Collection of Interest on Veterans Administration Benefit Overpayments

The Veterans Administration (VA) requested advice on implementing a section of the Federal Claims Collection Standards which provides that in the absence of a different rule prescribed by statute, contract, or regulation, interest should be charged on delinquent debts and debts paid in installments. Specifically, the VA was concerned with its authority to charge interest on debts arising out of direct benefit or entitlement programs, including the unauthorized provision of medical care, and the due process protection that will be necessary before instituting a policy of charging interest. It also questioned whether interest must be judicially mandated and the propriety of charging interest without providing the debtor an opportunity to address his fault in failing to repay the debt in a timely manner. GAO concluded that agencies may charge interest on overdue accounts as long as the rate is not so high as to constitute a penalty and is assessed only after notice of debt is given and the debt is liquidated. It believed that VA had the authority to charge interest on debts arising from direct benefit programs. The distinction between contractual debts and those arising from overpayments of benefits is not relevant in determining whether interest should be charged on delinquent debts owed the Government. Judicial precedents clearly establish the right to charge interest in cases involving overpayments of noncontractual subsidies and amounts owed the Government as a result of contract renegotiation proceedings and endorsed the administrative imposition of interest. Concerning the charging of interest rates on debts owed the Government which are not covered by contracts or other formal arrangements, regulations provide that initial notifications will inform the debtor of the basis for the indebtedness, the due date, and the requirements concerning additional charges for payments received after the due date. Statutes authorize VA to waive recovery of benefit overpayments where recovery would be against equity and good conscience. The Claims Collection Standards do not mandate procedural requirements to be followed in assessing and collecting interest on delinquent debts. Thus VA is free to establish such procedural refinement as it deems appropriate in implementing the section discussed.