Business Checking Bill Overwhelmingly Approved by House

WASHINGTON – On May 24, the House approved H.R. 1224, the Business Checking Freedom Act of 2005, by a vote of 424-1. Introduced on March 10, by Committee Vice Chair and Oversight and Investigations Subcommittee Chairwoman Sue W. Kelly (R-NY), the legislation would remove the prohibition on banks from paying interest on business checking accounts and would allow the Federal Reserve to pay interest on sterile reserves. The legislation contains a compromise that was reached before the bill passed the Financial Services Committee that would address the authority of industrial loan companies (ILCs) to offer interest-bearing accounts to their business customers. The bill would specify that an ILC which obtained deposit insurance prior to October 1, 2003, would be authorized to pay interest on a business account, provided the ILC was owned by the same parent company that owned it as of that date. Rep. Kelly said, "The Business Checking Freedom Act will repeal an unfair, outdated law that is standing between our local small businesses and their ability to earn interest on their own money. By allowing banks to pay interest on business checking accounts, we create a new and broader market option that helps our main street banks and small businesses at the same time. This legislation will allow banks to better meet the needs of their small business customers." Other ILCs could also offer such interest-bearing accounts, provided that at least 85% of the gross revenues of their parent company and other 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. Additionally, the bill would clarify that Federal regulatory interpretations regarding the treatment of benefits received by holders of certain escrow accounts would continue to apply.