The Federal Reserve Board proposed yesterday revised rules that would permit banks to come a step closer to offering checking accounts that pay interest.
Under the rules, which are open for comment until March 20, banks would be permitted to automatically transfer funds from a customer's savings account to his or her checking account either to cover a check or to insure that the checking account has a pre-arranged minimum balance.
The proposed rules were sharply criticized by th chairman of the Federal Home Loan Bank Board who charged that giving banks this power would "create a serious distortion in the competitive balance between commercial banks and the savings and loan industry."
Robert H. McKinney, whose bank board regulates the savings and loan industry, said he supports the idea of interest-bearing checking accounts.
But, he said, by allowing member banks to offer the service proposed yesterday, the Fed is taking an illtimed and ill-considered step. He noted that legislation is pending before Congress that would give the power to offer interest-bearing checking accounts to all financial institutions - banks, S&Ls and mutual savings banks.
However, McKinney said, the legislation has not been "well-received" by Congress and he said the Fed should not attempt "to achieve by regulatory action what to date has not been achieved by legislative action."
McKinney promised to fight the Fed rule and ask Congress to either "roll back the Federal Resserve's action or promptly enact legislation which would place all financial institutions on an equal footing."
Only commercial banks can offer checking accounts and under law checking accounts are not permitted to pay interest, although there is an experiment in several states with so-called NOW (negotiated order of withdrawal) accounts which, for all practical purposes, are interest-bearing checking accounts that are offered by banks, S&Ls and savings banks.
Sen. Thomas J. McIntyre (D-N-H.), chairman of the Senate Banking Committee's subcommittee on financial institutions, hailed the move, calling it "in the public interest" because it offers consumers "an attractive and convenient banking service."
Banks and savings and loans already are permitted to offer customers bill-paying services and banks are authorized to transfer funds from a depositor's savings account to the depositor's checking account on the basis of telephone instructions from the customer.
Under the Fed proposal, a bank and a depositor would agree on a plan that would authorize the bank to transfer money from a savings account to a checking account but the depositor would forfeit whatever interest would have been earned on the amount transferred during the previous 30 days.
The amount of interest forfeited would depend on the "rules of the depositor's bank," the Fed said. If a bank paid interest only on funds left on deposit for a whole quarter, for example, no interest would be forfeited.
But, as is increasingly the case, if the bank paid interest from day-of deposit to day-of-withdrawal, the customer would lose the full 30 days of interest that had either been paid or accrued.
McIntyre called the interest forfeited provision "onerous, unnecessary and self-defeating" and urged the Fed to take it out when it published its final regulations.
Under the Fed proposal banks are not required to offer such a plan nor are customers required to authorize banks to withdraw from their savings deposits to cover their checks.
The Fed said the service would be available only to individuals, not to businesses or governments. It said such an arrangement would eliminate the usually large charges banks impose when a check is written on an account "with insufficient funds." It also would lower the cost to the public at large, because the Fed system "incurs additional costs when such (bad) checks are presented to it for clearance because they involve hand processing and multiple handling."
The Fed said the actual rule - which requires an amendment to Regulation Q which governs the payment of interest - would not go into effect until 60 days after the Fed gives it final approval.