Foreign Currency Child Support Payments

POLICY INTERPRETATION QUESTIONS

PIQ-03-04

DATE: April 16, 2003

TO: State IV-D Directors

FROM: Sherri Z. Heller, Ed.D
Commissioner
Office of Child Support Enforcement

SUBJECT: Foreign Currency Child Support Payments

The Office of Child Support Enforcement (OCSE) has received several inquiries from states and foreign reciprocating countries asking for policy guidance regarding the processing of support payments to and from foreign reciprocating countries. Although the vast majority of states report no difficulties in processing foreign payments, we understand that some state child support agencies are returning, or threatening to return, checks made in a foreign jurisdiction’s currency. In this PIQ, we clarify that a state U.S.child support agency are must accept payments on behalf of U.S. children and custodial parents, even if those payments are received in a foreign currency denomination.

Question 1: Must a state accept a payment from an obligor in a foreign country if the payment is made in a foreign currency?

Answer: Yes. Section 454B of the Social Security Act requires that states operate a state disbursement unit (SDU) for the collection and disbursement of payments under support orders being enforced on behalf of children. Section 454B(b)(1) goes on to specify that the state disbursement unit is required to have procedures "for receipt of payments from parents, employers, and other States…" -- without qualification or exception.

Question 2: How does the two-day rule in Section 454B of the Act apply to foreign payments?

Answer: Section 454B(c) requires that the SDU "distribute all amounts payable under section 457(a) within 2 business days after receipt from the employer or other source of periodic income, if sufficient information identifying the payee is provided" (emphasis added). Thus, the state should send the converted U.S. dollar payment to the custodial parent within two days of receipt.

We recognize that foreign payments present unique and significant transaction costs — in terms of both time and money. Neither the Act nor related regulations expressly recognize the impact of these costs on the disbursement of support. However, in light of Congress’ commitment to international enforcement (see, e.g., sections 454(32) and 459A of the Act), we do not believe that Congress intended for U.S. families to be denied child support payments simply because the payments are received in a foreign currency. Section 454B(c) generally defines the date of a collection as the date of receipt by the SDU. With respect to a payment in a foreign currency, we interpret the date of receipt to be the date that the converted payment is received by the SDU. For example, if a state receives a check in Canadian dollars, it may need to send the payment to a bank to convert the amount into U.S. dollars, a process that may take more than the two days provided for in the Act. In this case, a state should disburse the payment in U.S. dollars within two business days of receiving the converted payment. A state should make every reasonable effort to convert any foreign payments as expeditiously as possible.

Question 3: Is FFP available for the costs associated with processing a payment made in foreign currency?

Answer: Yes. Consistent with 45 CFR 304.20, FFP at 66% is available for all expenditures necessary for the collection and distribution of support payments, including those expenditures attributable to international collections, such as currency conversion fees.

Question 4: Should the costs of converting a foreign payment into U.S. dollars be deducted from the amount paid to the obligee and credited to the obligor?

Answer: No. Because FFP is available for the costs of converting a payment in a foreign currency, the obligee should receive the value of the foreign payment as of the date of the conversion. Conversion costs are a cost of doing business, similar to the costs associated with processing domestic payments (e.g., cashing checks, money orders, etc.). If a state receives a child support payment of $150 (Can.), and the conversion rate available to the IV-D agency is $1.50 (Can.) : $1.00 (U.S.), the obligee should receive and the obligor should be credited with a $100 (U.S.) payment. The usual rules for payments then apply, meaning that if the converted amount paid is less than the amount due, the obligor is in arrears. Likewise, if the converted payment exceeds the amount due, the state should handle the excess payment as it would in a domestic case.

Question 5: Can the State charge the obligor or the obligee a fee for the costs?

Answer: Yes. Consistent with section 454(6)(E), a state may collect costs from the obligor or, at state option, from the U.S. obligee, provided that the conditions in section 454(6)(E)(ii) are met. As with other fees, any fees charged for converting payments from a foreign currency count as program income, and existing rules regarding program income apply.

cc: ACF Regional Administrators
Region al Program Managers