39–006 

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: 

2 

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. 

3 

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 ‘‘sav- ings 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. 

4 

‘‘(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.—

5 

(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.’’. 

6 

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. 

7 

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 

8 

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 

9 

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 privatesector 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. 

10 

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 Surpluses to the Treasury ............................................................ 0 181 108 135 154 ¥578 0 0 0 0 0 

Net Budgetary Effect .................................................................................................................... 0 0 0 0 0 ¥752 ¥195 ¥204 ¥213 ¥224 ¥235 

11 

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 re- duce 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 

12 

$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. 

13 

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. 

14 

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 

15 

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 

16 

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 

17 

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 

18 

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 bankVerDate Aug 04 2004 01:02 May 22, 2005 Jkt 039006 PO 00000 Frm 00018 Fmt 6659 Sfmt 6602 E:\HR\OC\HR081.XXX HR081
19 

ing 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. 

20 

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 

21 

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. 

22 

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 

23 

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 

24 

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 FedVerDate Aug 04 2004 01:02 May 22, 2005 Jkt 039006 PO 00000 Frm 00024 Fmt 6659 Sfmt 6603 E:\HR\OC\HR081.XXX HR081
25 

eral 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. 

ø(b)¿ (c) For purposes of this section, the term ‘‘depository institution’’ means— (1) * * * 

* * * * * * * 

ø(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) * * * 

ø(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 

26 

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 DEPOS- ITS.—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 øand 

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. 

27 

(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 øthe 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 øand 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) * * * 

* * * * * * * 

ø(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.¿ 

ø(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. 

ø(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 

28 

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 DISTRIBU- TION.—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 ø(b)(4)(C)¿ (b); and 

(B) balances maintained by a depository institution øwhich 

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. 

29 

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) * * * 

* * * * * * * 

ø(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.¿ 

30 

(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 SAV- INGS 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. 

31 

(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. ø30¿ 31. If any clause, sentence, paragraph, or part of this 

Act shall for any reason be adjudged by any court of competent juVerDate Aug 04 2004 01:02 May 22, 2005 Jkt 039006 PO 00000 Frm 00031 Fmt 6659 Sfmt 6601 E:\HR\OC\HR081.XXX HR081
32 

risdiction 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. ø31¿ 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 øsavings association may not—

ø(i) pay interest on a demand account; or 

ø(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) * * * 

* * * * * * * 

ø(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 

33 

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 51⁄2 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. 

ø(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 

34 

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.] 

§ 136. Dissemination of annual percentage rates 

(a) * * * 

(b) CREDIT CARD PRICE AND AVAILABILITY INFORMATION.—

ø(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 

øSEC. 1002. SURVEY OF BANK FEES AND SERVICES. 

ø(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—

ø(1) certain retail banking services provided by insured depository institutions; and 

ø(2) the fees, if any, which are imposed by such institutions 

for providing any such service, including fees imposed for not 

35 

sufficient funds, deposit items returned, and automated teller 

machine transactions. 

ø(b) ANNUAL REPORT TO CONGRESS REQUIRED.—

ø(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). 

ø(2) CONTENTS OF THE REPORT.—Each report prepared pursuant to paragraph (1) shall include—

ø(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 

ø(B) a description of the correlation, if any, among the 

following factors: 

ø(i) An increase or decrease in the amount of any 

deposit insurance premium assessed by the Federal 

Deposit Insurance Corporation against insured depository institutions. 

ø(ii) An increase or decrease in the amount of the 

fees imposed by such institutions for providing retail 

banking services. 

ø(iii) A decrease in the availability of such services. 

ø(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 

øSEC. 108. FEDERAL RESERVE BOARD STUDY ON BANK FEES. 

ø(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: 

ø‘‘SEC. 1002. SURVEY OF BANK FEES AND SERVICES. 

ø‘‘(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—

ø‘‘(1) certain retail banking services provided by insured depository institutions; and 

ø‘‘(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. 

ø‘‘(b) ANNUAL REPORT TO CONGRESS REQUIRED.—

36 

ø‘‘(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). 

ø‘‘(2) CONTENTS OF THE REPORT.—Each report prepared pursuant to paragraph (1) shall include— ø‘‘(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 

ø‘‘(B) a description of the correlation, if any, among the 

following factors: 

ø‘‘(i) An increase or decrease in the amount of any 

deposit insurance premium assessed by the Federal 

Deposit Insurance Corporation against insured depository institutions. 

ø‘‘(ii) An increase or decrease in the amount of the 

fees imposed by such institutions for providing retail 

banking services. 

ø‘‘(iii) A decrease in the availability of such services. 

ø‘‘(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.’’. ø(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.¿ 

Æ