Update on Interest-Bearing Checking Accounts

On Thursday, March 18, the House passed by a unanimous vote of 418 to 0 an amendment offered by Representatives Sue Kelly and Pat Toomey, both key Small Business Committee members, to the Financial Services Regulatory Relief Act (H.R. 1375) to remove the prohibition on banks from paying interest on business checking accounts. The amendment repeals a 70-year-old law that prevents small business owners from earning interest on their business checking accounts. Current law forces small business owners to choose between non-interest-bearing accounts and more costly “sweep” accounts, which require a much higher balance than ordinary checking accounts. Most small businesses do not have the resources necessary to maintain a sweep account, so they are forced to keep their money in non-interest-bearing accounts.

“Checking accounts held by small businesses are banned by federal law from collecting the interest that money would earn if it were held by an individual,” Representative Kelly noted in a speech on the House floor prior to the vote. “This legislation is about creating a new and broader market option and supporting our small businesses at the same time. The amendment allows banks to pay interest on business checking accounts and increase sweeps activities,” Representative Kelly said.

This amendment was identical to the legislation the House unanimously passed last year on this topic (H.R. 758), but still has not seen any action in the Senate (see SBC Notes 108-6). It is hoped by attaching this legislation as an amendment to another bill, prospects for Senate passage will brighten. Overall, H.R. 1375 passed by vote of 392 to 25.

To encourage support in the Senate, those who agree with the amendment may wish to write their senators.