DC Is Polarized, but Financial Deregulation Is Far Too Bipartisan.

On Friday, House Republicans engaged in one of their favorite pastimes: undermining regulations designed to benefit the public over profit. This time, it was by passing a bill to reduce transparency, integrity, and accountability in US securities markets.

The Consumer Federation of America opposed the so-called “Access to Capital Act” because it would (1) expand dark and unaccountable private markets at the expense of transparent and accountable public markets and (2) expand the pool of investors who can be taken advantage of in such dark and unaccountable private markets.

The final vote was party line: 212 to 205.

Democrats also stayed together on two Democratic amendments to improve the bill:

• Chrissy Houlahan (PA-06)’s amendment to require the Advocate for Small Business Capital Formation to include in its report to Congress and the SEC the effects of the failure of Silicon Valley Bank on community banks and small business lending
• Stephen Lynch (MA-08)’s amendment that stipulated that the Act will take effect only when the SEC, in consultation with State securities regulators, certifies to Congress that nothing in the Act will increase fraud

However, such unity was not seen on other amendments, with defections both big and small.

Reps. Jared Golden (ME-02) and Marie Gluesenkamp Perez (WA-03) voted against Rep. Maxine Waters (CA-43)’s amendment to require any investment adviser, private fund, or an investment company that is subject to the bill to annually and publicly disclose their investments into women-owned, minority-owned, veteran-owned, rural-domiciled, and other businesses.

Reps. Colin Allred (TX-32) and Gluesenkamp Perez voted against Rep. Rashida Tlaib (MI-12)’s amendment to ensure that exemptions or benefits provided by the bill only apply to companies that do not impose junk fees on customers.

Rep. Brad Sherman (CA-32)’s amendment to limit the amount an individual can invest in any one private offering failed 203 to 223, with 8 Democrats joining Republicans to vote against it.

Those 8 Democrats were Jake Auchincloss (MA-04), Angie Craig (MN-02), Chrissy Houlahan (PA-06), Susie Lee (NV-03), Seth Moulton (MA-06), Marie Gluesenkamp Perez (WA-03), and Kim Schrier (WA-08).

Rep. Bill Huizenga (MI-04) put forth an amendment based on a bill of his that would allow firms to default retail investors into receiving electronic delivery of important regulatory documents required by our securities laws, including investment disclosures and account statements.

There is nothing to prevent investors from opting in to e-delivery — firms already encourage it. However, ample research shows that a switch to e-delivery would lead to reduced readership of the disclosures (perhaps another reason why firms encourage it).

It passed 269 to 153, with 62 Democrats joining Republicans in voting for it and 4 Republicans joining the majority of Democrats in voting against it.

Here are the 62 Democrats:

Frank Lucas (OK-03) offered an amendment to amend federal securities laws to allow 403(b) plans — retirement plans used by public school teachers, nurses, and various other public or nonprofit employees — to invest in collective investment trusts (CITs) and insurance contracts that currently may be invested in by comparable retirement plans, such as 401(k)s.

CITs have grown in popularity in recent years as an alternative to mutual funds as banks have found a regulatory loophole to exploit. They have lower fees but much higher risk due to lower transparency, fragmented regulatory oversight, fewer restrictions on permitted investments, and centralized control in the hands of bank trustees.

It passed 301 to 125, with 87 Democrats joining Republicans in voting for it.

Here are the 87 Democrats:

Ann Wagner (MO-02) offered an amendment to allow closed-end investment companies (i.e., ones that raises capital through a one-time sale of a limited number of shares, which may then be traded on the markets) to invest their assets in securities issued by private funds. The association of state securities administrators opposed this, arguing that it would only serve to create “yet another costly, complex product with likely limited
benefit for the retirement savings of hardworking Americans.”

It passed 270 to 154, with 57 Democrats joining Republicans to vote for it.

Here are the 57:

Mike Lawler (NY-17) offered an amendment to clarify the definition of “general solicitation” and “angel investor” for purposes of the federal securities laws to ensure that startups can discuss their products and business plans at certain events, known as “demo days.”

“Demo days” are showcase events where start-ups can pitch business plans to potential investors.

To be legally compliant, such events must avoid crossing the line into activity that would require registration as an investment advisor or a broker. The association of state securities administrators has again opposed this change because of the lack of an existing regulatory infrastructure to ensure investor protection under such a change.

It passed 278 to 146, with 66 Democrats joining Republicans in voting for it.

Here are the 66 Democrats: