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Business Services Industry

Out With The Old

Entrepreneur, July, 2001 by C.J. Prince

The repeal of a Depression-era bank law would largely benefit entrepreneurs, say proponents of new legislation already approved by the House and waiting for approval in the Senate (at press time). The bill would abolish a ban prohibiting financial institutions from offering interest on business checking accounts.

Michael Oxley, chair of the House Committee on Financial Services, says the antiquated law has disproportionately harmed entrepreneurs, who typically can't take advantage of more complex financial products. Oxley estimates that the owner of a typical five-employee operation loses about $3,000 each year due to unearned interest. He adds that the measure is good news for small-town bankers as well, because it would allow them to offer more competitive products to their business customers.

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The independent Community Bankers of America (ICBA), though, isn't convinced. It's concerned the law would mandate increased costs for community banks. And once financial institutions are allowed to offer interest on business checking, says ICBA CEO and president Ken Guenther, the feature will quickly become a competitive requirement. "The option of not doing it won't be realistic, "he says. "Is this increased cost factor a make-or-break issue? No. But if you get enough increased cost factors, it's a problem."

Yet Peggy Peterson, spokesperson for the House Committee on Financial Services, says the agreed-upon two-year phase-in period for the new law would hopefully give banks enough time to adjust. In fact, the phase-in was the only issue in serious debate in the House. Otherwise, she says, it had very broad support.

Business Services Industry

Out With The Old

Entrepreneur, July, 2001 by C.J. Prince

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