The Financial CHOICE Act (H.R. 10)

By at 1 May, 2017, 9:08 am

The Honorable Jeb Hensarling


House Financial Services Committee

United States House of Representatives

Washington, D.C.   20515


Dear Chairman Hensarling:

The Small Business & Entrepreneurship Council (SBE Council) strongly supports the Financial CHOICE Act of 2017 (H.R. 10).

Following the economic and financial crisis of 2008-09, Congress and President Obama reacted by advancing the Dodd-Frank Act, which inflicted nonsensical and costly government regulation and controls on the financial industry. This massive piece of legislation continues to drive uncertainty and has imposed big costs on our economy. In the end it has hurt entrepreneurs, small businesses and their workforce.

Excessive Red Tape Has Taken a Toll on Small Banks. Rather than addressing the root causes of the financial meltdown, Dodd-Frank added layers of unnecessary red tape and bureaucracy, including on small, community banks. Given the role that small banks traditionally have played in helping to finance small businesses, our entrepreneurs have paid a heavy price. SBE Council has laid out many of these Dodd-Frank ills, including the decline in the number and value of small business loans, the negative fallout for community banks, and the loss of small banks. Consider, for example, that according to Census Bureau data, from 2007 to 2014 (most recent), the number of banks with more than 500 employees declined by 1.7 percent, but those with less than 500 employees fell by 18.7 percent, with less than 100 employees by 20.7 percent, and with less 20 employees by 35.6 percent. Tough economic times and misguided, costly regulation have, naturally, fallen hardest on smaller institutions.

A 2015 report from the Federal Reserve Bank of Richmond noted “an unprecedented collapse in new bank entry.” It was pointed out: “This collapse in new bank entry has no precedent during the past 50 years, and it could have significant economic repercussions. In particular, the decline in new bank entry disproportionately decreases the number of community banks because most new banks start small. Since small banks have a comparative advantage in lending to small businesses, their declining number could affect the allocation of credit to different sectors in the economy.”

Regulation is highlighted as at least part of the reason for this collapse: “Banking scholars also have found that new entries are more likely when there are fewer regulatory restrictions. After the financial crisis, the number of new banking regulations increased with the passage of legislation such as the Dodd-Frank Act. Such regulations may be particularly burdensome for small banks that are just getting started.”

The impact on small banks has in turn hurt capital access and lending for entrepreneurs and small businesses across America.

Financial CHOICE ACT Brings Modern, Common Sense Approach to Rulemaking. In contrast to the burdensome rules and red tape created by Dodd-Frank, the Financial CHOICE Act will truly reform the rules governing the financial system, encourage innovation across the system, vastly improve access to capital for entrepreneurs and small businesses, and transform a regulatory structure that lacks accountability, is too secretive, and ignores its responsibilities concerning small businesses.

The CHOICE Act punishes actual financial fraud; mandates that regulations be subject to cost-benefit analysis; requires financial regulators, when imposing a rule with $100 million or more of impact, to select the least costly, least burdensome or most cost-effective alternative; truly ends “too big to fail” by establishing a new chapter of the bankruptcy code to accommodate the failure of large, complex financial institutions; reduces assorted obstacles for gaining access to capital and credit via crowdfunding; eliminates excessive and unnecessary regulatory costs that ultimately impede small business and economic growth; and more.

Strengthens Capital Formation and Access. The Financial CHOICE Act makes key revisions that will allow community banks to get back to business, which means financing the startups and local small businesses that are critical to the economic growth of local communities. Furthermore, the Financial CHOICE Act incorporates needed Securities and Exchange Commission (SEC) reforms that will make SEC rules and compliance more rational, streamlined, and fair. In the end, these changes will improve capital formation by modernizing rules and processes that have created barriers for raising capital.

In addition, the Financial CHOICE Act addresses improvements to the JOBS Act, and rules governing the act, which will open crowdfunding more widely and leverage its early success by lowering costs and fixing other provisions that have caused uncertainty and limited its potential. The Financial CHOICE Act includes almost two dozen capital formation bills, many of which have passed the House with large bipartisan votes or by voice vote. These bills zero in on sound reforms and changes that specifically help startups and small businesses access the capital they need to launch, scale and compete.

Needed CFPB Changes. As widely predicted, the Consumer Financial Protection Bureau (CFPB) has become a secretive and damaging entity that desperately needs accountability and transparency. The CFPB is not considering the impact of its rules and actions on small businesses, which (again) negatively impacts the cost and availability of capital. Under the Financial CHOICE Act not only would the name of the CFPB be changed to the “Consumer Law Enforcement Agency” (CLEA), but the agency would be given the dual mission of consumer protection and competitive markets, require that cost-benefit analyses of rules be performed by a newly-formed Office of Economic Analysis; restructured as an Executive Branch agency with a single director removable by the President at will; and subject to congressional oversight and the normal appropriations process. The new CLEA would also have a Senate-confirmed Inspector General, and its market-monitoring function would be repealed. Small business owners were rightly concerned about the CFPB collecting personally identifiable information, and it would be required to gain permission to do so under the Financial CHOICE Act.

Entrepreneurship and small business growth continue to struggle. Without capital and confidence in our economy, many potential entrepreneurs are sitting on the sidelines while existing small businesses cannot seize opportunities because capital is difficult to access, or costly.

The Financial CHOICE Act is a clear, significant positive for small businesses, entrepreneurs and their workforce. Therefore, it is a positive and needed change to help spark robust and sustainable growth for the U.S. economy. SBE Council looks forward to working with all members of Congress to enact the Financial CHOICE Act into law.


Karen Kerrigan, President & CEO

cc: Members of the House Financial Services Committee


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