WASHINGTON – The House on Thursday passed the Financial CHOICE Act by a vote of 233 to 186 along party lines, sending it to the Senate where it is likely to meet stiff opposition from Democrats and have little chance of passage.

The proposed legislation, which is intended to replace the Dodd-Frank Act, is primarily focused on banks but includes several key provisions that directly and indirectly impact the municipal securities market.

The debate preceding Thursday’s vote on the CHOICE Act took up much of the afternoon and included numerous speeches from Republicans about the legislation’s ability to promote economic and job growth while helping individuals and small businesses, including banks.

House Speaker Paul Ryan, R-Wis., said the CHOICE Act, “satisfies a deep need at the very heart of our economy,” adding it “reigns in Dodd-Frank and delivers the regulatory relief these small banks so desperately need.”

Rep. Jeb Hensarling, R-Texas, who chairs the House Financial Services Committee and authored the bill said the act is the right path for the country after “every promise of Dodd-Frank has been broken.”

Hensarling presided over the committee meeting last month where members voted 34 to 24 along party lines to approve the bill.

Democrats blasted the bill in speeches on Thursday with Rep. Maxine Waters, D-Calif., saying it is “one of the worst bills I have seen in my time in Congress.”

“This bill is a vehicle for Donald Trump’s agenda to deregulate and help out Wall Street,” Waters, the top Democrat on the Financial Services Committee, added.

Other Democrats referred to the proposed legislation as “a pharmacy of poison pills” and a proposal that would bring “the Wild West back to our financial markets.”

U.S. Rep. Jeb Hensarling (R-Texas)
House Financial Services Committee Chair Jeb Hensarling, R-Texas.
House Financial Services Committee Chair Jeb Hensarling, R-Texas, said the legislation is the right path for the country after “every promise of Dodd-Frank has been broken.”

Republicans proposed six amendments to the legislation, each of which was passed on a voice vote during the debate. None of the six directly pertained to munis and instead referred to Federal Depository Insurance Corp. funding, identity theft, Treasury Department reporting on its efforts to work with bank regulators, financial institutions, and money service businesses that ensure legitimate financial transactions are moving freely along the country’s southern border.

While Democratic opposition to the bill did not stop it from passing the House on Thursday, it may have a greater effect in the Senate, where 60 votes will be needed to limit debate and move forward with the bill. Democrats in that body, which are expected to oppose the bill, have a large enough presence to keep the legislation from hitting that 60 vote threshold.

Some sources have said the bill may be broken down into individual pieces that could gain more bipartisan support and have a better chance at moving through that chamber.

The CHOICE Act includes several provisions involving regulation of the municipal market. It would require the Securities and Exchange Commission’s Office of Municipal Securities to begin reporting to the SEC’s Division of Trading and Markets instead of reporting directly to the SEC chair. It would also reallocate the fines the Municipal Securities Rulemaking Board receives from enforcement actions over violations of its rules to the Treasury Department.

The act also makes clear that municipal issuers aren’t required to have a municipal advisor. The provision is tied to a previous bill from Rep. Randy Hultgren, R-Ill., that responded to concerns his office had after hearing that issuers were being told they had to hire MAs under the SEC’s MA Rule.

Another portion of the act lays out considerations that agencies like the SEC must take into account when analyzing proposed rulemakings. Among other things, the SEC would have to include: an identification of the need for the regulation and the regulatory objective; an analysis of the adverse impacts regulated entities and other market participants could experience; and a quantitative and qualitative assessment of all anticipated direct and indirect costs and benefits of the regulation. The legislation further explains similar requirements for notices of final rulemaking.

The bill would also require the SEC to conduct a regulatory impact analysis on each of its rules within five years of the publication in the Federal Register. It would require that the SEC do a retrospective review of its existing rules within one year of the act’s enactment and then every five years thereafter. The SEC would have a year from the date the legislation is enacted to submit a report detailing a plan to subject the MSRB to the CHOICE Act’s regulatory analysis requirements.

There would additionally be an advisory committee created to assess the SEC’s enforcement policies and practices if the bill becomes law. The SEC chair would have six months after the legislation is enacted to establish such a committee, which would be assigned to analyze the commission’s enforcement policies and procedures, and determine how closely those procedures are being followed, among other things. The SEC would also have to appoint an enforcement ombudsman within 180 days of the act’s enactment and allow the SEC to triple monetary fines in administrative and civil actions where penalties are tied to illegal profits as well as in enforcement cases dealing with repeat violators of laws and rules.

Individuals would be allowed to force the commission to end an SEC administrative action that has been filed and instead have the matter brought as a civil action if the bill were to become law.

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