B-196867(1),L/M, DEC 12, 1980

B-196867(1),L/M: Dec 12, 1980

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VETERANS ADMINISTRATION: THIS IS IN RESPONSE TO YOUR LETTER CONCERNING A PROPOSED REVISION OF 4 C.F.R. THE STANDARDS WERE AMENDED AND THE APPLICABLE SECTION IS CURRENTLY 4 C.F.R. SINCE THESE STANDARDS ARE JOINTLY ISSUED BY THE GENERAL ACCOUNTING OFFICE AND THE DEPARTMENT OF JUSTICE. SEC. 102.9 WERE AMENDED "TO REQUIRE AGENCIES USING COGNOVIT/CONFESSION NOTES TO FULLY EXPLAIN THE COGNOVIT CLAUSE SO THAT THE DEBTOR BY EXECUTING THE NOTE WOULD BE MAKING A VOLUNTARY. S. 191 (1972) FOR THE PROPOSITION THAT USE OF A CONFESS JUDGMENT NOTE OR COGNOVIT AGREEMENT IS IMPROPER WHERE THE PARTIES INVOLVED ARE NOT OF EQUAL SOPHISTICATION AND ARE THUS IN UNEQUAL BARGAINING POSITIONS. YOU STATE "THERE IS A DISPARITY IN BARGAINING BETWEEN THE FEDERAL GOVERNMENT AND A SINGLE VETERAN.".

B-196867(1),L/M, DEC 12, 1980

OFFICE OF GENERAL COUNSEL

MAX CLELAND, ADMINISTRATOR, VETERANS ADMINISTRATION:

THIS IS IN RESPONSE TO YOUR LETTER CONCERNING A PROPOSED REVISION OF 4 C.F.R. SEC. 102.8 (1979), OF THE FEDERAL CLAIMS COLLECTION STANDARDS, TO EITHER DELETE THE PRESENT REQUIREMENT FOR EXECUTED CONFESS-JUDGMENT NOTES (ALSO REFERRED TO AS "COGNOVIT AGREEMENTS") OR LEAVE THEIR USE TO THE DISCRETION OF THE AGENCY. (IN 1979, THE STANDARDS WERE AMENDED AND THE APPLICABLE SECTION IS CURRENTLY 4 C.F.R. SEC. 102.9 (1980).)

AS YOU KNOW, WE SOLICITED THE COMMENTS OF THE DEPARTMENT OF JUSTICE REGARDING YOUR PROPOSAL, SINCE THESE STANDARDS ARE JOINTLY ISSUED BY THE GENERAL ACCOUNTING OFFICE AND THE DEPARTMENT OF JUSTICE. IN RESPONSE TO OUR INQUIRY, THE DEPARTMENT STATED THAT IT DOES NOT CONSIDER THE USE OF CONFESS-JUDGMENT NOTES UNDER 4 C.F.R. SEC. 102.9 THAT DUE PROCESS REQUIREMENTS WOULD BE MET IF 4 C.F.R. SEC. 102.9 WERE AMENDED "TO REQUIRE AGENCIES USING COGNOVIT/CONFESSION NOTES TO FULLY EXPLAIN THE COGNOVIT CLAUSE SO THAT THE DEBTOR BY EXECUTING THE NOTE WOULD BE MAKING A VOLUNTARY, KNOWING AND INTELLIGENT WAIVER OF HIS RIGHT TO NOTICE AND A PREJUDGMENT HEARING ON THE CLAIM OF THE AGENCY." FINALLY, THE DEPARTMENT POINTS OUT THAT FORM USA 70A AND OTHER FORMS OF COGNOVIT CONTINUE TO BE USED BY THE DEPARTMENT'S CIVIL DIVISION.

YOU RELY ON OVERMEYER V. FRICK, 405 U. S. 174 (1972) AND SWARB V. LENNOX, 405 U. S. 191 (1972) FOR THE PROPOSITION THAT USE OF A CONFESS JUDGMENT NOTE OR COGNOVIT AGREEMENT IS IMPROPER WHERE THE PARTIES INVOLVED ARE NOT OF EQUAL SOPHISTICATION AND ARE THUS IN UNEQUAL BARGAINING POSITIONS. YOU STATE "THERE IS A DISPARITY IN BARGAINING BETWEEN THE FEDERAL GOVERNMENT AND A SINGLE VETERAN." YOU SUGGEST, THEREFORE, THAT THE USE OF A CONFESS- JUDGMENT NOTE IN SUCH A CASE WOULD BE IMPROPER. THE TWO CASES WHICH YOU CITE DO NOT, HOWEVER, PRECLUDE USE OF CONFESS-JUDGMENT NOTES IN ALL CASES. SO LONG AS IT CAN BE DEMONSTRATED THAT THE DEBTOR KNOWINGLY, INTELLIGENTLY, AND VOLUNTARILY WAIVED HIS RIGHT TO LATER BE NOTIFIED OF COURT ACTIONS OR TO DISPUTE THE DEBT, THE CASES ACKNOWLEDGE THAT USE OF CONFESS-JUDGMENT NOTES IS NOT CONSTITUTIONALLY OBJECTIONABLE. FURTHERMORE, UNDER 4 C.F.R. SEC. 102.9 THE CONFESS-JUDGMENT AGREEMENT IS REQUIRED ONLY WHERE THE GOVERNMENT GIVES UP ITS RIGHTS TO IMMEDIATELY COLLECT A DEBT OWED AND PERMITS THE DEBTOR TO MAKE PAYMENT IN INSTALLMENTS. THUS, THERE IS CONSIDERATION FOR THE EXECUTION OF THE NOTE. INCORPORATION IN THE CLAIMS COLLECTION STANDARDS OF THE NOTICE PROVISION SUGGESTED BY THE DEPARTMENT OF JUSTICE WOULD INSURE THAT A DEBTOR WHO MAY BE ASKED TO ENTER INTO SUCH AN AGREEMENT WOULD BE FULLY AWARE OF THE CONSEQUENCES OF MAKING IT.

FINALLY, THE STANDARDS CURRENTLY ALLOW AN AGENCY TO PERMIT REPAYMENT OF A DEBT WITHOUT SECURING A CONFESS JUDGMENT AGREEMENT. 4 C.F.R. SEC. 102.9 STATES IN THIS REGARD, "SECURITY FOR DEFERRED PAYMENTS, OTHER THAN A CONFESS-JUDGMENT NOTE, MAY BE ACCEPTED IN APPROPRIATE CASES. AN AGENCY MAY ACCEPT INSTALLMENT PAYMENTS NOTWITHSTANDING THE REFUSAL OF A DEBTOR TO EXECUTE A CONFESS-JUDGMENT NOTE OR TO GIVE OTHER SECURITY, AT THE AGENCY'S OPTION." THUS, UNDER THE CURRENT STANDARDS A DEBTOR MAY REFUSE TO EXECUTE A CONFESS-JUDGMENT AGREEMENT AND CREDITOR AGENCIES MAY ELECT TO ACCEPT SECURITY OTHER THAN A CONFESS-JUDGMENT AGREEMENT IN APPROPRIATE CIRCUMSTANCES.

ACCORDINGLY, WE ARE PROPOSING THAT OUR CLAIMS GROUP COORDINATE WITH THE DEPARTMENT OF JUSTICE IN DEVELOPING AN AMENDED STANDARD THAT WOULD REQUIRE AGENCIES USING CONFESS-JUDGMENT NOTES TO FULLY EXPLAIN IN WRITING THE CONSEQUENCES OF EXECUTING THE NOTE. THIS PROPOSAL WILL BE INCLUDED ALONG WITH OTHER CHANGES CURRENTLY UNDER CONSIDERATION BY OUR CLAIMS GROUP TO BE PROMULGATED WITHIN THE NEXT SEVERAL MONTHS.

ENCLOSED FOR YOUR INFORMATION IS A COPY OF THE DEPARTMENT OF JUSTICE'S COMMENTS.

DIGEST

USE OF CONFESS-JUDGMENT NOTES IN THE COLLECTION OF DEBTS UNDER 4 C.F.R. SEC. 102.9 (1980) IS NOT UNCONSTITUTIONAL WHERE DEBTOR AGREES WITH FULL UNDERSTANDING THAT HE IS WAIVING SOME OF HIS DUE PROCESS RIGHTS AND CONSIDERATION IS GIVEN BY THE GOVERNMENT FOR THE NOTE. CONSIDERATION CONSISTS OF GOVERNMENT'S ACCEPTING INSTALLMENT PAYMENTS IN LIEU OF RIGHT TO COLLECT FULL AMOUNT.

OFFICE OF GENERAL COUNSEL RECOMMENDS AMENDING 4 C.F.R. SEC. 102.9 TO PROVIDE THAT AGENCIES USING CONFESS-JUDGMENT NOTES IN THEIR COLLECTION PROCEDURES FULLY INFORM DEBTOR IN WRITING OF CONSEQUENCES OF SIGNING THE NOTE.