Food Stamp Overpayment Case Settled

October 1, 2003

Author: Barbara Weiner

On September 4, 2003, Judge Joan M. Azrack, Magistrate, Federal District Court of New York, Eastern District, approved the settlement reached by the parties in Thompson v. Wing, a case concerning the State’s implementation of the Treasury Offset Program (TOP) to collect food stamp overpayment debts. The settlement was approved at the close of a fairness hearing attended by well over 100 members of the Thompson class. They came to learn more about the lawsuit and how it affected them. Many spoke eloquently about the financial struggles they faced as low income individuals and families. They told Judge Azrack how distressing it had been when a much awaited tax refund was suddenly taken to repay the government for a debt they often did not believe they owed. Furthermore, in many cases, notice from the Treasury Department that their tax refund had been intercepted by New York State was the first they had heard about the alleged food stamp debt. A substantial number of those present at the hearing were low income workers who had not received food stamp benefits for years at the point that their federal tax refund was suddenly taken.

Thompson v. Wing, 98-CV-7628, filed in December of 1998, was brought as a class action, both on behalf of those who had their federal tax refund taken in the past to repay an overpayment of food stamp benefits and those who were at risk of having a refund intercepted in the future. The lawsuit challenged the state’s failure to ensure that the alleged debtors had been provided with all the due process rights to which they were entitled, including notice and an opportunity to be heard, before their tax refunds were taken. The case was brought by Jane Greengold Stevens, who was at the time an attorney with the Social Justice Project at Brooklyn Law School and who now works at the New York Legal Assistance Group (NYLAG); Barbara Weiner, a staff attorney of GULP, and Connie Carden, also with NYLAG.

The Treasury Offset Program

The Treasury Offset Program (TOP) permits the federal government to recover on a variety of types of debts by offsetting the debt against other federal payments, such as federal tax refunds, which would otherwise be due the debtor. However, before a food stamp overpayment can be certified for offset, federal regulations provide that the claim must be “past due and legally enforceable”, or, in the current language of the federal food stamp regulations, “delinquent.” [See 7 CFR § 273.18(n).]

In 1996, when the New York State Department of Social Services (now the Office of Temporary and Disability Assistance or OTDA) began using the federal offset program, it had no system in place to ensure that, before the offset of the federal tax refund took place, the debt had been “properly established” by the local social services district. The federal food stamp rules require that before a food stamp agency can collect an alleged food stamp overpayment through TOP or any other method, the debtor must be provided with written notice that sets forth the amount claimed to be an overpayment, the inclusive dates of the overpayment and the basis for the agency’s assertion that the food stamp recipient was not entitled to these benefits. In addition, the notice must advise the debtor that he or she can challenge the claim at a fair hearing. If a hearing is requested, the agency cannot certify the debt for offset until the case is decided. [See 7 CFR § 273.18(e).]

New York’s Implementation of TOP

Not only had New York certified debts which had not been properly established at the local district level, the state also failed to adhere to certain requirements governing the TOP certification process itself. For example, claims were certified even though the individual was in receipt of food stamp benefits at the time the debt was certified for collection through the offset program. Food stamp regulations require that overpayment claims against food stamp recipients be recovered through recoupment.

Some debts were more than 10 years old at the time of certification of the claim for offset, a violation of TOP rules. Some individuals had their federal tax refunds taken while they were in bankruptcy proceedings, also prohibited. In addition, the plaintiffs argued that the pre-offset notice sent by OTDA to debtors against whom claims were to be certified for offset failed to provide enough information about the claim to enable the debtor to identify the claim and determine whether or not it met the offset requirements. This was especially true for many of the claims that OTDA certified for offset during the first years of the program, which often were very old claims. (During the settlement discussions, OTDA and USDA reached an agreement to suspend collection action on many of these old claims. See Food Stamp Program Updates, LSJ, August 2003, page 20.) In addition, the pre-offset notice did not adequately inform the alleged debtor of the circumstances under which offset should not occur, depriving debtors of the very information they needed to determine whether they should appeal the offset.

The Thompson Settlement

In 1999, while the Thompson parties were in settlement discussions, it was agreed that OTDA would stop collecting TOP food stamp overpayment claims while settlement discussions were in progress. Now that a settlement has been reached and approved by the Court, it is anticipated that TOP will again be utilized by the state to collect food stamp overpayment claims. Because the settlement was approved in early September, the program will probably not get in full gear until next year, for interception of tax refunds for food stamp overpayment claims in the year 2005 (for tax year 2004). Several provisions of the settlement affect the claims collection and tracking system itself. For example, the claims accounting and tracking system (known as CAMS) has been modified to require the local districts to insert the date that the initial notice of food stamp overpayment was sent. This notice must provide all the information about the claim and the debtor’s right to a fair hearing. Entering this information into the system will help to exclude claims from certification to TOP which have not been properly established by the local district.

A pre-offset notice has been agreed upon by the parties that will provide debtors with more information about the claim OTDA intends to submit to TOP, to enable the debtor to better identify the overpayment(s) OTDA is seeking to recover through offset. In addition, the notice provides an explanation of the available grounds for challenging OTDA’s decision to certify the claim for offset.
Local districts must also insert the “date of discovery” of the overpayment into the claims tracking system, to ensure that the claim does not cover a period of overpayment in excess of that allowed by the regulations (one year back from the date of discovery for Inadvertent Household or Agency Error claims; six years for Intentional Program Violation claims).

Relief for Debtors Who Had Their Tax Refunds Intercepted

Certain individuals who had their tax refunds taken during the period the program was in operation will get their refunds returned without having to ask for a review. They include all those individuals who are revealed in the records of OTDA to have had the claim against them certified and their tax refund taken:

a.) while they were in receipt of food stamp benefit, or;

b.) were making voluntary payments on the claim, or

c.) for a claim that was more than 9 years old at the time it was certified, or

d.) for a claim based on a period of overpayment that exceeded one year from the date of discovery (in these cases, the State is obligated only to return that portion of the refund that represents the part of the claim exceeding the allowable time limits).

Of the approximately 25,000 people who had their federal tax refunds intercepted during the years OTDA used TOP to recover food stamp overpayment claims, the State estimates that about 4,000 will have their refunds returned automatically. This amounts to the return of about $2.2 million to low income households. The remaining 20,000 or so individuals who had their refunds taken will receive a notice from OTDA with as much particular information about the claim for which their refund was offset as is available from CAMS; will clearly set out the grounds under which the offset may not have been correct and will provide an opportunity to the debtor to ask for a review. This notice will be accompanied by a letter from class counsel providing some background information about the lawsuit and encouraging people to as for a review.

If an individual requests a review, OTDA will direct the local district to examine his or her file to see if the claim should not have been recovered through offset. If the local district finds in its own file information that the debtor or the claim falls into one of the categories outlined above, or if the district finds no evidence in the file that the debtor was sent proper notice, with an opportunity for fair hearing, before the claim was submitted to TOP for offset, the refund will be returned.

Getting the Word Out

Most of the 4,000 individuals whose previously intercepted tax refunds will be returned automatically have already received notice from OTDA advising them of this and asking them to confirm their address and Social Security number. Everyone else whose tax refunds were intercepted will be sent a notice that provides some information about the overpayment claim(s) for which their tax refund was taken and setting out the circumstances under which a claim should not have been referred for offset. The notice will include an attachment that allows the recipient to check off a request for a review and send it back to OTDA in a stamped, self-addressed envelope. People whose tax refunds were intercepted will be receiving these notices over the coming year.

Clients may be confused about why they are getting these notices and what to do about them. The offices of plaintiffs’ counsel were overwhelmed with thousands of calls from people after OTDA sent out the fairness notice, informing people about the proposed settlement provisions and the hearing scheduled for September 4th. Although we don’t anticipate the next series of notices to elicit quite such a response, in order to assist legal services programs and other community advocates to answer the questions they may be getting about the Thompson lawsuit, we have developed a “Question and Answer” informational memo that can be given to clients. It is available at our website as Client Information. You can also call the Albany GULP office at (518) 462-6831 or (800) 635-0355 for hard copies for those who don’t have access to the Internet. 

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