[Congressional Record Volume 149, Number 52 (Tuesday, April 1, 2003)]
[House]
[Pages H2527-H2533]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BUSINESS CHECKING FREEDOM ACT OF 2003
Mr. BACHUS. Madam Speaker, I move to suspend the rules and pass the
bill (H.R. 758) to allow all businesses to make up to 24 transfers each
month from interest-bearing transaction accounts to other transaction
accounts, to require the payment of interest on reserves held for
depository institutions at federal reserve banks, and for other
purposes, as amended.
The Clerk read as follows:
H.R. 758
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Business Checking Freedom
Act of 2003''.
SEC. 2. INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED FOR
ALL BUSINESSES.
(a) Section 2 of Public Law 93-100 (12 U.S.C. 1832) is
amended--
(1) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively; and
(2) by inserting after subsection (a) the following:
``(b) Notwithstanding any other provision of law, any
depository institution may permit the owner of any deposit or
account which is a deposit or account on which interest or
dividends are paid and is not a deposit or account described
in subsection (a)(2) to make up to 24 transfers per month (or
such greater number as the Board of Governors of the Federal
Reserve System may determine by rule or order), for any
purpose, to another account of the owner in the same
institution. An account offered pursuant to this subsection
shall be considered a transaction account for purposes of
section 19 of the Federal Reserve Act unless the Board of
Governors of the Federal Reserve System determines
otherwise.''.
(b) Effective at the end of the 2-year period beginning on
the date of the enactment of this Act, section 2 of Public
Law 93-100 (12 U.S.C. 1832) is amended--
(1) in subsection (a)(1), by striking ``but subject to
paragraph (2)'';
[[Page H2528]]
(2) by striking paragraph (2) of subsection (a) and
inserting the following new paragraph:
``(2) No provision of this section may be construed as
conferring the authority to offer demand deposit accounts to
any institution that is prohibited by law from offering
demand deposit accounts.''; and
(3) in subsection (b) (as added by subsection (a) of this
section) by striking ``and is not a deposit or account
described in subsection (a)(2)''.
SEC. 3. INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED.
(a) Repeal of Prohibition on Payment of Interest on Demand
Deposits.--
(1) Federal reserve act.--Section 19(i) of the Federal
Reserve Act (12 U.S.C. 371a) is amended to read as follows:
``(i) [Repealed]''.
(2) Home owners' loan act.--The first sentence of section
5(b)(1)(B) of the Home Owners' Loan Act (12 U.S.C.
1464(b)(1)(B)) is amended by striking ``savings association
may not--'' and all that follows through ``(ii) permit any''
and inserting ``savings association may not permit any''.
(3) Federal deposit insurance act.--Section 18(g) of the
Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended
to read as follows:
``(g) [Repealed]''.
(b) Effective Date.--The amendments made by subsection (a)
shall take effect at the end of the 2-year period beginning
on the date of the enactment of this Act.
SEC. 4. PAYMENT OF INTEREST ON RESERVES AT FEDERAL RESERVE
BANKS.
(a) In General.--Section 19(b) of the Federal Reserve Act
(12 U.S.C. 461(b)) is amended by adding at the end the
following new paragraph:
``(12) Earnings on reserves.--
``(A) In general.--Balances maintained at a Federal reserve
bank by or on behalf of a depository institution may receive
earnings to be paid by the Federal reserve bank at least once
each calendar quarter at a rate or rates not to exceed the
general level of short-term interest rates.
``(B) Regulations relating to payments and distribution.--
The Board may prescribe regulations concerning--
``(i) the payment of earnings in accordance with this
paragraph;
``(ii) the distribution of such earnings to the depository
institutions which maintain balances at such banks or on
whose behalf such balances are maintained; and
``(iii) the responsibilities of depository institutions,
Federal home loan banks, and the National Credit Union
Administration Central Liquidity Facility with respect to the
crediting and distribution of earnings attributable to
balances maintained, in accordance with subsection (c)(1)(A),
in a Federal reserve bank by any such entity on behalf of
depository institutions.
``(C) Depository institutions defined.--For purposes of
this paragraph, the term `depository institution', in
addition to the institutions described in paragraph (1)(A),
includes any trust company, corporation organized under
section 25A or having an agreement with the Board under
section 25, or any branch or agency of a foreign bank (as
defined in section 1(b) of the International Banking Act of
1978).''.
(b) Authorization for Pass Through Reserves for Member
Banks.--Section 19(c)(1)(B) of the Federal Reserve Act (12
U.S.C. 461(c)(1)(B)) is amended by striking ``which is not a
member bank''.
(c) Consumer Banking Costs Assessment.--
(1) In general.--The Federal Reserve Act (12 U.S.C. 221 et
seq.) is amended--
(A) by redesignating sections 30 and 31 as sections 31 and
32, respectively; and
(B) by inserting after section 29 the following new
section:
``SEC. 30. SURVEY OF BANK FEES AND SERVICES.
``(a) Annual Survey Required.--The Board of Governors of
the Federal Reserve System shall obtain annually a sample,
which is representative by type and size of the institution
(including small institutions) and geographic location, of
the following retail banking services and products provided
by insured depository institutions and insured credit unions
(along with related fees and minimum balances):
``(1) Checking and other transaction accounts.
``(2) Negotiable order of withdrawal and savings accounts.
``(3) Automated teller machine transactions.
``(4) Other electronic transactions.
``(b) Minimum Survey Requirement.--The annual survey
described in subsection (a) shall meet the following minimum
requirements:
``(1) Checking and other transaction accounts.--Data on
checking and transaction accounts shall include, at a
minimum, the following:
``(A) Monthly and annual fees and minimum balances to avoid
such fees.
``(B) Minimum opening balances.
``(C) Check processing fees.
``(D) Check printing fees.
``(E) Balance inquiry fees.
``(F) Fees imposed for using a teller or other institution
employee.
``(G) Stop payment order fees.
``(H) Nonsufficient fund fees.
``(I) Overdraft fees.
``(J) Deposit items returned fees.
``(K) Availability of no-cost or low-cost accounts for
consumers who maintain low balances.
``(2) Negotiable order of withdrawal accounts and savings
accounts.--Data on negotiable order of withdrawal accounts
and savings accounts shall include, at a minimum, the
following:
``(A) Monthly and annual fees and minimum balances to avoid
such fees.
``(B) Minimum opening balances.
``(C) Rate at which interest is paid to consumers.
``(D) Check processing fees for negotiable order of
withdrawal accounts.
``(E) Fees imposed for using a teller or other institution
employee.
``(F) Availability of no-cost or low-cost accounts for
consumers who maintain low balances.
``(3) Automated teller transactions.--Data on automated
teller machine transactions shall include, at a minimum, the
following:
``(A) Monthly and annual fees.
``(B) Card fees.
``(C) Fees charged to customers for withdrawals, deposits,
and balance inquiries through institution-owned machines.
``(D) Fees charged to customers for withdrawals, deposits,
and balance inquiries through machines owned by others.
``(E) Fees charged to noncustomers for withdrawals,
deposits, and balance inquiries through institution-owned
machines.
``(F) Point-of-sale transaction fees.
``(4) Other electronic transactions.--Data on other
electronic transactions shall include, at a minimum, the
following:
``(A) Wire transfer fees.
``(B) Fees related to payments made over the Internet or
through other electronic means.
``(5) Other fees and charges.--Data on any other fees and
charges that the Board of Governors of the Federal Reserve
System determines to be appropriate to meet the purposes of
this section.
``(6) Federal reserve board authority.--The Board of
Governors of the Federal Reserve System may cease the
collection of information with regard to any particular fee
or charge specified in this subsection if the Board makes a
determination that, on the basis of changing practices in the
financial services industry, the collection of such
information is no longer necessary to accomplish the purposes
of this section.
``(c) Annual Report to Congress Required.--
``(1) Preparation.--The Board of Governors of the Federal
Reserve System shall prepare a report of the results of each
survey conducted pursuant to subsections (a) and (b) of this
section and section 136(b)(1) of the Consumer Credit
Protection Act.
``(2) Contents of the report.--In addition to the data
required to be collected pursuant to subsections (a) and (b),
each report prepared pursuant to paragraph (1) shall include
a description of any discernible trend, in the Nation as a
whole, in a representative sample of the 50 States (selected
with due regard for regional differences), and in each
consolidated metropolitan statistical area (as defined by the
Director of the Office of Management and Budget), in the cost
and availability of the retail banking services, including
those described in subsections (a) and (b) (including related
fees and minimum balances), that delineates differences
between institutions on the basis of the type of institution
and the size of the institution, between large and small
institutions of the same type, and any engagement of the
institution in multistate activity.
``(3) Submission to congress.--The Board of Governors of
the Federal Reserve System shall submit an annual report to
the Congress not later than June 1, 2005, and not later than
June 1 of each subsequent year.
``(d) Definitions.--For purposes of this section, the term
`insured depository institution' has the meaning given such
term in section 3 of the Federal Deposit Insurance Act, and
the term `insured credit union' has the meaning given such
term in section 101 of the Federal Credit Union Act.''.
(2) Conforming amendment.--
(A) In general.--Paragraph (1) of section 136(b) of the
Truth in Lending Act (15 U.S.C. 1646(b)(1)) is amended to
read as follows:
``(1) Collection required.--The Board shall collect, on a
semiannual basis, from a broad sample of financial
institutions which offer credit card services, credit card
price and availability information including--
``(A) the information required to be disclosed under
section 127(c) of this chapter;
``(B) the average total amount of finance charges paid by
consumers; and
``(C) the following credit card rates and fees:
``(i) Application fees.
``(ii) Annual percentage rates for cash advances and
balance transfers.
``(iii) Maximum annual percentage rate that may be charged
when an account is in default.
``(iv) Fees for the use of convenience checks.
``(v) Fees for balance transfers.
``(vi) Fees for foreign currency conversions.''.
(B) Effective date.--The amendment made by subparagraph (A)
shall take effect on January 1, 2004.
(3) Repeal of other report provisions.--Section 1002 of
Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 and section 108 of the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 are hereby repealed.
(d) Technical and Conforming Amendments.--Section 19 of the
Federal Reserve Act (12 U.S.C. 461) is amended--
(1) in subsection (b)(4) (12 U.S.C. 461(b)(4)), by striking
subparagraph (C) and redesignating subparagraphs (D) and (E)
as subparagraphs (C) and (D), respectively; and
(2) in subsection (c)(1)(A) (12 U.S.C. 461(c)(1)(A)), by
striking ``subsection (b)(4)(C)'' and inserting ``subsection
(b)''.
SEC. 5. INCREASED FEDERAL RESERVE BOARD FLEXIBILITY IN
SETTING RESERVE REQUIREMENTS.
Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C.
461(b)(2)(A)) is amended--
(1) in clause (i), by striking ``the ratio of 3 per
centum'' and inserting ``a ratio not greater than 3 percent
(and which may be zero)''; and
(2) in clause (ii), by striking ``and not less than 8 per
centum,'' and inserting ``(and which may be zero),''.
[[Page H2529]]
SEC. 6. TRANSFER OF FEDERAL RESERVE SURPLUSES.
(a) In General.--Section 7(b) of the Federal Reserve Act
(12 U.S.C. 289(b)) is amended by adding at the end the
following new paragraph:
``(4) Additional transfers to cover interest payments for
fiscal years 2003 through 2007.--
``(A) In general.--In addition to the amounts required to
be transferred from the surplus funds of the Federal reserve
banks pursuant to subsection (a)(3), the Federal reserve
banks shall transfer from such surplus funds to the Board of
Governors of the Federal Reserve System for transfer to the
Secretary of the Treasury for deposit in the general fund of
the Treasury, such sums as are necessary to equal the net
cost of section 19(b)(12) in each of the fiscal years 2003
through 2007.
``(B) Allocation by federal reserve board.--Of the total
amount required to be paid by the Federal reserve banks under
subparagraph (A) for fiscal years 2003 through 2007, the
Board of Governors of the Federal Reserve System shall
determine the amount each such bank shall pay in such fiscal
year.
``(C) Replenishment of surplus fund prohibited.--During
fiscal years 2003 through 2007, no Federal reserve bank may
replenish such bank's surplus fund by the amount of any
transfer by such bank under subparagraph (A).''.
(b) Technical and Conforming Amendment.--Section 7(a) of
the Federal Reserve Act (12 U.S.C. 289(a)) is amended by
adding at the end the following new paragraph:
``(3) Payment to treasury.--During fiscal years 2003
through 2007, any amount in the surplus fund of any Federal
reserve bank in excess of the amount equal to 3 percent of
the paid-in capital and surplus of the member banks of such
bank shall be transferred to the Secretary of the Treasury
for deposit in the general fund of the Treasury.''.
SEC. 7. RULE OF CONSTRUCTION.
In the case of an escrow account maintained at a depository
institution in connection with a real estate transaction--
(1) the absorption, by the depository institution, of
expenses incidental to providing a normal banking service
with respect to such escrow account;
(2) the forbearance, by the depository institution, from
charging a fee for providing any such banking function; and
(3) any benefit which may accrue to the holder or the
beneficiary of such escrow account as a result of an action
of the depository institution described in subparagraph (1)
or (2) or similar in nature to such action,
shall not be treated as the payment or receipt of interest
for purposes of this Act and any provision of Public Law 93-
100, the Federal Reserve Act, the Home Owners' Loan Act, or
the Federal Deposit Insurance Act relating to the payment of
interest on accounts or deposits at depository institutions,
provided, however, that nothing herein shall be construed so
as to require a depository institution that maintains an
escrow account in connection with a real estate transaction
to pay interest on such escrow account or to prohibit such
institution from paying interest on such escrow account. Nor
shall anything herein be construed to preempt the provisions
of law of any State dealing with the payment of interest on
escrow accounts maintained in connection with real estate
transactions.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Alabama (Mr. Bachus) and the gentleman from Utah (Mr. Matheson) each
will control 20 minutes.
The Chair recognizes the gentleman from Alabama (Mr. Bachus).
General Leave
Mr. BACHUS. Madam Speaker, I ask unanimous consent that all Members
may have 5 legislative days within which to revise and extend their
remarks and include extraneous material on H.R. 758.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Alabama?
There was no objection.
Mr. BACHUS. Madam Speaker, I yield myself 3 minutes.
The legislation before us today, H.R. 758, the Business Checking
Freedom Act, is a result of two things. In 1996, in a joint report
called Streamlining Regulatory Requirements, the board of governors of
the Federal Reserve, the Federal Deposit Insurance Corporation, the
Comptroller of the Currency and the OTS determined that the 1933
statutory prohibition against paying of interest on business checking
accounts no longer serves a public purpose.
Last year, President Bush joined many others in saying that small
banks should be allowed to pay interest on their small business
checking accounts. The reasons for this are basically two- or
threefold.
One is, it is a free-market approach. More than that, though, there
is an advantage now in the present prohibition against small banks.
Large banks can offer complex sweep accounts or other sophisticated
ways of offering implicit interest on checking accounts. Small banks
simply do not have the resources to do this.
Secondly, large corporations today have several alternatives with
what they can do with their funds to get interest. Small businesses,
more often than not, have to rely on checking accounts and are denied
equal treatment. So this will level the playing field between small
banks and larger financial institutions. It will also level the playing
field between small and large businesses.
I want to commend the gentleman from Pennsylvania (Mr. Toomey), the
gentlewoman from New York (Mrs. Kelly), the cosponsors of this
legislation. I want to particularly commend the gentleman from Ohio
(Mr. Oxley) for making this a priority.
In closing, I want to say that this legislation has passed the House
twice in the 107th Congress. It has wide bipartisan support. It came
out of the Committee on Financial Services on a large, one-sided vote.
It has the endorsement of certain groups, of the Chamber of Commerce,
NFIB, Independent Insurance Agents, American Community Banks, and I
could go on and on.
Finally, I simply want to say there is another provision in this, and
this offers the Federal Reserve the right to pay interest on sterile
reserves. Recently, they testified before our committee that by being
allowed to pay interest, it would both increase the amount of interest
that small depositors could make or a depositor could make on their
deposits in financial institutions, and it would also lower the cost of
consumer credit.
Madam Speaker, I reserve the balance of my time.
Mr. MATHESON. Madam Speaker, I yield myself as much time as I may
consume.
I rise today in support of H.R. 758, the Business Checking Freedom
Act of 2003. By repealing the prohibition on the payment of interest on
demand deposits, this bill will repeal the last vestige of interest
rate controls enacted in the 1930s during the Depression. This
prohibition long ago ceased to serve any useful purpose and has imposed
unnecessary costs on banks and their business customers, particularly
small banks and businesses that cannot afford sophisticated cash
management products. The repeal of this prohibition is long overdue.
For institutions that cannot offer demand deposits, however, the bill
includes a provision added as a result of an amendment that I
cosponsored with the gentleman from California (Mr. Royce), the
gentleman from Massachusetts (Mr. Frank), the ranking member, and
others that permits depository institutions to offer interest-bearing
negotiable order of withdrawal, or NOW, accounts to their commercial
customers. This provision will allow institutions such as industrial
loan companies to offer the same type of interest-bearing account to
business customers that they have long been able to offer to
individuals, nonprofit organizations and public entities.
I think it is important to note this provision does not permit
industrial companies to offer demand deposits. As has been the case
since the enactment of the Competitive Banking Equality Act of 1987,
ILCs would continue to be prohibited from offering demand deposits.
Moreover, ILCs will continue to be subject to the same safety and
soundness regulations by the FDIC and by their State regulators as
under current law.
There is no indication that State regulators will allow their
chartering authority to be used in an inappropriate manner. I note, for
example, that State authorities in the past have rejected applications
by some commercial companies to establish ILCs where there were
concerns about how the charter would be used.
H.R. 758 also will permit the Federal Reserve Board to lower the
reserves it currently requires on transaction accounts, such as demand
deposits and NOW accounts, and to pay interest on the reserve balances
that depository institutions are required to maintain. While providing
these cost savings for banks, the bill will require the board to
conduct an annual survey on a broad range of bank fees and services and
to report to Congress on trends in the cost and availability of retail
banking services. This survey will provide Congress the information we
need to determine the extent to which retail customers receive the
benefit from the cost savings we are creating with this bill.
H.R. 758 is a good, balanced bill that resulted in benefits for both
banks and
[[Page H2530]]
their customers. I recommend passage of this bill.
I want to thank the gentleman from Alabama (Mr. Bachus), the
subcommittee chairman, and the gentleman from Vermont (Mr. Sanders),
the ranking member, for this bill. I want to recognize that the
gentleman from Ohio (Mr. Oxley), the chairman of the full committee,
and the gentleman from Massachusetts (Mr. Frank) for their support of
this, as well; and I want to acknowledge the lead sponsors of this
bill, which are the gentlewoman from New York (Mrs. Kelly), the
gentlewoman from New York (Mrs. Maloney), the gentlewoman from West
Virginia (Mrs. Capito), the gentleman from California (Mr. Sherman),
and the gentleman from Kansas (Mr. Moore).
Madam Speaker, I reserve the balance of my time.
Mr. BACHUS. Madam Speaker, I yield 3 minutes to the gentleman from
Iowa (Mr. Leach).
Mr. LEACH. Madam Speaker, it is with a great deal of reluctance that
I rise in opposition to this bill. It contains many reasonable
provisions, most importantly, the payment of interest on business
checking, with my only concern on that point being that it does not
immediately go into effect, but rather is put off for several years.
It also contains a very reasonable provision that interest be paid by
the Fed on sterile reserves held by institutions.
But deeply embedded in this bill is a philosophical umbrage of very
profound proportions. There is a small charter, as referred to by the
gentleman from Utah, called the industrial loan corporation (ILC)
charter. For the first time, the Congress is moving in the direction of
giving this kind of charter the powers that make it the functional
equivalent of banks. While the gentleman from Utah is correct that
there is no effort to offer demand deposits, there is the authorization
of business checking accounts which are their functional equivalent.
This particular charter countenances, and indeed there are a number
today, the merger of commerce and banking; that is, nonfinancial
institutions may own ILC charters. There is also no prohibition about
new charters being granted, so new charters presumably can be offered
on passage of this act.
What this does is move the American financial system in the direction
of the Japanese financial system where they have financial firms
intertwined with commercial enterprises and with obvious conflicts of
interest.
I would alert this body to the fact that Chairman Greenspan and the
Federal Reserve of the United States strongly have come out against
this provision, and despite my request, there has not been allowance on
the House floor for an amendment relating to this amendment to be
proffered. I personally consider it a philosophically difficult
circumstance that no amendment was allowed to be offered and that this
bill, instead, is being brought up under the Suspension Calendar with
exceedingly brief notice.
Having stated that, the big issue is whether or not we want to change
the nature of American finance, and I would again alert this body,
Chairman Greenspan has written that this will change the structure of
American banking in ways that would have allowed, for example, Enron or
Tyco to own an ILC with expanded powers. In fact, Tyco does own an ILC.
It would have allowed the prospect, with ILCs now becoming the
functional equivalent of banks, for such companies to take over
enormous sectors of the American banking community.
{time} 1300
I think this would be a mistake. I think this Congress ought to be
deeply skeptical of this kind of circumstance, particularly given the
history of the last few years in this country and the last several
decades in other countries.
So despite the fact that this bill is reasonable in many respects,
this particular provision outweighs the entirety of the bill and, in my
view, should cause the bill to be defeated.
Mr. MATHESON. Mr. Speaker, I yield myself 1 minute to address a
couple of the concerns that have been raised.
First of all, there is nothing in this bill that creates new
authority to offer accounts to businesses. So while the Federal Reserve
did suggest that we are altering the structure of banking in the United
States, the institutions raised already can offer ILCs. Tyco already
has one. So this bill talks about parity. It talks about banks and
industrial corporations both offering interest on business checking
accounts. That is all this bill does.
There is a broader discussion about the validity of the ILCs. That is
not what this bill is about. It is about offering two entities to have
parity in terms of offering the same service.
And let me mention one other point in this regard, and that is in
terms of the concern about mixing of banking and commerce. FDIC
Chairman Powell has stated that he does not have any safety or
soundness concerns relating to this provision of the bill.
Mr. Speaker, I yield 4 minutes to the gentlewoman from New York (Mrs.
Maloney).
Mrs. MALONEY. Mr. Speaker, I thank the gentleman for his leadership
and for yielding me this time.
Mr. Speaker, I rise in support of H.R. 758, the Business Checking
Freedom Act, which the gentlewoman from New York (Mrs. Kelly)
introduced and which I am pleased to cosponsor. My friend and colleague
from New York was a former small business owner, and she has been a
great advocate for small businesses and has worked through several
Congresses and several twists and turns on this legislation. I
congratulate her on her hard work.
While other speakers have described the bill, I will simply add that
this legislation builds on the important modernization of financial
services that Congress has worked on in recent years. This legislation
lifts the prohibition on the payment of interest on business checking
accounts after a 2-year phase-in. During the phase-in, banks may
increase sweeps to interest paying accounts to four intervals per
month.
The prohibition on interest on both consumer and business accounts
was enacted during the Great Depression. At the time, it was enacted to
limit competitive pressures to pay higher interests that were feared
would lead to bank failures. Today, given the global nature of
financial services, interstate banking, and advances in technology,
interest payment limits only distort competition and force businesses
to seek out alternative interest-bearing opportunities.
The prohibition on paying interest on consumer checking accounts was
repealed by Congress more than 20 years ago and has not increased
concern about safety and soundness. Today, the House takes an important
step forward in offering this same benefit to the business community.
Importantly, this legislation will disproportionately benefit small
businesses. Small businesses must keep money in checking accounts to
meet payrolls and pay expenses. They are less likely to have complex
financial arrangements that allow them to get around interest
restrictions. From restaurants in Astoria, Queens, to high-tech
startups in Manhattan, this legislation will benefit small businesses
across New York City, State, and the Nation.
The legislation also allows the Federal Reserve to pay interest on
sterile reserves. These are reserves private banks hold at the Federal
Reserve which the Fed can use as a tool of monetary policy. This
provision is endorsed by Federal Reserve Chairman Alan Greenspan.
Mr. Speaker, I want to thank the gentleman from Utah (Mr. Matheson),
certainly the gentleman from Pennsylvania (Mr. Toomey), and the
gentleman from Pennsylvania (Mr. Kanjorski), and certainly the
gentleman from Massachusetts (Mr. Frank) for his leadership on these
issues.
Finally, I want to remind my colleagues that this legislation passed
the House by a voice vote in two different forms last Congress, and it
is my hope that this legislation is enacted this year and we continue
the important work of modernizing financial services.
Mr. BACHUS. Mr. Speaker, I yield 3 minutes to the gentlewoman from
New York (Mrs. Kelley), the sponsor of the bill.
Mrs. KELLY. Mr. Speaker, I want to thank the gentleman from Alabama
for both yielding me this time and for his work to move this
legislation forward. In addition, I want to thank the gentleman from
Ohio (Mr. Oxley) for his
[[Page H2531]]
support, as well as the gentleman from Pennsylvania (Mr. Toomey) for
the contribution that he has made to this legislation with his bill
H.R. 859, which was merged into this bill during committee
consideration.
My bill addresses an issue which has been pending before Congress for
some time now. This body actually passed a similar measure by voice
vote not once but twice during the 107th Congress, but the job is still
not done. So we come to the floor once again with a strong hope that
the enactment of this bill will finally be realized this Congress. The
legislation will go a long way in helping our Main Street banks and
small businesses which are so essential to our communities.
The Business Checking Freedom Act contains a number of important
provisions. First, it repeals the 70-year-old law prohibiting banks
from paying interest on business checking accounts after a transition
period. While I believe it should be repealed, I believe a proper
transition period is critical. The 2-year transition period contained
in the bill is certainly better than the 1-year transition period which
was in the original bill, although my preference is for an even longer
period to allow the banks and businesses to disengage from each other.
Nevertheless, I believe it is time to move forward with this
legislation. The legislation also allows banks to increase money market
deposits and savings account sweeps from the current 6 to 24 times a
month. This gives the banks an increase in their sweep activities,
enabling them to sweep every night, increasing the interest which
businesses can make on their accounts.
The bill also gives the Federal Reserve the opportunity to pay
interest on reserves that the banks keep with the Federal Reserve
System, and gives the Federal Reserve the additional flexibility to
lower reserve requirements. This will give the Federal Reserve greater
control at maintaining reserves at a specific and consistent level.
That will help foster healthy reserve balances, thereby reducing the
potential for volatility within the Federal funds rate and protecting
the Federal Reserve's ability to conduct monetary policy.
Quite simply, this legislation is about creating new and broader
market options. We allow banks to pay interest on business checking
accounts, we allow banks to increase sweep activities, and we allow the
Fed to pay interest on the sterile reserves that all banks are required
to keep with them. We also allow the Fed to lower reserve requirements.
We do not require or mandate anything. This way we can allow the market
to create change and not the government.
I again thank the gentleman from Ohio for his strong leadership on
this issue and for the swift consideration of this legislation, and I
ask my colleagues on both sides of the aisle to join me in strong
support for this commonsense bipartisan legislation.
Mr. MATHESON. Mr. Speaker, I reserve the balance of my time.
Mr. BACHUS. Mr. Speaker, I yield 3 minutes to the gentleman from
Pennsylvania (Mr. Toomey), who, along with the gentlewoman from New
York (Mrs. Kelly), is one of the two primary cosponsors of the
legislation and both drafted legislation.
(Mr. TOOMEY asked and was given permission to revise and extend his
remarks.)
Mr. TOOMEY. Mr. Speaker, I thank the gentleman from Alabama (Mr.
Bachus) and appreciate all his help on this legislation as well as the
time he has yielded to me. I would also like to thank (Mr. Kanjorski),
an original cosponsor of my bill, which is part of this one, as well as
the gentlewoman from New York (Mrs. Kelly) for her work.
Mr. LEACH. Mr. Speaker, will the gentleman yield?
Mr. TOOMEY. Mr. Speaker, I yield to the gentleman from Iowa, with
whom I actually have a disagreement on this particular issue, but I
have enormous respect for his opinion and would like to give him an
opportunity to rebut a point made earlier.
Mr. LEACH. Mr. Speaker, I appreciate this. And let me say that the
brunt of this bill is a wonderfully thoughtful approach, and I
congratulate the gentleman and the gentlewoman from New York (Mrs.
Kelly) on this.
I would only come back to the one provision which I would like to
have changed, and that is the industrial loan corporation provision,
and to point out to this body that only a handful of States are
authorized, such as the State of Utah, to have industrial loan
corporations. They are not trivial institutions. In the State of Utah,
for example, their assets are double that of banks, S&Ls and credit
unions combined.
If this bill passes with this provision and becomes law, the vast
majority of States will see deposits swept from their States to this
handful of States. That alone is a philosophical circumstance that in
my mind should lead people to raise serious doubts about this
particular provision of this particular bill.
Mr. TOOMEY. Mr. Speaker, reclaiming the balance of my time, I would
just say that I appreciate the thoughtful remarks of the gentleman from
Iowa but respectfully disagree, and I think that the merits of this
bill are really quite strong.
In fact, the combination of the bill that I introduced, H.R. 859, and
the bill that the gentlewoman from New York (Mrs. Kelly) introduced,
H.R. 758, really are a modernizing effort here. It is going to help
small businesses and their employees. It is going to help small banks
and their employees and their customers. It is pro-free market
legislation. It is bipartisan. It is really a commonsense repeal.
Frankly, it was hard for me to believe when I first discovered that
we have a law in the United States of America that says it is illegal
for a bank to pay interest on a business checking account. I thought
that was the business banks were in, as a matter of fact. But in fact
it is hard to repeal a bad law in this country, and we have had this
one on the books for about 70 years. Its repeal is long overdue. Today
is our chance to do what we can do in the House to abolish this bill.
Now, if it goes into effect and is signed into law, the actual repeal
happens 2 years from now. I would prefer it happen sooner than that,
but this is the compromise that was arrived at. So that is certainly
better than continuing with the legislation. But I would like to be
precise about the net effect of this. Because it is not precisely that
businesses will now start earning interest which heretofore they have
not. In fact, what happens now is that banks have found these
cumbersome and very inefficient ways to circumvent this prohibition. So
they pay the economic equivalent of most of the interest that a
business would earn, but because of the expense of administering these
bureaucratic programs, the businesses do not get the full value of the
deposits they have.
At the end of the day, we should not force banks and their customers
to go through a lot of expensive and inefficient and economically
unproductive hurdles to avoid a regulation that has no merit in the
first place. So that is why we are here, to repeal this.
Mr. Speaker, I thank everybody who has been involved in supporting
this legislation, and I urge my colleagues to vote ``yes.''
H.R. 758 contains a provision, section 7, entitled Rule of
Construction, regarding escrow accounts maintained for purposes of
settling real estate transactions. This provision is similar to section
7 of H.R. 1009, the Business Checking Freedom Act of 2002, a bill I
sponsored that the House passed last year. Section 7 of H.R. 758 makes
clear that the current legal treatment of certain services and benefits
provided by banks in lieu of interest in connection with such escrow
accounts remains the same. There are some minor changes to this section
from section 7 of H.R. 1009, which clarify that the provision does not
prohibit or require the payment of interest on such accounts and that
it does not affect State laws regrading the payment of interest on
escrow accounts. I understand the latter is intended to ensure that
State laws governing mortgage servicing escrow accounts for the monthly
collection and payment of taxes and insurance are maintained. In brief,
section 7 does not alter the current legal definition of interest or
the legal treatment of real estate settlement escrow transactions.
Under section 7, current Federal legal standards, including
regulatory interpretations, regarding the definition of interest on
deposits will continue to stand. For example, the Federal Reserve's
Regulation Q currently provides that services and benefits can be given
by banks in lieu of interest to depositors and that the provision or
the receipt of such services and benefits does not constitute interest.
This has been the Federal Reserve's consistent
[[Page H2532]]
regulatory and interpretive view for decades. For example, a Federal
Reserve staff opinion in 1978 stated that the ``absorption or
reduction'' of banking service changes did not constitute the payment
of interest (Fed. Res. Bd. Staff Op., October 27, 1978), a view also
reflected in a 1964 Fed. interpretative letter (1964 Fed. Res. Interp.,
July 17, 1964). Under these regulatory principles, title companies and
agents receive bank services, such as free printed checks, overnight
float and safe deposit and night depository facilities, armored car
services, as well as low-interest loans, that help defray their cost of
maintaining real estate settlement escrows, ultimately lowering the
cost of these services to the public. Such accounts often times last
only a few days, the time necessary for settlement payments and other
disbursements to be made after the closing of a real estate
transaction.
In our Nation's highly developed financial system, Federal banking
law and regulations have operated to facilitate the smooth and
efficient flow of real estate transactions and promoted American
homeownership. I am optimistic that these services will continue to be
provided in the current efficient manner when H.R. 758 becomes law.
Mr. MATHESON. Mr. Speaker, I reserve the balance of my time.
Mr. BACHUS. Mr. Speaker, I yield 3 minutes to the gentleman from
California (Mr. Royce) to speak in favor of the legislation.
Mr. ROYCE. Mr. Speaker, I rise in support of this bill, which is
called the Business Checking Freedom Act; and I think giving banks the
ability to pay interest on business checking accounts is a good
concept. It has been endorsed by the President of the United States as
part of his small business agenda, but it has also been endorsed by
Federal regulators.
Federal regulators have long supported the effort to allow banks to
offer interest on demand accounts, and this particular measure enjoys a
broad base of support in the industry, including the National
Federation of Independent Businesses, America's Community Bankers, the
National Association of Federal Credit Unions, the Association of
Financial Professionals, and the Financial Services Roundtable.
The inability of depository institutions to pay interest on business
accounts, I think, hurts all sectors of the economy; and I think it
decreases the overall competitiveness of the American markets. This
legislation gives small businesses the jump-start that they need to
create new jobs and improve the economy while removing burdensome
regulations from small banks and, basically, while allowing the market
to work.
In my view, this legislation is solely about business checking. In my
view, it is not about the legal status of ILCs. I think contrary to the
concerns raised by the Federal Reserve, the FDIC Chairman Don Powell,
recently testified before our committee, testified that there are no
safety and soundness concerns with this amendment and that the FDIC has
no objection to an authorization for ILCs, or industrial loan banks, to
pay interest on NOW accounts held by businesses.
Mr. Speaker, I just thought I would quote Chairman Powell. He said,
``The FDIC would not object to paying interest by these financial
institutions on NOW accounts held by businesses. We do not really
perceive those any different from any other business accounts, and we
do not see it as a safety and soundness issue.''
Further, with respect to any concern regarding the relationship
between industrial loan banks and the few commercial companies that own
them in four States, Chairman Powell stated in a speech to the American
Bankers Association on October 8, 2002, that ``Congress has given us
good tools to manage the relationship between parents and insured
subsidiaries.
{time} 1315
``Indeed, the FDIC manages these relationships every day in the
industrial loan company model with little or no risk to the deposit
insurance funds, and no subsidy transferred to the nonbank parent.''
Again, in my view, this bill is about business checking for
depository institutions, not the legal status of ILCs. I want to
commend the authors of this legislation, the gentlewoman from New York
(Mrs. Kelly) and the gentleman from Pennsylvania (Mr. Toomey).
Mr. MATHESON. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, this is a piece of legislation that is overdue. The
notion of eliminating interest on business checking accounts is
something that seems like common sense. I was a small businessman
before I came to Congress, and it never seemed to make sense to me is
that this prohibition existed. We are talking about removing some
inefficiencies that exist in our financial marketplace. That is why
this legislation has such strong bipartisan support. I encourage
Members to pass this legislation.
Mr. Speaker, I yield back the balance of my time.
Mr. BACHUS. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, in closing, I want to address the issue of what this
bill does and what it does not do. The bill authorizes the Federal
Reserve to pay interest on sterile reserves, and as has been testified
before our committee, that should result in depositors in banks,
thrifts, credit unions, receiving higher interest on their deposits. It
should also result in lower interest rates for consumers.
The second thing that this legislation does, it allows banks to pay
interest on accounts established by businesses in those banks. It does
not authorize any new types of accounts. It does not in any way change
who can own a bank and who cannot own a bank. It does not in any way
allow these industrial loan companies to offer accounts which they are
prohibited from offering now. And they are prohibited at the present
time from offering demand deposit checking accounts; there is nothing
in this legislation that allows them to offer those accounts.
The Bank Holding Company Act establishes the rules for who can own a
bank and who cannot. We do not amend that legislation in any regard.
The bill does not, with respect to the gentleman from Iowa, authorize
Wal-Mart, WorldCom, Enron or any other company to own a bank or expand
the authority that they might have under existing law. They already
have authority under existing laws and under the Bank Holding Company
Act, which specifically permits them to own certain limited-purpose
banks, including credit card banks, industrial loan banks,
grandfathered unitary thrifts, grandfathered nonbank banks, and trust
banks. That is the present law.
There is nothing in this legislation that expands their right to own
an institution. So WorldCom presently, Wal-Mart presently, they could
own an industrial loan company or a unitary thrift, or some of these
grandfathered institutions. We do not expand that authority at all.
The gentleman from Iowa (Mr. Leach) has a fear, first of all, that we
are mixing banking and commerce. Well, we are already mixing them.
Present law already allows them to mix. We do not expand that in any
way under this legislation.
Mr. Speaker, we addressed the amendments of the gentleman from Iowa
(Mr. Leach); he offered two amendments in committee. And I have great
respect for the former chairman of the committee. He offered two
amendments to strip the ILC language from the bill. They were
overwhelmingly rejected, 55 nays, 8 yeses; the other amendment, 55
nays, 8 yeses. The gentleman from Iowa (Mr. Leach) has legitimate
concern with certain types of commerce and financial institutions and
the mixing of them. However, this legislation does not do that. That
will have to be addressed in the Bank Holding Act.
Mr. LEACH. Mr. Speaker, will the gentleman yield?
Mr. BACHUS. I yield to the gentleman from Iowa.
Mr. LEACH. Mr. Speaker, I have great respect for the gentleman, and
he is right about what companies can now do. However, what is not fully
described is that they will now be able to buy a charter with an
enhanced set of powers, which has not been offered before. It is the
enhanced power of this obscure charter that makes this legislation
difficult, and that is my concern.
Mr. BACHUS. Mr. Speaker, does the gentleman agree that an industrial
loan company can already offer a NOW account?
Mr. LEACH. If the gentleman will continue to yield, for the first
time, they will be allowed to offer business checking accounts, which
has never
[[Page H2533]]
been done before. Chairman Greenspan has noted this will cause an ILC
to become the functional equivalent of a bank, and such charters will
only be authorized in a handful of States, and thus will cause the
movement of assets to those States.
Mr. BACHUS. Mr. Speaker, what Chairman Greenspan has said is, these
institutions are not regulated by the Federal Reserve. There is nothing
in this that takes any regulation or adds any regulation.
Mr. LEACH. That is true. My amendment did not suggest that it be
regulated by the Federal Reserve, although other amendments I offered
did suggest that.
Mr. BACHUS. Mr. Speaker, reclaiming my time, this does not authorize
them to offer any accounts which they presently cannot offer nor expand
the rights of corporations to own these industrial companies.
Mr. GONZALEZ. Mr. Speaker, as a co-sponsor of H.R. 758, I want to
express my strong support for this legislation, the Business Checking
Freedom Act of 2003, legislation designed to help small businesses
obtain a better return on their checking account deposits and to permit
banks to receive interest on the reserves they must maintain at Federal
Reserve Banks. The House has passed similar legislation in the past few
years and it should take the same action regarding this bill.
In addition to expressing my support for the bill as a whole, I also
want to express specific support for section 7, entitled Rule of
Construction, which will help maintain the legal status quo of the
treatment of real estate escrow accounts maintained for the purpose of
settling real estate transactions. These accounts, which often last
only a matter of days, are usually established by title companies and
their agents to collect and disburse funds after the closing of a real
estate transaction. This Rule of Construction provision, similar to
language in H.R. 1009 passed by the House in April 2002, ensures that
neither this legislation nor other laws will affect the current
regulatory treatment of certain services and benefits provided by banks
in lieu of interest on escrow accounts maintained by title insurance
companies and title agents in connection with real estate closing
transactions. The inclusion of section 7 in H.R. 758 preserves
beneficial financial practices for escrow accounts at the same time
that we are eliminating an outdated prohibition against the payment of
interest on business checking accounts.
As a co-sponsor of this legislation, I wholeheartedly endorse and
support its passage.
Mr. BACHUS. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Miller of Florida). The question is on
the motion offered by the gentleman from Alabama (Mr. Bachus) that the
House suspend the rules and pass the bill, H.R. 758, as amended.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
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