Debt Collection Improvement Act of 1996

Helene Mueller
eCollect support team

The Debt Collection Improvement Act of 1996, also known as the DCIA, is a United States’ legal act, regulating the collection of bad debts owed to the U.S. government. It controls the whole debt recovery procedure and collection tools used for collection of non-tax US federal debts. As non-tax debts are considered all types of loans funded by the federal government, e.g. federal education loans, housing and urban development amounts (the so-called HUD debts), Small Business Administration (or SBA loans), unpaid child support sums, etc. The main function of the Improvement Act of 1996 is to maximise recovery of default amounts and late payments referring to federal non-tax bad debts. The DCIA acts together with the Treasury Financial Management Service (FMS) and controls US non-tax delinquent amounts, which have remained unpaid more than 180 days. After this period, such debts are to be transferred to U.S. Treasury Department. Today the FMS and the Bureau of Public Debt have merged into the Bureau of the Fiscal Service, which represents the United States’ Department of Treasury (ext. link 5).

Debt Collection Improvement Act of 1996- history and role

The DCIA has been launched as an organisation as a response to the uncollected debts owed to the United States. The government’s concerns about not using the right collection actions in order to recover these US delinquent payments, impacted on creating and legalising the Debt Collection Act of 1996. The validation of the DCIA has led to the centralisation of the government debts recovery and granted more actions to the Treasury Department of the United States. The Financial Management Service generally operates regulating and following the utilisation of the DCIA of 1996 by the Treasury Department.

The DCIA’s main role is to assist and guide debt collection agencies throughout the recovery process of non-tax federal government delinquent payments. There are some exceptions for non-tax debts, owed to the US government, which are not transferred to the Treasury Department; an example is a such debt in process of foreclosure (or litigation). The Improvement Act of 1996 also regulates and prohibits different DCA’s (Debt Collection Agency’s) actions and attends to control a fair and non-harassing debt collection.

The Debt Collection Improvement Act merges the non-tax federal debt collection using two general methods. The first method is a program acting under the DCIA regulations called Treasury Offset Program. The second is the Financial Management Service’s cross-servicing methods, implementing various debt recovery tools. The Cross-Servicing’s aim is to motivate debtors (either individuals or businesses) to settle their debts, owed to the US federal government before 180 days have passed. The cross-service also encourages creditors and authorised debt collection agencies to utilise all fair and non-harassing debt recovery methods in order to collect the full delinquent amount from the indebted subject.

According to the Improvement Act of 1996, federal debt organisations or hired debt recovery agencies, acting under the governance of US Treasury Department, can apply wage garnishment upon debtors, and deduct amounts from indebted consumers up to 15% in order to clear government non-tax debts. This is the so-called “Red Light Rule”, where the agency is authorised to withhold a percentage of debtor’s payments until the federal debt is paid in full. If the debt collection agency does not act on behalf of the Treasury Department or is not hired by the same, it does not have the legal right to collect non-tax debts from consumers.

The Debt Collection Improvement Act of 1996 grants formation of debt settlement plans as well. If the debtor is willing to settle the default but is not financially stable to pay the full amount, the Financial Management Service is authorised to negotiate for reasonable alternative for settling the debt: either smaller monthly payments (together equal to the full debt amount) or one single payment for a lesser sum settled with a one-time transaction.

Debt Collection Improvement Act of 1996- fair DCAs’ practices

Federal agencies, acting under the Debt Collection Act of 1996, do not comply with the FDCPA- Fair Debt Collection Practices Act, but use the FDCPA’s guidance for a fair debt collection process in order to provide ethical and legal services and debt recovery and not to breach consumer’s rights, as an indebted subject. Generally a federal DCA strives to act legally and not to harass the debtor, i.e. to contact the debtor within a reasonable time from 8 a.m. to 9 p.m.; always to provide full and thorough information about its agency and the creditor; never contact the debtor at his place of work, if the employer does not approve such calls. A fair debt collection agency will always try to help the debtor managing different settlement plans allowed in the Debt Collection Improvement Act of 1996, and will never threaten the subject of debt or produce false information.

Used literature & external links