For sauce, melt butter, stir in flour, salt and pepper. Add milk all at once. Cook and stir till thickened and bubbly. Stir in Velveeta cheese until melted. Remove from heat. Place half the sliced potatoes in a greased 1 quart casserole. Cover with half the sauce. Repeat layers. Sprinkle with cheddar cheese. Bake, covered, in a 350F degree oven for 35 minutes. Uncover; bake 30 minutes more or till potatoes are tender. Let stand 5 minutes.