More than 500 superstorm Sandy victims in New York owe $3.4 million in disaster grant money back to federal authorities, and if they do not pay on time the U.S. Treasury can assess penalties of twice that of average credit card interest rates.

The Federal Emergency Management Agency wants to collect $14 million in grant money from 2,000 New York victims of Sandy the agency believes it overpaid or improperly paid.

As of Aug. 4, 533 of those victims' cases had been sent for collection to Treasury, where officials can charge between 28 and 30 percent more in penalty fees.

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Letters from Treasury give people 10 days to pay or risk the penalties, and it includes a payment coupon outlining the ways to do so -- from personal check to credit card.

"Once it hits the U.S. Department of Treasury it's sort of like hitting a debt collector," said Daniel Strafer, staff attorney at Touro Law School's disaster relief clinic, which is helping Sandy victims appeal the debt collection cases. "It's just onerous. It could ruin someone's life."

The penalties and interest rates charged were revealed after Newsday filed a Freedom of Information Act request.

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By law, federal disaster grant money cannot be used to cover costs that would otherwise be paid by private insurance, loans or other assistance programs. FEMA can recoup money if benefits were duplicated, which is barred by the Stafford Act, said Rafael Lemaitre, FEMA's director of public affairs.

Once people are notified that FEMA wants to claw back money, recipients are given 30 days to pay the debt in full or risk interest charges. Appeals must be filed within 60 days and penalties begin within 90 days of the initial letter. If there is no response within 120 days, the case goes to Treasury. And from there the penalties rise -- 28 percent for debt less than 2 years old and 30 percent for debt older than that.

Lemaitre said FEMA will work with people to settle debts and can set up payment plans or reduce the money owed based on financial need.

"Our guiding principle at FEMA is to put survivors first," he said. "When we do identify funds that need to be recouped we do everything we can before it ever gets to the point before it gets referred to Treasury."

Frustrated over fees

Jeanne Lieberman, who lives in Kismet on Fire Island more than half the year and has a rent-controlled apartment in Manhattan, received a notice in May from Treasury saying she owed more than $14,000. If she did not pay within 10 days, the letter said, the amount would go up to more than $18,000 because of fees, interest and penalties.

"It was devastating," said Lieberman, who retired in 1999 as a physical therapist after open heart surgery. "They're dictating the terms of your existence."

FEMA defines a primary residence as a place where an applicant lives more than six months of the year, and Lieberman said she more than qualifies.

"You certainly come away with a different feeling of government," Lieberman said. "This is not for the people, it's against the people."

Strafer, who is handling her case, questioned the administrative fees and whether they accurately accounted for the costs Treasury incurs. "This shouldn't be some sort of moneymaking enterprise here," he said.

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He was able to get her case moved back to FEMA for review. Two other cases were dismissed at Treasury, only after the people appealed, were denied and turned to Strafer, who had a contact inside FEMA.

"While it's good that we are getting favorable dispositions it shows me that many of the debts that are sent to Treasury should not be recouped if they were looked at more thoroughly by FEMA," Strafer said in an email.

Treasury officials said the agency does not make money on the collection, and the fees cover administrative costs, which can include hiring private collection agencies.

After Treasury is sent a debt notice, the agency searches a database to see if the money can be collected electronically by garnishing tax refunds, wages, retirement pay or benefits such as Social Security. In those cases, the fees assessed are between $17 and $27, according to a high-level official with Treasury's Bureau of Fiscal Service, which collects debt.

In fiscal year 2014, 74 percent of FEMA debt Treasury collected was through database queries and garnishment, said Bureau of the Fiscal Service spokesman Tom Longnecker.

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Of the more than 3,500 debt collection notices sent to Sandy applicants in New York and New Jersey, less than one-quarter were during the 2014 fiscal year cited by Longnecker, federal records show.

Added costs

If Treasury must do more, such as work with debtors or use a private debt collection agency, the 28 to 30 percent interest is charged.

"Treasury is trying to cover its costs of collection," the official said. "We're not making a profit on this."

People can also apply for their case to be reviewed. "We can't, by law, just waive fees and costs but we can look at people's financial circumstances," the official said.

Politicians are trying to halt the collections but have not been successful.

Bills in the House of Representatives and the Senate are looking to waive the debt so long as it was not the result of fraud. A bill sponsored by Sen. Robert Menendez (D-N.J.) has been referred to the committee on homeland security and governmental affairs. A House version, filed by Rep. Lou Barletta (R-Pa.), is awaiting floor consideration and should be brought up this month, said Gabriel J. Bitol, legislative director for Rep. Gregory W. Meeks (D-St. Albans).

Meeks plans to introduce legislation that would give individuals more protection when debt goes to collection, including restricting when Treasury can collect debt, Bitol said.

"Requiring superstorm Sandy victims to repay thousands of dollars in aid, 2 1/2 years after the storm, is wrong and counterproductive, since these funds have already been spent on necessary repairs," Sen. Chuck Schumer (D-N.Y.) said. "FEMA should waive all debt among superstorm Sandy victims, except where there is clear evidence of fraud."

Rep. Kathleen Rice (D-Garden City) called the penalties "bureaucracy at its most baffling and most outrageous, and it has to stop."