Taking an interest: small-business checking accounts may get their due

Entrepreneur, June, 1998 by Stephen Barlas

By the time you read this, the Senate Banking Committee may have already passed S.1405, an omnibus financial services regulatory relief bill. There are two key provisions: One would allow banks to pay interest on small-business checking accounts; another would compensate banks for that new expense by allowing them to receive interest on their reserve funds.

Sens. Richard Shelby (R-AL) and Connie Mack (R-FL) are the primary sponsors of S. 1405. "It's the least we can do to keep the engine of small business humming in our economy," says Mack. "The [current] prohibition hurts small businesses; they don't have the means to employ expensive technology to avoid the loss of interest on their accounts."

Senate passage - at press time, a vote was scheduled for after the spring recess in April is a near certainty. The House's version (H.R. 2323), sponsored by Rep. Jack Metcalf (R-WA), includes just the provisions on interest on checking accounts and reserve interest. The House Banking Committee will hold hearings on the issue within the next few months.

Some banking groups dislike the bill's provision regarding interest on checking accounts. The Independent Bankers Association of America and the American Bankers Association are pushing an alternative approach that would allow small businesses to transfer funds out of checking accounts into a money market account 24 times a month. The current limit is six times a month, making the accounts almost useless.

Rep. Jim Leach (R-IA), chairman of the House Banking Committee, supports that alternative, according to committee spokesperson Andrew Biggs, though Leach may be open to compromise after hearings are held on the issue. The bottom line is that the legislation seems to have a near-irresistible appeal.

Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.