A Row over NOW

What could be nicer, from a thrifty consumer's viewpoint, than a checking account that pays 5 1/4% interest on deposits? Not much--and in New England, savings banks are luring customers away from commercial institutions with just that pitch. So far, 50 savings banks in Massachusetts and nine in New Hampshire have begun to offer a new service that lets customers write checks on their regular savings deposits, all the while collecting interest on the unspent balance.

Forbidden in some states from providing checking services, savings banks have long tried to compensate by selling money orders. But sales of money orders were limited because customers were often inconvenienced by having to stand in long lines to buy them.

Last June Ronald Haselton, 41, president of the Consumers Savings Bank of Worcester, Mass., introduced a more convenient form of checking: a bank draft called NOW (for Negotiable Order of Withdrawal). NOW drafts look and are used exactly like the checks offered by most checking accounts. Each draft costs 15-c-. At Consumers Savings, depositors no longer even have to bother with bankbooks. Instead, NOW users get monthly computerized statements of deposits, withdrawals, charges and interest. The minimum balance required is $10. Last May Haselton won a test case in the state supreme judicial court establishing the legality of NOW accounts. Since NOWS were first offered, they have generated 17,000 new accounts and deposits of $30 million in New England. More depositors are signing up at the rate of 100 a day.

Commercial bankers are irritated, because they find it impossible to compete against what in effect are interest-yielding checking accounts. Under the Federal Banking Act of 1933, commercial bankers are forbidden to retaliate by paying interest on their checking accounts. Haselton insists that the NOW system is reasonable, arguing: "It's the consumer's money, and he should be able to get it whenever he pleases for whatever he wants."

Unable to block the NOW system in court, commercial bankers have protested to Massachusetts Commissioner of Banks Freyda P. Koplow. She is seeking a compromise, possibly an agreement under which savings banks might offer noninterest checking accounts. A spokesman for the Federal Reserve says that it is watching the New England situation "with concern." The Reserve has no control over savings banks, but it does regulate the clearing houses through which NOW drafts move. If savings bank checking takes too big a chunk of commercial bank money, the Government may move to head off NOW at the clearing house.

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