Business Checking Freedom Act of 2005

BUSINESS CHECKING FREEDOM ACT OF 2005 -- (Extensions of Remarks - May 24, 2005)

SPEECH OF
HON. NYDIA M. VELÁZQUEZ
OF NEW YORK
IN THE HOUSE OF REPRESENTATIVES
MONDAY, MAY 23, 2005

Ms. VELÁZQUEZ. Mr. Speaker, I rise in support of the Business Checking Freedom Act of 2005, H.R. 1224. Among other things, H.R. 1224 would repeal the prohibition against banks paying interest on checking accounts and authorize the Federal Reserve to pay interest on reserve balances maintained by depository institutions at Federal Reserve Banks. The bill is almost identical to previous legislation on the subject passed by the House, including H.R. 758, which passed in 2003.

H.R. 1224 contains some long overdue changes. I am particularly pleased that this legislation will permit small businesses to earn interest on their checking account balances. Individuals have been able to receive interest on checking accounts for some time, and small businesses, many of which are individually owned and operated, should have the same ability to receive an equitable return on their checking deposits.

Small businesses face an array of barriers to accessing the capital they need for start-up, operation and expansion. One of these barriers is the Depression-era law that prohibits interest-bearing checking accounts. The law, enacted as part of the Banking Act of 1933, was meant to keep banks solvent during the Great Depression. Almost 70 years later, the law is still in effect, despite evidence that it is no longer valid-or necessary.

In fact, a 1996 joint report issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision stated that the law barring payment on business checking accounts "no longer serves a public purpose." H.R. 1224 effectively repeals this ban and permits small businesses to earn interest on their checking accounts.

Similar to past House bills, H.R. 1224 also includes a section entitled Rules of Construction, which ensure that the existing regulatory treatment of certain services and benefits provided by banks in lieu of interest on escrow accounts maintained to complete the settlement of real estate closing transactions remains as it is today.

Currently, the Federal Reserve's Regulation Q permits banks to offer services and benefits in lieu of interest to depositors. It also specifically provides that the provision or the receipt of such services and benefits does not constitute interest. Using this option, title companies and agents receive bank services, such as free safe deposit and night depository facilities and low-interest loans, in lieu of interest.

This arrangement lowers the cost of maintaining real estate escrows, which in turn lowers the cost of these services to customers of title companies and title agents. H.R. 1224 does not change Regulation Q or any regulatory standard regarding the definition of interest. Rather, it ensures the continued delivery of cost-effective real estate closing services.

H.R. 1224 provides for a long overdue change to federal banking laws that will enable small businesses to gain parity with larger firms that are already able to essentially receive interest on their checking accounts. By doing so, small businesses will be better able to grow and create the new jobs that our country so desperately needs.

I urge my colleagues to support this important legislation.

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