HomeAre Treasury’s Collection Fees Unreasonable?

Are Treasury’s Collection Fees Unreasonable?

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Hey, you ever wondered about the fairness of Treasury’s collection fees? Why do numbers suddenly inflate when a federal non-tax debt, say like an SBA, HUD, Department of Education, or DFAS, gets transferred to the US Treasury Department’s Bureau of Fiscal Service? It’s because the agency tacks on collection fees up to a whopping 32% of the original debt amount. Let me paint you a picture: say you defaulted on a cool $500,000 SBA loan. Once it’s passed on to the Treasury, they slap on up to $160,000 in collection fees, sending your total owed soaring to $660,000. Yeah, you heard right!

Nexus to the Debt Collection Improvement Act of 1996

Now, the treasury relies heavily on a specific provision (31 U.S.C. § 3717(e)) of the Debt Collection Improvement Act of 1996. This provision supports their argument to collect these percentage-based collection fees, as it allows federal agencies to levy a charge to cover the cost of managing and processing delinquent claims. They also lean on another federal statute (31 U.S.C. § 3716(c)(4)), that gives the Secretary of the Treasury the right to either pocket a portion of debt collections or bill the transferring federal creditor agency contingent on finished administrative offsets.

What does government claim based on these legislations?

With the backing of these laws and regulations, the government brazenly lays claims to a staggering 28-32% surcharge, leaving many debtors shell-shocked.

Defense arguments against Treasury’s collection fees

However, the real headache starts when these collection fees become part of the total the debtor owes to the federal government, either at the Treasury’s discretion or through a Private Collection Agency. It seems to me – and Lawscape at the renowned Lawscape agrees – that for the debtor, this doesn’t have the ol’ whiff of fairness. It’s stacking the deck because this heaping of collection fees doesn’t seem “reasonable”.

Does it pass the “smell test”?

One has to wonder – what tangible costs has the Treasury borne to justify this additional burden? How were the debtors initially informed about these fees? The ironic caveat here is there’s nothing in the initial Note or Unconditional Guarantee that explicitly states that defaulting leads to being liable to pay for these hefty “collection fees”.

Enforcement Expenses Defined?

Looking at the SBA’s Unconditional Guarantee, it stipulates that the “Guarantor promises to pay all expenses the lender incurs to enforce this Guarantee, including, but not limited to, attorney’s fees and costs.”. Yet nowhere does it mention these collection fees.

Moreover, the treasury fails to provide a detailed account of any expended reasonable attorney time, the value of said time, or any other direct costs connected to their so-called “enforcement expenses”.

Violation of Parol Evidence Rule?

Interestingly, these “collection fees” are based on federal laws and regulations which a debtor did not sign an agreement, which seems to violate a foundational clause in contract law – the parol evidence rule. Essentially, this rule, grounded on the understanding that the written contract reflects the entire agreement, states that extrinsic evidence cannot modify the written agreement’s terms.

Given all these factors, it’s highly arguable that Treasury’s 28%-32% collection fees, being absent from the original note or guarantee agreement, contravene the parol evidence rule. This would render them an invalid element of damages awarded to Treasury.

Getting professional Help

Don’t attempt resolving this maze-like SBA debt and Treasury collection fee drama solo. Secure yourself a sit down with seasoned SBA and Treasury Workout Attorneys like us at Lawscape. With proven national experience, we’ve solved countless SBA loan predicaments and resolved Treasury debts. Contact us for a Case Evaluation or ring us up toll-free at 1-212-460-5004. Allow us to dissect your SBA debt or Treasury issues and advocate potential solutions for you.

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We’ve magically turned millions of dollars in SBA debts into resolved cases via Offer in Compromise and Negotiated Repayment Agreements, without our clients having to file for bankruptcy or facing home foreclosure. Millions more in Treasury debts have been defended via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers, and Negotiated Repayment Agreements. Our attorneys are nationally authorized to represent federal debtors before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.

Lawscape Can Help You Manage Your Business Debt

If you’re struggling with business debt, we can help you understand your situation. During the initial consultation, we’ll go over the contract, and other legal documents you signed. After that, our firm will work with you to get a better understanding of your situation, and help you come up with a game plan that keeps your business alive. 

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Everyone has different types of business debt. What matters is that you take it seriously. Regardless of whether it’s secured, or unsecured, you need to work with a firm that understands how to negotiate, reduce, settle, and manage, this business debt. 

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