Charging Interest On Receivables

For questions or comments, please contact us : NC-CFOB-Financial_Policy_Questions_Politique_Financière-GD

Please note that this policy will apply to both Service Canada and Human Resources & Social Development (HRSD) hereinafter referred to as the "Department" or "Departmental".

Table of Contents:

Part I - The Requirement to Charge Interest

1. Introduction
   • 1.1 Rationale for Charging Interest on Receivables
   • 1.2 Charging Interest on Receivables Subject to the FAA Interest and Administrative Charges Regulations
   • 1.3 Charging Interest on Social Benefit Program Receivables (Employment Insurance and Income Security Programs)
   • 1.4 Charging Interest on Canada Student Loan (CSL) Program Receivables
   • 1.5 Charging Interest on Canada Education Savings Grant (CESG) Receivables
   • 1.6 Exceptions to Charging Interest on Receivables
2. Policy Objective
3. Policy Statement
4. Scope

   Part II - Charging Interest on Programs Governed by the FAA Interest and Administrative Charges Regulations

5. Labour Program (LP)
   • 5.1 Introduction
   • 5.2 Application of Interest
   • 5.3 Grace Period
   • 5.4 Effective Date
   • 5.5 Authorities
6. CRF-Funded Grants and Contributions
   • 6.1 Introduction
   • 6.2 Application of Interest
   • 6.3 Grace Period
   • 6.4 Effective Date
   • 6.5 Authorities
7. Administrative Receivables
8. General Interest Charging RRequirements for Programs Governed by the FAA Interest and Administrative Charges Regulations
   • 8.1 Notification of Debt
   • 8.2 Rate of Interest and Interest Calculation
   • 8.3 Grace Period
   • 8.4 End of Interest Accrual
   • 8.5 Exceptions for Errors, Delays in Processing Payments of Establishing Amounts Payable, and Small Amounts
   • 8.6 Waiver, Reduction of Interest for Programs Subject to the FAA Interest and Administrative Charges Regulations
   • 8.7 Minimum Balance
   • 8.8 Write-off, Remission, Forgiveness
   • 8.9 Appeals under the FAA Interest and Administrative Charges Regulations

   Part III - Charging Interest on Social Benefit Programs

9. Income Security Programs (ISP)
10. Employment Insurance (EI) Program
    • 10.1 Background
    • 10.2 Application of Interest to Employment Insurance Debts
    • 10.3 Grace Period
    • 10.4 Effective Date
    • 10.5 Notification of Debt
    • 10.6 Rate of Interest and Interest Calculation
    • 10.7 End of Interest Accrual
    • 10.8 Waiver
    • 10.9 Appeals
    • 10.10 Write-off
    • 10.11 Minimum Balance
    • 10.12 Authorities

    Part IV - Charging Interest on Canada Student Loans

11. Canada Student Loan Program (CSLP)
    • 11.1 Introduction
    • 11.2 Rate of Interest and Interest Application
    • 11.3 Interest-free Periods
    • 11.4 Effective Date
    • 11.5 Authorities

    Part V - Charging Interest on Canada Education Saving Grant Receivables

12. Canada Education Saving Grant (CESG)

    Part VI - Supplemental Information

13. Roles and Responsibilities
    • 13.1 Establishment of Overpayments
    • 13.2 Recovery of Overpayments
14. Monthly Statement of Account
15. Reporting and Recording Interest
16. Retention of records
17. Compliance
    • 17.1 Duty to Accommodate

Appendix A - Definition of Special or Technical Terms
Appendix B - Quick Reference Chart on Charging Interest
Appendix C - Interest Waiver Guidelines
Appendix D - Directive on the Use of Hardship Interest Waivers for EI Debts

Part I - The Requirement to Charge Interest

1.  Introduction

1.1  Rationale for Charging Interest on Receivables

The rationale for charging interest is to encourage the timely repayment of debts due to the Crown, and to ensure that the financial burden which is incurred by the government in carrying overdue debts and misrepresentative receivables is fairly shifted from the general public to delinquent debtors.

1.2  Charging Interest on Program Receivables Subject to the FAA Interest and Administrative Charges Regulations

Section 155.1 of the Financial Administration Act imposes interest charges on debts due to the Crown, unless another authority has precedence. The following receivables are subject to the FAA Interest and Administrative Charges Regulations:

• CRF-funded grant and contribution receivables
• Labour program receivables
• Administrative receivables
• Receivables that represent amounts owed to the department by Crown Corporations, as well as by provincial and foreign governments
• Any other receivable not specified in this policy that is subject the FAA Interest and Administrative Charges Regulations

1.3  Charging Interest on Social Benefit Program Receivables (Employment Insurance and Income Security Programs)

The recovery of social benefit overpayments is considered to be a special case. TB Circular 1996-3 - Interest and Administrative Charges Regulations indicates that departments have the option of developing separate legislative authorities for the charging of interest in order to address the special nature of social benefit program debts.

• The Employment Insurance Regulations have been amended to add section 56.1, which governs the charging of interest. Therefore, Employment Insurance receivables are governed by the Employment Insurance Regulations, not the FAA Interest and Administrative Charges Regulations.
• The Department is proposing to develop legislative changes that will remove Income Security Programs from the scope of the Interest and Administrative Charges Regulations.

1.4  Charging Interest on Canada Student Loan Program Receivables

Loans, including Canada Student Loans, are not subject to the FAA Interest and Administrative Charges Regulations.

The measures to be taken for the recovery of loans, including any accrued interest, are prescribed by loan program regulations.

1.5  Charging Interest on Canada Education Savings (CES) Receivables

The Human Resources Development Act provides the authority for the Canada Education Savings Program governed by Canada Education Savings Act to make regulations on interest charging. Since, currently, these regulations do not exist; accounts receivable under Canada Education Savings Program are subject to interest charges under Part 1 (sections 4 to 9) of The Interest and Administrative Charges Regulations, issued pursuant to subsection 155.1 of the Financial Administration Act.

1.6  Exceptions to Charging Interest on Receivables

Amounts owed by other federal government departments are not considered to be debts owing to the government; hence interest must not be charged on interdepartmental receivables.

2.  Policy Objective

The purpose of this policy is to provide comprehensive direction on the charging of interest in order to ensure that the Department's clients are treated with fairness, that program objectives are respected, and that the Department receivables are managed efficiently, effectively, and in compliance with the appropriate legislation and regulations governing interest.

3.  Policy Statement

The Department will charge interest on overdue receivables and erroneous or misrepresentative overpayments, including penalties, or other costs, levied in connection with misrepresentative overpayments as described by this policy.

4.  Scope

Given the differences in program criteria and objectives, as well as differences in legislative authorities, the application of interest charges may vary among programs. For this reason, the policy requirements for interest charging have been divided into separate categories:

• Part II describes program-specific and general requirements that apply to programs governed by the FAA Interest and Administrative Charges Regulations;
• Part III outlines the provisions for charging interest under the Employment Insurance Regulations, and provides an update on interest charging for Income Security Programs; and
• Part IV describes interest charging on Canada Student Loans.
• Part V provides interest charging information on the Canada Education Savings Grant program.
• Part VI includes supplemental operational information about interest charging.

Part II - Charging Interest on Programs Governed by the FAA Interest and Administrative Charges Regulations

• CRF-funded Grant and Contribution Receivables
• Labour Program Receivables
• Administrative Receivables

5.  Labour Program (LP)

5.1  Introduction

The Interest and Administrative Charges Regulations govern the charging of interest on Labour receivables. Most Labour receivables are incurred as a result of monies owed by other government departments (OGDs) and Crown Corporations (CCs) for Workers' Compensation (WC) expenses under the Government Employees Compensation Act.

Labour receivables other than those incurred under the Government Employees Compensation Act may include the recovery of expenses incurred by the Labour Program as a result of arbitration procedures during contract negotiations between employers and unions.

The Labour Program also funds a number of CRF and EI Part II grant and contribution initiatives. Please see section 6 of the policy for details on the application of interest to CRF-funded grant and contribution overpayments and section 10 for details regarding the application of interest on Employment Insurance Part II overpayments.

5.2  Application of Interest

Interest on overdue receivables is calculated daily and compounded monthly on the amount owing at the average Bank of Canada rate, plus three percent, which is known as Payment on Due Date (PODD) interest rate. Please see section 8.2 for additional information on the PODD interest rate.

• Interest is charged on all Labour receivables, including overdue receivables owed to the department by Crown Corporations or third parties with the exception of other government departments. Interest is not charged on receivables owed by other government departments or agencies.
• Interest will not be charged on non-misrepresentative debts that have been paid in full by the due date, or, where a grace period has been given, that have been paid in full before the end of the grace period.
• For misrepresentative debts, interest charging will be calculated from the date the overpayment occurred.

Note: A misrepresentative debt occurs when overpayments are made as a result of fraud, falsification, willful misrepresentation, or any other offense, or otherwise associated with actions which are illegal and are prosecuted in a court of law.

5.3  Grace Period

A grace period applies to non-misrepresentative receivables only. On non-misrepresentative receivables, interest charging will begin on the day after the expiry of the grace period.

• No grace period - There is no grace period for misrepresentative overpayments.
• 30 days - Most Labour Program non-misrepresentative receivables have a grace period of 30 days.
• 60 days - For Crown Corporation receivables, invoices are issued approximately 30 days in advance of the due date. In most cases, interest will not be charged until 30 days after the due date, which means that interest charging will not commence until 60 days after the invoice has been entered in the Departmental Accounts Receivable System (DARS).
• 180 days - CRF-funded Labour Program non-misrepresentative receivables have a grace period of 180 days. Refer to section 6 for additional information on CRF-funded overpayments.
• Other - No interest is charged on non-misrepresentative EI-funded grant and contribution overpayments, so the application of a grace period is not applicable. Please refer to Section 10 for more information about Employment Insurance overpayments.

5.4  Effective Date

Interest is currently being charged on Labour receivables. Please refer to section 6 for information on the effective date for charging interest on CRF-funded grant and contribution receivables.

5.5  Authorities

• Financial Administration Act, 1985
• Government Employees Compensation Act, 1985
• Interest and Administrative Charges Regulations, 1996

6.  CRF-Funded Grants and Contributions

6.1  Introduction

CRF-funded grants and contributions are subject to the Interest and Administrative Charges Regulations. Grants and contributions funded by EI Part II are included in the category of social benefit payments and are subject to the Employment Insurance Regulations, not the FAA Interest and Administrative Charges Regulations.

In order to implement Treasury Board requirements to charge interest on CRF-funded grant and contribution overpayments, new account types which will automatically calculate interest, have been created in the Departmental Accounts Receivable System (DARS).

CRF-funded transfer payments are made under the auspices of several programs, including Labour, Human Investment Programs (HIP), Employment Programs Branch (EPB), Strategic Policy (SP), and the National Secretariat on Homelessness (NSH).

6.2  Application of Interest

Interest on overdue receivables is calculated daily and compounded monthly on the amount owing at the average Bank of Canada rate, plus three percent, which is known as the Payment on Due Date (PODD) interest rate. Please see section 8.2 for additional information on the PODD interest rate.

Grant and contribution overpayments are identified at the end of a project when all appropriate documentation has been submitted to, and has been evaluated and verified by, departmental officials during the final accounting. Once it has been determined that an overpayment exists, the amount owing will be entered into the Departmental Accounts Receivable System.

• On a non-misrepresentative debt, interest will be charged only on the balance that has not been paid by the end of the grace period.
• Interest will be charged on misrepresentative overpayments beginning on the date on which the misrepresentative overpayment occurred.

Note: A misrepresentative debt occurs when overpayments are made as a result of fraud, falsification, willful misrepresentation, or any other offense, or otherwise associated with actions which are illegal and are prosecuted in a court of law.

6.3  Grace Period

A 180-day grace period has been assigned to all grant and contribution debts in the Departmental Accounts Receivable System (DARS). In order for a debt to be classified as misrepresentative, it must be proved in a court of law to have been incurred as a result of fraud or other illegal action. Thus, it is unlikely that debts will be confirmed as misrepresentative until well after an overpayment has been entered into DARS and recovery action has begun.

For misrepresentative debts, the FAA Interest and Administrative Charges Regulations require that interest be charged from the date that the misrepresentative overpayment occurred. Therefore, in those cases where a grant and contribution overpayment is identified as misrepresentative, it will be necessary to manually calculate the amount of interest from the date the overpayment occurred, in order to ensure that the appropriate amount of interest is charged.

For non-misrepresentative debts that have not been repaid on or before the last day of the grace period, interest will be charged on any remaining balance, beginning the day after the expiry of the grace period.

6.4  Effective Date

The charging of interest was implemented on June 3, 2002. Interest charging will apply only to overpayments established on or after this date and where an agreement was signed between the Department and a recipient on or after September 1, 2000.

The Interest and Administrative Charges Regulations apply to CRF-funded grants and contributions only. Grants and contributions that are funded through Employment Insurance Part II are governed by the Employment Insurance Regulations.

6.5  Authorities

• Financial Administration Act, 1985
• Interest and Administrative Charges Regulations, 1996
• Policy on Transfer Payments, Treasury Board Secretariat, 2000
• Policy on Grants and Contributions, Financial Policy, Policy and Corporate Management Systems, HRDC, 2000

7.  Administrative Receivables

A policy on administrative receivables is currently being developed, and will be released at a later date.

8.  General Interest Charging Requirements for Programs Governed by the FAA Interest and Administrative Charges Regulations

The provisions in section 8 apply to all programs, which are governed by the FAA Interest and Administrative Charges Regulations.

• CRF-funded Grant and Contribution Receivables
• Labour Program Receivables
• Administrative Receivables

8.1  Notification of Debt

Clients should be notified when a program intends to introduce interest charging on overpayments for the first time, or where the department plans to introduce interest charging on new categories of receivables for the first time. In these cases, clients should receive advance notice of at least one monthly billing or statement cycle. Where it is not possible to notify clients in advance, interest may be waived for the period of time for which no notice was given.

8.2  Rate of Interest and Interest Calculation

In accordance with the FAA Interest and Administrative Charges Regulations, interest on overdue receivables is calculated and compounded monthly on the amount owing at the average Bank of Canada rate, plus three percent. This rate is the Payment on Due Date (PODD) interest rate.

The PODD interest rate, used to calculate the interest payable on overdue or misrepresentative accounts, is posted on the Public Works and Government Services Canada web site.

Compound interest is calculated on the outstanding balance of an account, which is equal to the total of the principal outstanding, plus any previously accrued interest.

• When a payment is received, interest will stop accruing on the day before the day payment is received.
• When a partial payment is made on an account, the period for which interest is payable for the amount of the partial payment ends on the day before the day on which the partial payment was received.

8.3  Grace Period

Where a grace period applies, interest will not be charged on any amount until the expiry of the grace period, with the exception of misrepresentative overpayments, for which there is no grace period.

8.4  End of Interest Accrual

The accrual of interest on program debts governed by the FAA Interest and Administrative Charges Regulations will cease when a debt is paid in full.

8.5  Exceptions for Errors, Delays in Processing Payments or Establishing Amounts Payable, and Small Amounts

The Treasury Board Secretariat has identified additional circumstances in the FAA Interest and Administrative Charges Regulations where interest is not charged.

• Where there is an error or delay on the part of the government and where there is no fault on the part of the debtor in creating the error or delay, interest should not be charged. For example, should the department credit the wrong account, deposit a post-dated cheque before the legal date, or should there be a breakdown in government systems or communications, then the error or delay could be said to be on the part of the government and interest will not be charged. Any interest charges that occur as a result of these circumstances must be reversed.
• Where there has been a delay on the part of the department in establishing an amount payable, interest is also not charged. Any interest charges that occur as a result of these circumstances must be reversed.
• The department does not need to charge interest nor issue a demand for payment on small amounts, where the total amount payable, including interest, is less than the amount for which an invoice or demand for payment would not normally be issued. Note that the exception for small amounts is not the same as minimum balance, which applies only to inactive accounts.

NOTE: This section on exceptions to charging interest is not applicable to Employment Insurance debts.

Employment Insurance debts are excluded from Part I of FAA Interest and Administrative Charges Regulations. For the purpose of charging Interest, EI debts are governed instead by the Employment Insurance Regulations. For information on EI interest charging, please refer to section 10 of this policy, which sets out the conditions for charging interest on Employment Insurance debts, and Appendix D, which describes the circumstances under which a waiver may be used for Employment Insurance debts.

However, this section (section 8.5) is applicable to Unemployment Insurance debts. The former Unemployment Insurance Act did not contain provisions for charging interest on UI debts. Therefore UI debts are subject to the FAA Interest and Administrative Charges Regulations. For more information on the appropriate application of interest to UI overpayments, as well as EI overpayments, please refer to section 10 of this policy.

8.6  Waiver, or Reduction of Interest for Programs Subject to the FAA Interest and Administrative Charges Regulations

The FAA Interest and Administrative Charges Regulations describe the conditions under which the interest owing on a debt may be waived or reduced. In cases where interest on a debt is waived or reduced, the amount of interest that a client is required to pay on that debt is the reduced amount or no amount if interest is waived entirely.

Waiver replaces one amount of interest with another amount of interest, either a reduced amount or no amount if interest is waived entirely. Because one amount of interest is replaced with another amount or no amount, there will be nothing to write off.

Waiver is intended to have a very narrow application under very specific conditions. Please refer to Appendix D for additional guidance on the use of waiver provisions.

• In cases where the administrative costs of collecting interest would exceed the amount of interest owing, interest may be waived. Once a debt has been established and collection has been attempted, there may be exceptional cases where the administrative costs of further collection activity exceed the amount of interest owing. In such cases, interest may be waived.
• Interest may be waived a where a dispute over the amount of a debt is settled in favour of a debtor. Where a debt is reduced, the interest must be waived or reduced, accordingly.
• Where there are circumstances beyond the control of a client, and those circumstances are caused by events that are external to the department then the interest on the amount owing may be waived or reduced. Such situations could include postal strikes, delays in the processing of a payment or other error by a financial institution. Prior to approving a waiver or reduction in interest under these circumstances, the appropriate official will consider the case presented by the debtor. In addition to the case presented by the debtor, the debtor's diligence in managing the debt and the debtor's payment history must be considered before granting a waiver or reduction in interest.
• Interest may be waived in the event of the death or incapacity of a debtor. It is the Department's policy to waive interest in these circumstances.

8.7  Minimum Balance

The departmental minimum balance has been set at twenty dollars, below which inactive accounts are written off or remitted. The calculation of minimum balance includes both principal and interest.

Please refer to the Minimum Balance Policy for additional details.

8.8  Write-off, Remission, Forgiveness

The Interest and Administrative Charges Regulations do not specifically refer to write-off. There are separate regulations, the FAA Debt Write-off Regulations, which prescribe the conditions under which write-off may be applied. The conditions under which interest may be remitted or forgiven can be found in the Financial Administration Act.

• Where a portion of a debt is written-off, remitted, or forgiven, the interest on that portion of the debt will also be written-off, remitted, or forgiven. Interest charges will cease to accrue at the point an account is selected for write-off.
• Should the department resume collection action on a debt that has been written off, interest will be reinstated, and will be calculated from the date that interest charges ceased to accrue.
• There may be circumstances in which a debt is not written-off, remitted or forgiven, but the interest on the debt will be written-off, remitted, or forgiven.

8.9  Appeals under the FAA Interest and Administrative Charges Regulations

There is no authority under the FAA Interest and Administrative Charges Regulations for stopping interest in cases where a client disputes a debt.

Disputes are handled administratively, which means that interest will continue to accrue on debts subject to the FAA Interest and Administrative Charges Regulations until such time as the dispute is resolved. Should there be a change in the amount or status of a debt, then interest charges will be adjusted or reversed, accordingly.

Part III - Charging Interest on Social Benefit Programs

• Income Security Programs
• Employment Insurance Program

9.  Income Security Programs (ISP)

Income Security Programs, including the Canada Pension Plan, Old Age Security, and the Guaranteed Income Supplement are key social benefit programs. Under the staged-in approach adopted by the department for the charging of interest, interest charging on ISP receivables is scheduled to be phased-in following the implementation of EI interest charging. Legislative, regulatory and systems changes are currently being developed for ISP programs.

10.  Employment Insurance (EI) Program

Additional administrative and systems documentation for users on the migration of Employment Insurance debts to the Departmental Accounts Receivable System may be found on the Insurance web site under Departmental Accounts Receivable System (DARS). There are links to questions and answers and other reference materials for users on this site.

10.1  Background

The Employment Insurance Regulations were amended in order to permit the department to charge interest on misrepresentative debts owed to the Employment Insurance Account. The regulations were implemented in order to encourage debtors with misrepresentative debts to repay amounts owing to the Crown in a timely manner and to reduce the costs to the Crown of carrying these outstanding debts.

Section 80.1 of the Employment Insurance Act provides the authority for the making of regulations for the charging of interest on EI debt, thereby removing EI debt from the scope of the FAA Interest and Administrative Charges Regulations. Section 56.1 of the Employment Insurance Regulations sets out the terms and conditions for applying interest to Employment Insurance overpayments.

10.2  Application of Interest to Employment Insurance Debts

Non-misrepresentative Debts

Interest will not be charged on non-misrepresentative debts. A non-misrepresentative debt is incurred when a claimant, employer, or any other person acting for a claimant or employer, unintentionally or unknowingly provides the department with incorrect information pertaining either to a benefit claim or employer responsibilities under the Employment Insurance Act or Regulations.

Misrepresentative Debts

Interest will be charged on misrepresentative debts. A misrepresentative debt occurs in relation to EI Part I overpayments when a claimant, employer or any other person acting for a claimant or employer knowingly makes false or misleading representations or statements to the Commission.

Until such time as a policy is introduced to impose penalties on misrepresentative Part II debts under Section 65.1 of the Employment Insurance Act, EI Part II overpayments will only be considered misrepresentative for the purpose of charging interest when illegal activity has occurred and has been prosecuted.

Unemployment Insurance (UI) Debts

The former Unemployment Insurance Act did not contain provisions governing the charging of interest, which means that outstanding UI debts are subject to the FAA Interest and Administration Charges Regulations.

However, in order to ensure consistency of application, interest will be applied to UI debts in the same way as interest is applied to EI debts. The department therefore remitted interest charges that would have accrued on UI debts up to July 1, 2002. Interest projected to accrue on non-misrepresentative UI debts from July 1, 2002 to the dates on which those remaining UI debts are expected to reach limitation in 2008 was also remitted.

10.3  Grace Period

There is no grace period for misrepresentative receivables.

10.4  Effective Date

Interest charging began on misrepresentative debt on July 1, 2002. Interest will not be charged on non-misrepresentative debt. In order to achieve consistency of application, interest will be applied to UI debts in the same way interest is charged on EI debts.

Employment Insurance Debts

• Interest will accrue on new EI misrepresentative debts that are established on or after July 1, 2002, beginning on the date on which a debtor is notified of the misrepresentative amount owing.
• For misrepresentative EI debts that were established prior to July 1, 2002, interest will be charged only on the balance of the misrepresentative debt that is still owing to the department as of July 1, 2002.

Unemployment Insurance Debts

• On misrepresentative UI debts, interest will be charged on any balance remaining as of July 1, 2002, when interest charging began.
• On non-misrepresentative UI debts, interest will not be charged on any balance remaining as of July 1, 2002.

10.5  Notification of Debt

Interest will be charged on EI misrepresentative debts, beginning on the date on which a debtor is notified of the amount owing. The date that a debtor is considered notified is seven days after an establishment has been approved in the Departmental Accounts Receivable System. A period of seven days has been added in order to ensure that there is a standard interval for all clients between the time an establishment is approved and interest charging begins.

10.6  Rate of Interest and Interest Calculation

In accordance with Employment Insurance Regulations, interest on misrepresentative receivables is calculated daily and compounded monthly on the amount owing at the average Bank of Canada rate, plus three percent. This rate is the Payment on Due Date (PODD) interest rate.

The PODD interest rate, used to calculate the interest payable on misrepresentative accounts is posted on the Public Works and Government Services Canada web site.

Compound interest is calculated on the outstanding balance of an account, which is equal to the total of the principal outstanding, plus any previously accrued interest.

• When a payment is received, interest will stop accruing on the day before the day payment is received.
• Where a partial payment is made on an account, the period for which interest is payable for the amount of the partial payment ends on the day before the day on which the partial payment was received.
• Where an appeal results in a change in the status of a debt to non-misrepresentative, then interest charges should be reversed. Payments may be re-applied to the principal of the debt where applicable.

10.7  End of Interest Accrual

Interest will cease to accrue when:

• A debt has been repaid in full.
• A debtor dies.
• The amount of the debt has been written off.
• The accrued interest on a debt is written off.

10.8  Waiver

The Employment Insurance Regulations describe the conditions under which the interest owing on an Employment Insurance debt may be waived. In cases where the amount of interest on a debt is waived or reduced, the amount of interest that a client is required to pay on that debt is the reduced amount or no amount if the interest is waived entirely.

Waiver replaces one amount of interest with another amount of interest, either a reduced amount or no amount if interest is waived entirely. Because one amount of interest is replaced with another amount or no amount, there will be nothing to write off.

Waiver is intended to have a very narrow application under very specific conditions. Please refer to Appendix D for additional guidance on the use of waiver provisions.

• Interest may be waived where the administrative costs of collecting interest would exceed the amount of interest owing. Once a debt has been established and collection has been attempted, there may be exceptional cases where the administrative costs of further collection activity exceed the amount of interest owing. In such cases, interest may be waived.
• Interest may be waived where the interest is payable on an amount in dispute that is settled in whole, or in part, in favour of the debtor.
• Interest may be waived on a particular penalty or debt where the accrual of interest would cause undue hardship to the debtor. A debtor would be assessed under current practices and criteria. Please refer to Interest Waiver Guidelines and the Directive on the Use of Hardship Interest Waivers for EI Debts in Appendix C and Appendix D for additional information.

Note: While interest is applied to UI debts the same way in which interest is applied to EI debts, the waiver provisions in this section apply only to EI debts. There are no provisions for waiving interest in Unemployment Insurance legislation. Therefore, the waiver provisions in the FAA Interest and Administrative Charges Regulations apply to UI debts. For information regarding the application of the FAA waiver provisions, please refer to section 8 and Appendices C and D of this policy.

10.9  Appeals

The appeals process for employment insurance debts is a legislated process the terms and conditions of which are set down in the Employment Insurance Regulations. Interest will stop accruing during the period of an appeal or other review under sections 47 and 65.2 of the Act.

An appeal or other review does not include the reconsideration of a decision under sections 41, 52, or 120 of the Act, but applies only to appeals launched under section 47 or 65.2 of the Act.

• If the misrepresentative status of a debt is upheld, then interest charging will begin accruing again, from the date that the appeal authority mails its decision, plus seven days. A period of seven days has been added in order to ensure that there is a standard interval for all clients between the time a decision is mailed and interest charging resumes.
• Where the misrepresentative status is upheld, but the amount of a debt changes, interest may be waived. No interest is charged during the appeal period.
• Where the status of a debt changes from misrepresentative to non-misrepresentative, then interest is not charged on the amount owing.

Please note that the amount of interest on a debt cannot be appealed; only decisions made regarding a claim may be appealed.

10.10  Write-off

The writing off of interest on Employment Insurance debts is governed by section 56 of the Employment Insurance Regulations.

• The interest on a debt, a penalty, or the amount of a debt may be written off in whole or in part.
• In cases where a debt is written off, then the interest that accrued on the debt must also be written off.
• Interest stops accruing where an amount owed or the interest accrued on a debt is written off. Interest charges will cease to accrue at the point an account is selected for write-off.

Note: The writing off of interest charges on Unemployment Insurance debts is governed by the FAA Debt Write-off Regulations.

10.11  Minimum Balance

Where the total amount of all Employment Insurance debts, including principal, penalties, fines, and interest where applicable, does not exceed twenty dollars, and a benefit period is not currently running or the debtor is not making regular payments under a repayment schedule, then the amount may be written off.

10.12  Authorities

• Employment Insurance Act, 1996
• Employment Insurance Regulations, 1996
• Financial Administration Act, 1985
• Interest and Administrative Charges Regulations, 1996
• TB Circular 1996-3 - Interest and Administrative Charges Regulations, Treasury Board Secretariat, 1996

Part IV - Charging Interest on Canada Student Loans

11.  Canada Student Loan Program (CSLP)

11.1  Background

The FAA Interest and Administrative Charges Regulations do not apply to debts that are governed by legislation that contains provisions for charging interest, such as the Canada Student Loans Program. In fact, loans, as a category, are specifically exempted from the FAA interest regulations. This section has been included in order to provide general information about Canada Student Loan receivables.

Note: CSLP is only excluded from the application of Part I of the Interest and Administrative Charge Regulations. Part II which addresses administrative charges for dishonoured instruments and Part III - General continue to apply.

The Government of Canada is now issuing Canada Student Loans directly through the National Student Loans Service Centre (NSLSC). Previously, financial institutions issued guaranteed and risk-shared loans. A Canada Student Loan issued prior to August 1, 2000 is repaid to the financial institution holding the loan. Canada Student Loans issued on or after August 1, 2000 are repaid through the National Student Loans Service Centre (NSLSC).

Interest rates on amounts borrowed under NSLSC will continue to be determined by individual loan agreements.

11.2  Rate of Interest and Application

Legislation and associated regulations governing Canada Student Loans provide for individual loan agreements, which set forth conditions for repayment, including interest charges.

Simple interest is charged on Canada Student Loans. Interest is calculated on the outstanding balance of the principal only. Clients may choose a fixed or variable rate of interest. Where clients fail to make arrangements for repayment within the required period of time, a variable rate of interest will automatically be applied to the loan.

Debtors are permitted to deduct a portion of the interest paid on Canada Student Loans from taxable income. A student who is repaying a Canada Student Loan to a financial institution will also receive a tax slip from the financial institution. A student who is repaying a risk-shared loan to a financial institution will receive a tax slip from the financial institution. The National Student Loans Service Centre will issue tax slips for those accounts managed through service providers. The Departmental Accounts Receivable System (DARS) issues a tax slip at the end of each year, indicating the amount of interest paid during the previous year for those accounts in the Departmental Accounts Receivable System. This may include guaranteed and risk-shared loans, which have been reclaimed by the department.

11.3  Interest-free Periods

Interest-free, interest-only, or deferred payment periods vary, depending upon whether or not a student is classified as a full-time student or a part-time student. When a student ceases to be a full-time student, a six-month period is granted to borrowers, during which time interest does not need to be paid, but which is calculated and may either be paid at the time of consolidation or added to the total amount owed on the loan at the end of the six-month period. This applies to guaranteed, risk-shared, and direct finance student loans.

Governing legislation provides for additional interest-free periods when clients experience financial hardship. An application for interest-relief due to hardship may be granted if a client meets the required criteria.

11.4  Effective Date

Interest is being charged on all Canada Student Loans as per individual loan agreements.

11.5  Authorities

• Canada Student Loan Act, 1985
• Canada Student Loan Regulations, 1993
• Canada Student Financial Assistance Act, 1994
• Canada Student Financial Assistance Regulations, 1995

Part V - Charging Interest on Canada Education Savings Grant Receivables

12.  Canada Education Saving (CESG) Grant

The Human Resources Development Act provides the authority for the CESG Program to develop regulations, which will prescribe the circumstances for charging interest on debts owed to the Crown.

Part VI - Supplemental Information

13.  Roles and Responsibilities for Accounts Receivable

Additional documentation on the respective roles and responsibilities of Employment Insurance and Collections Services staff regarding the administration of Employment Insurance receivables may be found on the Insurance web site under Departmental Accounts Receivable System (DARS), Job Aids, Roles and Responsibilities.

13.1  Establishment of Overpayments (Programs)

Programs are responsible for determining whether or not an overpayment has occurred, and for accurately and promptly ensuring that overpayments are established in the Departmental Accounts Receivable System. Some programs use the notice of debt functionality that is available in the Departmental Accounts Receivable System. Other program areas send Notices of Debt directly to clients.

Once an overpayment has been established in the Departmental Accounts Receivable System, the system will calculate interest charges where applicable, and recovery officials from Collections Services will manage recovery action.

13.2  Recovery of Overpayments (Collections Services)

FAS Collection Services recovery officers are responsible for managing the debt collection process. Recovery officers are responsible for explaining the interest policy to clients, and for negotiating acceptable repayment arrangements to ensure the efficient collection of debts.

Where a client disputes the amount of an overpayment, or the reason for an overpayment, the recovery officer will refer clients to the appropriate program officials. In cases where a client contests collection processes or policies, the recovery officer is responsible for overseeing the process, and for informing a client of the appropriate mechanisms available for resolving these issues. In cases where a client may not be able to manage payments, due to hardship, the recovery officer is responsible for informing a client of the options that are available to ameliorate the situation, balancing the requirement to collect overpayments with the requirement to avoid causing hardship to clients.

Recovery officers will also be responsible for explaining to clients that interest may be charged on overdue and misrepresentative receivables, and to describe the circumstances under which interest will be charged.

14.  Monthly Statement of Account

For those accounts in DARS only, a Monthly Statement of Account (MSA), which summarizes payments and interest charges if applicable, should be sent to clients each month by the Departmental Accounts Receivable System.

15.  Reporting and Recording Interest

Financial and Administrative Services (FAS) is responsible for reporting interest on accounts receivable. Financial and Administrative Services must also report interest that has been waived, remitted, forgiven, or written-off.

As required by the the Department's Accounts Receivable and Revenue Policy, Financial and Administrative Services must record any interest charged on outstanding interest-bearing accounts as revenue.

16.  Retention of Records

Detailed financial records are required to be maintained for a minimum period of six fiscal years. Please refer to the Financial Records Retention Policy for additional information on this topic.

17. Compliance

17.1 Duty to Accommodate

This policy is compliant with the Treasury Board Secretariat Policy on the Duty to Accommodate Persons with Disabilities in the Federal Public Service.

Appendix A - Defenition of Terms

Appendix B - Quick Reference Chart on the Imposition of Interest

Note: The Quick Reference Chart does not apply to Canada Student Loan Program (CSLP) debts.

Appendix C - Interest Waiver Guidelines

These guidelines outline the conditions for waiving interest charges on amounts owed to the department. The objective of these guidelines is to ensure that interest is waived in a fair and consistent manner and that the criteria used are consistent with other debt recovery procedures.

The guidelines are based on the authority provided in section 56.1 of the Employment Insurance Regulations to waive interest charges on EI debt as well as the authority to waive interest on other departmental debt provided in section 9 of the Interest and Administrative Charges Regulations made under the Financial Administration Act (FAA).

The guidelines cannot address all situations that may arise. It is expected that discretion will be applied where a specific situation is not covered by these guidelines but is considered to fit within the legislative authority for waiving interest. Such cases will be reviewed for the further development of these guidelines.

For EI debts, the only waiver conditions that apply are those outlined in the EI regulations; the FAA waiver conditions may not be applied to EI debts. The guidelines below indicate to which debts the waiver condition applies.

1.  Conditions for Waiving Interest

1.1  Administrative cost exceeds interest (all debts)

Interest charges may be waived when the administrative costs of collecting the interest would exceed the amount of interest owing. This applies to both EI and other departmental debt.

This condition for waiving interest would normally apply after a debt has been established and recovery action has been attempted. The interest charge to be used in this assessment is the full amount of interest to be collected over the duration of the debt. Similarly, the costs of collection are the costs to be incurred over the duration of the debt. This waiver condition cannot be applied to a portion of the time that the debt is in recovery if the debt is to exist for a longer period.

This condition for waiving interest is similar to one of the conditions for debt write-off. The department has set the level at which it is not cost effective to maintain an inactive account at $20.00. The minimum balance policy applies to the client's total debt which would include program debts, penalties and interest.

It is not expected that this interest waiver condition will have much practical application since inactive debts will be written off at the point when the total client debt exceeds the cost of collecting that debt.

1.2  Interest accrual would cause undue hardship to debtor (EI debts only)

The EI legislation allows interest charges to be waived when the accrual of interest charges would cause undue hardship to the debtor. This applies to EI debts only as there is no similar provision in the FAA interest regulations for other departmental debts.

The department considers a client's ability to pay when negotiating a repayment arrangement. Interest charges do not affect the repayment arrangement other than to extend the period of time that the debtor has to continue making payments. For this reason, the interest charge itself would not normally cause hardship.

Hardship will not be evaluated specifically for waiving interest. Hardship is considered in the review of a client's financial or other circumstances that prevent the client from making payments on the entire debt outstanding. When the client is not able to make a payment, however small, the repayment arrangement is deferred.

When the repayment arrangement is deferred for reasons of hardship, interest may be waived on a case-by-case basis.

When an interest waiver is being considered by a recovery unit and it is not clear that the case falls within the legislative authority or its intent, a brief summary of the case should be emailed to Bridget Barton, Chief, Accounts Receivable Taskforce, National Collection Services, for review and guidance.

1.3  Compromise settlements (all debts)

Legal Services is reviewing this section, and it will be added at a later date.

1.4  Circumstances beyond control of debtor prevents payment (does NOT apply to EI debts)

The FAA interest regulations permit the department to waive interest when circumstances beyond the control of the debtor prevent the debtor from making a payment. There is no similar provision in the EI legislation so this condition does not apply to EI debts.

This condition applies in the following situations:

• the death or incapacity of the debtor or of the person responsible for making the payment for the debtor (see below - interest accrual stops on EI debt on day debtor dies);
• a postal disruption that delayed or prevented the payment from being made and there is no alternative method of payment that would not cause inconvenience to debtor; or
• a delay in processing a preauthorized debit that was caused by an external systems failure.

Situations similar to these may also be considered provided that the circumstances that prevented the client from making the payment were beyond the client's control.

In all situations, the case presented by the client must be considered along with the client's payment history, history of voluntary compliance, and diligence in conducting their affairs with respect to the debt.

1.5  Fine or penalty takes interest into account (does NOT apply to EI debts)

The FAA interest regulations permit interest to be waived when a fine or penalty has taken interest charges into account. There is no similar provision in the EI legislation so this condition does not apply to EI debts. This condition only applies to the Department overpayments, other than EI overpayments, that were a result of misrepresentation or fraud.

The only time this condition will apply is when a court decision explicitly takes interest charges that would otherwise be applicable into account in setting the amount to be repaid by the debtor. This condition will not have extensive application.

2.  Periods of no Accrual

There is no interest accrual on EI debts:

• during an appeal period;
• when the status of the debt changes from misrepresentative to non-misrepresentative*;
• after the debtor dies; or
• after the debt is written off.

*If the claimant successfully appeals a penalty or warning or is acquitted in a prosecution, then the debt is not considered misrepresentative. Interest charges already applied need to be reversed.

There is no interest accrual on other departmental debts:

• when the accrual was caused by a departmental error or delay in processing a payment
• when the department is late in establishing the overpayment;
• when there is a breakdown in the payment processing system; or
• when the total amount of debt plus interest is less than the minimum amount that would otherwise be billed by the department (there is no departmental minimum amount for billing at present).

3.  Waiver Effect

The interest that is waived or reduced is effectively not charged or only the reduced amount is charged. Interest amounts entered on an account that are later waived must be reversed. Waived interest charges do not need to be written off as they are not amounts owed by the client.

Amounts waived or reduced are reported separately in the Public Accounts of Canada.

4.  Feedback

In order to ensure consistent treatment of clients, the interest waiver guidelines may need to be updated based on the department's experience with the application of waiver provisions. Regular feedback on the waiver provision should be provided by sending an email to Bridget Barton, Chief, Accounts Receivable Taskforce, National Collection Services.

5.  Questions and Answers

Question: Can fairness be used as the reason for waiving interest, like CCRA does?

Answer: The Department is committed to the fair, consistent and equitable treatment of its clients. Our business practices, including our debt recovery policies, are reflective of this commitment. CCRA has legislative authority to waive interest charges in the Income Tax Act. The Department does not have the same legislative authority so cannot waive interest charges for this reason specifically. However, the Department does take specific client needs and circumstances into consideration in all of its debt recovery activities. Most situations can be addressed under the hardship provision for waiving interest (EI debts), by renegotiating the repayment arrangement, or by debt write-off.

Question: Should interest be waived when the notice of an EI overpayment is returned to the department as undeliverable?

Answer: Under the Employment Insurance Act, there is no liability to repay an overpayment until a client has been notified of the debt. When a notice of overpayment has been returned as undeliverable, the debt has not yet been established so there is no interest to waive. For instructions on how to handle returned notices of overpayment, see the joint Insurance, Investigation & Control and Collection Services memo dated June 27, 2002.

Question: Is our treatment of deceased debtors consistent?

Answer: The treatment of deceased debtors is consistent, although the operational application may vary. The Employment Insurance Regulations stipulate that interest stops accruing upon the death of a debtor. The FAA Interest and Administrative Charges Regulations permit the waiving of interest upon the death of a debtor.

Appendix D - Directive on the Transitional Use of Hardship Interest Waivers for EI Debts

As a transition measure only, the hardship interest waiver condition will be extended to situations which would not normally fall into this category. This is to ensure fair treatment to EI clients experiencing some of the transition effects of the recent migration of EI debts to a new receivables system. The conditions for waiving interest during the transition period should not be considered a precedent. This directive is in effect until further notice.

When these situations are applied on an individual case basis, the case presented by the client should be reviewed along with the client's compliance and payment history.

• No Notice of Interest Charges - Where the client complains that they did not receive a notice of interest charges prior to receiving their first monthly statement showing an interest accrual, the interest on the first statement may be waived. Only the interest on the first statement showing interest charges may be waived. This is in keeping with TBS instructions to provide clients with notice of one billing period.
• Recoupment Suspended - Where the client complains about interest charges accruing during a suspension of the recoupment period on the basis that they would have made the payment had they been aware, the interest for that period can be waived. This is in keeping with other legislation and general government principles not to cause a client to pay for departmental delay or error.
• Delayed Monthly Statement of Account - Where the client complains about the delay in receiving monthly statements and indicates they would have made a payment to avoid the compounding of interest charges, the interest for the period of delay can be waived. Same rationale as for suspended recoupments.

Questions or feedback should be directed by email to Bridget Barton, Chief, Accounts Receivable Taskforce, National Collection Services.