[Congressional Record Volume 146, Number 58 (Thursday, May 11, 2000)]
[Extensions of Remarks]
[Pages E713-E714]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


             THE ``BANKING EQUAL TREATMENT ACT'', H.R. 4427

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                         Thursday, May 11, 2000

  Mr. LaFALCE. Mr. Speaker, I am today introducing the ``Banking Equal 
Treatment Act'' to ensure that all American families have access to 
basic financial services. It is hard to believe that in this age of 
Internet banking, online stock trading and embedded options, millions 
of American families lack the basic passport to the broader economy--a 
bank account. But, it is true.
  According to the Federal Reserve, more than 8.4 million low- and 
moderate-income families do not now have access to a checking or 
savings account at a mainstream financial institution. As a 
consequence, their financial condition, and ability to fully 
participate in the nation's current economic prosperity, suffers 
greatly.
  For some time now, I have been concerned that we are seeing the 
development of a dual financial services structure in this country--one 
for middle and upper income individuals that involves traditional 
regulated and insured financial institutions; a second for lower-income 
households that involves higher cost services from lesser-regulated 
entities check-cashers, pawn shops and other quasi-financial entities.
  A 1998 survey found that among Earned Income Tax Credit Claimants who 
used volunteer tax preparation services in Chicago, 44 percent used a 
check cashing service to cash their EITC refund check. Some estimate 
that low-income families may pay more than $15,000 in fees over a 
lifetime for check-cashing and bill-paying services from less-regulated 
financial institutions, such as check-cashers and payday lenders. This 
legislation addresses this inequity in the financial marketplace in a 
positive way that benefits both consumers and banks.
  First, the bill permits the Federal Reserve Banks to pay interest on 
the so-called sterile reserves that banks, thrifts and credit unions 
are required to maintain in the Federal Reserve Banks as part of the 
monetary control apparatus of the Federal Reserve Board. The Federal 
Reserve Board has testified that paying interest on sterile reserves 
would be a helpful tool in the conduct of monetary policy. 
Understandably, many in the industry view the combination of required 
reserves and the inability to receive interest on those reserves as a 
tax on the industry and support a repeal of the prohibition.
  Second, before the Federal Reserve banks can pay interest on sterile 
reserves, the Federal financial regulators must require that all banks, 
thrifts and credit unions offer their customers affordable transaction 
accounts. Under the bill, an affordable transaction account holder 
would be permitted a minimum of 8 withdrawal transactions or checks per 
month for a low monthly service fee. Banks could charge a reasonable 
fee for other additional transactions, but all fees charged for using 
these accounts would be capped at amount established by the Federal 
banking and credit union regulators. The bill gives institutions 
flexibility. With regulatory approval, a financial institution could 
offer alternative accounts that are as advantageous to consumers as the 
low-cost transaction accounts.
  This legislation is fair to financial institutions. The Office of 
Management and Budget and the Congressional Budget Office estimate that 
permitting the Federal Reserve Banks to pay interest on sterile 
reserves will return to the banking industry between $600 million and 
$700 million, after taxes, in the first five years. It would only take 
a portion of those funds--probably in the $100 million range--to defray 
the costs to banks of establishing low-cost transaction accounts for 
the millions of unbanked Americans.
  Mainstream financial institutions will benefit in another way. They 
will find that the low-cost account holders will become good customers. 
A Federal Reserve study indicates that many low-income families with 
bank accounts used other bank products, including credit cards, 
automobile loans, first mortgages and certificates of deposits. This 
legislation also represents sound economic policy. Research indicates 
that once ``unbanked'' families enter the doors of depository 
institutions as regular account holders, they are likely to become 
savers and begin to accumulate assets.
  Another important provision of the bill preserves state laws that 
provide more advantageous low-cost accounts for consumers. The bill 
amends the Bank Enterprise Act of 1991 to provide the same protection 
for stronger state laws. This last provision resolves an alleged 
conflict between the Bank Enterprise Act and New Jersey's Consumer 
Checking Account Act, which requires financial institutions to offer 
low-cost accounts similar to the bill's low-cost transaction accounts. 
In 1992, the Comptroller of the Currency opined that national banks did 
not need to comply with the New Jersey statute because the Bank 
Enterprise Act, as clearly indicated in the report on the bill, 
preempted that state statute. In 1996, the New Jersey Department of 
Banking asked the Comptroller to reconsider that opinion. That request 
is still under consideration. Although Congress did not intend to 
preempt state law when it adopted the Bank Enterprise Act, this bill 
effectively resolves the preemption question in favor of the New Jersey 
statute.
  This legislation will work. For a successful example, you can look to 
my home state of New York, where we do a lot of banking. Since 1994, 
the State of New York has been requiring all financial institutions 
within it borders to offer low-cost basic banking accounts to 
consumers. New York financial institutions are complying with the law 
to the benefit of all involved.
  Mr. Speaker, I urge my colleagues to follow the example of New York 
and New Jersey and adopt the Banking Equal Treatment Act, so that the 
millions of American families who have been left out of the financial 
mainstream

[[Page E714]]

will have an opportunity to receive basic financial services at a 
reasonable cost.

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