[Congressional Record Volume 151, Number 70 (Tuesday, May 24, 2005)]
[Extensions of Remarks]
[Page E1083]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 BUSINESS CHECKING FREEDOM ACT OF 2005

                                 ______
                                 

                               speech of

                        HON. NYDIA M. VELAZQUEZ

                              of new york

                    in the house of representatives

                          Monday, May 23, 2005

  Ms. VELAZQUEZ. Mr. Speaker, I rise in support of the Business 
Checking Freedom Act of 2005, H.R. 1224. Among other things, H.R. 1224 
would repeal the prohibition against banks paying interest on checking 
accounts and authorize the Federal Reserve to pay interest on reserve 
balances maintained by depository institutions at Federal Reserve 
Banks. The bill is almost identical to previous legislation on the 
subject passed by the House, including H.R. 758, which passed in 2003.
  H.R. 1224 contains some long overdue changes. I am particularly 
pleased that this legislation will permit small businesses to earn 
interest on their checking account balances. Individuals have been able 
to receive interest on checking accounts for some time, and small 
businesses, many of which are individually owned and operated, should 
have the same ability to receive an equitable return on their checking 
deposits.
  Small businesses face an array of barriers to accessing the capital 
they need for start-up, operation and expansion. One of these barriers 
is the Depression-era law that prohibits interest-bearing checking 
accounts. The law, enacted as part of the Banking Act of 1933, was 
meant to keep banks solvent during the Great Depression. Almost 70 
years later, the law is still in effect, despite evidence that it is no 
longer valid--or necessary.
  In fact, a 1996 joint report issued by the Federal Reserve Board, the 
Federal Deposit Insurance Corporation, the Office of the Comptroller of 
the Currency, and the Office of Thrift Supervision stated that the law 
barring payment on business checking accounts ``no longer serves a 
public purpose.'' H.R. 1224 effectively repeals this ban and permits 
small businesses to earn interest on their checking accounts.
  Similar to past House bills, H.R. 1224 also includes a section 
entitled Rules of Construction, which ensure that the existing 
regulatory treatment of certain services and benefits provided by banks 
in lieu of interest on escrow accounts maintained to complete the 
settlement of real estate closing transactions remains as it is today.
  Currently, the Federal Reserve's Regulation Q permits banks to offer 
services and benefits in lieu of interest to depositors. It also 
specifically provides that the provision or the receipt of such 
services and benefits does not constitute interest. Using this option, 
title companies and agents receive bank services, such as free safe 
deposit and night depository facilities and low-interest loans, in lieu 
of interest.
  This arrangement lowers the cost of maintaining real estate escrows, 
which in turn lowers the cost of these services to customers of title 
companies and title agents. H.R. 1224 does not change Regulation Q or 
any regulatory standard regarding the definition of interest. Rather, 
it ensures the continued delivery of cost-effective real estate closing 
services.
  H.R. 1224 provides for a long overdue change to federal banking laws 
that will enable small businesses to gain parity with larger firms that 
are already able to essentially receive interest on their checking 
accounts. By doing so, small businesses will be better able to grow and 
create the new jobs that our country so desperately needs.
  I urge my colleagues to support this important legislation.

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