[Congressional Record (Bound Edition), Volume 149 (2003), Part 6]
[House]
[Pages 7925-7931]
[From the U.S. 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.

[[Page 7926]]

  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)'';
       (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.''.

[[Page 7927]]

       (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),''.

     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.

[[Page 7928]]

  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 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

[[Page 7929]]

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 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. 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

[[Page 7930]]

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 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

[[Page 7931]]

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 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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