The “Financial CHOICE Act”: A Big Bag of Bad Ideas

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On Thursday, June 8th, the House of Representatives passed the “Financial CHOICE Act”. We believe that this is a remarkably bad bill, and hope that the Senate manages to prevent its adoption. Call your Senators today, and ask them to block any Senate version of this bill! Why are we against it?

It wrecks some key parts of Dodd-Frank: In the wake of the 2007-08 financial crisis, President Obama worked with Congress to create a new set of legislative and regulatory protections — for average folks as well as for the economy as a whole. Known now as the “Dodd–Frank Wall Street Reform and Consumer Protection Act”, or just Dodd-Frank, since its passage in 2010 this law has provided a firm foundation for our economy and financial system. The CHOICE Act would undercut that foundation, by weakening or removing some of its most important pillars. For consumers, it would force a “restructuring” of the Consumer Financial Protection Bureau which would effectively prevent it from protecting anyone. The CFPB would be unable to regulate predatory lenders, unable to report to the public which financial companies were the subject of repeated complaints, and forced to “get Congressional approval before taking enforcement action against financial institutions” (see details at Consumerist). For the “too big to fail” banks, though, the CHOICE Act would be an absolute bonanza: it would remove or significantly reduce the “stress tests” that they currently face, and would repeal the “Volcker Rule” which severely limits their ability to undertake risky trading and speculation with their supposedly safe capital. These two moves would make future bailouts of those big banks more likely than ever.

It effectively kills the Department of Labor’s Fiduciary Rule: The DOL has, over the last couple of years, undertaken a long and careful process of consultation and consideration of a new Fiduciary Rule, which says something like this: Any investment professional offering advice on retirement assets must make advice that is clearly “in the client’s best interest”, and not merely “suitable for the client”. Recent polls indicate that 93% of Americans think that all retirement advisors ought to be adhering to a fiduciary standard, and 53% think that their advisors have been required to put their interests first all along … though that hasn’t been the case. The Trump Administration went on record against the rule early on, issuing a “Presidential Memorandum” on February 3rd instructing the DOL to “review” and “examine” the Fiduciary Rule yet again, with the clear intention of having the Department undo the Rule. As we have said before, we are already fiduciary advisors, and think that more investment advisors ought to accept that they have fiduciary obligations to all of their clients.

It makes “Shareholder Advocacy” all but impossible: One of the most important tools in the Sustainable-Responsible-Impact Investing toolbox has always been Shareholder Advocacy — our ability to use our rights as shareholders to raise important issues with the management of the corporations which we own, and so to cause those corporations to change their behavior. It’s been a tool that many investors can wield, since existing rules say that we only need to own $2000 worth of a company’s stock, for at least one year, in order to submit a “shareholder resolution” to the company to be voted on by all of the current owners of the company’s shares. But the CHOICE Act would make shareholder action of this sort all but impossible for most of us, as it would re-set those thresholds:

The CHOICE Act would require a shareholder to own at least one percent of the company’s market value for at least three years. Depending on the size of the company, the holdings required would be in the millions or even billions of dollars. (see more at The Hill)

For example, as of this morning, one would need to own Apple stock worth $7.8 billion, Exxon Mobil stock worth $3.5 billion, or JP Morgan Chase stock worth $3.1 billion, in order to file a proposal. Some in the SRI industry are even referring to this as a “nuclear option”, since these new limits would cut off almost all access to the shareholder resolution process.

So, yes, we oppose the Financial CHOICE Act, and we urge you to contact your Senators today to oppose any version of this bill — or any portion of it, since the Republican leadership has said they might break it into pieces to make it easier to pass through the Senate, via a “reconciliation” process. We believe that Congress should not move forward with legislation that undoes the financial system protections they put in place a few years ago, and that puts the entire world economy at substantial risk. We believe that Congress should not move forward with legislation that undoes the Fiduciary Rule protections they put in place just a few weeks ago, and that lowers rather than raises the protections offered to Americans who are saving for retirement. And we believe that Congress should not move forward with legislation that all but eliminates one of the few mechanisms by which ordinary Americans can offer some constructive feedback to the giant corporations that dominate our world. We oppose this bad bill, and urge you to do the same!