CIRCULAR NO. A-129
POLICIES FOR FEDERAL CREDIT PROGRAMS
AND NON-TAX RECEIVABLES
RESPONSIBILITIES OF DEPARTMENTS AND AGENCIES
Management and Budget
Department of the Treasury
Federal Credit Policy Working Group
Departments and Agencies
BUDGET AND LEGISLATIVE POLICY FOR CREDIT PROGRAMS
Form of Assistance
CREDIT MANAGEMENT AND EXTENSION POLICY
CREDIT EXTENSION POLICIES
MANAGEMENT OF GUARANTEED LOAN LENDERS
Lender and Servicer Reviews
MANAGING THE FEDERAL GOVERNMENTS RECEIVABLES
and Financial Reporting
Loan Servicing Requirements
DELINQUENT DEBT COLLECTION
for Defining Delinquent and Defaulted Debt
Administrative Collection of Debts
Referrals to the Department of Justice
Interest, Penalties, and Administrative Cost
Termination of Collection, Write-Off, Use of Currently Not Collectible
(CNC), and Close-Out
A - Write-Off Close-Out process flowchart
for Credit Program Legislation, Testimony, and
Language for Credit Programs
THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
Policies for Federal Credit Programs and Non-Tax Receivables
programs are created to accomplish a variety of social and economic
goals. Agencies must implement budget policies and management practices
that ensure 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.
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 Government guaranteed loan programs, servicing credit and non-tax
receivables, and collecting delinquent debt.
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 by the Debt
Collection Improvement Act of 1996; Section 2653
of Public Law 98-369 the Federal Credit Reform
Act of 1990, as amended; the Federal Debt Collection
Procedures Act of 1990; the Chief Financial Officers
Act of 1990, as amended; 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 payments to collect debts administratively.
The provisions of this Circular apply to all credit programs of
the Federal Government, including:
guarantee 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;
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.
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.
Under the Debt Collection Acts. Certain debt collection techniques
authorized or mandated by the provisions of the Debt Collection
Act of 1982 (DCA), as amended by the Debt Collection Improvement
Act of 1996 (DCIA), do not apply to debts arising under the Internal
Revenue Code, certain sections of the Social Security Act, or
the tariff laws of the United States. <31 U.S.C.§3701>
Statutory Exclusions. The policies and standards of this Circular
do not apply when they are statutorily prohibited or are inconsistent
with statutory requirements. However, agencies are required to
periodically review legislation affecting the form of assistance
and/or financial standards for credit programs to justify continuance
of any non-conformance.
Rescission. This Circular rescinds and replaces OMB Circular
No. A-129 (revised), dated January 1993, and OMB Bulletin No. 91-05,
dated November 26, 1990.
supplements, and does not supersede, the requirements applicable
to budget submissions under OMB Circular No. A-11 and to proposed
legislation and testimony under OMB Circular No. A-19.
Effective Date. This Circular is effective immediately.
Inquiries. Further information on the implementation of
credit management and debt collection policies may be found in the
Department of the Treasury's Financial Management Service <Managing
Federal Receivables> and in <OMB's Governmentwide 5-Year Plan>
for financial management submitted annually to Congress.
concerning budget and legislative policy for credit programs contact
the Office of Management and Budget, Budget Review Division, Budget
Analysis Branch, Room 6025, New Executive Office Building, 725 17th
Street, NW, Washington, DC 20503; (202) 395-3945. Questions on all
other sections of the Circular should be directed to the Office
of Federal Financial Management (202) 395-4534.
Definitions. Unless otherwise defined in this circular,
key terms used in this circular are defined in
OMB Circular Nos. A-11 and A-34.
RESPONSIBILITIES OF DEPARTMENTS AND AGENCIES
Credit Reform Act of 1990, 2 U.S.C. § 661
Collection Act of 1982/Debt Collection Improvement Act of
31 U.S.C. §§ 3701, 3711-3720E
Debt Collection Procedures Act of 1990
and Accounting Act of 1921
and Accounting Act of 1950
Financial Officers Act of 1990
Management Improvement Act Amendments of 1992
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;
monitoring agency conformance with the Federal Credit Reform Act;
formulating and reviewing agency credit reporting standards and
requirements; reviewing and clearing testimony pertaining to credit
programs and debt collection; reviewing agency budget submissions
for credit programs and debt collection activities; developing and
maintaining the Federal credit subsidy calculator used to calculate
the cost of credit programs; formulating and reviewing credit management
and debt collection policy; approving agency credit management and
debt collection plans; and providing training to credit agencies.
Department of the Treasury. The Department of the Treasury
(Treasury), acting through the Office of Domestic Finance, works
with OMB to develop Federal credit policies and/or reviewing legislation
to create new credit programs or to expand or modify existing credit
programs. The Department of the Treasury, through its Financial
Management Service (FMS), promulgates government-wide debt collection
regulations implementing the debt collection provisions of the Debt
Collection Improvement Act of 1996 (DCIA). FMS works with
the Federal program agencies to identify debt that is eligible for
referral to Treasury for cross-servicing and offset, and to establish
target dates for referral. Performance measures are established
which set annual referral and collection goals. In accordance with
the DCIA and other Federal laws, FMS conducts offset of Federal
payments, including tax refunds, under the Treasury Offset Program.
FMS also provides collection services for delinquent non-tax Federal
debts (referred to as cross-servicing), and maintains a private
collection agency contract for referral and collection of delinquent
debts. Additionally, FMS issues operational and procedural guidelines
regarding government-wide credit management and debt collection
such as "Managing Federal Receivables" and the "Guide
to the Federal Credit Bureau Program." FMS, under its program
responsibility for credit and debt management and as an active member
of the Federal Credit Policy Working Group, assists in improving
credit and debt management activities government-wide.
Federal Credit Policy Working Group. The Federal Credit
Policy Working Group (FCPWG) is an interagency forum that provides
advice and assistance to the Office of Management and Budget (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 OMB, 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, Veterans Affairs
and the Agency for International Development, the Export-Import
Bank, the Federal Deposit Insurance Corporation and the Small Business
Administration. Other departments and agencies may be invited to
participate in the FCPWG at the request of the Chairperson. The
Director of OMB designates the Chairperson of the FCPWG.
Department 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.
shall ensure that:
credit program legislation, regulations, and policies are designed
and administered in compliance with the principles of this Circular;
costs of credit programs covered by the <Federal Credit Reform
Act of 1990> are budgeted for and controlled in accordance
with the principles of that Act. (Some agencies and programs
are expressly exempted from the statute.);
effort is made to prevent future delinquencies by following
appropriate screening standards and procedures for determination
participating in guaranteed loan programs meet all applicable
financial and programmatic requirements;
and cost effective decisions are made concerning portfolio management,
including full consideration of contracting out for servicing
or selling the portfolio;
full range of available techniques are used, such as those found
in the <Federal Claims Collection Standards> and <Treasury
regulations>, as appropriate, to collect delinquent debts,
including demand letters, administrative offset, salary offset,
tax refund offset, private collection agencies, cross-servicing
by Treasury, administrative wage garnishment, and litigation;
debts are written-off as soon as they are determined to be uncollectible;
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.
order to achieve these objectives, agencies shall:
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.
that the statutory and regulatory requirements and standards
set forth in this Circular, <Treasury regulations>, and
supplementary guidance set forth in the Treasury/FMS <Managing
Federal Receivables> are incorporated into agency regulations
and procedures for credit programs and debt collection activities;
new or revised legislation, regulations, and forms as necessary
to ensure consistency with the provisions of this Circular;
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;
evaluate Federal credit programs to assure their effectiveness
in achieving program goals;
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;
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, portfolio management
and delinquent debt collection. The plan must ensure agency
compliance with the standards in this Circular; and
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>, and the <Right to Financial Privacy Act
of 1978, as amended>. The Privacy Act of 1974 does not apply
to loans and debts of commercial organizations.
BUDGET AND LEGISLATIVE POLICY FOR CREDIT PROGRAMS
assistance should be provided only when it is necessary and the
best method 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.
Credit Reform Act of 1990, 2 U.S.C. § 661
Circular No. A-11
to OMB for new programs and for reauthorizing, expanding, or significantly
increasing funding for existing credit programs should be accompanied
by a written review which examines, at a minimum, the following
- The Federal
objectives to be achieved, including:
the credit program is intended to:
a capital market imperfection, which should be defined; and/or
(b) Subsidize borrowers or other beneficiaries, who should be
identified, or encourage certain activities, which should be
(2) Why they
cannot be achieved without Federal credit assistance, including:
description of existing and potential private sources of credit
by type of institution and the availability and cost of credit
to borrowers; and
explanation as to whether and why these private sources of
financing and their terms and conditions must be supplemented
- The justification
for use of a credit subsidy. The review should provide an explanation
of why a credit subsidy is the most efficient way of providing
assistance, including how it provides assistance in overcoming
capital market imperfections, how it would assist the identified
borrowers or beneficiaries or would encourage the identified
activities, and why it would be preferable to other forms of
assistance such as grants or technical assistance.
- The estimated
benefits of the program or program change. The review should
estimate or, when the program exists, measure the benefits expected
from the program or program change, 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>.
- The effects
on private capital markets. The review should estimate the extent
to which the program substitutes directly or indirectly for private
lending, and analyze 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.
- The estimated
subsidy level. The review should provide 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, then
the subsidy estimate should include the effects of the loan asset
sales. For guidance on loan asset sales, see the <Debt Collection
Improvement Act of 1996>, <OMB Circular No. A-11>, and
the Treasury/FMS' <Managing Federal Receivables>. Loan asset
sales/prepayment programs must be conducted in accordance with
policies in this Circular and procedures in "Managing Federal
Receivables," 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.
- The administrative
resource requirements. The review should include an examination
of the agency's current capacity to administer the new or expanded
program and an estimation of any additional resources that would
Form of Assistance.
Credit Reform Act of 1990, 2 U.S.C. § 661
Internal Revenue Code (Section 149(b)
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
guarantees may provide several advantages over direct loans. These
advantages include: private sector credit servicing (which tends to be more
efficient), private sector analysis of the borrowers creditworthiness, (which
tends to allocate resources more efficiently), involvement of borrowers
with private sector lenders (which promotes their movement to private credit),
and lower portfolio management costs for agencies.
- 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
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 to the Government and the economy
are therefore likely to be greater.
or indirect guarantees of tax-exempt obligations are 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. It is
generally thought that the cost to the taxpayer is greater than
the benefit to the borrower. The Internal Revenue Code provides
some exceptions to this requirement; see Section 149(b) of the
Internal Revenue Code for further details.
- To preclude
the possibility that Federal agencies will guarantee tax-exempt
obligations, either directly or indirectly, agencies will:
guarantee federally tax-exempt obligations;
that effective subordination of a direct or guaranteed loan
to tax-exempt obligations will render the guarantee void. To
avoid effective subordination, the direct or guaranteed loan
and the tax-exempt obligation should be repaid using separate
dedicated revenue streams or otherwise separate sources of funding,
and should be separately collateralized. In addition, the direct
or guaranteed loan terms, such as grace periods, repayment schedules,
and availability of deferrals, should be consistent with private
sector standards to ensure that they do not create effective
use of a Federal guarantee as collateral to secure a tax-exempt
Federal guarantees of loans funded by tax-exempt obligations;
the linkage of Federal guarantees with tax-exempt obligations.
For example, such prohibited linkage occurs if the project is
unlikely to be financed without the Federal guarantee covering
a portion of the cost. In such cases, the Federal guarantee
is, in effect, enabling the tax-exempt obligation to be issued,
since without the guarantee the project would not be viable
to receive any financing. Therefore, the tax-exempt obligation
is dependent on and linked to the Federal guarantee.
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.Financial Standards.
Credit Reform Act of 1990, 2 U.S.C. § 661
Chief Financial Officers Act of 1990
Circular No. A-11; SFFAS 2, OMB Circular
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 and subsidy cost estimation
under the Federal Credit Reform Act of 1990 are provided in <OMB
Circular No. A-11>, and instructions for budget execution are
provided in <OMB Circular No. A-34>.
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.
and borrowers who participate in Federal credit programs should
have a substantial stake in full repayment in accordance with the loan
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 any losses on a loan 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.
(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).
in which the Government bears more than 80 percent of any loss
should be periodically reviewed to determine whether the private
sector has become able to bear a greater share of the risk.
should establish interest and fee structures for direct loans
and loan guarantees and should review these structures at least
annually. Documentation of the performance of these annual reviews
for credit programs is considered sufficient to meet the review
requirement described in <Section 902 (a) 8 of the Chief Financial
Officers Act of 1990>.
and fees should be set at levels that minimize default and other
subsidy costs, of the direct loan or loan guarantee, while supporting
achievement of the program's policy objectives.
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.
inconsistent with program purposes, and where authorized by
law, riskier borrowers should be charged more than those who
pose less risk. In order to avoid an unintended additional subsidy
to riskier borrowers within the eligible class and to support
the extension of credit to those riskier borrowers, programs
that, for public policy purposes, do not adhere to this guideline,
should justify the extra subsidy conveyed to the higher-risk
borrowers in their annual budget submissions to OMB.
agreements should include all covenants and restrictions (e.g.,
liability insurance) necessary to protect the Federal Government's
on loans should be shorter than the estimated useful economic
life of any assets financed.
Government's claims should not be subordinated to the claims
of other creditors, as 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.
- 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 fixed interest rate should not be
cited in legislation or in regulation, because such a rate could
soon become outdated, unintentionally changing the extent of
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
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
amounts of direct loan obligations and loan guarantee commitments
should 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>.
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. In
exceptional circumstances, the Secretary of the Treasury may
waive this requirement with respect to obligations that the Secretary
determines: (1) are not suitable for investment 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
finance markets and institutions; or (3) are, or will be, based
on the Secretary's consultation with OMB and the guaranteeing
agency, financed in a manner that will best meet the goals of
the program. The benefits of using the FFB must not expand the
degree of subsidy.
loan contracts should be standardized where practicable. Private
sector documents should be used whenever possible, especially
for loan guarantees.
Credit Reform Act of 1990, 2 U.S.C. § 661
Government Performance and Results Act of 1993
Circular No. A-11; OMB Circular No. A-19
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. For accounting
standards for Federal credit programs, see <Accounting for Direct
Loans and Loan Guarantees, Statement of Federal Financial Accounting
Standards Number 2>, developed by the Federal Accounting Standards
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.
agencies propose provisions or language not in conformity with
the policies of this Circular, they will be required to request
in writing that OMB waive the requirement. The request will be
submitted on a standard waiver request form, available from OMB.
Such requests will identify the waiver(s) requested, and 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. The waiver request form should be submitted to the OMB
examiner with primary responsibility for the account.
- A checklist
for reviews of legislative and budgetary proposals is included
as Appendix B to this Circular. Agencies should use the model bill language
provided in Appendix C in developing and reviewing legislation unless OMB
has approved the use of alternative language that includes the same substantive
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>)
(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. This information should be contained in agencies'
annual performance plans submitted to OMB. (For further detail
on program evaluation, refer to the Government Performance and
Results Act of 1993 (GPRA) and related guidance);
(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
justification, and to recommend changes in its design and operation
to improve efficiency and effectiveness; and
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
CREDIT MANAGEMENT AND EXTENSION POLICY
CREDIT EXTENSION POLICIES
U.S.C. § 3720B, 18 U.S.C. § 1001, 31 U.S.C. §
C.F.R. Part 285.13, Executive Order 13,109, 61 Federal Register
"Managing Federal Receivables," "Treasury Report on Receivables
(TROR)," and "Guide to the Federal Credit Bureau Program"
Eligibility. Federal credit granting agencies and 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>.)
on Federal Debt. Agencies should determine if the applicant
is delinquent on any Federal debt, including tax debt. Agencies
should include a question on loan application forms asking applicants
if they have such delinquencies. In addition, agencies and guaranteed
loan lenders, shall use credit bureaus as a screening tool. Agencies
are also encouraged to use other appropriate databases, such as
the Department of Housing and Urban Development's Credit Alert
Interactive Voice Response System <CAIVRS> to identify delinquencies
on Federal debt.
of applications shall 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, and are
therefore not eligible to receive Federal loans, loan guarantees
or insurance. (See <31 U.S.C. § 3720B> regarding non-tax
debts.) This provision does not apply to disaster loans. Agencies
should review and comply with <31 U.S.C. § 3720B> and
<31 C.F.R. 285.13> before extending credit. Processing should
continue only when the debtor satisfactorily resolves the debts
(e.g., pays in full or negotiates a new repayment plan).
Where creditworthiness is a criterion for loan approval, agencies
and private lenders shall determine if applicants have the ability
to repay the loan and 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, assets held, and credit history.
Child Support. Agencies shall deny Federal financial assistance
to individuals who are subject to administrative offset to collect
delinquent child support payments. See <Executive Order 13,109,
61 Federal Register 51,763 (1996)>. The Attorney General has
issued <Minimum Due Process Guidelines: Denial of Federal Financial
Assistance Pursuant to Executive Order 13,109>, which agencies
shall include in their procedures or regulations promulgated for
the purpose of denying Federal financial assistance in accordance
with Executive Order 13,109.
Identification Number. Pursuant to <31 U.S.C. § 7701(d)>,
agencies must obtain the taxpayer identification number (TIN)
of all persons doing business with the agency. All agencies and
lenders extending credit shall require the applicant or borrower
to supply a TIN as a prerequisite to obtaining credit or assistance.
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 of the debt, pursuing
collection of delinquent debt, and in the case of guaranteed loans,
processing claim payments. Additional information on documentation
requirements is available in the supplement to the Treasury
Financial Manual <Managing Federal Receivables>.
Collateral Requirements. For many types of loans, the Government
can reduce its risk of default and potential losses through well
managed collateral requirements.
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:
should 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.
should ensure that a State licensed or certified appraiser prepares
an appraisal for all credit transactions over $100,000 ($250,000
for business loans). (This does not include loans 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 the size and/or complexity,
must be performed by a State licensed or certified appraiser.
Agencies may also designate direct or guaranteed loan transactions
under $100,000 ($250,000 for business loans) that require the
services of a State licensed or certified appraiser.
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 ratio (LTV) for both direct and guaranteed loan
programs. Financing should be limited by not offering terms (including
the financing of closing costs) that result in an LTV equal to
or greater than 100 percent. Further, the loan maturity should
be shorter than the estimated useful economic life of the collateral.
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 credit granting agency.
Management Standards and Systems. Agencies should establish
policies and procedures for the acquisition, management, and disposal
of real property acquired as a result of direct or guaranteed
loan defaults. Agencies should establish inventory management
systems 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 of Management and Budget
and the Department of the Treasury. (See <Treasury Report on
MANAGEMENT OF GUARANTEED LOAN LENDERS AND SERVICERS
"Managing Federal Receivables"
Criteria. Federal credit granting agencies shall establish
and publish in the Federal Register specific eligibility criteria
for lender participation in Federally guaranteed loan programs.
These criteria should include:
that the lender is not currently debarred/suspended from participation
in a Government contract or delinquent on a Government debt;
requirements for principal officers and staff of the lender;
bonding and/or errors and omissions insurance with the Federal
Government as a loss payee, where appropriate, for new or non-regulated
lenders or lenders with questionable performance under Federal
and capital requirements for lenders not regulated by a Federal
financial institution regulatory agency, including minimum net
worth requirements based on business volume.
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, guarantor agencies should consider lender performance as
a critical factor in determining continued eligibility for participation.
When authorized and appropriated for such purposes, agencies should
assess non-refundable fees to defray the costs of determining
and reviewing lender eligibility.
Guarantor agencies should establish specific procedures to decertify
lenders or take other appropriate action any time there is:
and/or continuing non-conformance with agency standards; and/or
to meet financial and capital requirements or other eligibility
procedures should define the process and establish timetables
by which decertified lenders can apply for reinstatement of
eligibility for Federal guaranteed loan programs.
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 Federal guarantor
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
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
eligibility for continued participation in the program.
for lender eligibility, including participation criteria, eligibility
reviews, fees, and decertification (see Section 1,
and lender responsibilities for sharing the risk of loan defaults
(see Section II.3. a.(1)); and, where feasible
delinquency, default and claims rates for lenders, taking into
account individual program characteristics.
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.
should ensure, through the claims review process, that lenders
have met these standards prior to making a claim payment. Agencies
should reduce claim amounts or reject claims for lender non-performance.
Requirements. Federal credit granting agencies should 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 which include the <Treasury
Report on Receivables (TROR)>. Examples of these data which
agencies must maintain include:
Indicators -- number and amount of outstanding guaranteed
loans at the beginning and end of the reporting period and the
agency share of risk; number and amount of guaranteed loans
made during the reporting period; and number and amount of guaranteed
loans terminated during the period.
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).
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 require lenders to report necessary
information on a quarterly basis (or other reporting period
based on the level of lending and payment activity).
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.
Lender and Servicer Reviews. To evaluate and enforce lender
and servicer performance, agencies should conduct on-site reviews.
Agencies should summarize reviews findings in written reports with
recommended corrective actions and submit them to agency review
boards. (See Section I.4.b.(1).)
be conducted biennially where possible; however, agencies should
conduct annual on-site reviews all lenders and servicers with substantial
loan volume or whose:
performance measures indicate a deterioration in their guaranteed
has a high level of defaults for guaranteed loans less than one
default rates rise above acceptable levels; and/or
- Poor performance
results in collecting monetary penalties or an abnormally high
number of reduced or rejected claims.
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 required corrective actions.
be conducted by guarantor 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">.
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-compliance,
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.
MANAGING THE FEDERAL GOVERNMENT'S RECEIVABLES
service and collect debts, including defaulted guaranteed loans
they have acquired, in a manner that best protects the value of
the assets. Mechanisms must be in place to collect and record payments
and provide accounting and management information for effective
stewardship. Agencies should collect data on the status of their
portfolios on a monthly basis although they are only required to
report quarterly. These servicing activities can be carried out
by the agency, or by third parties (such as private lenders or guaranty
agencies), or a contract with a private sector firm. Unless Otherwise
exempt, the <Debt Collection Improvement Act of 1996 (DCIA)>,
codified at <31 U.S.C.§ 3711>, requires Federal agencies
to transfer any non-tax debt which is over 180 days delinquent to
the Department of the Treasury/FMS for debt collection action (31
C.F.R. Part 285). Under certain conditions, it may be advantageous
to sell loans or other debts to avoid the necessity of debt servicing.
Accounting and Financial Reporting.
Chief Financial Officers Act (CFO) of 1990, Government Performance
and Results Act, Federal Credit Reform Act of 1990, 31 U.S.C.
§ 3719, 31 U.S.C. § 3711, 2 U.S.C. § 661
C.F.R. Part 285, OMB Circular No. A-127
Standards on Direct and Guaranteed Loans, Instructions for the
Treasury Report on Receivables Due from the Public (TROR), Treasury/FMS
"Managing Federal Receivables," Federal Accounting Standards
Advisory Board - "Accounting for Direct Loans and Loan Guarantees,"
Statement of Federal Financial Accounting Standards No. 2, as
amended," "Amendments to Accounting Standards for Direct Loans
and Loan Guarantees," Statement of Federal Financial Accounting
Standards No. 18.
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">, <"JFMIP Standards on Direct and Guaranteed
Loans">, 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 of 1990> and the <Chief Financial Officers (CFO) Act
Reports. Agencies should use comprehensive reports on the
status of loan portfolios and receivables to evaluate management
effectiveness. Agencies shall prepare, in accordance with the
CFO Act and OMB guidance, annual financial statements that include
loan programs and other receivables. Agencies should also collect
data for program performance measures (such as default rates,
purchase rates, recovery rates, subsidy rates [actual vs. projected],
and administrative costs) consistent with the <Government Performance
and Results Act of 1993> (GPRA) and <Federal Credit Reform
Act of 1990>.
are also required to report periodically to Treasury on the status
and condition of their non-tax delinquent portfolio on the <TROR>.
Due to a timing difference between the submissions of fiscal year-end
data for the TROR, and data used for agency financial statements
(the fiscal year-end receivables report is due in November and
agency financial statements are not due until February/March of
the following year), the data in these two reports may not be
identical. Agencies should be able to explain differences and
show the relationship of information contained in the two reports,
but the reports are not required to reconcile.
Loan Servicing Requirements. Agency servicing requirements,
whether performed in-house or by another agency or private sector
firm, must meet the standards described below and in the Treasury/FMS
publication <Managing Federal Receivables>.
Act of 1974, Debt Collection Act of 1982 (DCA), Debt Collection
Improvement Act of 1996 (DCIA), 31 U.S.C. § 3711
"Managing Federal Receivables," and the "Guide to the Federal
Credit Bureau Program"
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.
and Collections. Agencies shall ensure that there is routine
invoicing of payments, and that efficient mechanisms are in place
to collect and record payments. When making payments and where
appropriate, borrowers should be encouraged to use agency systems
established by Treasury which collect payments electronically,
such as pre-authorized debits and credit cards.
Accounts. Agency servicing systems must process tax and insurance
deposits for housing and other long-term real estate loans through
escrow accounts. Agencies should establish escrow accounts at
the time of loan origination and payments for housing and other
long-term real estate loans through an escrow account.
Account Information to Credit Reporting Agencies. Agency
servicing systems must be able to identify and refer debts to
credit bureaus in accordance with the requirements of <31 U.S.C.
§ 3711>. Agencies shall refer all non-tax,
non-tariff commercial accounts (current and delinquent) and all
delinquent non-tariff and non-tax consumer accounts. Agencies
may report current consumer debts as well and are encouraged
to do so. The reporting of current data (in addition to any delinquencies)
provides a truer picture of indebtedness while simultaneously
reflecting accounts that the borrower has maintained in good standing.
There is no minimum dollar threshold, i.e., accounts (debts) owed
for as low as $5 may be referred to credit reporting agencies.
Agencies shall require lenders participating in Federal loan programs
to provide information relating to the extension of credit to
consumer or commercial credit reporting agencies, as appropriate.
For additional information, agencies should refer to Treasury/FMS'
<Guide to the Federal Credit Bureau Program>.
31 U.S.C. § 3711(i)
Federal Credit Reform Act of 1990, 2 U.S.C. § 661
Circular No. A-11, Section 85.7, OMB Circular No. A-34
- The DCIA,
as codified at <31 U.S.C. § 3711(i)> authorizes agencies
to sell any non-tax debt owed to the United States that is more
than 90 days delinquent, subject to the provisions of the <Federal
Credit Reform Act of 1990>. The Administration's budget policy
is that agencies are required to sell any non-tax debts that are
delinquent for more than one year for which collection action
has been terminated, if the Secretary of the Treasury determines
that the sale is in the best interest of the United States Government.
Agencies are required to sell the debts for cash or a combination
of cash and profit participation, if such an arrangement is more
advantageous to the government, and make the sales without recourse.
Loan sales should result in shifting agency staff resources from
servicing to mission critical functions.
in FY 2000, for programs with $100 million in assets (unpaid principal
balance) that are delinquent for more than two years, the agency
is expected to dispose of assets expeditiously. (See <OMB Circular
No. A-11>.) Agencies may request from OMB, an exception for
to foreign countries and entities;
in structured forbearance, when conversion to repayment status
is expected within 24 months or after statutory requirements
that are written off as unenforceable e.g., due to death, disability,
that have been submitted to Treasury for offset and are expected
to be extinguished within three (3) years;
in adjudication or foreclosure; and
shall provide to OMB an annual list of loans that are exempted.
Asset Portfolio. On an annual basis, agencies shall take
steps to evaluate and analyze existing asset portfolios and programs
associated therewith, to determine if there are avenues to:
Credit Management and Recoveries. Improvement in current
management, performance, and recoveries of asset portfolios
shall be reviewed against current marketplace practices;
Administrative Savings. Analyses of current asset portfolio
practices shall include the benefit of transferring all or some
portion of the portfolio to the private sector. Agencies shall
develop a staffing utilization plan to ensure that when asset
sales result in a decreased workload, staff are shifted to priority
workload mission critical functions.
Prepayment. Agencies shall initiate prepayment programs
when statutorily mandated or, if upon analysis of an existing
asset portfolio practice, it is deemed appropriate. Prepayment
programs may be initiated without the approval of OMB. 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.
Asset Services. Agencies shall engage the services of
outside contractors as deemed necessary to assist in its asset
resolution program. Contractors providing various types of asset
services are available through the <General Services Administration's
Multiple Award Schedule for Financial Asset Services> as follows:
Service/Asset Managers; and
Asset Sales Guidelines. OMB and Treasury jointly will
update existing guidelines and procedures to implement loan prepayment
and loan asset sales. In accordance with the agreed upon procedures,
agencies conducting such prepayment and loan asset sales programs
will consult with both OMB and Treasury throughout the prepayment
and loan asset sales processes to ensure consistency with the
agreed upon policies and guidelines. Unless an agency can document
from their past experience that the sale of certain types of loan
assets is not economically viable, a financial advisor shall be
engaged by each agency to conduct a portfolio valuation and to
compare pricing options for a proposed prepayment plan or loan
asset sale. Based on the financial advisor's report, the agencies
will develop a prepayment or loan asset sales schedule and plan,
including an analysis of the pricing option selected. As part
of the ongoing consultation between OMB, Treasury, and the agencies,
prior to proceeding with their prepayment or loan asset sales,
the agencies will submit their final prepayment or loan asset
sales plans and proposed pricing options to OMB and Treasury for
review in order to ensure that any undue cost to the Government
or additional subsidy to the borrower is avoided. The agency Chief
Financial Officer will certify that an agency loan prepayment
and loan asset sales program is in compliance with the agreed
upon guidelines. See <Asset Sales Guidelines>.
DELINQUENT DEBT COLLECTION
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 collection on the debt.
Standards for Defining Delinquent and Defaulted Debt
U.S.C. §§ 3701, 3711-3720D
Claims Collection Standards, 31 C.F.R. Section 900.2(b)
"Managing Federal Receivables"
Claims Collections Standards define delinquent debt in general terms.
Agency regulations may further define delinquency to meet specific
types of debt or program requirements.
Loans. Agencies shall consider a direct loan account to be
delinquent if a payment has not been made by the date specified
in the agreement or instrument (including a post-delinquency payment
agreement), unless other satisfactory payment arrangements have
Loans. Loans guaranteed or insured by the Federal Government
are in default when the borrower breaches the loan agreement with
the private sector lender. A default to the Federal Government
occurs when the Federal credit granting agency repurchases the
loan, pays a loss claim or pays reinsurance on the loan. Prior
to establishing a receivable on the agency financial records,
each agency must consider statutory and regulatory authority applicable
to the debt in order to determine if the agency has a legal right
to subject the debt to the collection provisions of this Circular.
Debt. Overpayments to contractors, grantees, employees, and
beneficiaries; fines; fees; penalties; and other debts are delinquent
when the debtor does not pay or resolve the debt by the date specified
in the agency's initial written demand for payment (which generally
should be within 30 days from the date the agency mailed notification
of the debt to the debtor).
Administrative Collection of Debts.
U.S.C. § 1673(a)(2), 31 U.S.C. § 3701, §§
3711-3720E, 26 U.S.C. § 6402, 5 U.S.C. § 5514, Fair
Debt Collection Practices Act
C.F.R. Part 285, Federal Claims Collection Standards, 31 C.F.R.
Part 901, Federal Claims Collections Standards, 5 C.F.R. 550
Part K, 26 C.F.R. 301.6402-1 through 7, Federal Acquisitions
Regulations, Subpart 32.6
"Managing Federal Receivables" and FMS Cross-servicing/Offset
Guidance Documents, Treasury's/FMS' "Guide to the Federal Credit
promptly act on the collection of delinquent debts, using all available
collection tools to maximize collections. Agencies shall transfer
debts delinquent 180 days or more to the Treasury/FMS or Treasury-designated
debt collection centers for further collection actions and resolution.
Exceptions to this requirement (e.g., the debt has been referred
for litigation) can be found in <31 U.S.C.§ 3711> and
<31 C.F.R. Part 285.12(d)>.
Strategy. Agencies shall maintain an accurate and timely
reporting system to identify and monitor delinquent receivables.
Each agency shall develop a systematic process for the collection
of delinquent accounts. Collection strategies shall take full
advantage of available collection tools while recognizing program
needs and statutory authority.
Tools for Debts Less than 180 Days Delinquent. Agencies may
use the following collection tools when the debt is fewer than
180 days delinquent:
Letters. As soon as an account becomes delinquent, agencies
should send demand letters to the debtor. The demand letter
must give the debtor notice of each form of collection action
and type of financial penalty the agency plans to use. Additional
demand letters may be sent if necessary. See <31 U.S.C.§
3711> <31 C.F.R. Parts 285 and 901.2>.
accounts, the first demand letter or initial billing notice
should include the 60 day notification requirement of the agency's
intent to refer to a credit bureau. Once the 60 day period has
passed, the agency should initiate reporting if the account
has not been resolved. This will also enable uninterrupted reporting
to credit bureaus by cross-servicing agencies. The 60 day notification
of intent to refer to a credit bureau is not required for commercial
accounts. (See Treasury/FMS' <Guide to the Federal Credit
Offset. If the agency that is owed the debt also makes
payments to the debtor, the agency may use internal offset to
the extent permitted by that agency's statutes and regulations
and the common law. Delinquent debts owed by an agency's employees
may be offset in accordance with statutes and regulations administered
by the Office of Personnel Management. See <OPM regulations
Offset Program. Agencies may collect delinquent debt, which
is less than 180 days delinquent, by referring those debts to
Treasury/FMS in order to offset Federal payments due to the
debtor. Payments, which Treasury will offset, include certain
benefit payments, federal retirement payments, salaries, vendor
payments and tax refunds. <31 U.S.C. Section 3716>, <31
U.S.C. § 3720A>, <31 C.F.R. Part 285>,< 26
C.F.R. 301.6402>, <31 C.F.R. Chapter II, Part 901.3>,
and, <Federal Acquisition Regulations Subpart 32.6>. If
a Federal payment has not yet been initiated in the Treasury
Offset Program, agencies may request that the paying agency
perform the offset.
Wage Garnishment. Agencies have the authority to administratively
garnish the wages of delinquent debtors in order to recover
delinquent debt. The maximum garnishment for any one debt is
15% of disposable pay. Multiple garnishments from all sources
against one debtor's wages may not exceed 25% of disposable
pay of an individual. <31 U.S.C. § 3720D>, <31
C.F.R. Part 285.11> and 15 U.S.C. § 1673(a)(2).
with Private Collection Agencies. Treasury has contracted
with private collection agencies that may be used by Federal
agencies to provide assistance in the recovery of delinquent
debt owed to the Government. <31 U.S.C. § 3711>,
<31 U.S.C. § 3718>, <31 C.F.R. Parts 285, and
901>, <Fair Debt Collection Practices Act >. Agencies
may also transfer debts to Treasury prior to 180 days for the
purpose of referral to private collection agencies.
Cross-Servicing. Agencies may transfer debts to Treasury
for full servicing at any time after the due process requirements.
(See <31 C.F.R. Part 285>.)
of Debts Which are Over 180 Days Delinquent. This paragraph
sets forth Treasury's collection procedures for debts which are
over 180 days delinquent.
Offset Program. The DCIA requires that all agencies recover
debt delinquent more than 180 days by referring those debts
to the Treasury for offset of tax refunds and other Federal
payments. Agencies must refer all accounts for offset in accordance
with guidance provided by the Department of the Treasury/FMS.
<Federal Claims Collection Standards>, <31 U.S.C. §
3716>, <31 U.S.C. § 3720A> and <31 C.F.R. Part
285>. The following types of offset are undertaken in the
Treasury Offset Program (TOP):
Offset (At the time of publication, benefit payments have
not been incorporated into the program. Benefit payments,
such as Social Security Administration (SSA), Black Lung and
Railroad Retirement Benefits (RRB) will be added in the future.);
Federal payments as allowed by law (as such payments are allowed
into the program).
Cross-Servicing. The DCIA requires that all debts owed
to agencies which are more than 180 days delinquent shall be
transferred to Treasury/FMS or a Treasury-designated debt collection
center for servicing. The DCIA contains provisions and requirements
for exempting certain classes of debts from being transferred
for servicing <www.treas.fms.gov/debt>.(See <31 U.S.C.
§ 3711>, and <31 C.F.R. Part 285>.) Once debts
are transferred to Treasury, agencies must cease all collection
activities other than maintaining accounts for the Treasury
has received a debt for servicing, the appropriate debt collection
actions will be taken. These actions may include sending demand
letters; phone calls to delinquent debtors; credit bureau reporting;
referring debtors to the Treasury Offset Program; referring
debtors to private collection agencies; administrative wage
garnishment; and any other available debt collection tool.
Referrals to the Department of Justice.
Referral for Litigation
U.S.C. § 3711, 28 U.S.C. §§ 3001, 3002(1)
C.F.R. Part 904, Federal Claims Collection Standards
of the Treasury/FMS "Litigation Referral Process Handbook,"
and "Managing Federal Receivables," Appendix 8
Treasury/FMS or Treasury-designated debt collection centers, 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 Collection
Standards>. If the debtor does not come forward with a voluntary
payment after the claim has been referred for litigation, a lawsuit
shall be initiated promptly.
- 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 the respective agencies.
shall accelerate claim referrals to the Department of Justice
in those districts where the Department of Justice contracts
with private law firms for debt collection.
shall stop the use of any collection activities including TOP
and refrain from further contact with the debtor once a claim
has been referred to the Department of Justice, unless the Department
of Justice agrees to allow the debtor(s) to remain in TOP for
offset while they pursue other legal remedies.
shall promptly notify the Department of Justice of any payments
received on a debtor's account after referral of the claim for
- The Department
of Justice shall account to agencies for monies or property collected
on claims referred by the agencies.
Referral for Approval of Compromise Offer
U.S.C. § 3711
C.F.R. Part 902, Federal Claims Collection Standards
"Managing Federal Receivables"
compromise a debt within their jurisdiction when the principal balance
of the debt is less than $100,000 (or any higher amount authorized
by the U.S. Attorney General). Unless otherwise provided by law,
when the principal balance of the debt is greater than $100,000
(or any higher amount authorized by the U.S. Attorney General),
the compromise authority rests with the Department of Justice. <31
C.F.R. Part 902.>
Referral for Approval to Terminate Collection Activity
U.S.C. § 3711
C.F.R. Part 902, Federal Claims Collection Standards
"Managing Federal Receivables"
terminate collection on a debt within their jurisdiction when the
principal balance of the debt is less than $100,000 (or any higher
amount authorized by the U.S. Attorney General). Unless otherwise
provided by law, when the principal balance of the debt is greater
than $100,000 (or any higher amount authorized by the U.S. Attorney
General), the authority to terminate rests with the Department of
Justice. (See <31 C.F.R. Part 902>.)
Interest, Penalties and Administrative Costs.
U.S.C. § 3717
Claims Collection Standards, 31 C.F.R. Part 901.9
"Managing Federal Receivables," Chapter 4
and administrative costs should be added to all debts unless a specific
statute, regulation, loan agreement, contract, or court order prohibits
such charges or sets criteria for their assessment. Agencies shall
assess late payment interest on delinquent debts. Further, agencies
shall assess a penalty charge of not more than six percent (6%)
per year for failure to pay a debt more than ninety (90) days past
due, unless a statute, regulation required by statute, loan agreement,
or contract prohibits charging interest or assessing charges or
explicitly fixes the interest rate or charges. (See <31 U.S.C.
§ 3717(e) and (g)>). A debt is delinquent when the scheduled
payment is not paid in full by the payment due date contained in
the initial demand letter or by the date specified in the applicable
agreement or instrument. Agencies shall assess administrative costs
to cover the cost of processing and handling delinquent debt. 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.
Termination of Collection, Write-Off, Use of Currently Not Collectible
(CNC), and Close- Out.
U.S.C. § 3711; 26 C.F.R Part 1. 6050P-O, 26 C.F.R Part
C.F.R. Part 903 Federal Claims Collection Standards, 26 C.F.R.
Final Report on Write-off Policy, Dated 12/15/98, Treasury/FMS
"Managing Federal Receivables"
All debt must
be adequately reserved for in the allowance account. All write-offs
must be made through the allowance account. Under no circumstances
are debts to be written off directly to expense.
write-off is mandatory for delinquent debt older than two years
unless documented and justified to OMB in consultation with Treasury.
Once the debt is written-off, the agency must either classify the
debt as currently not collectible (CNC) or close-out the debt. Cost
effective collection efforts should continue, specifically, if an
agency determines that continued collection efforts after mandatory
write-off are likely to yield higher returns. In such cases the
written-off debt is not closed out but classified as CNC. The collection
process continues until the agency determines it is no longer cost
effective to pursue collection. At that point, the debt should be
Under no circumstances
should internal controls be compromised by the write-off or reclassification
of debt. Very small percentages of debt older than two years can
frequently result in amounts that, while immaterial to the overall
debt and write-off balances, are large enough to pose a risk of
fraud and abuse. If collection efforts are on-going then adequate
internal controls must be maintained.
In those cases
where material collections can be documented to occur after two
years, debt cannot be written off until the estimated collections
period debts are classified as CNC, agencies should maintain the
debt for administrative offset and other collection tools, as described
in the <FCCS> until: (1) the debt is paid; (2) the debt is
closed out; or (3) all collection actions are legally precluded;
or (4) the debt is sold, whichever occurs first. When an agency
closes out a debt, the agency must file a <Form 1099C> with
the Internal Revenue Service (IRS) and notifiy the debtor in accordance
with the Internal Revenue Code <26 U.S.C. § 6050P> and
IRS regulations <26 C.F.R. Part 1.6050O-P>. The 1099C reports
the uncollectible debt as income to the debtor which may be taxable
at the debtor's current tax rate. Reporting the discharge of indebtedness
to the IRS results in a potential benefit to the Federal Government,
because any payments made to the IRS augment government receipts.
Agencies should report closed-out debts on the Treasury Report on
Receivables Due from the Public (TROR). Agencies must stop all collection
activity, including the sale of debts, once debts are closed out.
Agencies must not close out debts which have been sold or are scheduled
to be sold.
"Termination" and "suspension of collection" are legal procedures,
which are separate and distinct from the accounting procedure of
"write-off." Agencies shall consult the <Federal Claims Collection
Standards, Part 903> for requirements which must be met prior
to terminating or suspending collection (See the attached Write-off/Close-out
Process [Flowchart] for Receivables.)
for Credit Program Legislation, Testimony, and Budget Submissions
checklist provides guidelines to be followed in reviewing credit
program legislation, testimony, and budget submissions.
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. Waiver request forms
are available from OMB for this purpose. 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
to use the checklist in the budget submission process for the evaluation
of existing legislation, regulations, or program policies. The OMB
program 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.
-- Federal credit program justification should include the following
- Form of
Assistance (direct or guarantee): __________________
objectives of this program: (II.1.a.)
why Federal credit assistance is the best means to achieve these
- Any draft
bill establishing a credit program should contain the following:
to extend direct loans or make loan guarantees subject to the
requirements of the <Federal Credit Reform Act of 1990>,
and requirement for a subsidy appropriation.
Cap on volume
of obligations or commitments. (II.3.e.)
conditions defined sufficiently and precisely enough to estimate
subsidy rate. (State estimated subsidy of this program (rate and
dollar amount).) (II.1.e.)
of administrative expenses.
briefly the existing and potential private sources of credit
(and type of institution): (I.1.a.(2)(a)
reasons why private sources of financing and their terms and
conditions must be supplemented and subsidized, including:
- to correct
a defined capital market imperfection;
- to subsidize
identified borrowers or other beneficiaries; and/or
- to encourage
certain specified activities. (II.1.a.(1).
reasons why a federal credit subsidy is the most efficient way
of providing assistance, how it provides assistance in overcoming
market imperfections, and how it assists the identified borrowers
or beneficiaries or encourages the identified activities. (II.1.b.)
briefly the benefits expected from the program. Can the value
of these benefits (or some of these benefits) be estimated in
dollar terms? If so, state the estimate of their value. Further
information on conducting cost-benefit analysis can be found
<OMB Circular No. A-94>. (II.1.c.)
any elements of program design which encourage and supplement
private lending activity, such that private lending is displaced
to the smallest degree possible by agency programs. (II.1.d.)
the expected administrative (including origination, servicing,
and collection) resource requirements and costs of the credit
program (dollar amounts over next 5 fiscal years). (II.1.f.)
will not guarantee federally tax-exempt obligations directly or
will not subordinate direct loans to tax-exempt obligations and
will provide that effective subordination of guaranteed loans
to tax-exempt obligations will render the guarantee void.
interest rates: (II.3.b)
and borrowers share a substantial stake in full repayment according
to the loan contract.
lenders who extend Government guaranteed credit bear at least
20 percent of any potential losses.
deemed to pose less of a risk receive a lower guarantee as a
percentage of the total loan amount.
have an equity interest in any asset being financed by the credit
and fees are set at levels that minimize default and other subsidy
rates charged to borrowers (or interest supplements) not set
at an absolute level, but instead set by reference to the rate
(yield) on benchmark Treasury.
the Government's interest:
agreements include all covenants and restrictions (e.g., liability
insurance) necessary to protect the Federal Government's interest.
on loans shorter than the estimated useful economic life of
any assets financed. (II.3.c.(1))
- The Government's
claims on assets not subordinated to the claim of other lenders
in the case of a borrower's default. (II.3.c.(2))
- Loan contracts
to be standardized and private sector documents used to the
extent possible. (II.3.f.)
the methods used to evaluate the program and the results of evaluations
that have been made. (II.4.c.(1))
Bill Language for Credit Programs
Be it enacted
by the Senate and House of Representatives of the United States
of America in Congress assembled,
Act may be cited as " ".
Administrator is authorized to make or guarantee loans to ...(Define
are authorized to be appropriated $___________ for the cost of direct
loans or loan guarantees authorized in subsection (1) and $______
for administrative expenses for for fiscal year ________ and such
sums as shall be necessary for each fiscal year thereafter. [The
amounts authorized must be consistent with the amounts proposed
in the President's budget for that fiscal year. Generally, a specific
amount should be specified for the first fiscal year and sums for
subsequent fiscal years (see <OMB Circular No. A-19>.)
Sec.3,15]) 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 for fiscal year _______ and such sums as
shall be necessary for each fiscal year thereafter. 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 for fiscal year _______ and such sums as shall be necessary
for each fiscal year thereafter.
made or guaranteed under this Act will be on such terms and conditions
as the Administrator may prescribe, except that:
(a) 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.
(b) The final
maturity of loans made or guaranteed within a period shall not
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.
(c) No Loan
guaranteed to any one borrower will exceed 80% of the loss 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.
(d) No loan
made or guaranteed will be subordinated to another debt contracted
by the borrower or to any other claims against the borrowers in
the case of default.
(e) 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.
(f) No loan
will be guaranteed if the income from such loan is excluded form
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.
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.
(h) The minimum
interest rate of new loans will be adjusted every quarter (month(s))
(weeks) (days) to take account of changes in the interest rate
of the benchmark financial instrument. (see
or premiums for loan guarantee or insurance coverage will be set
at levels that minimize the cost to the Government (as defined
in <Section 502 of the Federal Credit Reform Act of 1990>,
as amended) of such coverage, while supporting achievement of
the program's objectives. 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 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.
(j) Any guarantee
will be conclusive evidence that said guarantee has been properly
obtained; that the underlying loan qualified 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.
(k) 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.
(l) 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>, as amended.
If, as a result of a default by a borrower under a guaranteed loan,
after the holder thereof has made such further collection efforts
and instituted such enforcement proceedings as the Administrator
may require, the Administrator determines that the holder has suffered
a loss, the Administrator will pay to such holder _____ percent
of such loss, as specified in the guarantee contract. Upon making
any such payment, the Administrator will be subrogated to all the
rights of the recipient of the payment. The Administrator will be
entitled to recover from the borrower the amount of any payments
made pursuant to any guarantee entered into under this Act.
(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.
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>,
as amended, is available.
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.
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