[Congressional Record Volume 151, Number 69 (Monday, May 23, 2005)]
[House]
[Pages H3738-H3740]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 BUSINESS CHECKING FREEDOM ACT OF 2005

  Mrs. KELLY. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 1224) to repeal the prohibition on the payment of interest 
on demand deposits, and for other purposes, as amended.
  The Clerk read as follows:

                               H.R. 1224

       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 2005''.

     SEC. 2. INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED FOR 
                   ALL BUSINESSES.

       (a) Daily Transfers Allowed Into Demand Deposit Accounts.--
     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;
       (2) by inserting after subsection (a) the following:
       ``(b) Transfers.--Notwithstanding any other provision of 
     law, any depository institution, other than a nonqualified 
     industrial loan company, 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.''; and
       (3) by adding at the end of subsection (a) the following 
     new paragraph:
       ``(3) Nonqualified industrial loan companies.--
       ``(A) Definition.--For purposes of this section, the term 
     `nonqualified industrial loan company' means any industrial 
     loan company, industrial bank, or other institution described 
     in section 2(c)(2)(H) of the Bank Holding Company Act of 1956 
     that is determined by an appropriate State bank supervisor 
     (as defined in section 3 of the Federal Deposit Insurance 
     Act) to be controlled, directly or indirectly, by a 
     commercial firm.
       ``(B) Commercial firm defined.--For purposes of this 
     paragraph, the term `commercial firm' means any entity at 
     least 15 percent of the annual gross revenues of which on a 
     consolidated basis, including all affiliates of the entity, 
     were derived from engaging, on an on-going basis, in 
     activities that are not financial in nature or incidental to 
     a financial activity during at least 3 of the prior 4 
     calendar quarters.
       ``(C) Grandfathered institutions.--The term `nonqualified 
     industrial loan company' does not include any industrial loan 
     company, industrial bank, or other institution described in 
     section 2(c)(2)(H) of the Bank Holding Company Act of 1956--
       ``(i) which became an insured depository institution before 
     October 1, 2003, or pursuant to an application for deposit 
     insurance which was approved by the Federal Deposit Insurance 
     Corporation before such date; and
       ``(ii) with respect to which there is no change in control, 
     directly or indirectly, of the company, bank, or institution 
     after September 30, 2003, that requires an application under 
     section 7(j) or 18(c) of the Federal Deposit Insurance Act, 
     section 3 of the Bank Holding Company Act of 1956, or section 
     10 of the Home Owners' Loan Act.''.
       (b) Interest on Business Now Accounts.--
       (1) In general.--Section 2(a) of Public Law 93-100 (12 
     U.S.C. 1832(a)) is amended--
       (A) by striking paragraph (2) and inserting the following 
     new paragraph:
       ``(2) Payment of interest on certain now accounts.--An 
     industrial loan company, industrial bank, or other 
     institution described in section 2(c)(2)(H) of the Bank 
     Holding Company Act of 1956 may not pay interest on any 
     deposit or account of a corporation, business partnership, or 
     other business entity from which funds may be withdrawn by 
     negotiable instrument for payment to third parties, unless 
     the appropriate State bank supervisor (as defined in section 
     3 of the Federal Deposit Insurance Act) of such company, 
     bank, or institution determines that such company, bank, or 
     institution is not a nonqualified industrial loan company.''; 
     and
       (B) by adding at the end the following new paragraph:
       ``(4) Rule of construction relating to demand deposits.--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.''.
       (2) Technical and conforming amendment.--Section 2(b) of 
     Public Law 93-100 (12 U.S.C. 1832(b)) (as added by subsection 
     (a)(2) of this section) is amended by striking ``and is not a 
     deposit or account described in subsection (a)(2)''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect at the end of the 2-year period beginning 
     on the date of the enactment of this Act.

     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

[[Page H3739]]

     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) Fees imposed in connection with bounced-check 
     protection and overdraft protection programs.
       ``(K) Deposit items returned fees.
       ``(L) 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, 2007, 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, 2006.
       (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),''.

     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 2005 through 2009.--
       ``(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 2005 
     through 2009.
       ``(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 2005 through 2009, 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 2005 through 2009, 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 2005 
     through 2009, 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. RULES OF CONSTRUCTION.

       In the case of an escrow account maintained at a depository 
     institution for the purpose of completing the settlement of 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, including any 
     benefits which have been so determined by the appropriate 
     Federal regulator,
     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. 
     No provision of this Act shall be construed so as to require 
     a depository institution that maintains an escrow account in 
     connection

[[Page H3740]]

     with a real estate transaction to pay interest on such escrow 
     account or to prohibit such institution from paying interest 
     on such escrow account. No provision of this Act shall be 
     construed as preempting 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 gentlewoman from 
New York (Mrs. Kelly) and the gentleman from Massachusetts (Mr. Frank) 
each will control 20 minutes.
  The Chair recognizes the gentlewoman from New York (Mrs. Kelly).


                             General Leave

  Mrs. KELLY. Mr. 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. 1224, as amended
  The SPEAKER pro tempore. Is there objection to the request of the 
gentlewoman from New York?
  There was no objection.
  Mrs. KELLY. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, for the fifth time in three Congresses, we are here to 
pass legislation to bring our banking system into the 21st century. 
Five times this House has passed this legislation to help our small 
businesses, only for it to fall in the other body. We come to the floor 
once again with a strong hope that the enactment of this bill will 
finally be enacted into law this Congress.
  The Business Checking Freedom Act provides important benefits for our 
local small businesses and our financial system alike. First, it 
repeals an outdated law prohibiting banks from paying interest on 
business checking accounts. In our 21st century economy, no American 
should be losing the option of making money on their assets simply 
because they own a small business, yet our small business owners across 
the country are losing potential interest income on a daily basis until 
the Business Checking Freedom Act becomes law.
  This legislation will allow banks to better meet the needs of their 
small business customers while providing a necessary phase-in period to 
protect existing business relationships from a sudden change, and it 
clarifies the treatment of escrow accounts maintained for the purpose 
of completing the settlement of real estate transactions, and that is 
not changed by this bill.
  H.R. 1224 also gives the Federal Reserve the opportunity to pay 
interest on reserves that banks keep within the Federal Reserve system. 
Consumers and banks will be rewarded for saving and investment by this 
bill. The Federal Reserve strongly supports this change and a related 
change on reserve requirements to better enable banks to operate safely 
and soundly.
  H.R. 1224 will once again ensure that banks can best meet the needs 
of their customers while increasing the safety and soundness of our 
financial system. I urge all Members to join with me in passing this 
important bipartisan legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself such time as 
I may consume.
  Mr. Speaker, I concur with the explanation given by the gentlewoman 
from New York, the major author of the bill. This House has previously 
passed the bill, and it did not emerge from the Senate. We hope that it 
does this year.
  There were, if you go back 20 years or more, a number of restrictions 
on what various financial institutions can do. They have been outdated 
by technology, and passing this bill is one more step towards making 
sure that our financial institutions can in fact take full advantage of 
that.
  There is one issue that is of some interest to many Members that I 
want to note. We have in some parts of the country institutions known 
as ``industrial loan corporations'' that have many of the functions of 
banks, but, unlike more traditional banks, have many of their assets in 
nonbanking activities. Hence the name ``industrial loan corporation.''
  They have become somewhat controversial. The Federal Reserve system 
is very much unhappy with them. There have been other concerns about 
other entities getting into the banking business when they are 
primarily not banks, but doing this in various ways.

                              {time}  1715

  When the Congress passed the bill reorganizing the financial systems 
and removing a lot of the constraints on various financial institutions 
known as the Gramm-Leach-Bliley Act, it adopted a test that 
institutions had to be 85 percent financial in their total to get 
certain powers.
  Working with the gentleman from Ohio (Mr. Gillmor), I have put that 
formula into place, or the gentleman from Ohio (Mr. Gillmor) and I 
together have, with the concurrence of most of the members of our 
committee, so that as we expand bank powers, whether it is for 
branching or, today, for interest on business checking or in other 
ways, we have maintained that principle that these new powers should 
only go to institutions that have an 85 percent financial entity.
  This does not displace existing industrial loan corporations; indeed, 
it allows them to continue with whatever powers they get from the 
States where they are chartered, where they are State chartered, but it 
does say that as we expand banking powers, that expansion will be 
limited to institutions which would qualify under the 85-15 test.
  That provision is in here, and with that provision and a couple of 
other minor changes, I think this is a piece of legislation that is 
very appropriate.
  I would note that a question was raised about one aspect of it by 
people interested in land title. My colleague, the gentleman from North 
Carolina (Mr. Watt) negotiated, I think, a very reasonable response to 
their question, and we now have a bill that I hope will pass 
overwhelmingly.
  Mr. Speaker, I reserve the balance of my time.
  Mrs. KELLY. Mr. Speaker, I yield myself such time as I may consume.
  I simply want to say that this bill is a bill that will encourage 
savings. It will also encourage the banks to keep more reserves at the 
Federal Reserve, which is a good thing for bank stability. We have 
passed this bill, as I said before, five times in the Congress. It is 
very important, I believe, to the small businesses of this Nation that 
this bill be passed today and that it get passed appropriately in the 
Senate.
  Mr. FRANK of Massachusetts. Mr. Speaker, I yield back the balance of 
my time.
  Mrs. KELLY. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Daniel E. Lungren of California). The 
question is on the motion offered by the gentlewoman from New York 
(Mrs. Kelly) that the House suspend the rules and pass the bill, H.R. 
1224, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of 
those present have voted in the affirmative.
  Mrs. KELLY. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

                          ____________________