Washington (CNN) -- The U.S. Department of Treasury may have to absorb some of the cost of disaster aid erroneously paid to a family in Arkansas, as a U.S. senator threatens to continue blocking five nominations for high-level Treasury positions.
Sen. Mark Pryor, D-Arkansas, has released his hold on two other nominations, reflecting what he described as satisfactory talks in recent days to settle the dispute.
Treasury has agreed to suspend all collection efforts against the family and to work toward settling the controversy.
"The leverage came at a good time," Pryor told CNN, referring to the nominations he put on hold. In a statement confirming he had talked directly with Treasury Secretary Tim Geithner, Pryor later said that "more progress was made during the day than in the past eight months I've spent dealing with FEMA."
The Federal Emergency Management Agency three years ago granted an Arkansas couple $27,000 in disaster relief, but then tried to reclaim the money when officials learned their area was not qualified to receive such aid. The couple had long since spent the money trying to rebuild from a flood.
FEMA handed the collection over to the Treasury Department, which added penalties, fees and interest totaling another $10,000.
The senator blames FEMA incompetence for what he thinks is a widespread problem. A FEMA official testified last week that his agency is obligated to collect payments made in error.
"You're gonna see this repeated at least hundreds of times around the country," Pryor told CNN after the hearing.
Pryor said he got involved earlier this year when his constituents said they accepted the money in good faith. FEMA was unwilling to negotiate, and handed the matter to the Internal Revenue Service to pursue.
The IRS is a division of the Treasury Department.
"I'm gonna tell ya, she got choked up with me on the phone," Pryor recalled. "Twenty-seven thousand dollars is a lot of money to folks who are retired, on Social Security, difficult situation."
"This was all on FEMA; the people didn't know," Pryor told CNN. "They had the government in their house, they're walking through, they're filling out paperwork. (And the government said) "'you're entitled to this money.'"
Three years later, Pryor explained, "FEMA sends them a letter and says, 'You weren't eligible in the first place," and began trying to take the money back.
At a hearing last week, Pryor questioned FEMA deputy director Rich Serino about accountability at the agency. Serino testified that in the time since the mistaken payment was made in Arkansas, his agency has taken steps to reduce its error rate.
"During Hurricane Irene (in August) we were taking tens of thousands of calls a day" from flood victims, Serino said, triggering FEMA's effort to inspect and grant aid within two or three days. But against that urgency, Serino testified better training and claims preparation allowed staff to "know ahead of time whether or not there's any potential that people didn't meet that" qualification, he said.
Pryor said he is looking into whether disaster aid can be granted as a contract, so if the government makes a mistake it doesn't fall on the person getting the money to make it right, as long as the application is honest and made in good faith.
"These folks detrimentally relied on the government. Shouldn't they get some consideration?" Pryor asked.
Until the question is fully answered, he continues to block five nominees to Treasury positions ranging from Comptroller of the Currency to several assistant and deputy Treasury secretaries.
And even though Treasury is no longer trying to collect the $37,000, Pryor told CNN "I certainly hope that the debt will either go away completely, or that it'll be a very small amount, hopefully some sort of token payment, and it'll be all square."
The nominations Sen. Pryor continues to hold are:
-- Alastair M. Fitzpatrick of Maryland, Deputy Under Secretary of the Treasury;
-- Matthew S. Rutherford of Illinois, Assistant Secretary of the Treasury for Federal Finance;
-- Mary John Miller of Maryland, Under Secretary of the Treasury;
-- Thomas J. Curry of Massachusetts, Comptroller of the Currency for a five-year term;
--Timothy Charles Scheve of Pennsylvania, Internal Revenue Service Oversight Board.