81 FR 57439 - Civil Monetary Penalties

DEPARTMENT OF AGRICULTURE
Rural Housing Service

Federal Register Volume 81, Issue 163 (August 23, 2016)

The Rural Housing Service (RHS or Agency) is implementing its civil monetary penalty provision. Currently, the Agency is limited to severe actions, such as acceleration and foreclosure, as a remedy for non-monetary compliance violations, actions that may not be in the best interest of the government. New Civil Monetary Penalties regulations will enable the Agency to target the non-monetary default issues and elicit compliance by the borrower without such a drastic step as foreclosure. By implementing procedures for Civil Monetary Penalties, the Agency will be provided an important tool to enforce compliance with the regulations.

[Federal Register Volume 81, Number 163 (Tuesday, August 23, 2016)]
[Rules and Regulations]
[Pages 57439-57442]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-19954]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

========================================================================


Federal Register / Vol. 81, No. 163 / Tuesday, August 23, 2016 / 
Rules and Regulations

[[Page 57439]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3560

RIN 0575-AC93


Civil Monetary Penalties

AGENCY: Rural Housing Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Rural Housing Service (RHS or Agency) is implementing its 
civil monetary penalty provision. Currently, the Agency is limited to 
severe actions, such as acceleration and foreclosure, as a remedy for 
non-monetary compliance violations, actions that may not be in the best 
interest of the government. New Civil Monetary Penalties regulations 
will enable the Agency to target the non-monetary default issues and 
elicit compliance by the borrower without such a drastic step as 
foreclosure. By implementing procedures for Civil Monetary Penalties, 
the Agency will be provided an important tool to enforce compliance 
with the regulations.

DATES: This rule is effective September 22, 2016. However, there will 
be an implementation period for this rule that will allow the Agency to 
ensure that proper guidance is disseminated. The implementation date is 
December 21, 2016.

FOR FURTHER INFORMATION CONTACT: Stephanie White, Director, Multi-
Family Housing Portfolio Management Division, Rural Housing Service, 
STOP 0782--Room 1263S, 1400 Independence Avenue SW., Washington, DC 
20250-0782, Telephone: (202) 720-1615.

SUPPLEMENTARY INFORMATION: 

Executive Order 12866, Classification

    This rule has been determined to be not significant for purposes of 
Executive Order 12866 and has not been reviewed by the Office of 
Management and Budget (OMB).

Authority

    The civil monetary penalty provision is authorized under section 
543(b) of the Housing Act of 1949, as amended (42 U.S.C. 1490s(b)).

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1970. 
RHS has determined that this action does not constitute a major Federal 
action significantly affecting the quality of the environment. In 
accordance with the National Environmental Policy Act of 1969, 42 
U.S.C. 4321 et seq., an Environmental Impact Statement is not required.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). Under Section 605(b) of 
the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Agency has 
determined and certified by signature on this document that this rule 
will not have a significant economic impact on a substantial number of 
small entities since this rulemaking action does not involve a new or 
expanded program nor does it require any more action on the part of a 
small business than required of a large entity.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of Government. This rule does 
not impose substantial direct compliance costs on State and local 
Governments; therefore, consultation with the States is not required.

Executive Order 12988, Civil Justice Reform

    This rule has been reviewed under Executive Order 12988. In 
accordance with this rule: (1) Unless otherwise specifically provided, 
all State and local laws that are in conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule except 
as specifically prescribed in the rule; and (3) administrative 
proceedings of the National Appeals Division of the Department of 
Agriculture (7 CFR part 11) must be exhausted before bringing suit in 
court that challenges action taken under this rule.

Unfunded Mandate Reform Act (UMRA)

    Title II of the UMRA, Public Law 104-4, establishes requirements 
for Federal Agencies to assess the effects of their regulatory actions 
on State, local, and tribal Governments and on the private sector. 
Under section 202 of the UMRA, Federal Agencies generally must prepare 
a written statement, including cost-benefit analysis, for proposed and 
Final Rules with ``Federal mandates'' that may result in expenditures 
to State, local, or tribal Governments, in the aggregate, or to the 
private sector, of $100 million or more in any 1-year. When such a 
statement is needed for a rule, section 205 of the UMRA generally 
requires a Federal Agency to identify and consider a reasonable number 
of regulatory alternatives and adopt the least costly, more cost-
effective, or least burdensome alternative that achieves the objectives 
of the rule. This rule contains no Federal mandates (under the 
regulatory provisions of title II of the UMRA) for State, local, and 
tribal governments or for the private sector. Therefore, this rule is 
not subject to the requirements of sections 202 and 205 of the UMRA.

Paperwork Reduction Act of 1995

    The revisions in this rulemaking for 7 CFR part 3560 are subject to 
the Paperwork Reduction Act package with the assigned OMB control 
number of 0575-0189. No changes would impact that package.

E-Government Act Compliance

    RHS is committed to complying with the E-Government Act to promote 
the use of the internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services and for other purposes.

Programs Affected

    The programs affected by this regulation are listed in the Catalog 
of Federal Domestic Assistance under Section 514 program and Section 
516 program (10.405); Section 515 program (10.415); Section 521 
(10.427); and Section 542 (10.448).

[[Page 57440]]

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on RHS in the development 
of regulatory policies that have tribal implications or preempt tribal 
laws. RHS has determined that the rule does not have a substantial 
direct effect on one or more Indian tribe(s) or on either the 
relationship or the distribution of powers and responsibilities between 
the Federal Government and the Indian tribes. Thus, the rule is not 
subject to the requirements of Executive Order 13175. If tribal leaders 
are interested in consulting with RHS on this rule, they are encouraged 
to contact USDA's Office of Tribal Relations or Rural Development's 
Native American Coordinator at (720) 544-2911 or [email protected] to 
request such consultation.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This final rule is subject to the provisions of Executive Order 
12372 which require intergovernmental consultation with State and local 
officials. RHS conducts intergovernmental consultations for each loan 
and grant in a manner delineated in 7 CFR part 3015 subpart V.

Non-Discrimination Statement

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identification 
(including gender expression), sexual orientation, disability, age, 
marital status, family/parental status, income derived from a public 
assistance program political beliefs, or reprisal or retaliation for 
prior civil rights activity, in any program or activity conducted or 
funded by USDA (not all bases apply to all programs). Remedies and 
complaint filing deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large print, 
audiotape, American Sign Language, etc.) should contact the responsible 
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or 
contact USDA through the Federal Relay Service at (800) 877-8339. 
Additionally, program information may be made available in languages 
other than English.
    To file a discrimination complaint, complete the USDA Program 
Discrimination Complaint Form, AD-3027, found online at http://www.ascr.usda.gov/complaint_filing_cust.html and at any USDA office or 
write a letter addressed to USDA and provide in the letter all of the 
information requested in the form. To request a copy of the complaint 
form, call (866) 632-9992. Submit your completed form or letter to USDA 
by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW., Washington, 
DC 20250-9410;
    (2) fax: (202) 690-7442; or
    (3) email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

I. Background

    Section 543(b) of the Housing Act of 1949 as amended (hereinafter 
the Act) (42 U.S.C. 1490s(b)) states for 5 different types of 
violations, ``the Secretary may, after notice and opportunity for a 
hearing, impose a civil monetary penalty (CMP) against any individual 
or entity, including its owners, officers, directors, general partners, 
limited partners, or employees, who knowingly and materially violate, 
or participate in the violation of the Act or its regulations.''
    In the proposed rule published in the Federal Register on January 
4, 2013 (78 FR 672) RHS proposed to implement two civil monetary 
penalty provisions. First, RHS proposed to amend its regulations to 
create a new section for imposing civil monetary penalties under the 
authority of 42 U.S.C. 1490s (section 543 of the Housing Act of 1949, 
as amended (Act)) (Housing Act CMP). Second, RHS proposed to adopt the 
USDA civil monetary penalty provisions for the Program Fraud Civil 
Remedies Act of 1986 (PFCRA) in a revision to an existing regulation 
(PFCRA CMP). In the proposed rule, RHS addressed the following issues 
for CMP:
    1. Procedures for the determination of the civil monetary 
penalties;
    2. Procedures for the administrative hearing;
    3. Establishing fines; and
    4. Procedures for the collection of fines.
    In the final rule, Multi-Family Housing (MFH) will set out 
procedures to use the USDA Administrative Law Judges' office to conduct 
the hearings for the civil monetary penalty program. The Administrative 
Laws Judges conduct similar hearings for other USDA agencies. The 
Administrative Law Judges' regulations allow within its jurisdiction, 
``other adjudicatory proceedings in which the complaint instituting the 
proceeding so provides with the concurrence of the Assistant Secretary 
for Administration.'' See 7 CFR 1.131(b)(6) Rural Housing Service (RHS) 
received concurrence in conducting MFH's civil monetary penalty 
hearings through the Administrative Law Judges' office.
    The Agency expects about 50 CMP cases annually.

II. Summary of Comments and Responses

    On January 4, 2013 (78 FR 672), the Agency published a proposed 
rule for Civil Monetary Penalties. A thirty-day comment period that 
ended February 4, 2013, was provided. Fifty-one comments were received 
from eleven stakeholders, including housing associations, housing 
advocates, and individuals. RHS is also including five comments 
relating to civil monetary penalties received from an interim rule 
titled ``Reinvention of the Sections 514, 515, 516 and 521 Multi-Family 
Housing Programs'', which was published on November 26, 2004 (69 FR 
69032-69176). Of the comments received, two comments were deemed not 
relevant to the rule, as the comments were not related to the CMP 
proposed rule.
    The Agency will adopt the following comments:
    Duplication and vagueness of CMP/PFCRA: Twenty-one comments 
mentioned that the proposed rule was broad and vague. Comments 
expressed concern about the duplication and overlap of existing rules 
created by the proposed rule. Several commenters requested that the 
Agency explain the need for Program Fraud Civil Remedies Act (PFCRA) in 
the proposed rule. The Agency has reviewed the comments and agrees that 
the inclusion of PFCRA provisions in the proposed rule created 
repetition and overlap, so they have been removed. Accordingly, the 
Agency has determined that 7 CFR part 1, subpart L, Procedures Related 
to Administrative Hearings Under the Program Fraud Civil Remedies Act 
of 1986, will be replaced with references to 7 CFR part 1, subpart H--
Rules of Practice Governing Formal Adjudicatory Proceedings Instituted 
by the Secretary Under Various Statutes.
    The majority of borrowers and management agents within the 
multifamily portfolio comply with Agency regulations and procedures and 
will not be affected by this rule. We estimate that less than five 
percent of

[[Page 57441]]

the multifamily portfolio will be affected by the CMP rule.
    CMP Process: Ten comments expressed concerns about the CMP process. 
Those concerns included:
     Two comments concerning the timeliness and use of the 
Attorney General. The concern was that the use of the United States 
Attorney's office could take years delaying completion of any civil 
monetary penalty against the individual or entity.
     One commenter raised a concern about the role of the 
Office of General Counsel (OGC) and its impact on the length of time 
for completing a CMP case and whether it had adequate staffing to 
handle such matters.
     One comment requested clearer guidance on the role and 
process of the Fraud Claims Officer, and the designation of the 
reviewing official.
     One comment objected to the pre-penalty notices warning 
that a penalty may be coming if the Agency did not receive adequate 
performance.
     Five comments were received that raised concerns about the 
complicated methodology of the process, ambiguous deadlines, and the 
standards for maintaining a property.
     Another comment suggested that the rule clearly limit 
which portions of Part 1 apply so, for example, the Agency is clear 
that it is not seeking to take on the Office of Inspector General (OIG) 
investigation powers, but is still providing full and adequate 
discovery and hearing procedures.
     Another commenter suggested an initial process using the 
State Director or Program Director.
     The Agency considered all of the comments above and 
changed the rule by enlisting the Office of Administrative Law Judges 
to administer civil monetary hearings to address the concerns of due 
process. References to the Fraud Office, of which there is no 
equivalent in USDA have been removed. No specific pre-penalty notice 
will be provided. Instead the Agency will use servicing letters in the 
existing guidance provided in the Serving Handbook. The Administrative 
Law Judges conduct similar hearings for other U.S. Department of 
Agriculture agencies. The Administrative Law Judges' regulations allow 
within its jurisdiction, ``other adjudicatory proceedings in which the 
complaint instituting the proceeding so provides with the concurrence 
of the Assistant Secretary for Administration.'' See 7 CFR 1.131(b)(6). 
The Agency process will be similar to that used by Investigative and 
Enforcement Services of the Animal and Plant Health Inspection Service 
(APHIS). Borrowers will have an opportunity to resolve the findings or 
deficiencies by working with the State Director and Agency staff prior 
through its regulatory loan servicing procedures prior to a CMP 
hearing. As with other loan servicing actions, the Agency will complete 
its loan servicing pursuant to 7 CFR part 3560 of the Borrower's loan 
account before pursuing civil monetary penalties. Pursuant to 7 CFR 
3560.456(b), the Agency will make a determination on whether to proceed 
with an acceleration or seek CMPs. The Office of General Counsel will 
review the cases to ensure legal sufficiency as well as represent the 
Agency on any cases that they recommend to move forward. Once 
forwarded, the timing of the process will be incumbent on the caseload 
of the Office of the Administrative Law Judges.
    The Agency will amend Sec.  3560.461(b)(2) adding references to 7 
CFR part 1 subpart H-Rules of Practice Governing Formal Adjudicatory 
Proceedings Instituted by the Secretary Under Various Statutes. In 
response to comments concerning duplicity, due process and procedural 
concerns the Agency determined it will use its authority in section 
543(b) Housing Act authority and this subpart rather than 7 CFR part 1, 
subpart L.
    CMP Fees: Three commenters expressed concerns about the fee 
structure and its reasonableness. As described in the proposed rule, 
the CMP fees will be assessed in accordance with 7 CFR part 3, subpart 
I. The Administrative Law Judge will use the criteria in the final rule 
and the requirements in section 3.91(b)(8) to determine the fees. The 
Agency believes that the fees set in the final rule will be reasonable. 
With the threshold of the fees independently established in USDA 
regulation and the assessment of the CMP fees imposed by the 
Administrative Law Judges, the Agency believes these measures eliminate 
any potential RHS subjectivity or bias.
     Failure to Disclose: One commenter requested that the 
Agency add a section to the rule that specifies the failure to disclose 
proper identity-of-interest information on site managers and 
contractors as a cause to impose CMP. We agree this should be included 
and have adopted the comment. This requirement is addressed in Sec.  
3560.461(b)(1)(iii) entitled, ``Failing to submit information requested 
by the Agency in a timely manner.''
    The Agency will not adopt the following comments:
    Non-profits: Six commenters were concerned about the negative 
impact of the rule on non-profit borrowers. Some requested exempt 
status or a 24-month grace period for implementation when a non-profit 
obtains a property through a transfer and assumption.
    The Agency does not see a need to adopt the comment because all 
borrowers, including non-profits, are required to adhere to the 
requirements of 7 CFR part 3560. In addition, MFH will work with the 
non-profits to assist them in bringing the properties into compliance 
with MFH regulations. As a result, MFH does not think it is necessary 
to implement a 24 month grace period.
    Liability Concerns: One commenter expressed concerns about 
liability in the case of a Limited Liability Corporation (LLC) and 
whether the tenant could be liable. It is ultimately the borrower's 
responsibility to remain compliant with the program regulations. False 
information provided by the tenant resulting in unauthorized benefits 
may be pursued under 7 CFR part 3560, subpart O--Unauthorized 
Assistance. The Agency will determine borrower liability on a case-by-
case basis and as the regulation and law allows. A Tenant may be liable 
under the CMP and is subject to the requirements of this rule.
    Lack of Resources: One commenter requested that the rule clarify 
that civil monetary penalties will not be sought or assessed under 
circumstances where the primary cause of a failure to properly manage 
or maintain a project results from a lack of available funds where the 
borrower has requested rental increases or additional loans or grants 
in order to maintain and repair the project, but such requests have 
been denied. The Agency understands the commenter's concern. The Agency 
is choosing not to adopt the comment because the Agency is confident it 
can work with borrowers on tools that are available, which may include 
rent increases in accordance with 7 CFR part 3560, subpart E and other 
servicing options available under subpart J.

List of Subjects in 7 CFR Part 3560

    Aged, Loan programs--Agriculture, Loan programs--Housing and 
Community Development, Low and moderate income housing, Public housing, 
Rent subsidies.

    For the reasons set forth in the preamble, chapter XXXV, Title 7 of 
the Code of Federal Regulations is amended as follows:

PART 3560--DIRECT MULTI-FAMILY HOUSING LOANS AND GRANTS

0
1. The authority citation for part 3560 continues to read as follows:

    Authority:  42 U.S.C. 1480.

[[Page 57442]]

Subpart J--Special Servicing, Enforcement, Liquidation, and Other 
Actions

0
2. Amend Sec.  3560.461 by revising paragraphs (b)(2) and (b)(4) to 
read as follows:


Sec.  3560.461  Enforcement provisions.

* * * * *
    (b) * * *
    (2) Amount. Civil penalties shall be assessed in accordance with 7 
CFR part 3, subpart I. In determining the amount of a civil monetary 
penalty under this section, the Agency must take into consideration:
    (i) The gravity of the offense;
    (ii) Any history of prior offenses by the violator (including 
offenses occurring prior to the enactment of this section);
    (iii) Any injury to tenants;
    (iv) Any injury to the public;
    (v) Any benefits received by the violator as a result of the 
violation;
    (vi) Deterrence of future violations; and
    (vii) Such other factors as the Agency may establish by regulation.
* * * * *
    (4) Hearings under this part shall be conducted in accordance with 
the procedures applicable to hearings in accordance with 7 CFR part 1, 
subpart H.
* * * * *

    Dated: July 25, 2016.
Tony Hernandez,
Administrator, Rural Housing Service.
[FR Doc. 2016-19954 Filed 8-22-16; 8:45 am]
 BILLING CODE 3410-XV-P