[Federal Register: December 19, 2006 (Volume 71, Number 243)]
[Rules and Regulations]
[Page 75851-75854]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19de06-1]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
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[[Page 75851]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Part 1951
Servicing and Collections--Unauthorized Recipients of Financial
Assistance
AGENCY: Rural Housing Service, Rural Business-Cooperative Service,
Rural Utilities Service, Farm Service Agency, USDA.
ACTION: Final rule.
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SUMMARY: This action amends the servicing regulations that apply when
it is determined that unauthorized recipients have received financial
assistance under USDA Business, Cooperative, and Community Facility
loan and grant programs. The changes make clear that the first demand
letter notifying the recipient of the Agency's determination serves as
the initial step in the Agency's collection efforts, and that it may
serve as the basis for the recipient's appeal rights. The terms of the
first demand letter remain in full force and effect, unless the demand
letter is subsequently amended in writing by the Agency after
discussions with the recipient or modified as a result of judicial
proceedings.
DATES: Effective Date: This rule is effective on December 19, 2006.
FOR FURTHER INFORMATION CONTACT: Bill Hagy, Deputy Administrator, Rural
Development Business Programs, USDA, Stop 3220, Room 5811, 1400
Independence Ave., SW., Washington, DC 20250, telephone (202) 720-7287,
or internet e-mail ``bill.hagy@wdc.usda.gov''.
SUPPLEMENTARY INFORMATION:
Classification
This action is not subject to the provisions of Executive Order
12866 because it pertains to internal Agency management only.
Accordingly, public notice and comment are not warranted, and this
action is published as a final rule rather than as a proposed
rulemaking.
Programs Affected
The Catalog of Federal Domestic Assistance Program numbers assigned
to these programs are: 10.352 Value-Added Producer Grants, 10.353
National Rural Development Partnership, 10.767 Intermediary Relending
Program, 10.768, Business and Industrial Loans, 10.769 Rural Business
Enterprise Grants, 10.771 Rural Cooperative Development Grants, 10.772
Empowerment Zones Program, 10.773 Rural Business Opportunity Grants,
10.775 Renewable Energy Systems and Energy Efficiency Improvements
Program, 10.776 Agriculture Innovation Centers, 10.854 Rural Economic
Development Loans and Grants, and 10.766 Community Facilities Loans and
Grants,
Paperwork Reduction Act
This rule is not subject to the Paperwork Reduction Act.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
Subpart G, Environmental Program. It is the determination of the Rural
Business and Cooperative Services that this action does not constitute
a major Federal action significantly affecting the environment.
Therefore, in accordance with the National Environmental Policy Act of
1969, an Environmental Impact Statement is not required.
Executive Order 12988
This rule has been reviewed in accordance with E.O. 12988, Civil
Justice Reform. In accordance with this rule: (1) All State and local
laws and regulations that are in conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule; and
(3) administrative proceedings in accordance with 7 CFR part 11 must be
exhausted before bringing suit in court challenging action taken under
this rule unless those regulations specifically allow bringing suit at
an earlier time.
The Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA)
establishes requirements for Federal agencies to assess the effects of
their regulatory actions on State, local, and tribal governments and
the private sector. Under section 202 of the UMRA, USDA must prepare a
written statement, including a cost benefit analysis, for proposed and
final rules with ``Federal mandates'' that may result in expenditures
to State, local or tribal governments, in the aggregate, or to the
private sector, of $100 million or more in any one year. When such a
statement is needed for a rule, section 205 of UMRA generally requires
USDA to identify and consider a reasonable number of regulatory
alternatives and adopt the least costly, more cost effective, or least
burdensome alternative that achieves the objectives of the rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, and tribal
governments or the private sector. Therefore, this rule is not subject
to the requirements of sections 202 and 205 of UMRA.
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the undersigned has determined and certified by signature of this
document that this rule will not have a significant economic impact on
a substantial number of small entities. The Regulatory Flexibility Act
is intended to encourage Federal agencies to utilize innovative
administrative procedures in dealing with individuals, small
businesses, small organizations, and small governmental bodies that
would otherwise be unnecessarily adversely affected by Federal
regulations. No regulatory flexibility analysis under the Regulatory
Flexibility Act is necessary.
Executive Order 13132, Federalism
The policies contained in this rule do not have any substantial
direct effect on States, the relationship between the national
government and the States, or the distribution of power and
responsibilities among the various levels of government. Nor does this
rule
[[Page 75852]]
impose substantial direct compliance costs on State and local
governments. Therefore, consultation with the States is not required.
Discussion
This rule revises the servicing regulations that apply when it has
been determined that an unauthorized recipient has received financial
assistance under the USDA Rural Development Business and Industry
Direct Loan program, all other applicable grant and loan programs, and
the USDA Rural Development Community Facilities Loan and Grant
programs. Those parts of the Code of Federal Regulations that relate
solely to internal Agency processes are removed, and procedures that
apply to Agency notification to the recipient and decisionmaking with
respect the Agency's determination(s) are clarified to state that an
account receivable will be established to recover the amounts claimed
by the Agency.
List of Subjects 7 CFR Part 1951
Accounting, Account servicing, Credit, Debt, Loan programs--
agriculture, Low and moderate income housing loans--servicing, Rent
subsidies.
0
Accordingly, chapter VXIII, title 7 of the Code of Federal Regulations,
is amended as follows:
PART 1951--SERVICING AND COLLECTIONS
0
1. The authority citation for part 1951 continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31
U.S.C. 3716; 42 U.S.C. 1480.
0
2. Subpart O of part 1951 is revised to read as follows:
Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other
Financial Assistance Was Received--Community and Insured Business
Programs.
Sec.
1951.701 Purpose.
1951.702 Definitions.
1951.703 Policy.
1951.704-1951.705 [Reserved].
1951.706 Initial determination that unauthorized assistance was
received.
1951.707 Determination of the amount of unauthorized assistance.
1951.708 Notification to recipient.
1951.709 Decision on servicing actions.
1951.710 [Reserved].
1951.711 Servicing options in lieu of liquidation or legal action to
collect.
1951.712-1951.716 [Reserved].
1951.717 Exception authority.
1951.718-1951.750 [Reserved].
Sec. 1951.701 Purpose.
This subpart prescribes the policies and procedures for servicing
Community and Business Program loans and/or grants made by Rural
Development when it is determined that the borrower or grantee was not
eligible for all or part of the financial assistance received in the
form of a loan, grant, or subsidy granted, or any other direct
financial assistance. It does not apply to guaranteed loans. Loans sold
without insurance by Rural Development to the private sector will be
serviced in the private sector and will not be serviced under this
subpart. The provisions of this subpart are not applicable to such
loans. Future changes to this subpart will not be made applicable to
such loans.
Sec. 1951.702 Definitions.
As used in this subpart, the following definitions apply:
Active borrower. A borrower who has an outstanding account in the
records of the Office of the Deputy Chief Financial Officer (ODCFO),
including collection-only or an unsatisfied account balance where a
voluntary conveyance was accepted without release from liability of
foreclosure did not satisfy the indebtedness.
Assistance. Finance assistance in the form of a loan, grant, or
subsidy received.
Debt instrument. Used as a collective term to include promissory
note, assumption agreement, grant agreement, or bond.
False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correct information.
Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
Inactive borrower. A former borrower whose loan(s) has been paid in
full or assumed by another party(ies) and who does not have an
outstanding account in the records of the ODCFO.
Recipient. ``Recipient'' refers to an individual or entity that
received a loan, or portion of a loan, an interest subsidy, a grant, or
a portion of a grant which was unauthorized.
Rural Development. A mission area within the U.S. Department of
Agriculture consisting of the Office of the Under Secretary for Rural
Development, Office of Community Development, Rural Business-
Cooperative Service, Rural Housing Service, and Rural Utilities Service
and their successors.
Unauthorized assistance. Any loan, interest subsidy, grant, or
portion thereof received by a recipient for which there was no
regulatory authorization or for which the recipient was not eligible.
Interest subsidy includes subsidy benefits received because a loan was
closed at a lower interest rate than that to which the recipient was
entitled, whether the incorrect interest rate was selected erroneously
by the approval official or the documents were prepared in error.
Sec. 1951.703 Policy.
When unauthorized assistance has been received, an expeditious
effort must be made to collect from the recipient the sum which is
determined to be unauthorized, regardless of amount.
Sec. Sec. 1951.704-1951.705 [Reserved].
Sec. 1951.706 Initial determination that unauthorized assistance was
received.
Unauthorized assistance may be identified through audits conducted
by the USDA Office of Inspector General (OIG), through reviews made by
Rural Development personnel, or through other means such as information
provided by a private citizen who documents that unauthorized
assistance has been received by a recipient of Rural Development
assistance.
Sec. 1951.707 Determination of the amount of unauthorized assistance.
(a) Unauthorized loan amount. The unauthorized loan amount will be
the unauthorized principal plus any interest accruing on the
unauthorized principal at the note interest rate until the date paid
unless otherwise agreed in writing by Rural Development.
(b) Unauthorized grant amount. The unauthorized amount will be the
unauthorized grant amount actually expended under the grant agreement
plus interest accrued beginning on the date of the demand letter at the
interest rate stipulated in the applicable grant agreement, or, if none
is stated, the default rate established by the U.S. Department of the
Treasury, until the date paid unless otherwise agreed in writing by
Rural Development.
Sec. 1951.708 Notification to recipient.
(a) Upon determination that unauthorized assistance was received,
Rural Development will send a demand letter to the recipient that:
(1) Specifies the amount of unauthorized assistance, including any
accrued interest to be repaid, and the standards for imposing accrued
interest;
(2) States the amount of penalties and administrative costs to be
paid, the
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standards for imposing them, and the date on which they will begin to
accrue;
(3) Provides detailed reason(s) why the assistance was determined
to be unauthorized;
(4) States the amount is immediately due and payable to Rural
Development;
(5) Describes the rights the recipient has for seeking review of
Rural Development's determination pursuant to 7 CFR part 11;
(6) Describes the Agency's available remedies regarding enforced
collection, including referral of debt delinquent more than 180 days
for Federal salary, benefit, and tax offset under the Department of
Treasury Offset Program (TOP); and
(7) Provides an opportunity for the recipient to meet with Rural
Development to provide facts, figures, written records, or other
information which might refute Rural Development's determination.
(b) If the recipient meets with Rural Development, Rural
Development will outline to the recipient why the assistance was
determined to be unauthorized. The recipient will be given an
opportunity to provide information to refute Rural Development's
findings. When requested by the recipient, Rural Development may grant
additional time for the recipient to assemble documentation. Such
extension of time for payment will be valid only if Rural Development
documents the extension in writing and specifies the period in days
during which period the payment obligation created by the demand letter
(but not the ongoing accrual of interest) will be suspended. Interest
and other charges will continue to accrue pursuant to the demand letter
during any extension period unless the terms of the demand letter are
modified in writing by Rural Development.
(c) Unless Rural Development modifies the original demand, it will
remain in full force and effect.
Sec. 1951.709 Decision on servicing actions.
(a) Payment in full. If the recipient agrees with Rural
Development's determination or will pay the amount in question, Rural
Development may allow a reasonable period of time (usually not to
exceed 90 days) for the recipient to arrange for repayment. The amount
due will be determined according to Sec. 1951.707.
(b) Continuation with recipient. If the recipient agrees with Rural
Development's determination or is willing to pay the amount in question
but cannot repay the unauthorized assistance within a reasonable period
of time, continuation is authorized and servicing actions outlined in
Sec. 1951.711 may be taken provided all of the following conditions
are met:
(1) The recipient did not provide false information as defined in
Sec. 1951.702.
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance.
(3) Failure to collect the unauthorized assistance in full will not
adversely affect Rural Development's financial interest.
(c) Appeals. Appeals resulting from the letter prescribed in Sec.
1951.708 will be handled according to 7 CFR Part 11. All appeal
provisions will be concluded before proceeding with further actions.
(d) Liquidation of loan(s) or legal action to enforce collection.
When a case cannot be handled according to the provisions of paragraph
(a) or (b) of this section, or if the recipient refuses to execute the
documents necessary to establish an obligation to repay the
unauthorized assistance as provided in Sec. 1951.711, one or more of
the following actions will be taken:
(1) Active borrower with a secured loan. (i) Rural Development will
attempt to have the recipient liquidate voluntarily. If the recipient
does not agree to voluntary liquidation, or agrees but it cannot be
accomplished within a reasonable period of time (usually not more than
90 days), forced liquidation action will be initiated in accordance
with applicable provisions of subpart A of part 1955 of this chapter
unless:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and any recoverable costs charged to the
account, is less than $1,000; or
(B) It would not be in the best financial interest of the
Government to force liquidation.
(ii) When all of the conditions of paragraph (a) or (b) of this
section are met, but the recipient does not repay or refuses to execute
documents to effect necessary account adjustments according of the
provisions of Sec. 1951.711, forced liquidation action will be
initiated as provided in paragraph (d)(1)(i) of this section.
(iii) When forced liquidation would be initiated, except that the
loan is being handled in accordance with paragraph (d)(1)(i)(A) or
(d)(1)(i)(B) of this section, continuation with the loan on existing
terms may be provided.
(iv) If the debt is not otherwise resolved, Rural Development will
take appropriate debt collection actions in accordance with 7 CFR Part
3, subparts B and C, and the Federal Claims Collection Standards at 31
CFR Chapter IX, Parts 900-904.
(2) Grantee, inactive borrower, or active borrower with unsecured
loan (such as collection-only, or unsatisfied balance after
liquidation). Rural Development may pursue all reasonable legal
remedies.
Sec. 1951.710 [Reserved].
Sec. 1951.711 Servicing options in lieu of liquidation or legal
action to collect.
When the conditions outlined in Sec. 1951.709(b) are met, the
servicing options outlined in this section will be considered.
(a) Continuation on modified terms. When the recipient has the
legal and financial capabilities, the case will be serviced according
to one of the following, as appropriate.
(1) Unauthorized loan. A loan for the unauthorized amount
determined according to Sec. 1951.707(a) will remain accelerated per
the demand letter sent in accordance with Sec. 1951.708 unless
modified terms are timely reached with the recipient and accrued at the
interest rate specified in the outstanding debt instrument or at the
present market interest rate, whichever is greater, for the respective
Community and Business program area. The loan will be amortized per a
repayment schedule satisfactory to Rural Development, but in no event
may the revised repayment schedule exceed a period of fifteen (15)
years, the remaining term of the original loan, or the remaining useful
life of the facility, whichever is shorter.
(2) Unauthorized grant. The unauthorized grant amount determined
according to Sec. 1951.707(b) will be converted to an account
receivable, with interest payable at the market interest rate for the
respective Community Facilities or Business and Industry Program area
in effect on the date the financial assistance was provided. In all
cases, the receivable will be amortized per a repayment schedule
satisfactory to Rural Development, but in no event may the amortization
period exceed fifteen (15) years. The recipient will be required to
execute a debt instrument to evidence this receivable, and the best
security position available to adequately protect Rural Development's
interest during the repayment period will be taken as security.
(3) Unauthorized subsidy benefits received. When the recipient was
eligible for the loan but should have been charged a higher interest
rate than that in the debt instrument, which resulted in the receipt of
unauthorized subsidy benefits, the case will be handled as follows:
(i) The recipient will be given the option to submit a written
request that
[[Page 75854]]
the interest rate be corrected to the lower of the rate for which they
were eligible that was in effect at the date of loan approval or loan
closing.
(ii) Any accrued unauthorized subsidy will be handled in accordance
with Sec. 1951.709.
(b) Continuation on existing terms. When the recipient does not
have the legal and/or financial capabilities for the options outlined
in paragraph (a)(1), (a)(2), or (a)(3) of this section, the recipient
may be allowed to continue to meet the loan obligations outlined in the
existing loan instruments. Rural Development will not continue with
unauthorized grants on existing terms.
Sec. Sec. 1951.712-1951.716 [Reserved].
Sec. 1951.717 Exception authority.
The Administrator may, in individual cases, make an exception to
any requirement or provision of this subpart, provided that any such
exception is not inconsistent with any applicable law or opinion of the
Comptroller General, and provided further, the Administrator determines
that the application of the requirement or provision would adversely
affect the Government's interest.
Sec. Sec. 1951.718-1951.750 [Reserved].
Dated: December 11, 2006.
Jackie J. Gleason,
Administrator, Rural Business-Cooperative Service.
Dated: December 13, 2006.
Russell T. Davis,
Administrator, Rural Housing Service.
[FR Doc. 06-9763 Filed 12-18-06; 8:45 am]
BILLING CODE 3410-XY-P