. In
addition, the agency must request an appropriation
in accordance with the Federal Credit Reform Act of
1990 for default and other subsidy costs not covered
by interest and fees.
(3) Riskier borrowers should be charged more than those
who pose less risk in order to encourage such
borrowers to take actions to reduce the risk they
pose to the Government.
c. Contractual agreements should include all covenants and
restrictions (e.g., liability insurance) necessary to
protect the Federal Government's interest.
(2) The Government's claims on assets should not be
subordinated to the claims of other lenders in the
case of a borrower's default on either a direct loan
or a guaranteed loan. Subordination increases the
risk of loss to the Government, since other
creditors would have first claim on the borrower's
assets.
d. In order to minimize inadvertent changes in the amount
of subsidy, interest rates to be charged on direct loans
and any interest supplements for guaranteed loans should
be specified by reference to the market rate on a
benchmark Treasury security rather than as an absolute
level. A specific level of interest rate should not be
cited in legislation or in regulation because such a rate
could soon become outdated, unintentionally changing the
extent of the subsidy.
(2) Interest rates applicable to new loans should be
reviewed at least quarterly and adjusted to reflect
changes in the benchmark interest rate. Loan
contracts may provide for either fixed or floating
interest rates.
e. Maximum amounts of direct loan obligations and loan
guarantee commitments must be specifically authorized in
advance in annual appropriations acts, except for
mandatory programs exempt from the appropriations
requirements under section 504(c) of the Federal Credit
Reform Act of 1990.
f. Financing for Federal credit programs should be provided
by Treasury in accordance with the Federal Credit Reform
Act of 1990. Guarantees of the timely payment of 100
percent of the loan principal and interest against all
risk create a debt obligation that is the credit risk
equivalent of a Treasury security. Accordingly, a
Federal agency other than the Department of the Treasury
may not issue, sell, or guarantee an obligation of a type
that is ordinarily financed in investment securities
markets, as determined by the Secretary of the Treasury,
unless the terms of the obligation provide that it may
not be held by a person or entity other than the Federal
Financing Bank (FFB) or another Federal agency. The
Secretary of the Treasury may waive this requirement with
respect to obligations that the Secretary determines:
(1) are not suitable for investments for the FFB because
of the risks entailed in such obligations; or (2) are or
will be financed in a manner that is least disruptive of
private financial markets and institutions. The benefits
of using the FFB must not expand the degree of subsidy.
g. Loan contracts should be standardized where practicable.
Private sector documents should be used whenever
possible, especially for loan guarantees.
5. Implementation. The provisions of this section II will be
implemented through the OMB Circular No. A-19 legislative
review process and the OMB Circular No. A-11 budget
justification and submission process.
Whenever agencies propose provisions or language not in
conformity with the policies of this Circular, they will
be required to request in writing that the Office of
Management and Budget modify or waive the requirement.
Such requests will identify the modification(s) or
waiver(s) requested, and also will state the reasons for
the request and the time period for which the exception
is required. Exceptions, when allowed, will ordinarily
be granted only for a limited time in order to allow for
an evaluation by OMB.
b. OMB will, upon written request, provide technical advice
on proposed credit program provisions that would be
exceptions to the standards prescribed in this section
II. This will avoid delays and help to ensure
consistency with Federal credit policies.
A checklist for reviews of legislative and budgetary
proposals is included as Appendix B to this Circular.
Model bill language that agencies may use in developing
and reviewing legislation is provided in Appendix C.
c. Every four years, or more often at the request of the OMB
examiner with primary responsibility for the account, the
agency's annual budget submission (required by OMB
Circular No. A-11, Section 15.2) should include:
(2) A review of the changes in financial markets and
the status of borrowers and beneficiaries to verify
that continuation of the credit program is required
to meet Federal objectives, to update its justifi-
cation, and to recommend changes in its design and
operation to improve efficiency and effectiveness;
and
(3) Proposed changes to correct those cases where
existing legislation, regulations, or program
policies are not in conformity with the policies of
this section II. When an agency does not deem a
change in existing legislation, regulations, or
program policies to be desirable, it will provide
a justification for retaining the non-conformance.
b. Delinquency on Federal Debt. Agencies shall determine
whether applicants are delinquent on any Federal debt,
including tax debt. Agencies must include a question on
loan application forms asking applicants if they have
such delinquencies. In addition, agencies, including
guaranteed loan lenders, shall use the Department of
Housing and Urban Development's Credit Alert Interactive
Voice Response System (CAIVRS) to identify delinquencies
on Federal debt. CAIVRS offers direct on-line access for
mortgage lenders to verify whether candidates for Federal
Housing Administration (FHA) loans have any previous FHA
loan defaults. The CAIVRS data base has been expanded
to include delinquent debt from other major credit
programs. Other delinquent receivables, including
judgment liens against property for debt owed to the
United States, tax debt, and corporate debt may also be
added to the data base. All credit programs should use
CAIVRS for loan screening to ensure applicants are not
delinquent on Federal debt.
Processing of applications should be suspended when
applicants are delinquent on Federal tax or non-tax
debts, including judgment liens against property for a
debt to the Federal Government. (This provision does not
apply to entitlement awards.) Processing may continue
only when the debtor satisfactorily resolves the debt
(e.g., pays in full or negotiates a new repayment plan).
c. Credit Worthiness. Where credit worthiness is a
criterion for loan approval, agencies/private lenders
shall determine that applicants have the ability to repay
the loan, as well as a satisfactory history of repaying
debt. Credit reports and supplementary data sources,
such as financial statements and tax returns, should be
used to verify or determine employment, income, held
assets, and credit history.
2. Loan Documentation. Loan origination files should contain
loan applications, credit bureau reports, credit analyses,
loan contracts, and other documents necessary to conform to
private sector standards for that type of loan. Accurate and
complete documentation is critical to providing proper
servicing to the debtor, pursuing collection of delinquent
debt, and, in the case of guaranteed loans, claims payment.
Additional information on documentation requirements is
available in the credit supplement to the Treasury Financial
Manual.
3. Collateral Requirements. For many types of loans, the
Government can reduce its default risk and potential losses
through well-managed collateral requirements.
(2) Agencies shall ensure that all credit transactions
over $100,000 have an appraisal prepared by a State
licensed or certified appraiser (except refinancings
with no cash out and those transactions where the
collateral is not a major factor in the decision to
extend credit). Agencies shall determine which of
these transactions, because of size and/or
complexity, must be performed by a State certified
appraiser. Agencies may also designate direct or
guaranteed loans transactions under $100,000 that
require the services of a licensed or certified
appraiser.
b. Loan-to-Value Ratios. In some credit programs, the
primary purpose of the loan is to finance the acquisition
of an asset, such as a single family home, which then
serves as collateral for the loan. Agencies should
ensure that borrowers assume an equity interest in such
assets in order to reduce defaults and Government losses.
Federal agencies should explicitly define the components
of the loan-to-value (LTV) ratio for both direct and
guaranteed loan programs. Financing should be limited
by not offering terms (including the financing of closing
costs) that result in a loan-to-value ratio equal to or
greater than 100 percent. Further, the loan maturity
should be shorter than the estimated useful economic life
of the collateral.
c. Liquidation of Real Property Collateral for Guaranteed
Loans. In general, it is not in the Federal Government's
financial interest to assume the responsibility for
managing and disposing of real property serving as
collateral on defaulted guaranteed loans. Private
lenders should be required to liquidate, through
litigation if necessary, any real property collateral for
a defaulted guaranteed loan before filing a default claim
with the guarantor.
d. Asset Management Standards and Systems. Agencies should
establish asset management standards and systems for real
property acquired as a result of direct or guaranteed
loan defaults. Agencies should establish policies and
procedures for the acquisition, management, and disposal
of such property. Inventory management systems should
be established to track all costs, including contractual
costs, of maintaining and selling property. Inventory
management systems should also generate management
reports, provide controls and monitoring capabilities,
and summarize information for the Office and Management
and Budget and the Department of the Treasury.
(2) Qualification requirements for principal officers
and staff of the lender;
(3) Where appropriate for new or non-regulated lenders
or lenders with questionable performance under
Federal guarantee programs, fidelity/surety bonding
and/or errors and omissions insurance with the
Federal Government as a loss payee; and
(4) For lenders not regulated by a Federal financial
institutions regulatory agency, financial and
capital requirements, including minimum net worth
requirements based on business volume.
b. Review of Eligibility. Agencies shall review and
document a lender's eligibility for continued
participation in a guaranteed loan program at least every
two years. Ideally, these reviews should be conducted
in conjunction with on-site reviews of lender operations
(see B.3) or other required reviews, such as renewal of
a lender agreement (see B.2). Lenders not meeting
standards for continued participation should be
decertified. In addition to the participation criteria
above, agencies should consider lender performance as a
critical factor in determining continued eligibility for
participation.
c. Fees. When authorized to do so, agencies should assess
non-refundable fees to defray the costs of determining
and reviewing lender eligibility.
d. Decertification. Agencies should establish specific
procedures to decertify lenders or take other appropriate
action any time there is:
Agency procedures should define the process and establish
timetables by which decertified lenders can apply for
reinstatement of eligibility.
e. Loan Servicers. Lenders transferring and/or assigning
the right to service guaranteed loans to a loan servicer
should use only servicers meeting applicable standards
set by the agency. Where appropriate, agencies may adopt
standards for loan servicers established by a Government
Sponsored Enterprise (GSE) or a similar organization
(e.g., Government National Mortgage Association for
single family mortgages) and/or may authorize lenders to
use servicers that have been approved by a GSE or similar
organization.
2. Lender Agreements. Agencies should enter into written
agreements with lenders that have been determined to be
eligible for participation in a guaranteed loan program.
These agreements should incorporate general participation
requirements, performance standards, and other applicable
requirements of this Circular. Agencies are encouraged, where
not prohibited by authorizing legislation, to set a fixed
duration for the agreement to ensure a formal review of the
lender's eligibility for continued participation in the
program.
(2) Agency and lender responsibilities for sharing the
risk of loan defaults (see section II.3.a.(1)); and,
where feasible,
(3) Maximum delinquency, default, and claim rates for
lenders, taking into account individual program
characteristics.
b. Performance Standards. Agencies should include due
diligence requirements for originating, servicing, and
collecting loans in their lender agreements. This may
be accomplished by referencing agency regulations or
guidelines. Examples of due diligence standards include
collection procedures for past due accounts, delinquent
debtor counseling procedures, and litigation to enforce
loan contracts. Agencies should ensure, through the
claims review process, that lenders have met these
standards prior to making a claims payment. Agencies
should reduce claim amounts or reject claims for lender
non-performance.
c. Reporting Requirements. Credit agencies require certain
data to monitor the health of their guaranteed loan
portfolios, track and evaluate lender performance, and
satisfy OMB, Treasury, and other reporting requirements.
Examples of these data include:
(2) Status Indicators -- a schedule showing the number
and amount of past due loans by "age" of the
delinquency, and the number and amount of loans in
foreclosure or liquidation (when the lender is
responsible for such activities).
Agencies may have several sources for such data, but some
or all of the information may best be obtained from
lenders and servicers. Lender agreements should identify
needed information to be provided on a quarterly basis
(or other reporting period based on the level of lending
and payment activity).
d. Loan Servicers. Lender agreements must specify that loan
servicers must meet applicable participation requirements
and performance standards. The agreement should also
specify that servicers acquiring loans must provide any
information necessary for the lender to comply with
reporting requirements to the agency. Servicers may not
resell the loans except to qualified servicers.
3. Lender and Servicer Reviews. To evaluate and enforce lender
and servicer performance, agencies should conduct on-site
reviews. Agencies should summarize review findings in written
reports with recommended corrective actions and submit them
to agency review boards (see section I.4.b.1).
Reviews should be conducted biennially where possible;
however, agencies should conduct annual on-site reviews for
all lenders and servicers with substantial loan volume or
whose:
b. Portfolio has a high level of defaults for guaranteed
loans less than one year old;
c. Overall default rates rise above acceptable levels;
and/or
d. Poor performance results in monetary penalties or an
abnormally high number of reduced or rejected claims.
Agencies are encouraged to develop a lender/servicer
classification system which assigns a risk rating based on the
above factors. This risk rating can be used to establish
priorities for on-site reviews and monitor the effectiveness
of corrective actions.
Reviews should be conducted by special agency program
compliance staff, Inspector General staff, and/or independent
auditors. Where possible, agencies with similar programs
should coordinate their reviews to minimize the burden on
lenders/servicers and maximize use of scarce resources.
Agencies should also utilize the monitoring efforts of GSEs
and similar organizations for guaranteed loans that have been
"pooled."
4. Corrective Actions. If a review indicates that the
lender/servicer is not in conformance with all program
requirements, agencies should determine the seriousness of the
problem. For minor non-compliances, agencies and the lender
or servicer should agree on corrective actions. However,
agencies should establish penalties for more serious and
frequent offenses. Penalties may include loss of guarantees,
reprimands, probation, suspension, and decertification.
1. Accounting and Financial Reporting.
b. Agency Reports. Comprehensive reports on the status of
loan portfolios and receivables shall be used to evaluate
management effectiveness. Agencies shall prepare, in
accordance with the CFOs Act and OMB guidance, annual
financial statements which include loan programs and
other receivables. The Office of Inspector General or
an independent external auditor should audit agency
financial statements annually.
Agency reports and financial statements shall be
consistent or reconcilable with amounts reported in the
agency's budget submission to OMB and in Treasury SF 220-
8, "Report on Guaranteed Loans," and SF 220-9, "Report
on Accounts and Loans Receivable Due from the Public."
2. Loan Servicing Requirements. Agency servicing requirements,
whether performed in-house or obtained from another agency or
private sector firm, must meet the standards described below.
b. Billing and Collections. Agencies shall ensure that
there is routine invoicing of payments, and that
efficient mechanisms are in place to collect and record
payments. Where appropriate, borrowers should be
encouraged to use pre-authorized debits when making
payments.
c. Escrow Accounts. Agency servicing systems must process
tax and insurance deposits and payments for housing and
other long-term real estate loans through an escrow
account. These systems must also be capable of analyzing
escrow balances to adjust required deposit amounts in
order to prevent deficiencies.
d. Referring Account Information to Credit Reporting
Agencies. Agency servicing systems must be able to
identify and refer debts to credit bureaus in accordance
with the Debt Collection Act of 1982, as amended.
Agencies shall refer to credit bureaus:
3. Loan Asset Sales and Prepayment Programs.
(2) Realize Administrative Savings. Net reduction of
agency resource needs by transferring servicing and
collection functions to the private sector.
b. Prepayment Programs. Agencies shall initiate prepayment
programs when statutorily mandated. Other prepayment
programs may not be initiated without the approval of OMB
and Treasury. Delinquent borrowers may participate in
a prepayment program only if past due principal,
interest, and charges are paid in full prior to their
request to prepay the balance owed.
c. Financial Advisor. A financial advisor shall be engaged
by the agency to conduct a portfolio valuation and
compare pricing options for a prepayment program or loan
asset sale. Based on the financial advisor's report, the
agency shall develop a schedule and plan, which must
include an analysis of the pricing option selected. The
pricing option must be carefully selected to avoid undue
cost to the Government or additional subsidy to the
borrower. Any additional subsidy will require budget
authority, which must be appropriated or otherwise made
available. Prior to proceeding with the sale, agencies
shall submit their plan and proposed pricing option to
OMB and Treasury for review and approval.
d. Loan Asset Sales Guidelines. Guidelines for loan asset
sales and prepayment programs have been established to
ensure that agencies meet the policy requirements of this
Circular (see the credit supplement to the Treasury
Financial Manual). The agency shall consult with OMB and
Treasury throughout the sales/prepayment process to
ensure consistency with policy and guidelines.
1. Standards for Defining Delinquent and Defaulted Debt.
b. Guaranteed Loans. Loans guaranteed or insured by the
Federal Government are in default when the borrower
breaches the loan agreement with the private sector
lender. It becomes a default to the Federal Government
when the guaranteeing Federal agency repurchases the loan
or pays reinsurance on the loan. The repurchased default
becomes a receivable and is subject to the debt
collection provisions of this Circular.
c. Other Debt. Overpayments to contractors, grantees,
employees, and beneficiaries; fines; penalties; and other
debts are delinquent when the debtor does not pay or
resolve the debt within 30 days of the due date or 30
days after the notification of the debt is mailed to the
debtor, and has elected not to exercise any available
appeals or has exhausted all agency appeal processes.
2. Collection Strategy for Delinquent Debt. Agencies shall
establish an accurate and timely reporting system to notify
collection staff when a receivable becomes delinquent. Each
agency shall develop a systematic process for the collection
of identified delinquent accounts. Collection strategies
should take advantage of the full range of available
techniques while recognizing program needs and statutory
authority.
3. Collection Techniques.
Agencies are also encouraged to contact the debtor in
person or by telephone where such action would facilitate
determination of the cause of the delinquency and return
of the account to a current status.
b. Rescheduling Debt. Rescheduling changes the original
terms of the debt to provide a repayment plan that
reflects the borrower's current financial position.
Agencies shall permit rescheduling of payments only when
it is in the best interest of the Government and the
agency has determined that recovery of all or a portion
of the amount owed is reasonably assured. Loan
modifications with additional cost to the Government not
included in the original subsidy estimate will require
additional budget authority.
c. Administrative Offset. Agencies may collect delinquent
debt by offsetting payments due to the debtor under other
Federal loans, grants, contracts, or payments. Offsets
can be applied by the agency owed the delinquent debt,
or by other agencies upon request of the agency to which
the delinquent debt is owed.
(2) Agencies may not attempt to offset a contract if
the contract is being adjudicated under the Contract
Disputes Act (CDA) or Federal Acquisition
Regulations, Subpart 32.6. Once such a contract
has been adjudicated, then offsets under the Debt
Collection Act may be initiated for any balance of
funds still owed the contractor. This does not
preclude an agency from offsetting non-disputed
contracts of the contractor involved.
(3) Grants, cooperative agreements, or contracts which
are paid in advance (e.g., payment is made in
advance of performance or before costs are incurred)
generally are not subject to offset because:
(b) Offsets could have the effect of defeating or
interfering with the purposes of the payment.
(4) Offsets may be attempted where funds are paid out
to the recipient on a reimbursement basis and the
recipient has already satisfied the program
requirements. Reimbursable payments due may be
offset because they clearly represent a Government
debt, at least to the extent of the particular
reimbursement. Agencies may consider converting a
problem recipient with a history of poor performance
to reimbursable payments in anticipation of a future
need to effect an offset.
d. Collection Agencies.
(2) The cost of collection contractor fees will be added
to the amount of the debt. Actual fees paid to a
collection contractor will be based on the amount
collected, if any.
e. Federal Employee Salary Offset. The salaries of Federal
employees who are delinquent on debts to the Government
(including individuals who are personally liable for the
debts of partnerships and corporations, and who can be
identified by SSN) may be offset to recover the amount
owed. Agencies shall make arrangements for annual
matching of their delinquent debtor files against the
employment rosters maintained by the Office of Personnel
Management, the Department of Defense, and other Federal
employers, such as the legislative and judicial branches.
Employees who do not repay in full, enter into repayment
agreements, or otherwise resolve delinquent debts after
notification, will have their salaries offset.
(2) Agencies have the option of referring delinquent
accounts of Federal employees to the Department of
Justice to effect offset on a default judgment in
accordance with section 124 of P.L. 97-276. This
provision allows collection of 25 percent of salary
after a judgment is obtained.
f. Tax Refund Offset. Tax refund offset authority requires
agencies to recover delinquent debt by offsetting tax
refunds due the delinquent debtor (either individuals or
corporations). Delinquent debtors will be notified of
the planned referral of their accounts to the IRS and be
given the opportunity to dispute or resolve the debt.
All delinquent accounts not resolved must be referred
annually to the IRS for tax refund offset in accordance
with guidance provided by OMB and the Department of the
Treasury.
g. Referral for Litigation. Agencies shall refer delinquent
accounts to the Department of Justice, or use other
litigation authority that may be available, as soon as
there is sufficient reason to conclude that full or
partial recovery of the debt can best be achieved through
litigation. Referrals to Justice should be made in
accordance with the Federal Claims Collections Standards.
If the debtor does not come forward with a voluntary
payment after the claim has been referred for litigation,
a suit shall promptly be initiated.
(2) Agencies shall accelerate claim referrals to the
Department of Justice in those districts where the
Department contracts with private law firms for debt
collection.
4. Interest, Penalties, and Administrative Costs.
(2) Calculate interest and penalty charges against the
total liability to the Federal Government incurred
through the delinquency. Agencies may apply
interest to unpaid interest, penalties, and
administrative charges, if any, when these costs
have been added to the loan principal under a
rescheduling agreement.
b. Interest.
(2) Agencies must adjust the interest rate on delinquent
debt to conform with the rate established by a U.S.
Court when a judgment has been obtained.
c. Penalties. Agencies shall assess a penalty charge, not
to exceed six percent a year, on any portion of a debt
that is delinquent.
d. Administrative Costs.
(2) For those accounts that are successfully litigated,
costs to litigate the case by the Department of
Justice will be determined by the courts at the time
of judgment and added to the judgment amount.
5. Write-Off and Close-Out Procedures. Effective write-off and
close-out procedures ensure proper accounting for the costs
of credit programs, and allow management to focus its efforts
on delinquent accounts with the greatest potential for
collection. Agencies shall develop a two-step process that:
(2) Establishes close-out procedures that result in the
termination of all collection activity and elimination
of the accounts from all further servicing. Agencies
shall report closed out accounts over $600 to the IRS as
taxable income (Form 1099-G). Amounts less than $600 may
be reported at an agency's discretion.
The checklist is to be used by agencies and OMB in proposing
legislation, reviewing credit proposals, and preparing testimony
on credit activities. If the proposed provisions or language are
not in conformity with the policies of this Circular as listed in
these checklists, agencies will be required to request in writing
that the Office of Management and Budget modify or waive the
requirement. Such requests will identify the modification(s) or
waiver(s) requested, and also will state the reasons for the
request and the time period for which the exception is required.
Exceptions, when allowed, will ordinarily be granted only for a
limited time, in order to allow for continuing review by OMB.
Agencies are to use the checklist in the budget submission
process for the evaluation of existing legislation, regulations,
or program policies. The OMB budget examiner with primary
responsibility for the credit account will determine the use of
this checklist. Use of the list includes review of changes in
financial markets and the status of borrowers and beneficiaries to
ensure that Federal objectives require continuation of the credit
program. If these policies are found to be not in conformity with
the policies of this Circular, agencies will propose changes to
correct the inconsistency in their annual budget submission and
justification to OMB and the Congress. When an agency does not
deem a change in existing legislation, regulations, or policies to
be desirable, it will provide a justification for retaining the
existing non-conforming legislation or policies in its budget
submission to OMB at the request of the budget examiner.
Checklist -- Federal credit program justification should include
the following elements:
Risk sharing:
Fees and interest rates:
Protecting the Government's interest:
That, this Act may be cited as " ".
AUTHORIZATION
Sec. 2. (1) The Administrator is authorized to make or
guarantee loans to . . . (Define eligible applicants).
(2) There are authorized to be appropriated $____________ for
the cost of direct loan obligations or loan guarantee commitments
authorized in subsection (1) for each of the fiscal years . . .
(List fiscal years for which authorization applies).
(1) The Administrator will allow credit to any
prospective borrower only when it is necessary to alleviate a
credit market imperfection, or when it is necessary to achieve
specified Federal objectives by providing a credit subsidy and a
credit subsidy is the most efficient way to meet those objectives
on a borrower-by-borrower basis.
(2) Loans made or guaranteed will provide for complete
amortization within a period not to exceed ____ years, or ____
percent of the useful life of any physical asset to be financed by
the loan, whichever is less as determined by the Administrator.
(3) No loan made or guaranteed to any one borrower will
exceed ____ percent of the cost of the activity to be financed, or
$ ___, whichever is less, as determined by the Administrator.
(4) No loan guaranteed to any one borrower will exceed
80% of the outstanding principal on the loan. Borrowers who are
deemed to pose less of a risk will receive a lower guarantee as a
percentage of the loan amount.
(5) No loan made or guaranteed will be subordinated to
another debt contracted by the borrower or to any other claims
against the borrower.
(6) No loan will be guaranteed unless the Administrator
determines that the lender is responsible and that adequate
provision is made for servicing the loan on reasonable terms and
protecting the financial interest of the United States.
(7) No loan will be guaranteed if the income from such
loan is excluded from gross income for the purposes of Chapter 1
of the Internal Revenue Code of 1986, as amended, or if the
guarantee provides significant collateral or security, as
determined by the Administrator, for other obligations the income
from which is so excluded.
(8) Direct loans and interest supplements on guaranteed
loans will be at an interest rate that is set by reference to a
benchmark interest rate (yield) on marketable Treasury securities
with a similar maturity to the direct loans being made or the non-
Federal loans being guaranteed. The minimum interest rate of these
loans will be (at) (____ percent above) (no more than ____ percent
below) the interest rate of the benchmark financial instrument.
(9) The minimum interest rate of new loans will be
adjusted every month(s) (weeks) (days) to take account of changes
in the interest rate of the benchmark financial instrument.
(10) Any securities of a type that is ordinarily
financed in investment securities markets, as determined by the
Secretary of the Treasury, and that are 100 percent guaranteed by
the program shall be financed through the Department of the
Treasury as direct loans, attributable to the agency.
(11) Fees or premiums for loan guarantee or insurance
coverage will be assessed by reference to the cost to the
Government of such coverage. The minimum guarantee fee or
insurance premium will be (at) (no more than ____ percent below)
the level sufficient to cover the agency's costs for administering
loan guarantees and paying all of the estimated costs to the
Government of the expected default claims and other obligations.
Loan guarantee fees will be reviewed every ____ month(s) to ensure
that the fees assessed on new loan guarantees are at a level
sufficient to cover the referenced percentage of the agency's most
recent estimates of its costs.
(12) Any guarantee will be conclusive evidence that said
guarantee has been properly obtained; that the underlying loan
qualifies for such guarantee; and that, but for fraud or material
misrepresentation by the holder, such guarantee will be presumed
to be valid, legal, and enforceable.
(13) The Administrator will prescribe explicit standards
for use in periodically assessing the credit risk of new and
existing direct loans or guaranteed loans. The Administrator must
find that there is a reasonable assurance of repayment before
extending credit assistance.
(14) New direct loans may not be obligated and new loan
guarantees may not be committed except to the extent that
appropriations of budget authority to cover their costs are made
in advance, as required in section 504 of the Federal Credit Reform
Act of 1990.
(15) Within the resources and authority available, gross
obligations for the principal amount of direct loans offered by
the Administrator will not exceed $______, or the amount specified
in appropriations acts in each of fiscal years, . . . (List fiscal
years for which authorization applies). Commitments to guarantee
loans may be made by the Administrator only to the extent that the
total loan principal, any part of which is guaranteed, will not
exceed $______, or the amount specified in appropriations acts in
each of fiscal years, . . . (List fiscal years for which
authorization applies).
(b) The Attorney General will take such action as may
be appropriate to enforce any right accruing to the United States
as a result of the issuance of any guarantee under this Act.
(c) Nothing in this section will be construed to
preclude any forbearance for the benefit of the borrower which may
be agreed upon by the parties to the guaranteed loan and approved
by the Administrator, provided that budget authority for any
resulting subsidy costs as defined under the Federal Credit Reform
Act of 1990 is available.
(d) Notwithstanding any other provision of law relating
to the acquisition, handling, or disposal of property by the United
States, the Administrator will have the right in his discretion to
complete, recondition, reconstruct, renovate, repair, maintain,
operate, or sell any property acquired by him pursuant to the
provisions of this Act.
a. Applicability. The provisions of this Circular apply to
all credit programs of the Federal Government, including:
Director
Appendix A to Circular No. A-129
I. RESPONSIBILITIES OF DEPARTMENTS AND AGENCIES
1. Office of Management and Budget. The Office of Management and
Budget (OMB) is responsible for reviewing legislation to
establish new credit programs or to expand or modify existing
credit programs; reviewing and clearing testimony pertaining
to credit programs and debt collection; reviewing agency
budget submissions for credit programs and debt collection
activities; formulating and reviewing credit management and
debt collection policy; and approving agency credit management
and debt collection plans.
2. Department of the Treasury. The Department of the Treasury,
through its Financial Management Service (FMS), is responsible
for monitoring and facilitating implementation of credit
management and debt collection policy. FMS develops and
disseminates as a supplement to the Treasury Financial Manual
operational guidelines for agency compliance with government-
wide credit management and debt collection policy. FMS
assists agencies in improving credit management activities and
evaluates innovative credit management practices.
a. Agencies shall ensure that:
(1) Federal credit program legislation, regulations,
and policies are designed and administered in
compliance with the principles of this Circular;
(1) Establish, as appropriate, boards to coordinate
credit management and debt collection activities
and to ensure full consideration of credit
management and debt collection issues by all
interested and affected organizations.
Representation should include, but not be limited
to, the agency Chief Financial Officer (CFO) and
the senior official(s) for program offices with
credit activities or non-tax receivables. The Board
may seek from the agency's Inspector General input
based on findings and conclusions from past audits
and investigations;
II. BUDGET AND LEGISLATIVE POLICY FOR CREDIT PROGRAMS
Federal credit assistance should be provided only when it is
necessary and the best means to achieve clearly specified Federal
objectives. Use of private credit markets should be encouraged,
and any impairment of such markets or misallocation of the Nation's
resources through the operation of Federal credit programs should
be minimized.
a. Clearly defines the Federal objectives to be achieved,
and demonstrates why they cannot be achieved with private
credit assistance, including:
(1) A description of existing and potential private
sources of credit by type of institution and the
availability and cost of credit to borrowers; and
(1) Correct a capital market imperfection, which should
be defined; and/or
a. Loan guarantees, by removing part or all of the credit
risk of a transaction, change the allocation of economic
resources. Loan guarantees may make credit available
when private financial sources would not otherwise do so,
or they may allocate credit to borrowers under more
favorable terms than would otherwise be granted. This
reallocation of credit may impose a cost on the
Government and/or the economy.
a. Lenders and borrowers who participate in Federal credit
programs should have a substantial stake in full
repayment in accordance with the loan contract.
(1) Private lenders who extend credit that is guaranteed
by the Government should bear at least 20 percent
of the loss from a default. Loan guarantees that
cover 100 percent of the credit risk encourage
private lenders to exercise less caution than they
otherwise would in evaluating loan requests. The
level of guarantee should be no more than necessary
to achieve program purposes. Loans for borrowers
who are deemed to pose less of a risk should receive
a lower guarantee.
(1) These charges shall be at levels sufficiently high
to cover the Government's total cost of making the
loan or guarantee, including administrative costs
(extension, servicing, and collection), and default
and other subsidy costs.
(1) Maturities on loans should be shorter than the
estimated useful economic life of any assets
financed.
(1) The benchmark financial market instrument should be
a marketable Treasury security with a similar
maturity to the direct loans being made or the non-
Federal loans being guaranteed. When the rate on
the Government loan is intended to be different than
the benchmark rate, it should be stated as a
percentage of that rate. The benchmark Treasury
security must be cited specifically in agency budget
justifications.
a. Proposed legislation on credit programs, reviews of
credit proposals made by others, and testimony on credit
activities submitted by agencies under the OMB Circular
No. A-19 legislative review process should conform to the
provisions of this Circular.
(1) A plan for periodic, results-oriented evaluations
of the effectiveness of the program, and the use of
relevant program evaluations and/or other analyses
of program effectiveness or causes of escalating
program costs. A program evaluation is a formal
assessment, through objective measurement and
systematic analysis, addressing the manner and
extent to which credit programs achieve intended
objectives;
III. CREDIT MANAGEMENT AND EXTENSION POLICY
A. CREDIT EXTENSION POLICIES.
1. Applicant Screening.
a. Program Eligibility. Agencies, including private lenders
in guaranteed loan programs, shall determine whether
applicants comply with statutory, regulatory, and
administrative eligibility requirements for loan
assistance. If it is consistent with program objectives,
borrowers should be required to certify and document that
they have been unable to obtain credit from private
sources. In addition, application forms must require the
borrower to certify the accuracy of information being
provided (false information is subject to penalties under
18 U.S.C. 1001).
a. Appraisals of Real Property. Appraisals of real property
serving as collateral for a direct or guaranteed loan
must be conducted in accordance with the following
guidelines:
(1) Agencies shall require that all appraisals be
consistent with the "Uniform Standards of
Professional Appraisal Practice," promulgated by
the Appraisal Standards Board of the Appraisal
Foundation. Agencies shall prescribe additional
appraisal standards as appropriate.
B. MANAGEMENT OF GUARANTEED LOAN LENDERS AND SERVICERS
1. Lender Eligibility.
a. Participation Criteria. Agencies should establish and
publish in the Federal Register specific eligibility
criteria for lender participation in Federal guaranteed
loan programs. These criteria should include:
(1) Requirements that the lender is not currently
debarred/suspended from participation in a
Government contract or delinquent on a Government
debt;
(1) Significant and/or continuing non-conformance with
agency standards; and/or
(2) Failure to meet financial and capital requirements
or other eligibility criteria.
a. General Participation Requirements. Lender agreements
should include:
(1) Requirements for lender eligibility, including
participation criteria, eligibility reviews, fees,
and decertification (see section 1., above);
(1) Activity Indicators -- number and amount of
outstanding guaranteed loans at the beginning and
end of the reporting period and the agency share of
the risk; number and amount of guaranteed loans made
during the reporting period; and number and amount
of guaranteed loans terminated during the period.
a. Financial performance measures indicate a deterioration
in their guaranteed loan portfolios;
IV. MANAGING THE FEDERAL GOVERNMENT'S RECEIVABLES
The Government must service and collect debts, including
defaulted guaranteed loans acquired by the Government, in a manner
that best protects the value of the Government's assets.
Mechanisms must be in place to collect and record payments and
provide accounting and management information for effective
stewardship. These servicing activities can be carried out by the
agency, or obtained through a cross-servicing arrangement with
another agency or a contract with a private sector firm. Under
certain conditions, it may be advantageous to sell loans or other
debts and transfer servicing and collection responsibilities to the
private sector.
a. Accounting and Financial Reporting Systems. Agencies
shall establish accounting and financial reporting
systems to meet the standards provided in this Circular,
OMB Circular No. A-127, "Financial Management Systems,"
and other government-wide requirements. These systems
shall be capable of accounting for obligations and
outlays and of meeting the reporting requirements of OMB
and Treasury, including those associated with the Federal
Credit Reform Act and the Chief Financial Officers Act.
a. Documentation. Approved loan files (or other systems of
records) shall contain adequate and up-to-date
information reflecting terms and conditions of the loan,
payment history, including occurrences of delinquencies
and defaults, and any subsequent loan actions which
result in payment deferrals, refinancing, or
rescheduling.
(1) All non-tariff and non-tax consumer accounts with
delinquent payments in excess of $100; and
(2) All commercial accounts (current and delinquent) in
excess of $100.
a. Loan Asset Sales Programs. Loan asset sales may be
undertaken to:
(1) Improve Credit Management. Improvement in the
management and performance of loan portfolios,
including better loan origination, documentation,
and servicing; and
V. DELINQUENT DEBT COLLECTION
Agencies shall have a fair but aggressive program to recover
delinquent debt, including defaulted guaranteed loans acquired by
the Federal Government. Each agency will establish a collection
strategy consistent with its statutory authority that seeks to
return the debtor to a current payment status or, failing that,
maximize collections on the debt.
a. Direct Loans. Agencies shall consider a direct loan
account to be delinquent when an agreed-upon payment is
not paid by the due date, or by the end of any "grace
period" established in the loan agreement.
a. Dunning Procedures. As soon as an account becomes
delinquent, dunning notices or demand letters should be
sent to the debtor. The number and frequency of such
letters will vary by size, type, and age of debt. These
letters should incorporate, as appropriate, due process
notices for referring delinquent accounts to credit
reporting agencies, initiating Federal salary offset,
referring accounts to the Internal Revenue Service for
tax refund offset, and referring debt to legal counsel
for litigation.
(1) Agencies shall implement administrative offset in
accordance with the Federal Claims Collection
Standards, 4 CFR 102.3-4, and Federal Acquisition
Regulations (FAR), Subpart 32.6. Administrative
offset against State and local governments is
permitted under common law.
(a) Such payments do not constitute a "Government
debt"; and
(1) All accounts that are six months or more past due
must be turned over to a collection contractor
unless the accounts are eligible for the Federal
salary or administrative offset programs, or are in
litigation. However, agencies are encouraged to
use collection agencies at any time after the
account (including guaranteed loans acquired by the
Federal Government) becomes delinquent.
(1) Under the Debt Collection Act of 1982, as amended,
up to 15 percent of an employee's disposable pay
may be offset each pay period.
(1) In consultation with the Department of Justice,
agencies shall establish a system to account for:
(a) claims referred to Justice; and
(b) claims closed by Justice and returned to
agencies.
a. Policy. Except where applicable statutes, regulations,
loan agreements, or contracts prohibit or explicitly set
such charges (and certain other exemptions under 4 CFR
102), agencies shall:
(1) Assess interest, penalties, and administrative costs
on outstanding delinquent debt in accordance with
4 CFR 102, including a notification procedure to
inform debtors of impending charges; and
(1) Interest shall accrue from the date on which notice
of the debt and interest charges is mailed or
delivered to the debtor. The minimum annual rate
of interest that agencies shall charge is the
current cost of funds to the U.S. Treasury.
(1) Administrative costs include both the direct and
indirect costs incurred in collecting debts from
the time they become delinquent until the time
collections are made or agency collection efforts
cease. There is no statutory authority to recover
costs incurred prior to an account becoming
delinquent. Calculation of administrative costs
should be based on actual costs incurred or upon an
analysis establishing an average of additional costs
incurred by the agency.
(1) Identifies and removes uncollectible accounts from the
active portfolio through write-off, although collection
efforts may continue (individual write-offs greater than
$100,000 require approval of the Department of Justice);
and
Appendix B to Circular No. A-129
Checklist for Credit Program Legislation,
Testimony, and Budget Submissions
Appendix C to Circular No. A-129
Model Bill Language for Credit Programs
A Bill
TERMS AND CONDITIONS
Payment Of Losses
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