Employee Paycheck and Small Business Protection Act
📝 TL;DR
This bill creates permanent federal insurance coverage up to $100 million for business transaction accounts used for payroll and operations, while also establishing emergency authority for unlimited deposit guarantees during financial crises. The permanent program requires extensive study and takes 30 months to implement, while emergency powers become available immediately but require extraordinary approval thresholds and Congressional oversight.
Plain English Summary
The Employee Paycheck and Small Business Protection Act (H.R. 10542) creates two distinct programs to expand federal deposit insurance beyond the current $250,000 limit for specific types of business accounts. The bill establishes a permanent expanded insurance program covering up to $100 million for business transaction accounts used primarily for payroll and vendor payments, and a separate temporary emergency program providing unlimited insurance during financial crises. Introduced by Rep. Waters on December 19, 2024, this legislation responds to concerns highlighted by recent bank failures where businesses lost access to funds needed for essential operations like payroll, even when those funds were held in low-risk transaction accounts rather than investment vehicles.
Detailed Analysis
The bill operates through amendments to both the Federal Deposit Insurance Act and Federal Credit Union Act, creating parallel programs for banks and credit unions. Section 2 establishes the permanent expanded coverage program, requiring both the FDIC and NCUA to create new insurance categories for 'covered transaction accounts' - defined as accounts held by businesses, nonprofits, or municipalities that are used predominantly for operational payments and earn little to no interest. The legislation includes extensive procedural safeguards, requiring 18 months of data collection and analysis before proposed rulemaking, followed by final rules within 30 months. Notably, the bill requires joint determinations between FDIC and NCUA on key definitions and insurance amounts to ensure consistency across institution types.
Section 3 creates an entirely separate emergency authority - the Temporary Transaction Account Guarantee Program - that provides unlimited insurance for transaction accounts during financial crises. This program requires extraordinary approval thresholds: two-thirds votes from both the FDIC Board and Federal Reserve Board of Governors, plus Treasury Secretary determination (in consultation with the President) that financial stability is at risk. The program automatically terminates after 270 days unless Congress passes a joint resolution of approval, creating a significant legislative check on executive emergency powers.
The bill's structure reflects lessons from the 2008 financial crisis and recent bank failures, when similar temporary programs were implemented through regulatory action. By codifying these authorities in statute, the legislation provides clearer legal framework while imposing more rigorous oversight requirements. The extended timeline for implementation (up to 30 months) suggests recognition of the complexity involved in expanding federal insurance programs and the need for careful risk assessment. The requirement for agencies to consider effects on community banks, minority depository institutions, and rural institutions indicates awareness of potential competitive impacts from dramatically expanding insurance coverage for large business accounts.
🎯 Key Provisions
Expanded Permanent Insurance Coverage: Creates new insurance category covering up to $100 million per depositor for business transaction accounts used for payroll and vendor payments. Coverage applies to accounts that are non-interest bearing or pay materially below market rates. (Section 2(a)(1)(B) - 'The Corporation shall fully insure the deposits that any depositor at an insured depository institution maintains in a covered transaction account... in an amount of net deposits up to $100,000,000 per depositor per depository institution.')
Covered Transaction Account Definition: Defines eligible accounts as those maintained by businesses, nonprofits, or municipalities, used predominantly for operational transactions, and earning little to no interest to prevent speculation. (Section 2(a)(1)(B) - accounts 'used predominantly for transactions, including payroll payments, vendor payments, and any other regular payments made to support the work or mission of the account holder' and 'that is non-interest bearing or that pays interest materially below prevailing market rates.')
Emergency Unlimited Insurance Authority: Authorizes temporary unlimited insurance for transaction accounts during financial crises, requiring supermajority approval from multiple agencies and Treasury Secretary determination of systemic risk. (Section 3(a) - Program may be implemented 'only if, upon the written recommendation of the Board of Directors (upon a vote of not less than two-thirds of the members) and the Board of Governors of the Federal Reserve System (upon a vote of not less than two-thirds), the Secretary of the Treasury determines that the failure to implement the program would have serious adverse effects on financial stability.')
Mandatory Data Collection and Analysis: Requires FDIC and NCUA to spend 90 days collecting data and 18 months analyzing impacts on safety, soundness, financial stability, and competitive market structure before implementing expanded coverage. (Section 2(c)(1) - agencies must 'begin collecting and analyzing data from insured depository institutions to establish requirements for the program... including to determine the eligibility of covered transaction accounts and the amount of deposits to be insured.')
Congressional Oversight Requirements: Mandates agency testimony before Congressional committees, GAO reports, and requires Congressional approval via joint resolution for extending emergency programs beyond 270 days. (Section 3(a) - 'Not later than 45 days after any implementation of the Program, the Chairperson of the Board of Directors, the Chairman of the Board of Governors of the Federal Reserve System, and the Secretary of the Treasury shall provide testimony to the Committee on Financial Services.')
Insurance Fund Restoration Plan Extensions: Automatically extends existing deposit insurance fund restoration plans by 8 years to account for potential increased costs and claims from expanded coverage. (Section 2(e) - 'A Deposit Insurance Fund restoration plan... in effect on the date of the enactment of this Act shall be extended for a period of 8 years beginning on the effective date of a final rule issued by the applicable agency.')
👥 Impact Analysis
Direct Effects If enacted, this legislation would dramatically expand federal deposit insurance coverage for millions of business accounts nationwide, potentially protecting up to $100 million per account holder at each institution. Small and medium-sized businesses would gain protection for operational funds that currently exceed the $250,000 FDIC limit, reducing the risk of payroll disruptions and vendor payment delays during bank failures. The emergency provisions would give federal regulators clear statutory authority to implement unlimited deposit guarantees during financial crises, similar to programs used in 2008 and 2023.
Credit unions would receive parallel authorities and requirements, ensuring consistent treatment across the financial system. The extended implementation timeline means the permanent expanded coverage would not take effect for at least 30 months, allowing time for thorough analysis and rulemaking. However, the emergency provisions would become available immediately upon enactment, providing new crisis management tools.
Indirect Effects The legislation could significantly alter competitive dynamics in banking by making large business deposits more attractive to hold at smaller institutions, potentially reducing the concentration of such deposits at the largest banks. However, smaller banks might face increased assessment costs to fund the expanded insurance coverage. The requirements for regulators to consider impacts on community development financial institutions and minority-owned banks suggest awareness of these competitive effects, but the actual outcomes would depend on final rule implementation.
Affected Groups - Small and medium-sized businesses - Large corporations with significant transaction accounts - Nonprofit organizations - Municipal governments - Banks and credit unions - Federal deposit insurance funds - Taxpayers (potential ultimate backstop)
Fiscal Impact The bill does not provide specific cost estimates, but the fiscal impact could be substantial. The permanent program allows agencies to 'establish assessments' on participating institutions to fund the expanded coverage, suggesting industry rather than taxpayer funding. However, Section 2(e) automatically extends insurance fund restoration plans by 8 years, acknowledging potential strain on existing reserves. The emergency program explicitly authorizes use of existing Deposit Insurance Fund resources and new assessments. While designed as industry-funded, the federal government remains the ultimate backstop for deposit insurance, creating potential taxpayer exposure during severe financial crises when industry assessments may prove insufficient.
📋 Latest Action
12/19/2024
Referred to the House Committee on Financial Services.