[House Report 109-81]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     109-81
======================================================================


 
                 BUSINESS CHECKING FREEDOM ACT OF 2005

                                _______
                                

  May 16, 2005.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1224]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 1224) to repeal the prohibition on the payment of 
interest on demand deposits, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     1
Purpose and Summary..............................................     6
Background and Need for Legislation..............................     7
Hearings.........................................................     7
Committee Consideration..........................................     7
Committee Votes..................................................     7
Committee Oversight Findings.....................................     8
Performance Goals and Objectives.................................     8
New Budget Authority, Entitlement Authority, and Tax Expenditures     8
Committee Cost Estimate..........................................     8
Congressional Budget Office Estimate.............................     8
Federal Mandates Statement.......................................    21
Advisory Committee Statement.....................................    21
Constitutional Authority Statement...............................    21
Applicability to Legislative Branch..............................    21
Section-by-Section Analysis of the Legislation...................    22
Changes in Existing Law Made by the Bill, as Reported............    24

                               Amendment

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

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 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 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, 2006, 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 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, 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 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.

                          Purpose and Summary

    H.R. 1224, the Business Checking Freedom Act of 2005, 
repeals the prohibition on the payment of interest on 
commercial demand deposits, increases the number of inter-
account transfers which may be made from business accounts at 
depository institutions, and authorizes the Board of Governors 
of the Federal Reserve System to pay interest on reserves.
    The legislation removes the prohibition on the payment of 
interest on commercial demand deposit accounts after a two year 
period, and authorizes the payment of interest on most 
negotiable order of withdrawal (NOW) accounts maintained by 
businesses, with the exception of business accounts maintained 
at industrial loan companies (ILCs) owned by corporate parents 
that derive more than 15 percent of their gross revenues from 
activities that are not financial in nature or incidental to 
such activities and whose applications for deposit insurance 
were approved after September 30, 2003. The bill also 
authorizes the Federal Reserve to pay interest on the reserves 
that depository institutions maintain at Federal Reserve Banks, 
and eliminates the minimum statutory ratios that currently 
apply to those reserves, thereby giving the Board of Governors 
of the Federal Reserve greater flexibility in setting reserve 
requirements. To offset the revenue loss associated with 
allowing interest payments on reserve balances, the legislation 
requires that the Federal Reserve remit from its surplus fund 
to the Treasury an amount equal to the estimated annual revenue 
loss during the first five years the legislation is in effect. 
The legislation increases the number of allowable transfers 
from interest bearing or dividend earning commercial deposits 
or accounts to 24 per month, from the current limit of six, 
enabling depository institutions to sweep funds between non-
interest bearing commercial checking accounts and interest 
bearing accounts on a daily basis with the exception of the 
heretofore referenced ILCs. Finally, the legislation directs 
the Board of Governors of the Federal Reserve System to conduct 
an annual survey of retail bank fees and services.

                  Background and Need for Legislation

    Under current law, depository institutions may not pay 
interest on demand deposit accounts. Because of the widespread 
availability of NOW accounts for non-business account holders, 
business account holders are the only depositors effectively 
barred from earning interest on their checking accounts. This 
disparity creates an incentive for banks to circumvent this 
restriction by using methods to offer their business customers 
accounts that are roughly equivalent to interest-bearing 
checking accounts, but at significant cost to the customer. 
Because of the costs associated with these programs, small 
businesses are particularly disadvantaged in attempting to earn 
some return on the money they hold in checking accounts.
    Additionally, under the Federal Reserve Act, banks, 
thrifts, and credit unions are required to hold funds against 
transaction accounts held by customers of those institutions. 
These funds must be held either in cash or on reserve at 
Federal Reserve Banks. Current law does not authorize Federal 
Reserve Banks to pay interest on reserve balances. Because of 
this limitation, these funds have come to be known as ``sterile 
reserves'' and financial institutions have sought ways to 
minimize their reserve requirements. Consequently, reserve 
balances at Federal Reserve Banks have declined dramatically in 
recent years, falling from approximately $28 billion in 1993 to 
approximately $10 to $12 billion today.
    According to the Federal Reserve, the decline in reserves 
has potential consequences for its ability to conduct monetary 
policy. Reserve requirements play an important role in open 
market operations aimed at influencing general monetary and 
credit conditions by varying the cost and availability of 
reserves to the banking system. Declines in reserves could lead 
to increased volatility in the Federal funds rate, and, if it 
became a persistent feature of the money market, would affect 
other overnight interest rates, raising funding risks for large 
banks, securities dealers, and other market participants. Small 
banks and thrifts, as well as other sources of funds for 
overnight markets, would face increased uncertainty about their 
rates of return.

                                Hearings

    In the 108th Congress, the Subcommittee on Financial 
Institutions and Consumer Credit held a hearing on H.R. 758, 
the Business Checking Freedom Act of 2003, and H.R. 859, the 
Business Checking Freedom Act of 2003, on March 5, 2003.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
April 27, 2005, and ordered H.R. 1224, the Business Checking 
Freedom Act of 2005, reported to the House, as amended, by a 
voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken in conjunction with the consideration 
of this legislation. A motion by Mr. Oxley to report the bill 
to the House with a favorable recommendation was agreed to by a 
voice vote.
    The Committee considered the following amendments:
    An amendment in the nature of a substitute by Mr. Oxley, 
No. 1, making various substantive and technical changes, was 
agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Frank (on behalf of Ms. Hooley), No. 1a, requesting a 
fee survey, was agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mrs. Maloney, No. 1b, adding a new section on adjustment of 
check hold periods required, was withdrawn.

                      Committee Oversight Findings

    Pursuant to clause 3(c) (1) of rule XIII of the Rules of 
the House of Representatives, the Committee has held hearings 
previously and made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c) (4) of rule XIII of the Rules of 
the House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The Board of Governors of the Federal Reserve will use the 
authority granted by this legislation to ensure that funds held 
by the Federal Reserve, depository institutions, or in NOW 
accounts may earn interest in accordance with the provisions of 
this legislation.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c) (2) of rule XIII of the 
Rules of the House of Representatives, the Committee adopts as 
its own the estimate of budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c) (3) of rule XIII of the Rules of 
the House of Representatives, the following is the cost 
estimate provided by the Congressional Budget Office pursuant 
to section 402 of the Congressional Budget Act of 1974:

                                                      May 10, 2005.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1224, the Business 
Checking Freedom Act of 2005, as ordered reported by the House 
Committee on Financial Services on April 27, 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Barbara 
Edwards.
            Sincerely,
                                               Douglas Holtz-Eakin.
    Enclosure.

H.R. 1224--Business Checking Freedom Act of 2005

    Summary: H.R. 1224, the Business Checking Freedom Act of 
2005, would allow depository institutions to pay interest on 
business demand deposit accounts. H.R. 1224 also would allow 
the Federal Reserve System to pay interest on any reserve 
balances held on deposit at the Federal Reserve by insured 
depository institutions, except nonqualified industrial loan 
companies. The Board of Governors of the Federal Reserve Board 
(FRB) would have greater flexibility in setting reserve 
requirements and would be required to submit an annual report 
to the Congress summarizing many of the services provided and 
fees charged to consumers by depository institutions. The 
reduction in revenues as a result of the interest payments on 
reserves would be offset through 2009 by transfers from surplus 
funds of Federal Reserve Banks to the U.S. Treasury.
    CBO estimates that the bill would have no net effect on 
annual revenues over the 2006-2009 period because the estimated 
loss in revenues would be offset by transfers from Federal 
Reserve surplus funds. Enacting H.R. 1224 would decrease 
revenues after 2009. CBO estimates that the loss in revenues 
would total approximately $1.8 billion over the 2010-2015 
period.
    CBO estimates that H.R. 1224 would have no significant 
effect on federal spending. It contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) and would impose no costs on state, local, or 
tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 1224 is shown in the following table.


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                              2005      2006      2007      2008      2009      2010      2011      2012      2013      2014      2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Allowing Interest on Reserves.............         0      -181      -108      -135      -154      -174      -195      -204      -213      -224      -235
Transfers of Federal Reserve Bank                  0       181       108       135       154      -578         0         0         0         0         0
 Surpluses to the Treasury................
                                           -------------------------------------------------------------------------------------------------------------
    Net Budgetary Effect..................         0         0         0         0         0      -752      -195      -204      -213      -224      -235
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The initial budgetary effect of H.R. 1224 would be a 
decrease in the payment of profits from the Federal Reserve 
System to the U.S. Treasury. The Federal Reserve remits its 
profits to the Treasury, and those payments are classified as 
governmental receipts, or revenues, in the federal budget. Any 
additional income or costs to the Federal Reserve, therefore, 
can affect the federal budget. The Federal Reserve's largest 
source of income is interest from its holdings of Treasury 
securities. In effect, the Federal Reserve invests in Treasury 
securities the reserve balances and issues of currency that 
constitute the bulk of its liabilities. Since the Federal 
Reserve pays no interest on reserves or currency, and the 
Treasury pays the Federal Reserve interest on its security 
holdings, the Federal Reserve earns profits.
    By allowing the Federal Reserve to pay interest on 
reserves, the bill would decrease the Federal Reserve's profits 
and thereby reduce federal revenues by an estimated $578 
million over the 2006-2009 period. This budgetary response has 
several significant components. First, the Federal Reserve's 
payment of interest on required reserve balances held at 
Federal Reserve banks would tend to reduce governmental 
receipts. CBO anticipates that some depository institutions and 
depositors would respond to the interest payments on reserves 
(and interest payments on business demand deposit accounts) by 
shifting funds out of consumer ``retail'' and business 
``wholesale'' sweep accounts and into demand deposit accounts. 
This secondary response would increase required reserve 
balances, although the Federal Reserve would be expected to 
offset a portion of it by lowering reserve requirements. The 
net increase in reserves would partially offset the loss in 
federal revenues from the payment of interest on reserves. 
Finally, those net reductions in Federal Reserve receipts would 
act like reductions in indirect business taxes, generating 
increases in other incomes in the economy and subsequently 
higher income and payroll taxes. Those higher income and 
payroll taxes would offset the declines in Federal Reserve 
receipts by an estimated 25 percent, roughly the marginal tax 
rate on overall incomes in the economy. The legislation also 
stipulates that the overall revenue loss would be offset by a 
transfer from surplus funds of Federal Reserve banks to the 
U.S. Treasury for each fiscal year through 2009. Revenue losses 
would therefore commence in 2010.
    Basis of Estimate: The estimates are based on the 
assumption that the provisions would become effective early in 
fiscal year 2006.

    ALLOWING THE FEDERAL RESERVE TO PAY INTEREST ON RESERVE BALANCES

    H.R. 1224 would permit the Federal Reserve to pay interest 
on balances held on deposit at the Federal Reserve. Depository 
institutions hold three types of balances at the Federal 
Reserve-required reserve balances, contractual clearing 
balances, and excess reserve balances. Required reserve 
balances are the balances that a depository institution must 
hold to meet reserve requirements. Depository institutions may 
also hold additional balances called required or contractual 
clearing balances, which can earn an implicit rate of interest 
in the form of an interest credit that is used to defray fees 
for Federal Reserve services. Contractual clearing balances 
have risen over the last decade from under $2 billion in 1990 
to roughly $9 billion today. Excess reserves are funds held at 
reserve banks in excess of a depository institution's required 
reserve and contractual clearing balances. Staff at the Federal 
Reserve has indicated that, given the authority, the Federal 
Reserve would pay interest on required reserve balances and 
give depository institutions the option of earning an explicit 
rate of interest on contractual clearing balances or continuing 
with the current system of earning an interest credit. (The 
payment of interest on required reserve balances and the 
payment of interest on contractual clearing balances are 
discussed separately in this estimate, since their effects on 
revenues are likely to be different.) We believe that the 
Federal Reserve would choose not to pay interest on excess 
reserve balances, unless required reserve balances fell to such 
a low level that interest on excess reserves was needed to 
build reserves. That is considered to be an unlikely scenario.
    Interest on Required Reserve Balances. The budgetary effect 
of interest on required reserve balances is divided into three 
components. First, the bill would result in the Federal Reserve 
paying interest on the required reserve balances expected under 
current law, reducing its net income and, therefore, 
governmental receipts. Second, the payment of interest on 
reserves would cause demand deposit balances at depository 
institutions to increase. That increase would raise the level 
of reserve balances held at the Federal Reserve, although the 
increase would likely be diminished by Federal Reserve actions 
to reduce reserve requirements. The higher reserve balances at 
the Federal Reserve would increase its earnings because it 
would invest the balances at a higher rate than it would pay on 
them. This change in projected reserves would increase 
governmental receipts, but would only partially offset the loss 
caused by the payment of interest on reserves projected under 
current law. Third, the net reduction in Federal Reserve 
receipts from the first two effects would be partially offset 
by increased income and payroll tax receipts.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Allowing interest on reserve balances (by fiscal year, in millions of dollars)
                                                      --------------------------------------------------------------------------------------------------
                                                         2005     2006     2007     2008     2009     2010     2011     2012     2013     2014     2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Revenue from Federal Reserve:
    Interest on Required Reserves....................        0     -314     -232     -256     -268     -281     -294     -308     -322     -338     -355
    Profits from Increased Reserves..................        0       73       88       76       63       50       34       36       37       39       41
                                                      --------------------------------------------------------------------------------------------------
        Net Effect on Revenue from Federal Reserve...        0     -242     -144     -180     -205     -232     -260     -272     -284     -299     -314
Income and Payroll Tax Offsets.......................        0       60       36       45       51       58       65       68       71       75       78
                                                      --------------------------------------------------------------------------------------------------
        Net Effect of Allowing Interest on Reserves..        0     -181     -108     -135     -154     -174     -195     -204     -213     -224     -235
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--Totals may not sum due to rounding.

    Interest Payments on Required Reserves Projected Under 
Current Law. Because depository institutions currently do not 
earn a return on required reserve balances, they have an 
incentive to minimize such balances. Required reserve balances 
measured almost $30 billion at the end of 1993, but generally 
have ranged between $12 billion and $14 billion in the past 
year and were about $5 billion in early 2000. The expansion of 
consumer and business sweep accounts has caused this general 
decline. In typical sweep accounts, banks shift their 
depositors' funds from demand deposits, against which reserves 
are required, into other depository accounts, against which 
reserves are not required. The banks shift the funds back to 
the demand deposit accounts the next business day, or when 
needed by the depositor. Sweep accounts for business demand 
deposits have existed in various forms since the early 1970s. 
Advances in computer technology in the 1990s made the shifting 
of funds feasible for many consumer accounts as well. Under 
current law, CBO expects the expansion of retail and business 
sweep accounts to continue, in part because of the effects of 
rising interest rates. CBO expects required reserve balances to 
decline to about $5 billion over the next two years and to rise 
gradually in subsequent years, with growth in the economy.
    Under H.R. 1224, the Federal Reserve would be allowed to 
choose the interest rate it pays on reserve balances, although 
the rate chosen could not exceed the general level of short-
term interest rates. Staff at the Federal Reserve has indicated 
that the Federal Reserve would choose an interest rate near the 
key short-term rate, the federal funds rate. The likely rate 
would be 10 to 15 basis points lower than the federal funds 
rate to account for the lack of risk. Accordingly, CBO assumes 
that the Federal Reserve would pay interest only on required 
reserves at a rate of 10 to 15 basis points below the federal 
funds rate.
    CBO projects that the federal funds rate will average about 
4 percent in 2006 and 4.9 percent over the 10-year period from 
2006 through 2015. The payment of interest on reserves is 
assumed to start early in fiscal year 2006. CBO projects that 
H.R. 1224 would cause the Federal Reserve to pay interest to 
depository institutions of about $314 million in 2006 on $8 
billion of required reserve balances expected under current 
law. For several years thereafter, the interest paid to 
depository institutions would be lower because required 
reserves under current law would decline as a result of higher 
interest rates. Over the 2006-2010 period, such interest 
payments would total about $1.4 billion. Those payments would 
reduce the profits of the Federal Reserve--and thus its 
payments to the Treasury--by the same amount.
    Projected Impact of the Bill on the Volume of Reserves. If 
the Federal Reserve pays interest on required reserve balances, 
there would be a second budgetary effect on the Federal Reserve 
that would reduce, but not eliminate, the net revenue loss from 
the payment of interest. In particular, based on a survey by 
the FRB, we would expect reserve balances to increase because 
depository institutions would close a significant share of 
their retail and business sweep accounts and, as a result, 
maintain a higher level of required reserves. The payment of 
interest on business demand deposit accounts coupled with the 
payment of interest on reserves would give both businesses and 
depository institutions an incentive to open business checking 
accounts and close wholesale sweep accounts. Under current law, 
depository institutions are already allowed to pay interest on 
consumer demand deposits. By closing a significant share of 
consumer and business sweep accounts, depository institutions 
could eliminate the costs of maintaining the sweep accounts and 
receive a return on their required reserves, although 
presumably at a lower rate than what they could receive if they 
invested the funds in other ways.
    CBO assumes that depository institutions would eliminate 
approximately 30 percent of both retail and business sweep 
accounts currently in existence by 2008 and half of those that 
otherwise would be established. Although the payment of 
interest on business demand deposits by depository institutions 
would not be permitted until two years after enactment of H.R. 
1224, the bill would allow businesses to establish interest-
bearing transaction accounts. Businesses would be allowed up to 
24 transfers per month (or more if the Federal Reserve permits) 
into a demand deposit account that would be subject to reserve 
requirements. Because reserve requirements would also apply to 
those accounts, they would be similar to interest-bearing 
demand deposits. As a result of the closings of retail and 
business sweep accounts, demand deposits for which reserves are 
required would increase at depository institutions.
    The increase in reserves from the closing of many sweep 
accounts would likely provide the Federal Reserve with more 
reserves than needed for implementing monetary policy. H.R. 
1224 would relax the current lower bound on reserve 
requirements, therefore providing the Federal Reserve with the 
option of lowering reserve requirements, perhaps substantially, 
in the face of increasing reserves. The Federal Reserve has 
indicated that it would study the possible strategies for 
setting reserve requirements in such an environment.
    Under current law, the Federal Reserve can set reserve 
requirements as high as 14 percent and as low as 8 percent of 
transactions deposits (above a fixed threshold). The Federal 
Reserve has kept the requirement at 10 percent for most 
transactions deposits since 1992. H.R. 1224 would remove the 
lower limit of 8 percent.
    CBO assumes the Federal Reserve would offset a part of the 
increase in reserve balances by lowering reserve requirements. 
The magnitude and timing of such changes is very uncertain, but 
CBO assumes that required reserves would be maintained at 
roughly $10 billion to $15 billion, which is consistent with 
the balances in recent years. Reductions in reserve 
requirements would begin in 2008.
    As a result, CBO projects that required reserve balances 
would increase above the level expected under current law and 
generate additional net income to the Federal Reserve. Although 
the Federal Reserve would pay interest on the added reserves at 
approximately the federal funds rate, it would invest the 
reserves in Treasury securities, earning a rate of return 
approximately 0.6 of a percentage point in excess of that which 
it pays. As a result of that differential, the Federal Reserve 
would generate additional profits of about $73 million in 2006 
and $349 million over the 2006-2010 period.
    Projected Offsetting Impact on Tax Revenues. Allowing 
interest on required reserve balances held at the Federal 
Reserve would have a third budgetary effect that would also 
partially offset the decline in revenue from the payment of 
interest on current balances. The current reserve requirement 
on depository institutions, without provision of interest, is 
like an indirect business tax. Allowing interest payments on 
reserves, therefore, would generate the same economic effects 
as does removing an excise tax. Assuming that GDP remains 
unchanged, reductions in excise tax receipts generate equal 
increases in other incomes in the economy. The higher incomes 
produce increases in income and payroll taxes that offset an 
estimated 25 percent of the reduction in excise tax receipts, 
roughly the marginal tax rate on overall incomes in the 
economy. In this case, a quarter of the loss in receipts from 
the Federal Reserve would be offset by an increase in income 
and payroll tax receipts. CBO estimates that the loss in 
Federal Reserve receipts would total $242 million in 2006, 
offset partially by an increase in income and payroll taxes of 
$60 million. Over the 2006-2010 period, the loss in Federal 
Reserve receipts would total about $1 billion and the increase 
in income and payroll taxes would total about $250 million.
    The Allowance of Interest on Contractual Clearing Balances. 
Staff at the Federal Reserve have indicated that, given the 
authority, the Federal Reserve would give depository 
institutions the option of earning an explicit interest payment 
on contractual clearing balances or continuing with the current 
system of earning an implicit interest payment in the form of 
an interest credit, which can be used to offset fees for 
services provided by the Federal Reserve. CBO estimates that 
giving depository institutions the option of earning an 
explicit rate of interest on contractual clearing balances 
would have little or no budgetary effect.
    For those depository institutions choosing an explicit 
interest payment on contractual balances, the explicit interest 
earnings, for the most part, would be substituted for what is 
now an implicit interest payment. Earning an explicit rate of 
interest on contractual balances may give some depository 
institutions an incentive to hold somewhat higher balances than 
currently because the interest credit earned under the present 
system can only be used to offset user fees for services 
provided by the Federal Reserve. A number of banks are already 
able to cover all of their service costs this way, so that an 
explicit interest payment is required to give them an incentive 
to hold more balances.
    The Federal Reserve would pay an interest rate based on and 
lower than the short-term Treasury bill rate, which is 
consistent with the calculation currently used for the implicit 
interest on contractual balances, and invest the funds in 
Treasury securities. The difference between what the Federal 
Reserve pays in interest on these additional balances and what 
it earns by investing them in Treasury securities would result 
in an increase in Federal Reserve earnings. Depository 
institutions, however, may choose to increase their contractual 
clearing balances by reducing the excess reserve balances they 
hold at the Federal Reserve. The Federal Reserve currently pays 
zero interest on excess reserves and invests them in Treasury 
securities, remitting these earnings to the Treasury. The 
additional earnings on contractual clearing balances could be 
completely offset, or possibly more than offset, depending on 
the extent to which depository institutions choose to increase 
their clearing balances by reducing their excess reserve 
balances. For example, if clearing balances increase by $2 
billion and the rate differential between the interest rate 
applicable to clearing balances and Treasury securities is 1.0 
percentage points, Federal Reserve earnings would increase by 
$20 million. If, however, $400 million of the increase in 
clearing balances was the result of a transfer from excess 
reserves by depository institutions, then, assuming a rate of 
return on Treasury securities of 5 percent, Federal Reserve 
earnings would not change because the $20 million increase in 
earnings would be offset by a decline of $20 million from the 
investment of excess reserves. CBO, therefore, estimates that 
making explicit interest payments on contractual clearing 
balances is likely to have little or no significant effect on 
earnings.

           TRANSFER FROM SURPLUS FUNDS OF THE FEDERAL RESERVE

    During the first four years that H.R. 1224 would be 
effective (fiscal years 2006 through 2009), the legislation 
provides that the revenue loss associated with allowing 
interest payments on reserve balances would be offset by 
requiring the Federal Reserve to remit from its surplus fund to 
the Treasury an amount equal to an estimate of the annual net 
revenue loss. In addition, during this same period, the bill 
would make the Federal Reserve payment of net earnings to the 
Treasury mandatory and the Federal Reserve would not be allowed 
to replenish its surplus fund. Those provisions would have the 
effect of reducing the cost of the legislation to zero through 
2009 and postpone the accumulated net revenue loss to the 
federal government until 2010.
    Out of its annual earnings, the Federal Reserve covers its 
operating costs, pays a small dividend to its member banks, 
retains monies for its surplus fund, and voluntarily remits the 
remaining profits to the U.S. Treasury. The Federal Reserve's 
surplus fund is a stock of retained earnings accumulated over 
time and is set by the Federal Reserve each year at a level 
equal to the paid-in capital of its member banks. The fund can 
be used as collateral for issuance of Federal Reserve notes and 
may be viewed as a fiscal cushion. The surplus funds are 
invested in Treasury securities and the interest generated is 
remitted to the Treasury along with other profits of the 
Federal Reserve.
    During the period through 2009, H.R. 1224 would direct the 
Federal Reserve to remit to the Treasury all of its earnings 
above its member bank dividend payments, additions to its 
surplus account, and operating costs, which would now include 
interest paid on reserves. In addition, it would be required to 
remit from its surplus fund an amount equal to the estimated 
cost of paying interest on reserves. The Federal Reserve would 
be prevented from replenishing its surplus fund by the amount 
of these transfers through 2009 and its payment of net earnings 
to the Treasury would be mandatory. In fiscal year 2010, 
however, the Federal Reserve would be expected to replenish its 
surplus fund by the entire amount that was transferred from the 
fund to the Treasury during the 2006-2009 period, an estimated 
$578 million. This response is anticipated because the Federal 
Reserve has replenished its surplus account at its first 
available opportunity when transfers from the surplus fund have 
been mandated in the past. The legislated surplus fund transfer 
under H.R. 1224, therefore, would postpone until 2010 the 
accumulated net revenue loss to the Treasury during the period 
from 2006 to 2009. CBO estimates that the revenue loss in 
fiscal year 2010 would be about $752 million. The Federal 
Reserve would be expected to retain $578 million out of its 
earnings to replenish its surplus fund instead of remitting 
these profits to the Treasury. The remaining $174 million is 
the estimated net revenue loss from making interest payments on 
reserve balances for that year. CBO estimates that the 
resulting revenue loss for the 2010-2015 period would be about 
$1.8 billion.
    The transfer of the surplus funds would not reduce the 
budgetary effect of the bill to the federal government over the 
long term; it would just postpone it. It also is important to 
note that the transfer of surplus funds from the Federal 
Reserve to the Treasury has no import for the fiscal status of 
the federal government. If the surplus funds are held at the 
Federal Reserve, they are invested in government securities and 
the interest generated is remitted to the Treasury. If the 
surplus funds are transferred to the Treasury instead, they 
reduce the public debt and in turn the interest payments owed 
by the Treasury. Since the interest payments would be identical 
in either case, where the funds reside has no economic 
significance. Hence, any transfer of the Federal Reserve 
surplus fund to the Treasury would have no effect on national 
savings, economic growth, or income.

  ALLOWING DEPOSITORY INSTITUTIONS TO PAY INTEREST ON BUSINESS DEMAND 
                            DEPOSIT ACCOUNTS

    Allowing depository institutions to pay interest on 
business demand deposit accounts would, in itself, have the 
effect of increasing demand deposit accounts at depository 
institutions, although CBO estimates that this effect would not 
be significant without the additional provision of allowing 
interest on required reserves. Depository institutions that do 
not currently offer commercial sweep accounts would offer 
interest-bearing business demand deposit accounts, and 
businesses that currently have sweep accounts would have an 
incentive to hold higher levels of demand deposits with the 
allowance of interest on business demand deposits. This 
authorization would not apply to non-qualified industrial loan 
companies, which are financial institutions controlled by 
commercial firms. Commercial firms are defined as firms that 
have at least 15 percent of annual gross revenues derived from 
activities that are not financial in nature in at least 3 of 
the previous 4 calendar quarters. Required reserves held at the 
Federal Reserve would increase with the rise in the level of 
demand deposits, increasing the earnings of the Federal Reserve 
and the amount that is remitted to the Treasury as governmental 
receipts. CBO, however, estimates that the revenue effect of 
that increase in required reserves would be negligible and that 
it is the combined effect of the payment of interest on 
reserves and the allowance of interest on business demand 
deposit accounts that would result in the revenue loss 
described above.

  PROVISIONS IN THE BILL ESTIMATED TO HAVE AN INSIGNIFICANT BUDGETARY 
                                 EFFECT

    The bill would require the Federal Reserve to conduct a 
survey of insured depository institutions and credit unions and 
submit an annual report to the Congress on the availability and 
cost of banking services. Based on information provided by 
staff at the Federal Reserve, CBO estimates that the additional 
costs to the Federal Reserve would be insignificant. In 
addition, based on information from the Federal Deposit 
Insurance Corporation, CBO estimates that the bill would have 
no significant impact on the total balance of insured deposits 
or the likelihood that some institutions would fail and, 
therefore, would have no significant impact on federal 
spending.
    Estimated impact on revenues and direct spending: CBO's 
estimate of the net effect of H.R. 1224 on revenues and direct 
spending over the 2005-2015 period is shown in the table below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    By fiscal year, in millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                         2005     2006     2007     2008     2009     2010     2011     2012     2013     2014     2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts..................................        0        0        0        0        0     -752     -195     -204     -213     -224     -235
Changes in outlays...................................        0        0        0        0        0        0        0        0        0        0        0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
H.R. 1224 contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: The bill would 
authorize the FRB to prescribe regulations concerning the 
responsibilities of correspondent banks that maintain balances 
at the Federal Reserve on behalf of other institutions. Such 
private institutions as commercial banks, Federal Home Loan 
Banks, and corporate credit unions serve as correspondent banks 
for many depository institutions that are not members of the 
Federal Reserve. Based on information provided by the FRB, CBO 
anticipates that the Board of Governors would not use its 
authority to issue regulations unless problems arose in the 
crediting and distribution of interest earnings. Thus, CBO 
expects that this bill would not impose a mandate on the 
private sector. If after a period of time the FRB determined a 
rule was necessary, the FRB indicates the rule could require 
correspondent banks to pass the interest earnings back to the 
institutions for which they maintain required reserves at the 
Federal Reserve. The cost to the correspondent banks of 
complying with such a rule would be negligible.
    Estimate prepared by: Federal Revenues: Barbara Edwards. 
Federal Spending: Kathy Gramp. Impact on State, Local and 
Tribal Governments: Sarah Puro. Impact on the Private Sector: 
Page Piper/Bach.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article I, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 102(b) 
(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section establishes the short title of the bill, the 
``Business Checking Freedom Act of 2005.''

Section 2. Interest-bearing transaction accounts authorized for all 
        businesses

    This section authorizes depository institutions to offer 
customers the ability to make 24 transfers per month from an 
interest bearing or dividend earning deposit or account into 
any other account maintained by that customer at that 
institution. This authority would not extend, however, to any 
industrial loan company (ILC) owned by a corporate parent that 
derives more than 15 percent of its gross revenue from 
activities that are not financial in nature or incidental to 
such activities and whose application for deposit insurance was 
approved after September 30, 2003. The Board of Governors of 
the Federal Reserve Board is given the authority to permit more 
than 24 transfers per month, and to determine that the 
interest-bearing accounts from which funds are transferred are 
subject to reserve requirements. The Committee does not intend 
anything in this section to affect or preempt any State law 
governing any depository institution which is not otherwise 
regulated under Federal law with respect to limitations on the 
transfer of funds from interest bearing accounts to any other 
account maintained at a depository institution by the 
transferring account holder.
    This section also authorizes depository institutions (other 
than certain industrial loan companies described below) to pay 
interest on business accounts from which funds can be withdrawn 
for payment to third parties by negotiable or transferable 
instruments. This section does not, however, confer authority 
to offer demand deposits upon any institution that is 
prohibited by law from offering such accounts.
    An industrial loan company that obtained deposit insurance 
prior to October 1, 2003, or pursuant to an application for 
deposit insurance filed before that date, is authorized to pay 
interest on a business NOW account, provided the industrial 
loan company is owned by the same parent company that owned it 
as of that date. Other ILCs may not offer interest-bearing 
business NOW accounts, unless an appropriate State bank 
supervisory agency determines that at least 85 percent of the 
gross revenues of its parent company and its affiliates were 
derived from activities that were financial in nature or 
incidental to a financial activity during at least three of the 
prior four calendar quarters.

Section 3. Interest-bearing transaction accounts authorized

    This section repeals the prohibitions in current law on the 
payment of interest on commercial demand deposits. The repeal 
takes effect at the end of the two-year period beginning on the 
date of enactment.

Section 4. Payment of interest on reserves at Federal Reserve Banks

    This section permits the Federal Reserve to pay interest on 
the reserves that depository institutions are required to 
maintain at Federal Reserve Banks, at a rate not to exceed the 
general level of short-term interest rates. The Federal Reserve 
is also authorized to prescribe regulations governing the 
payment and distribution of earnings to depository institutions 
that maintain balances at Federal Reserve Banks.
    This section also amends the Federal Reserve Act to require 
the Board of Governors of the Federal Reserve to conduct an 
annual survey of retail banking fees, services and products 
provided by insured depository institutions and insured credit 
unions.

Section 5. Increased Federal Reserve flexibility in setting Reserve 
        requirements

    This section amends the Federal Reserve Act to eliminate 
the minimum statutory ratios of three percent against the first 
$25 million in transaction accounts held at a depository 
institution and eight percent against the amount above that 
threshold level, thereby giving the Federal Reserve greater 
flexibility in setting reserve requirements.

Section 6. Transfer of Federal Reserve surpluses

    This section provides that during the first five years that 
the bill is in effect, the revenue loss associated with 
allowing interest payments on required reserve balances will be 
offset by requiring the Federal Reserve to remit from its 
surplus fund to the Treasury an amount equal to the estimated 
annual net revenue loss.

Section 7. Rule of construction

    This section provides that in the case of an escrow account 
maintained at a depository institution in connection with a 
real estate transaction, the absorption of expenses incidental 
to a normal banking function, or the forbearance of any fee in 
connection with the same, or the receipt of any benefits 
thereof by the holder or the beneficiary of that escrow 
account, 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.
    By including this provision, the Committee intends to 
clarify that the current treatment of such transactions under 
Federal law and regulation, particularly Regulation Q of the 
Federal Reserve Board and interpretive letters thereunder, is 
unaffected by this legislation. Current law does not treat the 
services and benefits described by this section as the payment 
of interest to the beneficiary or holder of an escrow account. 
For example, the Federal Reserve Bank of San Francisco has 
indicated specifically that, for purposes of deposits by title 
and escrow companies, a bank's absorption of expenses related 
to accounting, tax reporting, courier and other services does 
not constitute the payment of interest and these services may 
be regulated as normal banking functions for which the bank may 
absorb the expenses (Interpretive Letter, Federal Reserve Bank 
of San Francisco (May 3, 1994)).
    This section also provides that nothing in the legislation 
will 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 post-settlement escrow accounts for taxes and 
insurance for residential mortgage loans.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     SECTION 2 OF PUBLIC LAW 93-100

 AN ACT To extend certain laws relating to the payment of interest on 
  time and savings deposits, to prohibit depository institutions from 
 permitting negotiable orders of withdrawal to be made with respect to 
 any deposit or account on which any interest or dividend is paid, to 
 authorize Federal savings and loan associations and national banks to 
own stock in and invest in loans to certain State housing corporations, 
                        and for other purposes.

  Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled,

           *       *       *       *       *       *       *


      PROHIBITION ON CERTAIN ACTIVITIES BY DEPOSITORY INSTITUTIONS

  Sec. 2. (a)(1) * * *

           *       *       *       *       *       *       *

          (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) 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.
  [(b)] (c) For purposes of this section, the term ``depository 
institution'' means--
          (1) * * *

           *       *       *       *       *       *       *

  [(c)] (d) Any depository institutions which violates this 
section shall be fined $1,000 for each violations

 [The amendments to section 2, set out below, shall take effect at the 
  end of the 2-year period beginning on the date of enactment of H.R. 
1224. The text of subsection (b) is shown to reflect the amendment made 
 to that subsection by H.R. 1224 that shall take effect on the date of 
                        enactment of H.R. 1224.]

      PROHIBITION ON CERTAIN ACTIVITIES BY DEPOSITORY INSTITUTIONS

  Sec. 2. (a)(1) * * *
  [(2) Paragraph (1) shall apply only with respect to deposits 
or accounts which consist solely of funds in which the entire 
beneficial interest is held by one or more individuals or by an 
organization which is operated primarily for religious, 
philanthropic, charitable, educational, political, or other 
similar purposes and which is not operated for profit, and with 
respect to deposits of public funds by an officer, employee, or 
agent of the United States, any State, county, municipality, or 
political subdivision thereof, the District of Columbia, the 
Commonwealth of Puerto Rico, American Samoa, Guam, any 
territory or possession of the United States, or any political 
subdivision thereof.]
          (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 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.

           *       *       *       *       *       *       *

          (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.
  (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.

           *       *       *       *       *       *       *

                              ----------                              


                          FEDERAL RESERVE ACT



           *       *       *       *       *       *       *
                         division of earnings.

  Sec. 7. (a) Dividends and Surplus Funds of Reserve Banks.--
          (1) * * *

           *       *       *       *       *       *       *

          (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.
  (b) Transfer For Fiscal Year 2000.--
          (1) * * *

           *       *       *       *       *       *       *

          (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).
  Sec. 19. (a) * * *
  (b) Reserve Requirements.--
          (1) * * *
          (2) Reserve requirements.--(A) Each depository 
        institution shall maintain reserves against its 
        transaction accounts as the Board may prescribe by 
        regulation solely for the purpose of implementing 
        monetary policy--
                  (i) in [the ratio of 3 per centum] a ratio 
                not greater than 3 percent (and which may be 
                zero) for that portion of its total transaction 
                accounts of $25,000,000 or less, subject to 
                subparagraph (C); and
                  (ii) in the ratio of 12 per centum, or in 
                such other ratio as the Board may prescribe not 
                greater than 14 per centum [and not less than 8 
                per centum,] (and which may be zero), for that 
                portion of its total transaction accounts in 
                excess of $25,000,000, subject to subparagraph 
                (C).

           *       *       *       *       *       *       *

          (4) Supplemental reserves.--(A) * * *

           *       *       *       *       *       *       *

          [(C) The supplemental reserve authorized under 
        subparagraph (A) shall be maintained by the Federal 
        Reserve banks in an Earnings Participation Account. 
        Except as provided in subsection (c)(1)(A)(ii), such 
        Earnings Participation Account shall receive earnings 
        to be paid by the Federal Reserve banks during each 
        calendar quarter at a rate not more than the rate 
        earned on the securities portfolio of the Federal 
        Reserve System during the previous calendar quarter. 
        The Board may prescribe rules and regulations 
        concerning the payment of earnings on Earnings 
        Participation Accounts by Federal Reserve banks under 
        this paragraph.]
          [(D)] (C) If a supplemental reserve under 
        subparagraph (A) has been required of depository 
        institutions for a period of one year or more, the 
        Board shall review and determine the need for continued 
        maintenance of supplemental reserves and shall transmit 
        annual reports to the Congress regarding the need, if 
        any, for continuing the supplemental reserve.
          [(E)] (D) Any supplemental reserve imposed under 
        subparagraph (A) shall terminate at the close of the 
        first 90-day period after such requirement is imposed 
        during which the average amount of reserves required 
        under paragraph (2) are less than the amount of 
        reserves which would be required during such period if 
        the initial ratios specified in paragraph (2) were in 
        effect.

           *       *       *       *       *       *       *

          (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).
  (c)(1) Reserves held by a depository institution to meet the 
requirements imposed pursuant to subsection (b) shall, subject 
to such rules and regulations as the Board shall prescribe, be 
in the form of--
          (A) balances maintained for such purposes by such 
        depository institution in the Federal Reserve bank of 
        which it is a member or at which it maintains an 
        account, except that (i) the Board may, by regulation 
        or order, permit depository institutions to maintain 
        all or a portion of their required reserves in the form 
        of vault cash, except that any portion so permitted 
        shall be identical for all depository institutions, and 
        (ii) vault cash may be used to satisfy any supplemental 
        reserve requirement imposed pursuant to subsection 
        (b)(4), except that all such vault cash shall be 
        excluded from any computation of earnings pursuant to 
        subsection [(b)(4)(C)] (b); and
          (B) balances maintained by a depository institution 
        [which is not a member bank] in a depository 
        institution which maintains required reserve balances 
        at a Federal Reserve bank, in a Federal Home Loan Bank, 
        or in the National Credit Union Administration Central 
        Liquidity Facility, if such depository institution, 
        Federal Home Loan Bank, or National Credit Union 
        Administration Central Liquidity Facility maintains 
        such funds in the form of balances in a Federal Reserve 
        bank of which it is a member or at which it maintains 
        an account. Balances received by a depository 
        institution from a second depository institution and 
        used to satisfy the reserve requirement imposed on such 
        second depository institution by this section shall not 
        be subject to the reserve requirements of this section 
        imposed on such first depository institution, and shall 
        not be subject to assessments or reserves imposed on 
        such first depository institution pursuant to section 7 
        of the Federal Deposit Insurance Act (12 U.S.C. 1817), 
        section 404 of the National Housing Act (12 U.S.C. 
        1727), or section 202 of the Federal Credit Union Act 
        (12 U.S.C. 1782).

           *       *       *       *       *       *       *


 [The amendment to section 19(i), set out below, shall take effect at 
the end of the 2-year period beginning on the date of enactment of H.R. 
                                 1224.]

  Sec. 19. (a) * * *

           *       *       *       *       *       *       *

  [(i) No member bank shall, directly or indirectly, by any 
device whatsoever, pay any interest on any deposit which is 
payable on demand: Provided, That nothing herein contained 
shall be construed as prohibiting the payment of interest in 
accordance with the terms of any certificate of deposit or 
other contract entered into in good faith which is in force on 
the date on which the bank becomes subject to the provisions of 
this paragraph; but no such certificate of deposit or other 
contract shall be renewed or extended unless it shall be 
modified to conform to this paragraph, and every member bank 
shall take such action as may be necessary to conform to this 
paragraph as soon as possible consistently with its contractual 
obligations: Provided further, That this paragraph shall not 
apply to any deposit of such bank which is payable only at an 
office thereof located outside of the States of the United 
States and the District of Columbia: Provided further, That 
until the expiration of two years after the date of enactment 
of the Banking Act of 1935 this paragraph shall not apply (1) 
to any deposit made by a savings bank as defined in section 12B 
of this Act, as amended, or by a mutual savings bank, or (2) to 
any deposit of public funds made by or on behalf of any State, 
county, school district, or other subdivision or municipality, 
or to any deposit of trust funds if the payment of interest 
with respect to such deposit of public funds or of trust funds 
is required by State law. So much of existing law as requires 
the payment of interest with respect to any funds deposited by 
the United States, by any Territory, District, or possession 
thereof (including the Philippine Islands), or by any public 
instrumentality, agency, or officer of the foregoing, as is 
inconsistent with the provisions of this section as amended, is 
hereby repealed. Notwithstanding any other provision of this 
section, a member bank may permit withdrawals to be made 
automatically from a savings deposit that consists only of 
funds in which the entire beneficial interest is held by one or 
more individuals through payment to the bank itself or through 
transfer of credit to a demand deposit or other account 
pursuant to written authorization from the depositor to make 
such payments or transfers in connection with checks or drafts 
drawn upon the bank, pursuant to terms and conditions 
prescribed by the Board.]
  (i) [Repealed]

           *       *       *       *       *       *       *


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) 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, 2006, 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.
  Sec. [30] 31. If any clause, sentence, paragraph, or part of 
this Act shall for any reason be adjudged by any court of 
competent jurisdiction to be invalid, such judgment shall not 
affect, impair, or invalidate the remainder of this Act, but 
shall be confined in its operation to the clause, sentence, 
paragraph, or part thereof directly involved in the controversy 
in which such judgment shall have been rendered. (Omitted from 
U.S. Code)
  Sec. [31] 32. The right to amend, alter, or repeal this Act 
is hereby expressly reserved.
                              ----------                              


                 SECTION 5 OF THE HOME OWNERS' LOAN ACT

 [The amendment to section 5, set out below, shall take effect at the 
  end of the 2-year period beginning on the date of enactment of H.R. 
                                 1224.]

SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.

  (a) * * *
  (b) Deposits and Related Powers.--
          (1) Deposit accounts.--
                  (A) * * *
                  (B) A Federal [savings association may not--
                          [(i) pay interest on a demand 
                        account; or
                          [(ii) permit any] savings association 
                        may not permit any overdraft (including 
                        an intraday overdraft) on behalf of an 
                        affiliate, or incur any such overdraft 
                        in such savings association's account 
                        at a Federal reserve bank or Federal 
                        home loan bank on behalf of an 
                        affiliate.
                All savings accounts and demand accounts shall 
                have the same priority upon liquidation. 
                Holders of accounts and obligors of a Federal 
                savings association shall, to such extent as 
                may be provided by its charter or by 
                regulations of the Director, be members of the 
                savings association, and shall have such voting 
                rights and such other rights as are thereby 
                provided.

           *       *       *       *       *       *       *

                              ----------                              


            SECTION 18 OF THE FEDERAL DEPOSIT INSURANCE ACT

 [The amendment to section 18, set out below, shall take effect at the 
  end of the 2-year period beginning on the date of enactment of H.R. 
                                 1224.]

  Sec. 18. (a) * * *

           *       *       *       *       *       *       *

  [(g)(1) The Board of Directors shall by regulation prohibit 
the payment of interest or dividends on demand deposits in 
insured nonmember banks and in insured branches of foreign 
banks and for such purpose it may define the term ``demand 
deposits''; but such exceptions from this prohibition shall be 
made as are now or may hereafter be prescribed with respect to 
deposits payable on demand in member banks by section 19 of the 
Federal Reserve Act, as amended, or by regulation of the Board 
of Governors of the Federal Reserve System. The Board of 
Directors may from time to time, after consulting with the 
Board of Governors of the Federal Reserve System and the 
Director of the Office of Thrift Supervision, prescribe rules 
governing the advertisement of interest or dividends on 
deposits by insured nonmember banks (including insured mutual 
savings banks) on time and savings deposits. The Board of 
Directors is authorized for the purposes of this subsection to 
define the terms ``time deposits'' and ``savings deposits'', to 
determine what shall be deemed a payment of interest, and to 
prescribe such regulations as it may deem necessary to 
effectuate the purposes of this subsection and to prevent 
evasions thereof. The provisions of this subsection and of 
regulations issued thereunder shall also apply, in the 
discretion of the Board of Directors, to obligations other than 
deposits that are undertaken by insured nonmember banks or 
their affiliates. As used in this subsection, the term 
``affiliate'' has the same meaning as when used in section 2(b) 
of the Banking Act of 1933, as amended (12 U.S.C. 221a(b)), 
except that the term ``member bank'', as used in such section 
2(b), shall be deemed to refer to an insured nonmember bank. 
During the period commencing on October 15, 1962, and ending on 
October 15, 1968, the provisions of this subsection shall not 
apply to the rate of interest which may be paid by insured 
nonmember banks on time deposits of foreign governments, 
monetary and financial authorities of foreign governments when 
acting as such, or international financial institutions of 
which the United States is a member. The authority conferred by 
this subsection shall also apply to noninsured banks in any 
State if the total amount of time and savings deposits held in 
all such banks in the State, plus the total amount of deposits, 
shares, and withdrawable accounts held in all building and 
loan, savings and loan, and homestead associations (including 
cooperative banks) in the State which are not members of a 
Federal home loan bank, is more than 20 per centum of the total 
amount of such deposits, shares, and withdrawable accounts held 
in all banks, and building and loan, savings and loan, and 
homestead associations (including cooperative banks) in the 
State. Such authority shall only be exercised by the Board of 
Directors with respect to such noninsured banks prior to July 
31, 1970, to limit the rates of interest or dividends which 
such banks may pay on time and savings deposits to maximum 
rates not lower than 5\1/2\ per centum per annum. Whenever it 
shall appear to the Board of Directors that any noninsured bank 
or any affiliate thereof is engaged or has engaged or is about 
to engage in any acts or practices which constitute or will 
constitute a violation of the provisions of this subsection or 
of any regulations thereunder, the Board of Directors may, in 
its discretion, bring an action in the United States district 
court for the judicial district in which the principal office 
of the noninsured bank or affiliate thereof is located to 
enjoin such acts or practices, to enforce compliance with this 
subsection or any regulations thereunder, or for a combination 
of the foregoing, and such courts shall have jurisdiction of 
such actions, and, upon a proper showing, an injunction, 
restraining order, or other appropriate order may be granted 
without bond.
  [(2) Notwithstanding the provisions of paragraph (1), an 
insured nonmember bank may permit withdrawals to be made 
automatically from a savings deposit that consists only of 
funds in which the entire beneficial interest is held by one or 
more individuals through payment to the bank itself or through 
transfer of credit to a demand deposit or other account 
pursuant to written authorization from the depositor to make 
such payments or transfers in connection with checks or drafts 
drawn upon the bank, pursuant to terms and conditions 
prescribed by the Board of Directors.]
  (g) [Repealed]

           *       *       *       *       *       *       *

                              ----------                              


                  SECTION 136 OF THE TRUTH IN LENDING

  [The amendment to section 136, set out below, shall take effect on 
                           January 1, 2006.]

Sec. 136. Dissemination of annual percentage rates

  (a) * * *
  (b) Credit Card Price and Availability Information.--
          [(1) Collection required.--The Board shall collect, 
        on a semiannual basis, credit card price and 
        availability information, including the information 
        required to be disclosed under section 127(c) of this 
        chapter, from a broad sample of financial institutions 
        which offer credit card services.]
          (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.

           *       *       *       *       *       *       *

                              ----------                              


   SECTION 1002 OF THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND 
                        ENFORCEMENT ACT OF 1989


[SEC. 1002. SURVEY OF BANK FEES AND SERVICES.

  [(a) Annual Survey Required.--The Board of Governors of the 
Federal Reserve System shall obtain a sample, which is 
representative by geographic location and size of the 
institution, of--
          [(1) certain retail banking services provided by 
        insured depository institutions; and
          [(2) the fees, if any, which are imposed by such 
        institutions for providing any such service, including 
        fees imposed for not sufficient funds, deposit items 
        returned, and automated teller machine transactions.
  [(b) 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 subsection 
        (a).
          [(2) Contents of the report.--Each report prepared 
        pursuant to paragraph (1) shall include--
                  [(A) a description of any discernible trend, 
                in the Nation as a whole, in each of the 50 
                States, and in each consolidated metropolitan 
                statistical area or primary metropolitan 
                statistical area (as defined by the Director of 
                the Office of Management and Budget), in the 
                cost and availability of retail banking 
                services (including fees imposed for providing 
                such services), that delineates differences 
                between insured depository institutions on the 
                basis of both the size of the institution and 
                any engagement of the institution in multistate 
                activity; and
                  [(B) a description of the correlation, if 
                any, among the following factors:
                          [(i) An increase or decrease in the 
                        amount of any deposit insurance premium 
                        assessed by the Federal Deposit 
                        Insurance Corporation against insured 
                        depository institutions.
                          [(ii) An increase or decrease in the 
                        amount of the fees imposed by such 
                        institutions for providing retail 
                        banking services.
                          [(iii) A decrease in the availability 
                        of such services.
          [(3) Submission to congress.--The Board of Governors 
        of the Federal Reserve System shall submit an annual 
        report to the Congress not later than September 1, 
        1995, and not later than June 1 of each subsequent 
        year.]
                              ----------                              


    SECTION 108 OF THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING 
                         EFFICIENCY ACT OF 1994


[SEC. 108. FEDERAL RESERVE BOARD STUDY ON BANK FEES.

  [(a) In General.--Section 1002 of the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1811 
note) is amended to read as follows:

[``SEC. 1002. SURVEY OF BANK FEES AND SERVICES.

  [``(a) Annual Survey Required.--The Board of Governors of the 
Federal Reserve System shall obtain a sample, which is 
representative by geographic location and size of the 
institution, of--
          [``(1) certain retail banking services provided by 
        insured depository institutions; and
          [``(2) the fees, if any, which are imposed by such 
        institutions for providing any such service, including 
        fees imposed for not sufficient funds, deposit items 
        returned, and automated teller machine transactions.
  [``(b) 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 subsection 
        (a).
          [``(2) Contents of the report.--Each report prepared 
        pursuant to paragraph (1) shall include--
                  [``(A) a description of any discernible 
                trend, in the Nation as a whole and in each 
                region, in the cost and availability of retail 
                banking services which delineates differences 
                on the basis of size of the institution and 
                engagement in multistate activity; and
                  [``(B) a description of the correlation, if 
                any, among the following factors:
                          [``(i) An increase or decrease in the 
                        amount of any deposit insurance premium 
                        assessed by the Federal Deposit 
                        Insurance Corporation against insured 
                        depository institutions.
                          [``(ii) An increase or decrease in 
                        the amount of the fees imposed by such 
                        institutions for providing retail 
                        banking services.
                          [``(iii) A decrease in the 
                        availability of such services.
          [``(3) Submission to congress.--The Board of 
        Governors of the Federal Reserve System shall submit an 
        annual report to the Congress not later than September 
        1, 1995, and not later than June 1 of each subsequent 
        year.''.
  [(b) Sunset.--The requirements of subsection (a) shall not 
apply after the end of the 7-year period beginning on the date 
of enactment of this Act.]

                                  
