The strongest proponents of Dodd-Frank know the sweeping legislation passed in the wake of the Great Recession could use some tweaking to unlock the potential of America’s “Main Street” with appropriate funding. The GOP has proposed a bill to roll back the measures they feel harm their constituents, are ineffective or allow government overreach. “The Financial CHOICE Act” is the vehicle of choice for the current House and targets specific titles within Dodd-Frank to replace and/or repeal. It is impossible to predict how this bill will look after House and Senate negotiations, or if it can get passed at all; either way, it has potential to significantly impact financial markets and businesses.
Overall lending has increased since Dodd-Frank was passed, empowering critics of the repeal effort to maintain that the law should remain intact. However, statistics largely ignore macroeconomic post-recession factors, the historically low interest rate environment, and most of the lending has missed “Main Street.” The fed small business survey published in 2016 showed that 50% of loan applicants faced a financing shortfall, which is why the bills described below have received bipartisan support and why several have even passed unanimously.
The Financial CHOICE Act will incorporate dozens of capital formation bills having already passed the house or committee intended to help small businesses and job creators. For example, the “Helping Angels Lead Our Startups Act," or the HALOS act, allows startups to pitch to a wider array of potential investors. Similarly, the “Supporting America’s Innovators Act” allows venture funds to raise capital from more investors. The “Small Business Credit Availability Act” aims to increase business development companies’ ability to provide funding to small and medium sized businesses. In addition, nearly two dozen other bills are incorporated to help community and smaller financial institutions provide more financing to individuals and small businesses in the forms of mortgages and loans.
It appears both houses of congress agree, at least in part, with former SEC commissioner Harvey Pitt when he says, “The only businesses that can obtain loans are those that can prove they don't actually need the loan.”
The CHOICE act will break some of the Dodd-Frank shackles on the finance industry and take regulatory power away from Washington. Less than a decade removed from the “Great Recession,” many argue the banking industry requires the stringent oversight provided by Dodd-Frank. The act will overhaul the Consumer Financial Protection Bureau, eliminate the Volcker Rule which prohibits excessive speculation by banks, prevent the implementation of the fiduciary rule that binds financial advisors to act in their client’s best interest, reduce bank stress-tests to only once every other year, and force the SEC into slower administrative proceedings and a higher burden of proof when enforcing securities law.
A full repeal of Dodd-Frank would be far too unpopular, because strategically nestled within it, there are pieces of legislation that help small businesses grow. An example is the bill that allows for the “smaller reporting company” distinction, exempting small companies from having to comply with SOX 404(b). The Republicans must use the CHOICE act -- or something similar -- to accomplish their goals of funding small and medium sized businesses and eliminating Washington’s “supervisory regime” of banks.
Dodd-Frank is an imperfect bill with several impactful pieces of legislation with bipartisan support for amending. Unsurprisingly, it seems unlikely that the CHOICE act as it stands will be able to make it through in this political climate. To pass one sweeping piece of legislation, the GOP will need 8 Democrats to avoid a filibuster. In other words, the CHOICE act passed committee, but it has a long way to go.
To see the details of the various acts mentioned, read more here.
