The Supreme Court let stand Yesterday a lower court order that lawed new bank, credit union and savings association transactions that permit interest payments on regular deposits -- effectively leaving resolution of the issue up to Congress.
With Justices Potter Stewart and Lewis F. Powell Jr. abstaining, the court declined to hear a government petition to review the case, which involves automatic transfer of funds from savings to checking or checking-type accounts.
The U.S. Court of Appeals here ruled last April 20 that federal regulatory agencies overstepped their authority in approving new electronic transactions by banks, thrift institutions and credit unions.
Since thousands of institutions had started to offer such new services as automatic transfer of savings deposits to a checking account at local banks, the court decision caused turmoil in the financial industry.
But the court order stayed the effective date of its decision to next Jan. 1, to permit congressional action.
In response, the House voted overwhelmingly on Sept. 11 to approve so-called NOW (negotiable order of withdrawal) accounts for all financial institutions, as of Sept. 1, 1980.
The House bill also would legalize the banks' automatic transfers from savings to checking accounts, credit union share draft accounts and S&L remote terminals for instant transactions -- all of which were outlawed by the Court of Appeals decision.
All of these transactions would be legalized as of Jan. 1, to prevent any disruption of current services.
In the Senate, legislation has been approved by the Banking Committee to accomplish many of the same goals and the bill is being readied for floor action later this week, if possible.
However, the Senate bill is much broader in that it would end all federal government interest rate ceilings as established under "Regulation Q" of the Federal Reserve system over a 10-year period. This would effectively removed a long-standing interest rate differential between savings accounts of S&Ls and commerical banks that has permitted the thrift institutions to pay one-quarter percent more.
If the Senate approves its bill, as expected, a tough lobbying battle is shaping up when House and Senate conferees meet. The savings and loan industry is opposed to elimination of Regulation Q ceiling differentials while the American Bankers Association has urged Congress to tie elimination of the intrest rate differential to authorization of nationwide NOW accounts.