IB 

Union Calendar No. 41 

109TH CONGRESS 

1ST SESSION H. R. 1224 

[Report No. 109–81] 

To repeal the prohibition on the payment of interest on demand deposits, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 10, 2005 

Mrs. KELLY (for herself, Mr. KANJORSKI, Ms. VELA ́ZQUEZ, Mrs. MALONEY, 

Mr. SHERMAN, Mr. HINOJOSA, and Mr. MANZULLO) introduced the following bill; which was referred to the Committee on Financial Services 

MAY 16, 2005 

Additional sponsor: Mr. GILLMOR

MAY 16, 2005 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on March 10, 2005] 

A BILL 

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 Free3 dom 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 deposit 

18 or account described in subsection (a)(2) to make up to 24 

19 transfers per month (or such greater number as the Board 

20 of Governors of the Federal Reserve System may determine 

21 by rule or order), for any purpose, to another account of 

22 the owner in the same institution. An account offered pur23 suant to this subsection shall be considered a transaction 

24 account for purposes of section 19 of the Federal Reserve 

25 Act unless the Board of Governors of the Federal Reserve 

26 System determines otherwise.’’; and 
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1 (3) by adding at the end of subsection (a) the fol2 lowing new paragraph: 

3 ‘‘(3) NONQUALIFIED INDUSTRIAL LOAN COMPA4 NIES.— 

5 ‘‘(A) DEFINITION.—For purposes of this sec6 tion, the term ‘nonqualified industrial loan com7 pany’ means any industrial loan company, in8 dustrial bank, or other institution described in 

9 section 2(c)(2)(H) of the Bank Holding Com10 pany Act of 1956 that is determined by an ap11 propriate State bank supervisor (as defined in 

12 section 3 of the Federal Deposit Insurance Act) 

13 to be controlled, directly or indirectly, by a com14 mercial firm. 

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

16 purposes of this paragraph, the term ‘commercial 

17 firm’ means any entity at least 15 percent of the 

18 annual gross revenues of which on a consolidated 

19 basis, including all affiliates of the entity, were 

20 derived from engaging, on an on-going basis, in 

21 activities that are not financial in nature or in22 cidental to a financial activity during at least 3 

23 of the prior 4 calendar quarters. 

24 ‘‘(C) GRANDFATHERED INSTITUTIONS.—The 

25 term ‘nonqualified industrial loan company’ 
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1 does not include any industrial loan company, 

2 industrial bank, or other institution described in 

3 section 2(c)(2)(H) of the Bank Holding Com4 pany Act of 1956— 

5 ‘‘(i) which became an insured deposi6 tory institution before October 1, 2003, or 

7 pursuant to an application for deposit in8 surance which was approved by the Federal 

9 Deposit Insurance Corporation before such 

10 date; and 

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

12 change in control, directly or indirectly, of 

13 the company, bank, or institution after Sep14 tember 30, 2003, that requires an applica15 tion under section 7(j) or 18(c) of the Fed16 eral Deposit Insurance Act, section 3 of the 

17 Bank Holding Company Act of 1956, or 

18 section 10 of the Home Owners’ Loan Act.’’. 

19 (b) INTEREST ON BUSINESS NOW ACCOUNTS.— 

20 (1) IN GENERAL.—Section 2(a) of Public Law 

21 93–100 (12 U.S.C. 1832(a)) is amended— 

22 (A) by striking paragraph (2) and inserting 

23 the following new paragraph: 

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

25 ACCOUNTS.—An industrial loan company, industrial 
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1 bank, or other institution described in section 

2 2(c)(2)(H) of the Bank Holding Company Act of 1956 

3 may not pay interest on any deposit or account of a 

4 corporation from which funds may be withdrawn by 

5 negotiable instrument for payment to third parties, 

6 unless the appropriate State bank supervisor (as de7 fined in section 3 of the Federal Deposit Insurance 

8 Act) of such company, bank, or institution determines 

9 that such company, bank, or institution is not a non10 qualified industrial loan company.’’; and 

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

12 paragraph: 

13 ‘‘(4) RULE OF CONSTRUCTION RELATING TO DE14 MAND DEPOSITS.—No provision of this section may be 

15 construed as conferring the authority to offer demand 

16 deposit accounts to any institution that is prohibited 

17 by law from offering demand deposit accounts.’’. 

18 (2) TECHNICAL AND CONFORMING AMEND19 MENT.—Section 2(b) of Public Law 93–100 (12 

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

21 section) is amended by striking ‘‘and is not a deposit 

22 or account described in subsection (a)(2)’’. 

23 (3) EFFECTIVE DATE.—The amendments made 

24 by this subsection shall take effect at the end of the 
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1 2-year period beginning on the date of the enactment 

2 of this Act. 

3 SEC. 3. INTEREST-BEARING TRANSACTION ACCOUNTS AU4 THORIZED. 

5 (a) REPEAL OF PROHIBITION ON PAYMENT OF INTER6 EST ON DEMAND DEPOSITS.— 

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

8 the Federal Reserve Act (12 U.S.C. 371a) is amended 

9 to read as follows: 

10 ‘‘(i) [Repealed]’’. 

11 (2) HOME OWNERS’ LOAN ACT.—The first sen12 tence of section 5(b)(1)(B) of the Home Owners’ Loan 

13 Act (12 U.S.C. 1464(b)(1)(B)) is amended by striking 

14 ‘‘savings association may not—’’ and all that follows 

15 through ‘‘(ii) permit any’’ and inserting ‘‘savings as16 sociation may not permit any’’. 

17 (3) FEDERAL DEPOSIT INSURANCE ACT.—Section 

18 18(g) of the Federal Deposit Insurance Act (12 U.S.C. 

19 1828(g)) is amended to read as follows: 

20 ‘‘(g) [Repealed]’’. 

21 (b) EFFECTIVE DATE.—The amendments made by sub22 section (a) shall take effect at the end of the 2-year period 

23 beginning on the date of the enactment of this Act. 
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1 SEC. 4. PAYMENT OF INTEREST ON RESERVES AT FEDERAL 

2 RESERVE BANKS. 

3 (a) IN GENERAL.—Section 19(b) of the Federal Re4 serve Act (12 U.S.C. 461(b)) is amended by adding at the 

5 end the following new paragraph: 

6 ‘‘(12) EARNINGS ON RESERVES.— 

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

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

9 depository institution may receive earnings to be 

10 paid by the Federal reserve bank at least once 

11 each calendar quarter at a rate or rates not to 

12 exceed the general level of short-term interest 

13 rates. 

14 ‘‘(B) REGULATIONS RELATING TO PAY15 MENTS AND DISTRIBUTION.—The Board may 

16 prescribe regulations concerning— 

17 ‘‘(i) the payment of earnings in ac18 cordance with this paragraph; 

19 ‘‘(ii) the distribution of such earnings 

20 to the depository institutions which main21 tain balances at such banks or on whose be22 half such balances are maintained; and 

23 ‘‘(iii) the responsibilities of depository 

24 institutions, Federal home loan banks, and 

25 the National Credit Union Administration 

26 Central Liquidity Facility with respect to 
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1 the crediting and distribution of earnings 

2 attributable to balances maintained, in ac3 cordance with subsection (c)(1)(A), in a 

4 Federal reserve bank by any such entity on 

5 behalf of depository institutions. 

6 ‘‘(C) DEPOSITORY INSTITUTIONS DE7 FINED.—For purposes of this paragraph, the 

8 term ‘depository institution’, in addition to the 

9 institutions described in paragraph (1)(A), in10 cludes any trust company, corporation organized 

11 under section 25A or having an agreement with 

12 the Board under section 25, or any branch or 

13 agency of a foreign bank (as defined in section 

14 1(b) of the International Banking Act of 1978).’’. 

15 (b) AUTHORIZATION FOR PASS THROUGH RESERVES

16 FOR MEMBER BANKS.—Section 19(c)(1)(B) of the Federal 

17 Reserve Act (12 U.S.C. 461(c)(1)(B)) is amended by strik18 ing ‘‘which is not a member bank’’. 

19 (c) CONSUMER BANKING COSTS ASSESSMENT.— 

20 (1) IN GENERAL.—The Federal Reserve Act (12 

21 U.S.C. 221 et seq.) is amended— 

22 (A) by redesignating sections 30 and 31 as 

23 sections 31 and 32, respectively; and 

24 (B) by inserting after section 29 the fol25 lowing new section: 
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1 ‘‘SEC. 30. SURVEY OF BANK FEES AND SERVICES. 

2 ‘‘(a) ANNUAL SURVEY REQUIRED.—The Board of Gov3 ernors of the Federal Reserve System shall obtain annually 

4 a sample, which is representative by type and size of the 

5 institution (including small institutions) and geographic 

6 location, of the following retail banking services and prod7 ucts provided by insured depository institutions and in8 sured credit unions (along with related fees and minimum 

9 balances): 

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

11 ‘‘(2) Negotiable order of withdrawal and savings 

12 accounts. 

13 ‘‘(3) Automated teller machine transactions. 

14 ‘‘(4) Other electronic transactions. 

15 ‘‘(b) MINIMUM SURVEY REQUIREMENT.—The annual 

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

17 minimum requirements: 

18 ‘‘(1) CHECKING AND OTHER TRANSACTION AC19 COUNTS.—Data on checking and transaction accounts 

20 shall include, at a minimum, the following: 

21 ‘‘(A) Monthly and annual fees and min22 imum balances to avoid such fees. 

23 ‘‘(B) Minimum opening balances. 

24 ‘‘(C) Check processing fees. 

25 ‘‘(D) Check printing fees. 

26 ‘‘(E) Balance inquiry fees. 
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1 ‘‘(F) Fees imposed for using a teller or other 

2 institution employee. 

3 ‘‘(G) Stop payment order fees. 

4 ‘‘(H) Nonsufficient fund fees. 

5 ‘‘(I) Overdraft fees. 

6 ‘‘(J) Fees imposed in connection with 

7 bounced-check protection and overdraft protec8 tion programs. 

9 ‘‘(K) Deposit items returned fees. 

10 ‘‘(L) Availability of no-cost or low-cost ac11 counts for consumers who maintain low bal12 ances. 

13 ‘‘(2) NEGOTIABLE ORDER OF WITHDRAWAL AC14 COUNTS AND SAVINGS ACCOUNTS.—Data on negotiable 

15 order of withdrawal accounts and savings accounts 

16 shall include, at a minimum, the following: 

17 ‘‘(A) Monthly and annual fees and min18 imum balances to avoid such fees. 

19 ‘‘(B) Minimum opening balances. 

20 ‘‘(C) Rate at which interest is paid to con21 sumers. 

22 ‘‘(D) Check processing fees for negotiable 

23 order of withdrawal accounts. 

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

25 other institution employee. 
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1 ‘‘(F) Availability of no-cost or low-cost ac2 counts for consumers who maintain low bal3 ances. 

4 ‘‘(3) AUTOMATED TELLER TRANSACTIONS.—Data 

5 on automated teller machine transactions shall in6 clude, at a minimum, the following: 

7 ‘‘(A) Monthly and annual fees. 

8 ‘‘(B) Card fees. 

9 ‘‘(C) Fees charged to customers for with10 drawals, deposits, and balance inquiries through 

11 institution-owned machines. 

12 ‘‘(D) Fees charged to customers for with13 drawals, deposits, and balance inquiries through 

14 machines owned by others. 

15 ‘‘(E) Fees charged to noncustomers for with16 drawals, deposits, and balance inquiries through 

17 institution-owned machines. 

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

19 ‘‘(4) OTHER ELECTRONIC TRANSACTIONS.—Data 

20 on other electronic transactions shall include, at a 

21 minimum, the following: 

22 ‘‘(A) Wire transfer fees. 

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

24 the Internet or through other electronic means. 
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1 ‘‘(5) OTHER FEES AND CHARGES.—Data on any 

2 other fees and charges that the Board of Governors of 

3 the Federal Reserve System determines to be appro4 priate to meet the purposes of this section. 

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

6 The Board of Governors of the Federal Reserve Sys7 tem may cease the collection of information with re8 gard to any particular fee or charge specified in this 

9 subsection if the Board makes a determination that, 

10 on the basis of changing practices in the financial 

11 services industry, the collection of such information is 

12 no longer necessary to accomplish the purposes of this 

13 section. 

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

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

16 the Federal Reserve System shall prepare a report of 

17 the results of each survey conducted pursuant to sub18 sections (a) and (b) of this section and section 

19 136(b)(1) of the Consumer Credit Protection Act. 

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

21 to the data required to be collected pursuant to sub22 sections (a) and (b), each report prepared pursuant to 

23 paragraph (1) shall include a description of any dis24 cernible trend, in the Nation as a whole, in a rep25 resentative sample of the 50 States (selected with due 
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1 regard for regional differences), and in each consoli2 dated metropolitan statistical area (as defined by the 

3 Director of the Office of Management and Budget), in 

4 the cost and availability of the retail banking services, 

5 including those described in subsections (a) and (b) 

6 (including related fees and minimum balances), that 

7 delineates differences between institutions on the basis 

8 of the type of institution and the size of the institu9 tion, between large and small institutions of the same 

10 type, and any engagement of the institution in 

11 multistate activity. 

12 ‘‘(3) SUBMISSION TO CONGRESS.—The Board of 

13 Governors of the Federal Reserve System shall submit 

14 an annual report to the Congress not later than June 

15 1, 2006, and not later than June 1 of each subsequent 

16 year. 

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

18 term ‘insured depository institution’ has the meaning given 

19 such term in section 3 of the Federal Deposit Insurance Act, 

20 and the term ‘insured credit union’ has the meaning given 

21 such term in section 101 of the Federal Credit Union Act.’’. 

22 (2) CONFORMING AMENDMENT.— 

23 (A) IN GENERAL.—Paragraph (1) of section 

24 136(b) of the Truth in Lending Act (15 U.S.C. 

25 1646(b)(1)) is amended to read as follows: 
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1 ‘‘(1) COLLECTION REQUIRED.—The Board shall 

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

3 of financial institutions which offer credit card serv4 ices, credit card price and availability information 

5 including— 

6 ‘‘(A) the information required to be dis7 closed under section 127(c) of this chapter; 

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

9 charges paid by consumers; and 

10 ‘‘(C) the following credit card rates and 

11 fees: 

12 ‘‘(i) Application fees. 

13 ‘‘(ii) Annual percentage rates for cash 

14 advances and balance transfers. 

15 ‘‘(iii) Maximum annual percentage 

16 rate that may be charged when an account 

17 is in default. 

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

19 checks. 

20 ‘‘(v) Fees for balance transfers. 

21 ‘‘(vi) Fees for foreign currency conver22 sions.’’. 

23 (B) EFFECTIVE DATE.—The amendment 

24 made by subparagraph (A) shall take effect on 

25 January 1, 2006. 
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1 (3) REPEAL OF OTHER REPORT PROVISIONS.— 

2 Section 1002 of Financial Institutions Reform, Re3 covery, and Enforcement Act of 1989 and section 108 

4 of the Riegle-Neal Interstate Banking and Branching 

5 Efficiency Act of 1994 are hereby repealed. 

6 (d) TECHNICAL AND CONFORMING AMENDMENTS.— 

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

8 amended— 

9 (1) in subsection (b)(4) (12 U.S.C. 461(b)(4)), by 

10 striking subparagraph (C) and redesignating sub11 paragraphs (D) and (E) as subparagraphs (C) and 

12 (D), respectively; and 

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

14 461(c)(1)(A)), by striking ‘‘subsection (b)(4)(C)’’ and 

15 inserting ‘‘subsection (b)’’. 

16 SEC. 5. INCREASED FEDERAL RESERVE BOARD FLEXIBILITY 

17 IN SETTING RESERVE REQUIREMENTS. 

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

19 U.S.C. 461(b)(2)(A)) is amended— 

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

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

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

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

24 8 per centum,’’ and inserting ‘‘(and which may be 

25 zero),’’. 
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1 SEC. 6. TRANSFER OF FEDERAL RESERVE SURPLUSES. 

2 (a) IN GENERAL.—Section 7(b) of the Federal Reserve 

3 Act (12 U.S.C. 289(b)) is amended by adding at the end 

4 the following new paragraph: 

5 ‘‘(4) ADDITIONAL TRANSFERS TO COVER INTER6 EST PAYMENTS FOR FISCAL YEARS 2005 THROUGH

7 2009.— 

8 ‘‘(A) IN GENERAL.—In addition to the 

9 amounts required to be transferred from the sur10 plus funds of the Federal reserve banks pursuant 

11 to subsection (a)(3), the Federal reserve banks 

12 shall transfer from such surplus funds to the 

13 Board of Governors of the Federal Reserve Sys14 tem for transfer to the Secretary of the Treasury 

15 for deposit in the general fund of the Treasury, 

16 such sums as are necessary to equal the net cost 

17 of section 19(b)(12) in each of the fiscal years 

18 2005 through 2009. 

19 ‘‘(B) ALLOCATION BY FEDERAL RESERVE

20 BOARD.—Of the total amount required to be paid 

21 by the Federal reserve banks under subparagraph 

22 (A) for fiscal years 2005 through 2009, the 

23 Board of Governors of the Federal Reserve Sys24 tem shall determine the amount each such bank 

25 shall pay in such fiscal year. 
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1 ‘‘(C) REPLENISHMENT OF SURPLUS FUND

2 PROHIBITED.—During fiscal years 2005 through 

3 2009, no Federal reserve bank may replenish 

4 such bank’s surplus fund by the amount of any 

5 transfer by such bank under subparagraph (A).’’. 

6 (b) TECHNICAL AND CONFORMING AMENDMENT.—Sec7 tion 7(a) of the Federal Reserve Act (12 U.S.C. 289(a)) is 

8 amended by adding at the end the following new paragraph: 

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

10 years 2005 through 2009, any amount in the surplus 

11 fund of any Federal reserve bank in excess of the 

12 amount equal to 3 percent of the paid-in capital and 

13 surplus of the member banks of such bank shall be 

14 transferred to the Secretary of the Treasury for de15 posit in the general fund of the Treasury.’’. 

16 SEC. 7. RULES OF CONSTRUCTION. 

17 In the case of an escrow account maintained at a de18 pository institution in connection with a real estate trans19 action— 

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

21 of expenses incidental to providing a normal banking 

22 service with respect to such escrow account; 

23 (2) the forbearance, by the depository institution, 

24 from charging a fee for providing any such banking 

25 function; and 
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1 (3) any benefit which may accrue to the holder 

2 or the beneficiary of such escrow account as a result 

3 of an action of the depository institution described in 

4 subparagraph (1) or (2) or similar in nature to such 

5 action, including any benefits which have been so de6 termined by the appropriate Federal regulator, 

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

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

9 93–100, the Federal Reserve Act, the Home Owners’ Loan 

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

11 payment of interest on accounts or deposits at depository 

12 institutions. No provision of this Act shall be construed so 

13 as to require a depository institution that maintains an 

14 escrow account in connection with a real estate transaction 

15 to pay interest on such escrow account or to prohibit such 

16 institution from paying interest on such escrow account. 

17 No provision of this Act shall be construed as preempting 

18 the provisions of law of any State dealing with the payment 

19 of interest on escrow accounts maintained in connection 

20 with real estate transactions. 

Union Calendar No. 41 

109TH CONGRESS 

1ST SESSION H. R. 1224 

[Report No. 109–81] 

A BILL 

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

MAY 16, 2005 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union,