109TH CONGRESS 

1ST SESSION H. R. 1224

AN ACT

To repeal the prohibition on the payment of interest on demand deposits, and for other purposes. 

109TH CONGRESS 

1ST SESSION H. R. 1224

AN ACT

To repeal the prohibition on the payment of interest on 

demand deposits, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 
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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Business Checking 

3 Freedom Act of 2005’’. 

4 SEC. 2. INTEREST-BEARING TRANSACTION ACCOUNTS AU5 THORIZED FOR ALL BUSINESSES. 

6 (a) DAILY TRANSFERS ALLOWED INTO DEMAND DE7 POSIT ACCOUNTS.—Section 2 of Public Law 93–100 (12 

8 U.S.C. 1832) is amended—

9 (1) by redesignating subsections (b) and (c) as 

10 subsections (c) and (d), respectively; 

11 (2) by inserting after subsection (a) the fol12 lowing: 

13 ‘‘(b) TRANSFERS.—Notwithstanding any other provi14 sion of law, any depository institution, other than a non15 qualified industrial loan company, may permit the owner 

16 of any deposit or account which is a deposit or account 

17 on which interest or dividends are paid and is not a de18 posit or account described in subsection (a)(2) to make 

19 up to 24 transfers per month (or such greater number 

20 as the Board of Governors of the Federal Reserve System 

21 may determine by rule or order), for any purpose, to an22 other account of the owner in the same institution. An 

23 account offered pursuant to this subsection shall be con24 sidered a transaction account for purposes of section 19 

25 of the Federal Reserve Act unless the Board of Governors 
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1 of the Federal Reserve System determines otherwise.’’; 

2 and 

3 (3) by adding at the end of subsection (a) the 

4 following new paragraph: 

5 ‘‘(3) NONQUALIFIED INDUSTRIAL LOAN COMPA6 NIES.—

7 ‘‘(A) DEFINITION.—For purposes of this 

8 section, the term ‘nonqualified industrial loan 

9 company’ means any industrial loan company, 

10 industrial bank, or other institution described in 

11 section 2(c)(2)(H) of the Bank Holding Com12 pany Act of 1956 that is determined by an ap13 propriate State bank supervisor (as defined in 

14 section 3 of the Federal Deposit Insurance Act) 

15 to be controlled, directly or indirectly, by a com16 mercial firm. 

17 ‘‘(B) COMMERCIAL FIRM DEFINED.—For 

18 purposes of this paragraph, the term ‘commer19 cial firm’ means any entity at least 15 percent 

20 of the annual gross revenues of which on a con21 solidated basis, including all affiliates of the en22 tity, were derived from engaging, on an on23 going basis, in activities that are not financial 

24 in nature or incidental to a financial activity 
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1 during at least 3 of the prior 4 calendar quar2 ters. 

3 ‘‘(C) GRANDFATHERED INSTITUTIONS.—

4 The term ‘nonqualified industrial loan company’ 

5 does not include any industrial loan company, 

6 industrial bank, or other institution described in 

7 section 2(c)(2)(H) of the Bank Holding Com8 pany Act of 1956—

9 ‘‘(i) which became an insured deposi10 tory institution before October 1, 2003, or 

11 pursuant to an application for deposit in12 surance which was approved by the Fed13 eral Deposit Insurance Corporation before 

14 such date; and 

15 ‘‘(ii) with respect to which there is no 

16 change in control, directly or indirectly, of 

17 the company, bank, or institution after 

18 September 30, 2003, that requires an ap19 plication under section 7(j) or 18(c) of the 

20 Federal Deposit Insurance Act, section 3 

21 of the Bank Holding Company Act of 

22 1956, or section 10 of the Home Owners’ 

23 Loan Act.’’. 

24 (b) INTEREST ON BUSINESS NOW ACCOUNTS.—
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1 (1) IN GENERAL.—Section 2(a) of Public Law 

2 93–100 (12 U.S.C. 1832(a)) is amended—

3 (A) by striking paragraph (2) and insert4 ing the following new paragraph: 

5 ‘‘(2) PAYMENT OF INTEREST ON CERTAIN NOW

6 ACCOUNTS.—An industrial loan company, industrial 

7 bank, or other institution described in section 

8 2(c)(2)(H) of the Bank Holding Company Act of 

9 1956 may not pay interest on any deposit or account 

10 of a corporation, business partnership, or other busi11 ness entity from which funds may be withdrawn by 

12 negotiable instrument for payment to third parties, 

13 unless the appropriate State bank supervisor (as de14 fined in section 3 of the Federal Deposit Insurance 

15 Act) of such company, bank, or institution deter16 mines that such company, bank, or institution is not 

17 a nonqualified industrial loan company.’’; and 

18 (B) by adding at the end the following new 

19 paragraph: 

20 ‘‘(4) RULE OF CONSTRUCTION RELATING TO

21 DEMAND DEPOSITS.—No provision of this section 

22 may be construed as conferring the authority to 

23 offer demand deposit accounts to any institution 

24 that is prohibited by law from offering demand de25 posit accounts.’’. 
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1 (2) TECHNICAL AND CONFORMING AMEND2 MENT.—Section 2(b) of Public Law 93–100 (12 

3 U.S.C. 1832(b)) (as added by subsection (a)(2) of 

4 this section) is amended by striking ‘‘and is not a 

5 deposit or account described in subsection (a)(2)’’. 

6 (3) EFFECTIVE DATE.—The amendments made 

7 by this subsection shall take effect at the end of the 

8 2-year period beginning on the date of the enact9 ment of this Act. 

10 SEC. 3. INTEREST-BEARING TRANSACTION ACCOUNTS AU11 THORIZED. 

12 (a) REPEAL OF PROHIBITION ON PAYMENT OF IN13 TEREST ON DEMAND DEPOSITS.—

14 (1) FEDERAL RESERVE ACT.—Section 19(i) of 

15 the Federal Reserve Act (12 U.S.C. 371a) is amend16 ed to read as follows: 

17 ‘‘(i) [Repealed]’’. 

18 (2) HOME OWNERS’ LOAN ACT.—The first sen19 tence of section 5(b)(1)(B) of the Home Owners’ 

20 Loan Act (12 U.S.C. 1464(b)(1)(B)) is amended by 

21 striking ‘‘savings association may not—’’ and all 

22 that follows through ‘‘(ii) permit any’’ and inserting 

23 ‘‘savings association may not permit any’’. 
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1 (3) FEDERAL DEPOSIT INSURANCE ACT.—Sec2 tion 18(g) of the Federal Deposit Insurance Act (12 

3 U.S.C. 1828(g)) is amended to read as follows: 

4 ‘‘(g) [Repealed]’’. 

5 (b) EFFECTIVE DATE.—The amendments made by 

6 subsection (a) shall take effect at the end of the 2-year 

7 period beginning on the date of the enactment of this Act. 

8 SEC. 4. PAYMENT OF INTEREST ON RESERVES AT FEDERAL 

9 RESERVE BANKS. 

10 (a) IN GENERAL.—Section 19(b) of the Federal Re11 serve Act (12 U.S.C. 461(b)) is amended by adding at 

12 the end the following new paragraph: 

13 ‘‘(12) EARNINGS ON RESERVES.—

14 ‘‘(A) IN GENERAL.—Balances maintained 

15 at a Federal reserve bank by or on behalf of a 

16 depository institution may receive earnings to 

17 be paid by the Federal reserve bank at least 

18 once each calendar quarter at a rate or rates 

19 not to exceed the general level of short-term in20 terest rates. 

21 ‘‘(B) REGULATIONS RELATING TO PAY22 MENTS AND DISTRIBUTION.—The Board may 

23 prescribe regulations concerning—

24 ‘‘(i) the payment of earnings in ac25 cordance with this paragraph; 
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1 ‘‘(ii) the distribution of such earnings 

2 to the depository institutions which main3 tain balances at such banks or on whose 

4 behalf such balances are maintained; and 

5 ‘‘(iii) the responsibilities of depository 

6 institutions, Federal home loan banks, and 

7 the National Credit Union Administration 

8 Central Liquidity Facility with respect to 

9 the crediting and distribution of earnings 

10 attributable to balances maintained, in ac11 cordance with subsection (c)(1)(A), in a 

12 Federal reserve bank by any such entity on 

13 behalf of depository institutions. 

14 ‘‘(C) DEPOSITORY INSTITUTIONS DE15 FINED.—For purposes of this paragraph, the 

16 term ‘depository institution’, in addition to the 

17 institutions described in paragraph (1)(A), in18 cludes any trust company, corporation orga19 nized under section 25A or having an agree20 ment with the Board under section 25, or any 

21 branch or agency of a foreign bank (as defined 

22 in section 1(b) of the International Banking Act 

23 of 1978).’’. 

24 (b) AUTHORIZATION FOR PASS THROUGH RESERVES

25 FOR MEMBER BANKS.—Section 19(c)(1)(B) of the Fed-
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1 eral Reserve Act (12 U.S.C. 461(c)(1)(B)) is amended by 

2 striking ‘‘which is not a member bank’’. 

3 (c) CONSUMER BANKING COSTS ASSESSMENT.—

4 (1) IN GENERAL.—The Federal Reserve Act 

5 (12 U.S.C. 221 et seq.) is amended—

6 (A) by redesignating sections 30 and 31 as 

7 sections 31 and 32, respectively; and 

8 (B) by inserting after section 29 the fol9 lowing new section: 

10 ‘‘SEC. 30. SURVEY OF BANK FEES AND SERVICES. 

11 ‘‘(a) ANNUAL SURVEY REQUIRED.—The Board of 

12 Governors of the Federal Reserve System shall obtain an13 nually a sample, which is representative by type and size 

14 of the institution (including small institutions) and geo15 graphic location, of the following retail banking services 

16 and products provided by insured depository institutions 

17 and insured credit unions (along with related fees and 

18 minimum balances): 

19 ‘‘(1) Checking and other transaction accounts. 

20 ‘‘(2) Negotiable order of withdrawal and sav21 ings accounts. 

22 ‘‘(3) Automated teller machine transactions. 

23 ‘‘(4) Other electronic transactions. 
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1 ‘‘(b) MINIMUM SURVEY REQUIREMENT.—The annual 

2 survey described in subsection (a) shall meet the following 

3 minimum requirements: 

4 ‘‘(1) CHECKING AND OTHER TRANSACTION AC5 COUNTS.—Data on checking and transaction ac6 counts shall include, at a minimum, the following: 

7 ‘‘(A) Monthly and annual fees and min8 imum balances to avoid such fees. 

9 ‘‘(B) Minimum opening balances. 

10 ‘‘(C) Check processing fees. 

11 ‘‘(D) Check printing fees. 

12 ‘‘(E) Balance inquiry fees. 

13 ‘‘(F) Fees imposed for using a teller or 

14 other institution employee. 

15 ‘‘(G) Stop payment order fees. 

16 ‘‘(H) Nonsufficient fund fees. 

17 ‘‘(I) Overdraft fees. 

18 ‘‘(J) Fees imposed in connection with 

19 bounced-check protection and overdraft protec20 tion programs. 

21 ‘‘(K) Deposit items returned fees. 

22 ‘‘(L) Availability of no-cost or low-cost ac23 counts for consumers who maintain low bal24 ances. 
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1 ‘‘(2) NEGOTIABLE ORDER OF WITHDRAWAL AC2 COUNTS AND SAVINGS ACCOUNTS.—Data on nego3 tiable order of withdrawal accounts and savings ac4 counts shall include, at a minimum, the following: 

5 ‘‘(A) Monthly and annual fees and min6 imum balances to avoid such fees. 

7 ‘‘(B) Minimum opening balances. 

8 ‘‘(C) Rate at which interest is paid to con9 sumers. 

10 ‘‘(D) Check processing fees for negotiable 

11 order of withdrawal accounts. 

12 ‘‘(E) Fees imposed for using a teller or 

13 other institution employee. 

14 ‘‘(F) Availability of no-cost or low-cost ac15 counts for consumers who maintain low bal16 ances. 

17 ‘‘(3) AUTOMATED TELLER TRANSACTIONS.—

18 Data on automated teller machine transactions shall 

19 include, at a minimum, the following: 

20 ‘‘(A) Monthly and annual fees. 

21 ‘‘(B) Card fees. 

22 ‘‘(C) Fees charged to customers for with23 drawals, deposits, and balance inquiries through 

24 institution-owned machines. 
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1 ‘‘(D) Fees charged to customers for with2 drawals, deposits, and balance inquiries through 

3 machines owned by others. 

4 ‘‘(E) Fees charged to noncustomers for 

5 withdrawals, deposits, and balance inquiries 

6 through institution-owned machines. 

7 ‘‘(F) Point-of-sale transaction fees. 

8 ‘‘(4) OTHER ELECTRONIC TRANSACTIONS.—

9 Data on other electronic transactions shall include, 

10 at a minimum, the following: 

11 ‘‘(A) Wire transfer fees. 

12 ‘‘(B) Fees related to payments made over 

13 the Internet or through other electronic means. 

14 ‘‘(5) OTHER FEES AND CHARGES.—Data on 

15 any other fees and charges that the Board of Gov16 ernors of the Federal Reserve System determines to 

17 be appropriate to meet the purposes of this section. 

18 ‘‘(6) FEDERAL RESERVE BOARD AUTHORITY.—

19 The Board of Governors of the Federal Reserve Sys20 tem may cease the collection of information with re21 gard to any particular fee or charge specified in this 

22 subsection if the Board makes a determination that, 

23 on the basis of changing practices in the financial 

24 services industry, the collection of such information 
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1 is no longer necessary to accomplish the purposes of 

2 this section. 

3 ‘‘(c) ANNUAL REPORT TO CONGRESS REQUIRED.—

4 ‘‘(1) PREPARATION.—The Board of Governors 

5 of the Federal Reserve System shall prepare a report 

6 of the results of each survey conducted pursuant to 

7 subsections (a) and (b) of this section and section 

8 136(b)(1) of the Consumer Credit Protection Act. 

9 ‘‘(2) CONTENTS OF THE REPORT.—In addition 

10 to the data required to be collected pursuant to sub11 sections (a) and (b), each report prepared pursuant 

12 to paragraph (1) shall include a description of any 

13 discernible trend, in the Nation as a whole, in a rep14 resentative sample of the 50 States (selected with 

15 due regard for regional differences), and in each 

16 consolidated metropolitan statistical area (as defined 

17 by the Director of the Office of Management and 

18 Budget), in the cost and availability of the retail 

19 banking services, including those described in sub20 sections (a) and (b) (including related fees and min21 imum balances), that delineates differences between 

22 institutions on the basis of the type of institution 

23 and the size of the institution, between large and 

24 small institutions of the same type, and any engage25 ment of the institution in multistate activity. 
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1 ‘‘(3) SUBMISSION TO CONGRESS.—The Board 

2 of Governors of the Federal Reserve System shall 

3 submit an annual report to the Congress not later 

4 than June 1, 2007, and not later than June 1 of 

5 each subsequent year. 

6 ‘‘(d) DEFINITIONS.—For purposes of this section, the 

7 term ‘insured depository institution’ has the meaning 

8 given such term in section 3 of the Federal Deposit Insur9 ance Act, and the term ‘insured credit union’ has the 

10 meaning given such term in section 101 of the Federal 

11 Credit Union Act.’’. 

12 (2) CONFORMING AMENDMENT.—

13 (A) IN GENERAL.—Paragraph (1) of sec14 tion 136(b) of the Truth in Lending Act (15 

15 U.S.C. 1646(b)(1)) is amended to read as fol16 lows: 

17 ‘‘(1) COLLECTION REQUIRED.—The Board shall 

18 collect, on a semiannual basis, from a broad sample 

19 of financial institutions which offer credit card serv20 ices, credit card price and availability information 

21 including—

22 ‘‘(A) the information required to be dis23 closed under section 127(c) of this chapter; 

24 ‘‘(B) the average total amount of finance 

25 charges paid by consumers; and 
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1 ‘‘(C) the following credit card rates and 

2 fees: 

3 ‘‘(i) Application fees. 

4 ‘‘(ii) Annual percentage rates for cash 

5 advances and balance transfers. 

6 ‘‘(iii) Maximum annual percentage 

7 rate that may be charged when an account 

8 is in default. 

9 ‘‘(iv) Fees for the use of convenience 

10 checks. 

11 ‘‘(v) Fees for balance transfers. 

12 ‘‘(vi) Fees for foreign currency con13 versions.’’. 

14 (B) EFFECTIVE DATE.—The amendment 

15 made by subparagraph (A) shall take effect on 

16 January 1, 2006. 

17 (3) REPEAL OF OTHER REPORT PROVISIONS.—

18 Section 1002 of Financial Institutions Reform, Re19 covery, and Enforcement Act of 1989 and section 

20 108 of the Riegle-Neal Interstate Banking and 

21 Branching Efficiency Act of 1994 are hereby re22 pealed. 

23 (d) TECHNICAL AND CONFORMING AMENDMENTS.—

24 Section 19 of the Federal Reserve Act (12 U.S.C. 461) 

25 is amended—
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1 (1) in subsection (b)(4) (12 U.S.C. 461(b)(4)), 

2 by striking subparagraph (C) and redesignating sub3 paragraphs (D) and (E) as subparagraphs (C) and 

4 (D), respectively; and 

5 (2) in subsection (c)(1)(A) (12 U.S.C. 

6 461(c)(1)(A)), by striking ‘‘subsection (b)(4)(C)’’ 

7 and inserting ‘‘subsection (b)’’. 

8 SEC. 5. INCREASED FEDERAL RESERVE BOARD FLEXI9 BILITY IN SETTING RESERVE REQUIRE10 MENTS. 

11 Section 19(b)(2)(A) of the Federal Reserve Act (12 

12 U.S.C. 461(b)(2)(A)) is amended—

13 (1) in clause (i), by striking ‘‘the ratio of 3 per 

14 centum’’ and inserting ‘‘a ratio not greater than 3 

15 percent (and which may be zero)’’; and 

16 (2) in clause (ii), by striking ‘‘and not less than 

17 8 per centum,’’ and inserting ‘‘(and which may be 

18 zero),’’. 

19 SEC. 6. TRANSFER OF FEDERAL RESERVE SURPLUSES. 

20 (a) IN GENERAL.—Section 7(b) of the Federal Re21 serve Act (12 U.S.C. 289(b)) is amended by adding at 

22 the end the following new paragraph: 

23 ‘‘(4) ADDITIONAL TRANSFERS TO COVER IN24 TEREST PAYMENTS FOR FISCAL YEARS 2005

25 THROUGH 2009.—
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1 ‘‘(A) IN GENERAL.—In addition to the 

2 amounts required to be transferred from the 

3 surplus funds of the Federal reserve banks pur4 suant to subsection (a)(3), the Federal reserve 

5 banks shall transfer from such surplus funds to 

6 the Board of Governors of the Federal Reserve 

7 System for transfer to the Secretary of the 

8 Treasury for deposit in the general fund of the 

9 Treasury, such sums as are necessary to equal 

10 the net cost of section 19(b)(12) in each of the 

11 fiscal years 2005 through 2009. 

12 ‘‘(B) ALLOCATION BY FEDERAL RESERVE

13 BOARD.—Of the total amount required to be 

14 paid by the Federal reserve banks under sub15 paragraph (A) for fiscal years 2005 through 

16 2009, the Board of Governors of the Federal 

17 Reserve System shall determine the amount 

18 each such bank shall pay in such fiscal year. 

19 ‘‘(C) REPLENISHMENT OF SURPLUS FUND

20 PROHIBITED.—During fiscal years 2005 

21 through 2009, no Federal reserve bank may re22 plenish such bank’s surplus fund by the amount 

23 of any transfer by such bank under subpara24 graph (A).’’. 
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1 (b) TECHNICAL AND CONFORMING AMENDMENT.—

2 Section 7(a) of the Federal Reserve Act (12 U.S.C. 

3 289(a)) is amended by adding at the end the following 

4 new paragraph: 

5 ‘‘(3) PAYMENT TO TREASURY.—During fiscal 

6 years 2005 through 2009, any amount in the sur7 plus fund of any Federal reserve bank in excess of 

8 the amount equal to 3 percent of the paid-in capital 

9 and surplus of the member banks of such bank shall 

10 be transferred to the Secretary of the Treasury for 

11 deposit in the general fund of the Treasury.’’. 

12 SEC. 7. RULES OF CONSTRUCTION. 

13 In the case of an escrow account maintained at a de14 pository institution for the purpose of completing the set15 tlement of a real estate transaction—

16 (1) the absorption, by the depository institution, 

17 of expenses incidental to providing a normal banking 

18 service with respect to such escrow account; 

19 (2) the forbearance, by the depository institu20 tion, from charging a fee for providing any such 

21 banking function; and 

22 (3) any benefit which may accrue to the holder 

23 or the beneficiary of such escrow account as a result 

24 of an action of the depository institution described 

25 in subparagraph (1) or (2) or similar in nature to 
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1 such action, including any benefits which have been 

2 so determined by the appropriate Federal regulator, 

3 shall not be treated as the payment or receipt of interest 

4 for purposes of this Act and any provision of Public Law 

5 93–100, the Federal Reserve Act, the Home Owners’ Loan 

6 Act, or the Federal Deposit Insurance Act relating to the 

7 payment of interest on accounts or deposits at depository 

8 institutions. No provision of this Act shall be construed 

9 so as to require a depository institution that maintains 

10 an escrow account in connection with a real estate trans11 action to pay interest on such escrow account or to pro12 hibit such institution from paying interest on such escrow 

13 account. No provision of this Act shall be construed as 

14 preempting the provisions of law of any State dealing with 

15 the payment of interest on escrow accounts maintained in 

16 connection with real estate transactions.

Passed the House of Representatives May 24, 2005. 

Attest:

Clerk.