[Authority of EDA To Sell Defaulted Loans]

The Department of Commerce asked GAO whether the Economic Development Administration (EDA) has the statutory authority to sell defaulted loans at a discount to the borrower or someone acting on the borrower's behalf. Both the Public Works and Economic Development Act and the Trade Act of 1974 give EDA the authority to compromise loans and GAO found nothing in their legislative histories which would limit the meaning of "compromise." The Claims Collection Act specifies that the debtor's ability to pay can justify a compromise and GAO regulations support this position. GAO could find no EDA regulations which establish standards governing either its authority to sell defaulted loans or the collection or compromise of loans. Absent such regulations, EDA should follow the applicable standards and guidelines set forth in the Claims Collection Act. It is clear that EDA has the discretion not to compromise with borrowers by refusing to sell them their own obligations if it determines that allowing borrowers to bid on their own obligations would interfere with the integrity of the loan collection process or otherwise be undesirable. GAO stated that EDA might wish to consider another method of debt collection to increase the amounts recovered on defaulted loans. However, the question of whether to adopt a noncompromise policy in a particular case should be left to EDA in the reasonable exercise of its discretion.