Protection of Source Code Act

Madam Speaker, I yield myself such time as I may consume.

Madam Speaker, I rise in strong opposition to H.R. 3978, the TRID Improvement Act of 2017.

H.R. 3978 has been dramatically expanded without input from Democrats to include several highly problematic and damaging bills. If enacted, this amended package of bills would ease the ability of high frequency traders to manipulate the stock markets undetected, encourage a regulatory race to the bottom in our Nation's stock exchanges, and harm investors and small businesses by weakening efforts to prevent accounting fraud at smaller public companies.

Taken together, this deregulatory package could significantly undermine market stability and gut investor and consumer protections at a time when our financial markets are already rattled.

Madam Speaker, from January 26 until last Thursday, the stock markets plunged just over 10 percent, becoming what the financial services industry calls ``stock market correction,'' and for the past two trading days, markets have rebounded the most since 2016.

Although market corrections are not new, what distinguishes today's volatility is that it is driven by complex computer strategies designed to buy and sell stocks and options millions of times a day. As many of us have witnessed, the Dow Jones Industrial Average may be up 500 points and then down 600 in less than a few minutes. For the average American who was hoping to one day retire with dignity by investing her hard-earned savings in the stock market, it can be distressing to see such wild swings always wondering whether the markets are truly fair or whether she is going to be fleeced. Unfortunately, the passage of H.R. 3978 would likely make those swings more extreme and increase the likelihood of problems going forward.

I am going to walk through each of the problematic provisions in this bill. Beginning with title IV, this provision is identical to H.R. 4546, the National Securities Exchange Regulatory Parity Act, which would weaken the standards for listing public companies for trading at U.S. stock exchanges. Today, exchanges listing standards set minimum requirements for a company's shares to be sold to the public without having to comply with State law. Exchanges can only revise these standards if the Securities and Exchange Commission first finds that new standards are substantially similar to the listing standards of the New York Stock Exchange.

This bill would remove any separate analysis for changing the standards and, thus, automatically preempt State oversight. As a result, the bill would encourage a race to the bottom of listing standards as exchanges compete with each other to attract companies with less restrictions, even if the standards are beneficial to the investors.

I believe that we should be strengthening the current analysis to promote fair and rigorous listing standards and only preempt State law when companies meet high standards. This is why I worked with the cosponsors last Congress to strike a bipartisan compromise which passed the House unanimously to require the SEC to develop a core qualitative listing standard. Unfortunately, my Republican colleagues have reversed their position in favor of empowering the industry over the investing public.

Turning to title III which is identical to H.R. 1645, the so-called Fostering Innovation Act, this provision would eliminate the independent audit of a company's financial reporting controls for up to 10 years for newly public companies provided that they have $50 million or less in gross revenues and less than $700 million in outstanding shares. Passed in the wake of the Enron and WorldCom accounting scandals, the requirement that public companies conduct an independent audit of financial controls is one of the many accounting provisions required by the bipartisan Sarbanes-Oxley Act that directly benefits investors and public companies by improving the accuracy of their financial reporting.

In fact, companies that are not subject to such review by an independent auditor are more likely to issue corrections to their financial reports leading to investor losses and higher losses for the company.

Investors like these audits because they improve the veracity of the reports they rely on to make investment decisions. Today, truly small public companies--those with less than $75 million worth of shares--are already exempt from the audit requirement. But this bill would extend the exemption to large companies that are nearly ten times that size. The law already provides newly public companies with an exemption for 5 years. Extending it to a decade would harm investor confidence and all such companies, hurting the very companies the bill's supporters purport to help.

Title II of this bill is the same language as H.R. 3948, the Protection of Source Code Act. This bill bans the SEC from inspecting source code used by regulated entities to engage in algorithmic or computer-driven trading and other activities that impact the securities markets and investors without first obtaining a subpoena. This provision would severely hamper the ability of the SEC to effectively examine persons like high-frequency traders and to investigate market disruptions.

The recent stock market volatility, which has seen all of the major stock indices decline by more than 10 percent in less than 2 weeks, has been exacerbated by high-frequency traders using complex computer algorithms to determine when to buy and sell millions of trades per second by making it harder for the capital markets COP to detect and stop bad actors and rein in fraudulent trading schemes. This provision will inevitably harm everyday Americans and retirees who rely on fair capital markets to invest their hard-earned savings.

To make matters worse, Republicans added a provision to pay for the cost of the bill by taking $2 million from the Securities and Exchange Commission's reserve fund. As a result, our financial watchdog will have less resources to support its capacity to oversee the markets through investments in IT and to respond to unforeseen market events like the flash crash.

In short, this bill asks taxpayers to pay for the costs of diminished capital market oversight by taking away SEC's funding to respond to emergency market situations that threaten market stability. This provision doubles down on the irresponsible policymaking we often see by the opposite side of the aisle.

The bill before us today would also make two less significant changes which I believe the Republicans included to garner additional support for the legislation. Nevertheless, even with these provisions, the package should be soundly rejected.

Title I, which includes the version of H.R. 3978, TRID Improvement Act of 2017, that the committee previously considered, would amend a mortgage disclosure known as TRID or the know-before-you-owe disclosure that informs home buyers of the terms and conditions of their mortgage. Responding to the concerns of some in the real estate industry, this provision would amend the disclosure to account for the discounts paid to borrowers in States where simultaneous lender and buyer title insurance is issued. However, the revised form does nothing for bars in States that do not provide such special rates to home buyers, and the provision eliminates the Consumer Bureau's ability to fix this aspect of the form even if a problem arises in the future.

The final provision, title V, is identical to H.R. 2948, the SAFE Mortgage Licensing Act. This title would ease the ability of individuals employed as mortgage originators to change employers by creating a temporary 120-day licensing regime so that they can continue to work at their new employer.

This bill would effectively treat mortgage originators who work for State registered firms the same as federally registered firms and was unanimously supported by committee Democrats. Unfortunately, because this legislation has been packaged with other deeply problematic and destructive bills, sensible relief to these individuals that has broad bipartisan support is being held hostage by Republicans' efforts to roll back as many safeguards as they can this year.

Madam Speaker, H.R. 3978, as amended, threatens many of the important reforms Democrats made to restore investor confidence to our capital markets after the worst financial crisis in generations. As the stock markets continue to wobble ominously in ways that threaten the savings of hardworking Americans, Congress should be strengthening oversight of the financial system, not weakening it.

Not surprisingly, H.R. 3978 is strongly opposed by the North American Association of Securities Administrators who serve on the frontline combating securities fraud on the State level and by nonpartisan organization who speak on behalf of our Nation's consumers, investors, and unions, including Consumer Federation of America, Center for American Progress, Americans for Financial Reform, AFL-CIO, and Public Citizen, and so do I.

Madam Speaker, I urge everyone to reject this harmful package of bills and to vote ``no'' on H.R. 3978.

Madam Speaker, I reserve the balance of my time.

Madam Speaker, I reserve the balance of my time.

Madam Speaker, I yield myself such time as I may consume.

Madam Speaker, given the extreme volatility in the stock markets over the past few weeks, I am particularly troubled by title II of this bill, which would make it easier for high-frequency traders to evade regulatory oversight of their potentially disruptive automated trading algorithms.

This provision is widely opposed by nonpartisan consumer and investor advocacy groups who recognize the impact automated trading has on our markets.

Let me read for you excerpts from a few letters from these groups that highlight the dangers of title 2.

Americans for Financial Reform--a coalition of more than 200 consumer, civil rights, investor, retiree community, labor, faith- based, and business groups--wrote: ``Title II would prevent regulators from inspecting not only their raw source code used in automated trading, but also any related intellectual property that `forms the basis for the design of' source code. Examination of such intellectual property would only be possible in an enforcement context pursuant to a subpoena. This implies that the SEC would have to wait until the damage was done through a `flash crash' or similar market disruption before taking any action, which would have to be retrospective.

``In light of the significance of automated trading to modern markets, and the potential risk of high-frequency trading, it makes no sense to tie the hands of regulators in examining detailed trading strategies and methods of high frequency traders.''

The Center for American Progress cautioned that: ``But in an era of fast-moving, `flash-crash'-prone markets, the SEC may have a wide range of regulatory reasons for why it may need to examine source codes, including approvals of new trading products or the supervision of trading venues. The SEC should only exercise that authority carefully and under the strictest protections for confidential information, but blocking it by law dangerously limits the SEC's ability to address the significant technology-based challenges to financial markets.''

The Consumer Federation of America, an association of nearly 300 consumer advocacy groups, similarly opposed title 2 because it ``would weaken SEC oversight of algorithmic trading and hamstring the agency from responding quickly to flash crashes or other market breakdowns.''

Further, the CFA wrote that: ``At a time when algorithmic trading is taking on increased importance in our capital markets, this bill would make it more difficult for the SEC to properly oversee such trading.

``The bill would require the SEC to first issue a subpoena before it could compel a person to produce or furnish to the SEC algorithmic trading source code or `similar intellectual property.' This would undermine the SEC's examination authority by creating a gaping hole in its ability to gain access to firm records relevant to the examination. It would also have a devastating effect on the agency's ability to respond quickly in the event of another `flash crash' or such events in the future. In order to oversee the markets effectively, the SEC needs to be able to accurately and efficiently reconstruct order entry and trading activity, including for algorithmic traders.''

Public Citizen, a consumer rights advocacy group with over 400,000 members and supporters, wrote: ``Market volatility caused not by real events such as outbreak of a war, but by computers, including computer glitches, threatens to erase savings to some innocent investors and erodes general investor confidence. The recent swings in the markets attest to the need for robust and urgent supervisory inspection. The May 6, 2010 `Flash Crash,' where markets collapsed by more than $1 trillion in less than an hour, revealed that such a robust and urgent supervision has been lacking. The SEC required nearly a half year to investigate this incident before identifying a flawed algorithmic at one major trader. SEC oversight should be streamlined, not hampered. Trading instructions and records of human traders are already subject to inspection, so it should be no different for those instructions and records generated by a machine. Hiding source code from regulatory scrutiny will leave those responsible for mistakes as well as those attempting to manipulate markets unaccountable.''

These letters demonstrate the wide opposition to title II by groups that truly understand that robust oversight of algorithmic trading is necessary for the help of our makers.

Madam Speaker, I include in the Record letters from these groups.

February 13, 2018.

Please vote NO on H.R. 3299 and H.R. 3978.

Hon. Member,

House of Representatives,

Washington, DC.

Dear Hon. Member: On behalf of more than 400,000 members

and supporters of Public Citizen, we ask you to vote NO on

H.R. 3299 and H.R. 3978, which are expected to be considered

by the full House on Wednesday, February 14, 2018. Provisions

in these bills would expose borrowers to abusive loans,

investors to dubious securities, and Americans generally to a

riskier financial system.

H.R. 3299, the Protecting Consumers' Access to Credit Act

of 2017, would allow predatory lenders to escape state limits

on high interest rates. The bill would nullify the Second

Circuit Court ruling in Madden v. Midland Funding. That

decision provided that a financial institution that buys

loans originated by a national bank could not benefit from

the National Bank Act's preemption of state interest rate

caps. While the Madden decision did not limit interest rates

that banks charge on credit, it does limit nonbanks from

evading state interest rate caps. This bill would pave the

way for payday lenders, financial technology (fintech)

companies and others to exploit that loophole and use a

``rent-a-bank'' arrangement in order to charge high interest

rates. Twenty state Attorneys General have written to oppose

this measure, noting that it undermines their efforts to

protect borrowers from abusive loan rates. We urge you to

oppose this bill.

H.R. 3978, the TRID Improvement Act of 2017, is actually a

package of bills that were considered separately in the House

Financial Services Committee. One of these is the Financial

Stability Oversight Council Improvement Act (formerly H.R.

4061). This measure would add numerous procedural

requirements for the Financial Stability Oversight Council

(FSOC) when it considers the designation or continued

designation of a nonbank firm as a systemically important

financial institution (SIFI). Current rules already make SIFI

designation a high hurdle. The case of MetLife, for example,

shows that firms enjoy more than ample methods to contest

designation. After FSOC designated MetLife as systemically

important, it contested it in court and the case is pending.

Increasing the government's burden for designation would

restrict its ability to apply enhanced supervision to major

institutions. However, the largest bailout of the 2008

financial crash went to AIG, a nonbank engaged in reckless

derivatives activity beyond the purview of banking

supervisors. We oppose this measure.

Another bill contained in H.R. 3978 is the Fostering

Innovation Act (previously H.R. 1645). This bill amends

Section 404(b) of the Sarbanes-Oxley (SOX) law by increasing

from five to 10 years the time that CEOs of firms with less

than $50 million in revenue must attest to the accuracy of

their financial reporting. Congress approved SOX in response

to the accounting scandals at the turn of the millennium. The

rules are designed to promote accounting accuracy to the

shareholders who have entrusted their savings to these firms.

A Government Accountability Office (GAO) report found that

companies with inferior financial reporting controls have a

significantly higher likelihood of issuing a restatement of

their financial accounts. Firms that are unwilling to oblige

SOX should not be trusted with the capital of savers.

Extending the CEO attestation requirement from five to 10

years exacerbates the problem. From an investor perspective,

accounting safeguards are more important for smaller

companies, since larger companies generally attract a larger

and more sophisticated base of stock and bond holders who can

perform effective oversight. We oppose this measure.

A third bill that is part of the H.R. 3978 package is the

National Securities Exchange Regulatory Parity Act (formerly

H.R. 4546). This bill would eliminate state supervision of

securities if they are listed on an exchange, even if the

exchange has reduced standards compared with those of major

exchanges such as the New York Stock Exchange. Under current

law, state supervision is pre-empted only if the security is

listed on exchanges with rules overseen by the Securities and

Exchange Commission (SEC). Rules may differ between

exchanges, but they must be approved by the SEC to ensure

that they prevent fraud, serve the public interest and

protect investors. Moreover, exchanges must adopt and enforce

rules that are ``substantially similar'' to the major

exchanges, known formally as ``Named Markets,'' under current

law. The existing system deters a race to the bottom, where

an exchange may attempt to attract companies with weaker

rules. Conversely, this bill would actually promote that race

to the bottom by removing the requirement that the exchange

adopt rules that are substantially similar to those of the

Named Markets. We oppose this measure.

A fourth measure in H.R. 3978 is the Protection of Source

Code Act, (formerly H.R. 3948). This measure would impede the

ability of the SEC to conduct effective compliance

examinations of market volatility involving computer-driven

algorithms. The bill imposes a strict subpoena requirement

before staff could inspect otherwise routine business records

that involve source code. Market volatility caused not by

real events such as the outbreak of a war, but by computers,

including computer glitches, threatens to erase savings to

some innocent investors and erodes general investor

confidence. The recent swings in the markets attest to the

need for robust and urgent supervisory inspection. The May 6,

2010 ``Flash Crash,'' where markets collapsed by more than $1

trillion in less than an hour, revealed that such robust and

urgent supervision has been lacking. The SEC required nearly

a half year to investigate this incident before identifying a

flawed algorithm at one major trader. SEC oversight should be

streamlined, not hampered. Trading instructions and records

of human traders are already subject to inspection, so it

should be no different for those instructions and records

generated by a machine. Hiding source code from regulatory

scrutiny will leave those responsible for mistakes as well as

those attempting to manipulate markets unaccountable. We

oppose this measure.

Because of our opposition to these elements in H.R. 3978

and to H.R. 3299 we urge you to vote NO on these bills. As we

are marking the 10th anniversary of the Wall Street Crash,

it's clear that American consumers and investors deserve

stronger financial reforms, not weakened protections that

will make our economy more susceptible to another collapse.

Thank you for your consideration. For questions, please

contact Bartlett Naylor.

Sincerely,

Public Citizen.

Madam Speaker, I continue to reserve the balance of my time.

Madam Speaker, may I inquire as to whether or not the chairman has more speakers?

Madam Speaker, I yield myself the balance of my time.

Madam Speaker, it has become par for the course for the majority to recklessly advance harmful deregulatory packages like H.R. 3978. My friends on the other side of the aisle are moving forward with regulatory roadblocks at a furious pace, pushing dangerous bills through the House nearly every week.

It appears that they may have already completely forgotten a way that lacks financial regulation and allowed the crisis in 2008 to occur. That crisis badly damaged the whole economy and harmed all of our constituents. The impact was enormous: $13 trillion in household wealth was lost; 11 million people lost their homes to foreclosure; and the unemployment rate reached 10 percent.

Democrats responded by enacting Wall Street reform to ensure that consumers, investors, and our economy are protected from reckless actors and bad practices, but now Republicans cannot wait to take us back to the bad old days. It makes no sense.

As we have discussed, the package of bills now before us guts important financial protections at a time when markets are already experiencing turmoil. It would allow high-frequency traders to manipulate the stock markets undetected, encourage a regulatory race to the bottom at our Nation's stock exchanges, and harm investors by weakening efforts to detect accounting fraud at smaller public companies. This package of bills threatens important progress we have made to reduce risk in the financial system and return investor confidence.

In recent weeks, we have seen volatile markets that threaten the savings of hardworking American families. These circumstances should serve as a clear reminder that Congress should be strengthening oversight of the financial system, not weakening it by undermining or removing important protections.

H.R. 3978 is strongly opposed by our State's security cops, who are at the front line of combating fraud, and it is opposed by groups representing consumers, investors, and unions.

Madam Speaker, for all of these reasons, I urge Members to oppose H.R. 3978, and I yield back the balance of my time.

Mr. Speaker, I include in the Record the following letters of opposition.

Center for American Progress,

Washington, DC, February 13, 2018.

Hon. Paul Ryan,

Speaker, House of Representatives,

Washington, DC.

Hon. Nancy Pelosi,

Democratic Leader, House of Representatives,

Washington, DC.

Dear Speaker Ryan and Leader Pelosi: The Center for

American Progress (``CAP'') is writing today to express

opposition to H.R. 4061, the Financial Stability Oversight

Council Improvement Act of 2017, which is included as Title

VI of the revised H.R. 3978 package. It is our understanding

that the revised H.R. 3978 package will be considered on the

floor of the House of Representatives this week, so we

welcome the chance to share our concerns regarding this

legislation with you and your Members.

In short, this bill erodes a vital new financial regulatory

tool implemented following the devastating 2007-2008

financial crisis. If enacted, the U.S. financial regulatory

structure will be less equipped to handle risks that build up

outside of the traditional banking sector--making the

financial sector as a whole more vulnerable to another shock

and economic downturn. Americans paid for the last crisis

with their jobs, homes, and savings, while banks and other

financial institutions were bailed out. This bill

inexplicably makes a repeat of that economic calamity more

likely.

The 2007-2008 financial crisis demonstrated that excessive

risk could build up outside of the traditional banking

sector. Nonbank financial institutions like Lehman Brothers,

Bear Stearns, and AIG did not face the type of oversight and

regulatory standards warranted by their systemic importance.

The failure or near-failure of these institutions threatened

the stability of the U.S. financial sector. AIG and Bear

Stearns were bailed out accordingly, while the failure of

Lehman Brothers brought the global financial system to the

brink of collapse. The crisis also revealed that no one

financial regulator had a system-wide mandate, meaning

individual regulators were only focused on their respective

segments of the financial sector. This left financial

regulators in the dark regarding risks that built up across

different parts of the sector or that emerged in

underregulated parts of the sector.

In the wake of the financial crisis, President Obama worked

with Congress to pass the Dodd-Frank Wall Street Reform and

Consumer Protection Act--the most significant financial

regulatory reforms enacted since the Great Depression. One

important pillar of Dodd-Frank was the creation of the

Financial Stability Oversight Council (``FSOC''), a new

systemic risk regulatory body. The FSOC was created to bring

the disparate financial regulators together to identify and

mitigate threats to financial stability. The most important

tool given to the FSOC to fulfill this mission is the

authority to subject a nonbank financial company to enhanced

oversight and regulation by the Federal Reserve Board if

material distress at the company, or the company's

activities, could threaten financial stability. The FSOC has

used this designation authority sparingly and only after a

thorough, multi-stage review process in which the FSOC

communicates extensively with the company and the company's

primary regulators.

H.R. 4061 would add multiple additional hurdles to the

FSOC's already-rigorous designation process. The proposed

changes would add an estimated two years to the designation

process, meaning it would take roughly four years for the

FSOC to designate a nonbank financial company that could

threaten U.S. financial stability. The four-year estimate

does not even factor in the time it will take for the legal

proceedings to play out when a company challenges the

designation in court. The legal challenge by MetLife took

years, and likely would have taken longer if the Trump

administration didn't agree to stop pursuing the case. If

anything, this bill increases the procedural issues a

designated company could raise in court. H.R. 4061

practically invites a legal filibuster of the designation. It

renders the designation authority nearly useless. Hollowing

out this crucial post-crisis authority makes it far more

likely that an underregulated systemically important nonbank

will cause or aggravate the next financial crisis.

Contrary to critics of the FSOC, it is not a rigid body and

has in the past responded to legitimate process and

transparency suggestions. In 2015, after soliciting public

comment, the FSOC adopted 17 changes to its designation

process and transparency policies The current designation

process in place is rigorous and appropriately thorough. H.R.

4061 would add no less than nine new bureaucratic steps.

These proposed changes are excessive, and the intent is

clear: To prevent the FSOC from using this vital tool.

This legislation is even more concerning given the actions

Treasury Secretary Steven Mnuchin, Chairman of the FSOC, has

taken since the start of the Trump administration. The FSOC,

under Mnuchin's leadership, has: (i) rescinded the

designation of AIG, the company that received a $182 billion

bailout during the crisis; (ii) slashed the FSOC's budget and

staff; (iii) dropped the legal proceedings regarding

MetLife's designation; (iv) signaled that Prudential's

designation may be rescinded this year; and (v) recommended

some deeply concerning additional changes to the FSOC's

designation process in a report published in late 2017.

Further restricting the FSOC's authority at a time when it is

being dismantled from within would be a grave mistake.

For these reasons, CAP recommends that Members vote ``NO''

when the revised H.R. 3978 package of bills, which includes

H.R. 4061, is considered on the floor.

If you have any questions about this letter or would like

to discuss these issues further, please contact Gregg

Gelzinis.

Sincerely,

Gregg Gelzinis,

Research Assistant, Economic

Policy, Center for American Progress.

Mr. Speaker, I rise in opposition to the amendment.

Mr. Speaker, the current language of title II of H.R. 3978 would require SEC examination staff to obtain a subpoena before it could inspect any source code whatsoever, including, for example, computer code reflecting a firm's adherence to the SEC's cybersecurity regulations.

The amendment offered by Mr. Foster would narrow the requirement in title II to only apply to proprietary source code related to algorithmic trading. While I applaud Mr. Foster and the amendment's cosponsor, Mr. Scott, for narrowing the overbroad language of title II, the amendment cannot fix this untimely and ill-advised legislation. Even as amended, title II would undermine effective oversight of the high-frequency traders that simultaneously create and stand to benefit from the kind of extreme market volatility that we have seen in the past few weeks.

Let's not forget that, on May 6, 2010, in an event referred to as the ``flash crash,'' major U.S. stock indices inexplicably plummeted nearly $1 trillion in less than an hour before mostly rebounding. Alarmingly, market regulators took nearly 5 months to determine that the flash crash was caused by a combination of a flawed execution algorithm of one institutional investor and aggressive algorithmic trading by HFTs.

While it is too early to tell exactly what created the recent volatility in the U.S. stock market, market analysts have suggested that algorithmic trading has played a central role. In fact, just last Tuesday, the day after the Dow Jones Industrial Average saw its biggest one-day point drop in history, Treasury Secretary Steve Mnuchin testified before the House Financial Services Committee that algorithmic trading ``definitely had an impact on market moves.''

Given the importance of algorithmic trading in our stock market, it makes no sense to obstruct the SEC's access to the information that enables such activity merely because it exists in an electronic format. Americans who have trillions of their dollars in 401(k) and other retirement and savings plans deserve the SEC's best efforts in investigating and mitigating computer-driven market disruptions. For this reason and for all of these reasons, and given my broader concerns that the bill would significantly harm investor confidence in our markets even if the amendment is adopted, I am urging a ``no'' vote on

Mr. Speaker, on that I demand the yeas and nays.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, H.R. 2201 would create an unnecessary and potentially dangerous loophole in Federal and State securities laws by allowing companies to sell unregistered securities without important safeguards that normally apply to such transactions. Specifically, the bill would allow a company to raise up to $500,000 from 35 or fewer investors, subject only to the requirement that each of these investors has a substantive preexisting relationship with the company.

Currently, before a company can offer or sell its securities, it must either register the offering with the Securities and Exchange Commission--that is the SEC--or qualify for at least one of several existing exemptions from registration. These exemptions provide reduced regulatory requirements for businesses conducting the offerings, but are limited to investors who have the financial sophistication to understand the risks, or enough assets to bear losses without the full protections of the securities laws.

Additionally, unlike H.R. 2201, these existing exemptions include several critical investor protections, such as notice to regulators, limitations on advertising, and restrictions on resale. For example, securities offered pursuant to rule 506 of regulation D are restricted, meaning they cannot be resold for at least a year without registering them; that is, re-registering them.

Additionally, the re-registration exemptions available under the crowdfunding rules and regulation A impose limitations on the amounts an individual can invest in a year, thereby placing a cap on potential losses.

H.R. 2201's lack of basic safeguards would leave investors vulnerable to an array of investment scams. For example, a purchaser of securities offered pursuant to H.R. 2201 would be able to immediately resell the securities in secondary transactions. In the past, the failure to restrict the resale of unregistered securities has exposed secondary investors to ``pump and dump'' schemes, a form of fraud that involves hyping up cheap junk stock in order to resell it at a higher price to unwitting investors.

Additionally, investor and consumer advocates, like Americans for Financial Reform, Center for American Progress, and Public Citizen, oppose H.R. 2201 because it would enable a particularly deceptive scam known as ``affinity fraud.'' Bad actors perpetrating affinity fraud could use H.R. 2201 to prey upon religious communities, ethnic groups, and the elderly.

Just a few years ago, the SEC shut down a scheme targeting the Hispanic community in southern California. The perpetrators raised more than $800,000 by representing to close friends and family members that their investment would be used to develop a financial services firm serving the Hispanic community.

The SEC found that, instead of developing the purported business, the scammers ``used a large part of the investors' money to engage unsuccessfully in high risk `day-trading' of stocks; pay personal living, travel, and entertainment expenses; or make other unexplained expenditures with no connection to the purported startup business activities.''

H.R. 2201 would provide a roadmap for bad actors to similarly rip off investors. The bill's $500,000 cap on offerings does not eliminate the need for robust safeguards against fraud and abuse. In fact, these protections are even more important for offerings of this size, given the proliferation of investment schemes in the smaller offering space.

The SEC has found that ``fraud in the micro cap stock markets is of increasing concern to regulators, as such markets have proven to be fertile grounds for fraud and abuse.''

While $500,000 may not seem like a lot on Wall Street, for Main Street Americans, losing even a fraction of that amount would destroy the hope of one day retiring with dignity. Existing exemptions such as those available under the SEC's regulation D, regulation A, and crowdfunding rules provide ample opportunities for companies to raise capital while also protecting investors.

H.R. 2201 would only expose hardworking Americans to a new and wholly unnecessary risk. For these reasons, I urge my colleagues to vote ``no'' on H.R. 2201, and I reserve the balance of my time.

General Leave

Mr. Speaker, I yield such time as he may consume to the gentleman from Rhode Island (Mr. Cicilline).

Mr. Speaker, may I inquire as to how much time I have remaining.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, we have laid out this morning exactly how vulnerable groups and individuals can be taken advantage of with legislation like this. I don't know exactly where this legislation originated, but I can almost guarantee you that we are creating opportunities for individuals who don't have the best interest of our constituents at heart to literally get small groups together, 35, I guess, or less, and sell them on ideas where they are raising funds that probably will not result in profits as expected by those who are investing in these schemes.

No, there are no protections. There is no notice. The SEC will not know when and where these schemes are arising. So I would say to my colleagues on the opposite side of the aisle: When are we going to act as if we have the best interests of our constituents at heart? When are we going to be about protecting consumers rather than opening up opportunities for them to be the victims of fraud?

We have fraudulent schemes that are directed at the most vulnerable people. I know where those people who are organizing these schemes will go. They will go to our churches where well-meaning ministers and parishioners will be taken advantage of.

In these vulnerable communities that are always taken advantage of, we have people who are the victims of payday loans where they are paying 400 percent for moneys that they are borrowing when they are desperate in between paychecks. We have rent-to-own schemes. We have all kinds of schemes where these convenience stores, in places where we have food deserts, are charging extremely high prices for food that is basically being sold for regular, ordinary, good prices in other communities.

In some communities, even in California, the gas taxes are rising. We have the rental market that is going off the scale all over this country with people not being able to afford a decent lease or a decent rental space, and so here we are just opening up another opportunity for folks to be ripped off.

It is going to happen; I can guarantee you that. When you have something like this that is passed by the Congress of the United States, it is going to be taken advantage of, and the way that this is constructed, it almost begs to be taken advantage of.

So do you know what happens when this kind of thing takes place and Members of Congress put their reputations on passing this kind of legislation? When the rip-offs start and people are harmed a few years later, then they are going to come back with legislation talking about how they are correcting the fraud and the rip-offs that we caused in the first place.

When is this going to stop? We have a Consumer Financial Protection Bureau that is struggling every day to protect our consumers. Prior to Dodd-Frank, we had our oversight agencies with the responsibility of protecting consumers, but they didn't have any real protection. So Dodd-Frank reforms helped to create opportunities for Members of Congress to be able to protect their consumers and not to be involved in these kinds of schemes.

But the opposite side of the aisle has spent an inordinate amount of time trying to kill off the Consumer Financial Protection Bureau, and they have done it in so many ways. Not only do they come up with amendments time and time again to try and shut down the Consumer Financial Protection Bureau, they treat the Director of the Consumer Financial Protection Bureau so badly that they almost deny him the opportunity to come before our committee and to be heard.

So I don't know whose side legislators are on who create this kind of crap. I don't understand why it is deemed to be important to open up the opportunity for schemes and to not give the SEC the ability to know when they are getting started, to have the

kind of disclosures, and to have the kind of oversight that would protect the most vulnerable people in our society.

Mr. Speaker, yes, this legislation will probably pass today. The Republicans have the majority votes in this Congress, and I suppose they are going to get all of their people to vote for this bill that is going to rip off some of their constituents, and, again, we won't be able to stop it because, again, they have the majority votes.

But I want the people of this country to know and understand what is happening, who is doing it to them, and why they are having a difficult time. At a time when the rental market is going off the scale and they can't afford to pay the first and the last month's rent to get into a place, I want them to know who is creating the difficulties in their lives when their jobs have not increased their pay, they are still trying to have a decent quality of life for their families, despite the fact that the pay does not match the job that they are doing, and they haven't had the pay increases.

When are we going to show that we stand up for the least of these? When your churches get ripped off--and we are working on some of those schemes now where, even with the responsibilities that the SEC has, we have people who are getting ripped off, and here we come with another piece of legislation. Then what we do is we shade it in terms of this is for small business development. Then we hear from the opposite side about all the other companies who started as little-bitty companies in their garage. Well, they all started without this bill. They didn't need this bill to start.

So why are you doing this? Yeah, you are right; there are a lot of companies, and you have named them, particularly in the high tech industries that started, and they had some of their own money to get started with, and maybe the family helped them, I don't know, but they didn't have this legislation. They didn't need this legislation. Nobody needs this legislation.

This legislation is harmful, and I would ask my colleagues to vote against the bill. If there are any Members on the opposite side of the aisle who really are concerned about their constituents, I would ask them to defy their leadership and vote against this bill.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, by allowing entities to sell unregistered securities based solely on a preexisting relationship with the investor, H.R. 2201 would create a road map for affinity fraud.

Affinity fraud is a type of investment scam where swindlers prey upon members of identifiable groups such as ethnic or religious communities or the elderly. Often, affinity fraudsters take advantage of preexisting relationships to engender trust and convince victims that a dubious investment is legitimate.

The Securities and Exchange Commission has found that such frauds pose heightened risks to investors because they can be difficult for regulators or law enforcement officials to detect, particularly where the fraudsters have used respected community or religious leaders to convince others to join the investment.

The following cases represent a sampling of recent affinity fraud actions from around the United States.

In August, 2013, the SEC halted an offering fraud scheme where Steven Bruce Heinz, a Utah resident purporting to be an investment adviser, sold phony investment contracts to more than 15 of his former clients, family members, and friends. According to the SEC's complaint, Heinz raised $4 million in investor funds he used to engage in high-risk trading of future contracts and to pay his own personal expenses such as family vacations to Mexico and a $600,000 loan.

Among the investors taken in by Heinz scam was ``the recent widow of a church associate of Heinz who invested with Heinz after he volunteered to assist her with her finances and investments after her spouse died.''

In 2012, the SEC stopped a $7.5 million fraud operation targeting the Persian-Jewish community in Los Angeles. The SEC's assistant regional director stated that Shervin Neman ``deceived members of his own community to raise money in this fraudulent Ponzi scheme. By exploiting investors' trust in him, Neman was continually able to raise more money to pay back existing investors and finance an extravagant lifestyle.''

According to the SEC's complaint, among other things, Neman spent investor funds to pay for his wedding and honeymoon, his wife's engagement ring, luxury cars, and VIP tickets to entertainment venues.

In 2015, the SEC permanently barred John Allan Russell from the securities industry after Russell pled guilty to securities fraud in Colorado State court. The SEC's administrative law judge found that Russell obtained almost $300,000 by selling debt securities to an elderly victim who suffered from dementia and Alzheimer's disease. The ALJ also determined that ``Russell's scheme may have involved affinity fraud because the misconduct began a few years after the victim acted as Russell's godfather at his baptism.''

These cases demonstrate that H.R. 2201's preexisting relationship requirement would not provide any meaningful deterrent against abuse. On the contrary, it would encourage opportunistic conduct targeting communities.

Mr. Speaker, I urge my colleagues to join me in voting ``no'' for this bill.

Given all that the SEC is able to do, they can't keep up with these schemes, and now you are going to open up the door for them to have to wrestle with trying to help people who are victims of these kinds of schemes.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, the North American Securities Administrators Association sent this letter of concern. They said that H.R. 2201 would result in an overly broad Federal exemption that would allow public solicitation and sales to any investor, regardless of sophistication or financial wherewithal, subject only to the requirement that there be a previously existing relationship, a standard that is not difficult to establish.

In practical terms, this means that Main Street investors could be solicited and sold up to $500,000 in private security by bad actors, including persons having been convicted of crimes or subject to one or more previous State enforcement actions, without any disclosure to the investor and without any notice to State or Federal regulators.

There is no valid basis for Congress to prevent State officials charged with protecting their constituents from making decisions about purely local or regional issues that would rely on the exemption established by H.R. 2201.

Further, preemption of State review or even notification for the type of small, localized offerings contemplated by H.R. 2201 would effectively handcuff the regulators best positioned to oversee such offerings.

Public Citizen said this bill ``would permit small offerings with no investor protections, such as notice of the offerings. It will enable a type of affinity fraud, where the seller can unload dubious securities, provided there is some relationship between seller and purchaser. This bill assumes that a preexisting relationship will deter abuse, which is a tenuous foundation, at best. Further, the relationship can begin with the offer.''

They don't have to have a previous relationship. It would start when the offer takes place.

Public Citizen further stated that ``the bill says the relationship must only exist before the purchase.''

Mr. Speaker, I include in the Record letters from these groups, as well as a letter from Americans for Financial Reform.

North American Securities

Administrators Association, Inc.,

Washington, DC, November 7, 2017.

Re H.R. 2201--The Micro-Offering Safe Harbor Act.

Hon. Paul Ryan,

Speaker, House of Representatives,

Washington, DC.

Hon. Nancy Pelosi,

Democratic Leader, House of Representatives,

Washington, DC.

Dear Speaker Ryan and Leader Pelosi: On behalf of the North

American Securities Administrators Association (``NASAA''), I

write to express concern and raise specific objections to

certain provisions of H.R. 2201, The Micro-Offering Safe

Harbor Act, which is scheduled to be considered by the House

of Representatives this week. The legislation would amend

securities laws in ways that could be profoundly detrimental

to investors, and detract from the viability of the

marketplace for offerings from new or smaller issuers that

are compliant with securities law.

The Micro-Offering Safe Harbor Act amends Section 4 of the

Securities Act of 1933 to create a new exemption from

registration. To qualify for the exemption, an offering would

have to meet certain criteria regarding the number of

purchasers, their relationship to the issuer, and the amount

of capital raised. However, as more fully discussed below,

the legislation fails to include critical investor protection

measures and would preempt state regulatory authority.

State securities regulators understand the need of small

businesses to efficiently raise capital and the role strong

investor protection plays in facilitating this goal.

Unfortunately, the changes embodied in H.R. 2201, while well

intended, are ill-advised and potentially quite dangerous.

For example, unregistered securities purchased under the

exemption established by H.R. 2201 would not be

``restricted,'' and could thus be sold immediately, exposing

investors to classic ``pump and dump'' schemes. Furthermore,

NASAA is aware of no evidence to support the proposition that

Congress should create a ``safe harbor'' to permit

unregistered securities offerings to be offered and sold,

including through general solicitation, regardless of

investor sophistication or financial wherewithal. Even as the

bill stands to introduce new and totally unnecessary risk

into securities markets--failing to even disqualify ``bad

actors'' from these markets--the goal of the legislation

remains unclear and its necessity is, at best, not well-

established. It is clear, however, from the terms of the

exemption, and its failure to impose even the modicum of

regulatory oversight that exists for similar ``private''

offerings under SEC Regulation D Rule 506, that offerings

made under the new exemption are likely to be

disproportionately risky and illiquid. This fact alone should

be cause for concern by Congress.

Beyond stark new risks to investors, this legislation

threatens to jeopardize the continued viability of

established markets geared to smaller issuers, many of which

operate lawfully within existing federal and state securities

laws. Such markets include securities sold pursuant to SEC

Rule 506, new federal exemptions established by the JOBS Act,

and exemptions adopted in many states to permit intrastate

crowdfunding. Without effective investor protection measures

a potential effect of H.R. 2201 could be to cause investors

to abandon the markets for smaller issues.

In closing, NASAA reiterates strong opposition to the

preemption of state registration and notice filing authority

in H.R. 2201. There is no valid basis for Congress to prevent

states from making decisions about the local or regional

issues that H.R. 2201 seeks to encourage. Failure to register

or at the very least, to notice file with state regulators

results in unknown sales, by unknown actors of unknown

enterprises and result in no gatekeeper function to protect

retail investors whose only source of recourse for fraudulent

sales are the state securities regulators. At a minimum H.R.

2201 should:

1) Include bad actor disqualifications;

2) Establish a holding period to reduce the likelihood of

``pump and dump'' schemes;

3) Provide at least a notice filing with state regulators

so that in the event of a fraudulent offering, state

regulators can begin an investigation to try and protect

retail investors;

4) Limit the sale amount to retail investors so that

investors are not ``encouraged'' to place all their eggs in

one basket; and

5) Prohibit or restrict general solicitation of what are

clearly high risk securities.

Thank you for your consideration of NASAA's views.

Sincerely,

Joseph P. Borg,

NASAA President and Alabama

Securities Director.

Mr. Speaker, I don't understand why Members of Congress would disregard what the State regulators are saying. State regulators are saying: Don't do this. Don't preempt us. Don't pass legislation that would undermine our ability to protect your constituents.

Yet they are ignoring this altogether. I know that they received this information. I know that they know that the association had cautioned against this legislation. Let me just make sure that everybody knows. It is the North American Securities Administrators Association. They represent all of the States in cautioning against this legislation.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I yield myself such time as I may consume.

For my colleagues on the opposite side of the aisle who are bemoaning the fact that small businesses don't have access to capital, they have these relationships with all of these big banks.

Why don't they get to the big banks and tell them they ought to be making loans to small businesses?

I don't hear them, as a part of, you know, their rhetoric, talking about how many of the big banks are not being responsible. And so my colleague on the opposite side of the aisle and my friend talk about what is common sense. I tell you what is common sense. Common sense is not to place vulnerable people in a position where they are going to get ripped off.

Mr. Speaker, H.R. 2201 is a harmful bill that would simply serve as an invitation for investment scams. The bill fails to take into account the numerous other exemptions we have for small-dollar offerings, including under regulation D, regulation A, and crowdfunding rules. These exemptions already permit small businesses to raise capital while also protecting against fraud.

In light of these exemptions, there seems to be no reasonable explanation for the amount of legislative effort that has been wasted on this bill. Instead of H.R. 2201, which is unwarranted and may actually harm investors and the integrity of our markets, the House should be focused on passing legislation that can actually improve the lives of the Americans whom we serve.

Mr. Speaker, I urge my colleagues to vote ``no'' on H.R. 2201. Don't be a part of enacting one more scheme that is going to rip off our constituents, and then, you know, a few years later, come back here and talk about what a terrible thing it is that people are being ripped off by these investors, some of them who are criminals, but nobody knows it. The disclosure does not have to take place. They don't know that they have people who have already been involved in crimes who are coming to them talking about: let me help you earn some profits on this investment.

We know better. Common sense tells us better. If, in fact, we are committed to the proposition that we have a responsibility to protect our constituents from rip-offs, from fraud, from being taken advantage of, we will not support this bill. And I would hope that my friends on the opposite side of the aisle, despite how far they have gone in trying to represent that this bill is something that it is not, would at least change their minds today and support their constituents and vote ``no'' on this bill.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, I claim the time in opposition to the amendment, even though I am not opposed.

Mr. Speaker, under the current language of H.R. 2201, investors could be sold private securities by persons who have committed fraud or have violated security laws. Representative Emmer's amendment purports to add a layer of investor protections by adding a provision to so-called disqualify certain bad actors from utilizing the exemption.

While I applaud Mr. Emmer's attempt to add this most basic guardrail to a bill that otherwise creates an unmitigated safe harbor for fraudsters, I wonder why this provision was dropped from a similar bill that Mr. Emmer introduced last Congress.

Unfortunately, this amendment is woefully inadequate to address the otherwise dangerous new exemption created by H.R. 2201. Because the underlying bill requires no disclosure to investors and imposes no obligation to notify regulators of the offering, even if amended, H.R. 2201 would lead convicted fraudsters and lawbreakers to police themselves.

Moreover, the bill ties the hands of State securities regulators, who are the primary watchdogs over small, local securities offerings. If enacted, H.R. 2201 would leave a gaping hole in oversight of the very offerings it permits.

H.R. 2201 is a misguided attempt to support small businesses that is not meaningfully improved by the meager protections of this amendment. For these reasons, I continue to oppose this bill, and I urge all of my colleagues to vote ``no'' on H.R. 2201.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I would like to warn the Members of this House not to take the compliments seriously that are being given by the gentleman who would have you believe that somehow I have totally embraced this amendment because I think it is going to change the fact that there is no disclosure to those who would be investing and no notice to the SEC.

So don't take him seriously when he talks about thanking me for encouraging and embracing. I have not done that. I am going to tolerate this amendment. It is late. It doesn't do what he says it is going to do. The bill is still a bad bill. It is a bill that is going to harm people. It is a bill that targets the most vulnerable people in our society. It is a bill where fraudsters are going to go into churches and convince ministers and parishioners that they are out to help them.

Members of Congress, do the right thing. Today, stand up against another attempt by misguided folks who would have you believe that they are helping people when, in fact, they are opening up opportunities for them to be ripped off one more time, ripped off in ways that could have been avoided.

Mr. Speaker, I oppose this bill. I ask everybody to vote against this bill.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, on that I demand the yeas and nays.

Madam Speaker, pursuant to House Resolution 736, I call up the bill (H.R. 3978) to amend the Real Estate Settlement Procedures Act of 1974 to modify requirements related to mortgage disclosures, and for other purposes, and ask for its immediate consideration in the House.

Madam Speaker, I ask unanimous consent that all Members may have 5 legislative days in which to revise and extend their remarks and submit extraneous material on the bill under consideration.

Madam Speaker, I yield myself such time as I may consume.

Madam Speaker, I rise today in strong support of H.R. 3978, which is a package of five strongly bipartisan bills, yet again, from the Financial Services Committee of the House. As standalone bills, all were favorably reported, again, with strong bipartisan support of at least three-quarters of the committee.

The title provision of this package is the TRID Improvement Act by Congressman French Hill. This bill amends CFPB's complex TILA/RESPA integrated disclosure, known as the TRID rule, in order to simplify the closing documents consumers get when they close a mortgage.

It does this by allowing for the calculation of the discounted rate that title insurance companies provide to consumers when they purchase a lender's and owner's title insurance policy simultaneously. This makes it more accurate, Madam Speaker.

Title II is the Protection of Source Code Act introduced by Representatives Sean Duffy and David Scott, a Republican and a Democrat. This provision ensures that the Securities and Exchange Commission cannot require financial services firms to disclose algorithmic trading source code without first obtaining a subpoena. Source code is among a firm's most sensitive information, and this bipartisan provision balances privacy and due process concerns while preserving the SEC's ability to obtain such information when necessary.

The third title is the Fostering Innovation Act which was introduced by Representatives Sinema and Hollingsworth to provide relief to small and emerging businesses by extending the popular onramp exemption of the JOBS Act for emerging growth companies in a more tailored manner. In short, it provides emerging growth companies more time to reach a size when they reasonably can be expected to financially sustain the legal, accounting, and compliance costs associated with the full Sarbanes-Oxley section 404(b) compliance.

Fourth, Madam Speaker, is the National Securities Exchange Regulatory Parity Act which was introduced by Mr. Royce and which will ensure further clarity and competition among national security exchanges by modernizing the blue sky exemption in the Securities Act. Modernizing this provision will ensure all national security exchanges operate on a level regulatory playing field and help protect retail investors from arbitrary acts by State regulators that may bar investors in one State from buying stock freely available to investors in every other State.

The final title of this bill is a provision introduced by Congressman Stivers to allow mortgage loan originators who work as loan officers in banks and credit unions to transition to a new job at a nonmortgage company without losing the ability to originate loans. Without this bill, the transition process can take weeks or months depending on the State.

Each of these measures, Madam Speaker, will cut through layers of red tape and help level the playing field making regulations smarter, fairer, clearer, and more efficient, thus ensuring that there are more competitively priced credit opportunities, more credit opportunities for consumers, and that investors have greater investment opportunities in competitive markets. They will provide commonsense regulatory relief. They are practical, they are bipartisan, and they are needed.

Madam Speaker, I encourage all of my colleagues to support the measure, and I reserve the balance of my time.

Madam Speaker, I yield 5 minutes to the gentleman from Arkansas (Mr. Hill), the majority whip of the committee and the sponsor of the legislation.

Madam Speaker, I yield 4 minutes to the gentleman from Wisconsin (Mr. Duffy), the chairman of the Subcommittee on Housing and Insurance and the sponsor of title 2 of the Protection of Source Code in this bill.

Madam Speaker, I yield an additional 30 seconds to the gentleman from Wisconsin.

Madam Speaker, I yield myself 30 seconds to say the widespread opposition to the bill alluded to by the ranking member doesn't include roughly half the Democrats on the committee, including the gentleman from Illinois (Mr. Foster), who was quoted in our markup as saying: ``As someone who can code in at least seven languages, I understand that source code is qualitatively different from other documents that a firm might have and that our regulators should have legitimate access to. They are truly the crown jewels of an electronic trading firm, and there are obvious dangers that have been exposed in transferring things really not just to the government, to any entity. The first line of defense in cybersecurity is to keep the data as closely held as reasonable and still be able to do your job.''

Madam Speaker, I reserve the balance of my time.

Madam Speaker, I yield 2 minutes to the gentleman from Illinois (Mr. Hultgren), the vice chairman on the Subcommittee on Capital Markets, Securities, and Investment.

Madam Speaker, I yield 2 minutes to the gentleman from Texas (Mr. Williams), the vice chairman of our Subcommittee on Monetary Policy and Trade.

Madam Speaker, I yield 2 minutes to the gentleman from Maine (Mr. Poliquin), a hardworking member of the Financial Services Committee.

Madam Speaker, I yield 2 minutes to the gentleman from New York (Mr. Zeldin), another member of the Financial Services Committee.

Madam Speaker, I yield 2 minutes to the gentleman from Georgia (Mr. Loudermilk), another proud member of the Financial Services Committee.

Madam Speaker, I would tell the ranking member that I have potentially two speakers, if they make it. They are on their way from a hearing, but they are not here now.

Madam Speaker, may I inquire how much time I have remaining.

Madam Speaker, there may be other Members coming, so, at the moment, I yield myself 4 minutes.

Madam Speaker, again, all over America today, fortunately, because of the Tax Cuts and Jobs Act, people are waking up to new opportunities. They are finally seeing their wages begin to grow. We have seen the greatest wage growth in almost a decade, Madam Speaker, again, thanks to President Trump and thanks to a Republican Congress, a bill that was opposed by every single Democrat.

But as they wake up to these new opportunities, Madam Speaker, they also need new credit. As their incomes rise--this is good--they still need credit in order to buy a home, in order to purchase that car, and sometimes just to put groceries on the table. Unfortunately, over the last 8 years of the Obama administration where we saw probably one of the greatest increases in the cost, expense, and burden of costly Washington red tape, we have seen fewer credit opportunities.

So now, fortunately, today there are good men and women on both sides of the aisle who are trying to work together to bring some rationale and reason to the regulatory burden. Many Members on the other side of the aisle do realize that Dodd-Frank did not come down as tablets from Mt. Sinai, that it isn't chiseled into stone, and that maybe there are some improvements that could be made.

So today, we are taking a number of very bipartisan bills to the House floor. The Protecting Consumers' Access to Credit Act, which we debated earlier, Madam Speaker, passed by 42-17.

The TRID Improvement Act by Mr. Hill from Arkansas passed through our committee 53-5--90 percent. Almost all of the Democrats but the ranking member supported the bill. The Protection of Source Code Act, 46-14; the Fostering Innovation Act passed by a vote of 48-12, a Democratic bill; the National Securities Exchange Regulatory Parity Act, 46-14.

We have a lot of bipartisan bills, but with one exception, title V of the TRID Improvement Act, none of them were supported, unfortunately, by the ranking member.

So there is, again, a lot of bipartisan work we are trying to get done here. Unfortunately, very little of it is supported by the ranking member.

And why is this important? It is important, Madam Speaker, because every day we are still hearing from our constituents who need access to competitive affordable credit. And because of this Washington red tape and regulatory burden, they are not getting it.

It wasn't that long ago we heard from Ann of Wisconsin, who said:

My husband and I had very high credit scores. We have

plenty of equity in our home. But because my husband has a

seasonal job and finds other employment in the winter, many

banks we contacted rejected our loan request. They based our

annual income only on the job he has currently and said that

was part of the new regulations.

Part of the new regulations--there is somebody who won't buy a home; they can't get a home.

I heard from a mortgage banker in North Carolina who said:

Last year, we declined a young man and his family fixed

rate financing to purchase a primary home. The applicant

recently relocated to work for a family business. Prior to

Dodd-Frank, it would have been easy to qualify, but no more.

Another potential American home buyer denied credit because of this regulatory burden. Madam Speaker, that is what many of us, on both sides of the aisle, are trying to remedy today.

Madam Speaker, I am pleased to yield 2 minutes to the gentlewoman from Arizona (Ms. Sinema), a sponsor of title III of the Fostering Innovation Act.

Mr. Speaker, may I inquire how much time I have remaining.

Mr. Speaker, I yield myself the balance of my time.

Mr. Speaker, once again, I want to hear the voices of hardworking Americans, not just Washington, D.C., letterhead groups.

We heard from a community banker, who said:

A local union member wanted to refinance his primary

residence. He was currently laid off due to the winter

season. His tax return showed he was generally laid off for

about 6 weeks each year during the extreme cold but was

always called back when weather improved. Since he was laid

off, we could not meet the requirement to validate his

current income that would continue for 3 years. We had to

deny the loan.

Yet again, Mr. Speaker, more Washington red tape taking away home opportunities from hardworking Americans. It is wrong. We must do something about it. It is why, on a bipartisan basis, so many of us have gotten together to pass H.R. 3978.

Yes, we want to make sure that people can buy homes, they can buy cars, they can put groceries on the table, and right now, when the economy is finally starting to improve, thanks to President Trump and the Tax Cuts and Jobs Act, we want them to have opportunities.

Mr. Speaker, I encourage all Members to support H.R. 3978, and I yield back the balance of my time.

Mr. Speaker, I reserve a point of order on the gentleman's motion.

I object.

Mr. Speaker, I withdraw my reservation of a point of order.

Mr. Speaker, I claim time in opposition.

Mr. Speaker, I listened very carefully to my colleague on the Financial Services Committee. I lost track of how many times he mentioned Wells Fargo. That has nothing to do with an early growth company. That has nothing to do with this title of the bill.

So the Fostering Innovation Act by the gentlewoman from Arizona is all about allowing emerging-growth companies the opportunity to actually grow. What a novel concept.

What we know is, Mr. Speaker, in 8 years of Obamanomics, they were only able to produce about 1.8 percent economic growth, for all intents and purposes. Nobody's savings account came back. Wages were stagnant. And now that we have sensible regulation, now that we have passed the Tax Cuts and Jobs Act, now we have 3 percent economic growth, which is economic growth for America's working families. Unemployment is at a 17-year low. It remains at a 17-year low.

Again, wages grew at 2.9 percent last year, the fastest in almost a decade. Two million Americans have gone back to work, Mr. Speaker, and this is not by accident.

So what the gentleman is doing with his motion to recommit is sending us back. He is rolling the clock back to an era where working Americans didn't get ahead, where entrepreneurship was at a generational low, where small businesses were finding it hard to access lines of credit. So the bill that he so much maligns from the gentlewoman from Arizona, who happens to reside on his side of the aisle--at markup, the ranking member of the relevant subcommittee, the gentlewoman from New York (Mrs. Maloney), supported the provision and said: This is a sensible compromise that provides a narrowly targeted relief to only the companies that truly need it.

Researching a new drug and getting FDA approval is a very, very long process, which is exactly what we heard in our committee. For example, we have heard from John Blake, senior vice president of finance at Atyr Pharma, who testified before the Subcommittee on Capital Markets, Securities, and Investments. He said: It remains the case that the biotech development time line is a decades-long affair. It is extremely likely that Atyr will still be in the lab, in the clinic, when our EGC clock expires, our early growth company.

In other words, they may have revenues, but they don't have profits. They don't have profits. This is something that is especially common in the biotech area. They need this capital for innovation.

So once again, we have heard this rhetoric on the other side of the aisle before. This is all about Dodd-Frank revisited. They aim at Wall Street, but they are hitting Main Street, Mr. Speaker. The MTR, the motion to recommit, hits Main Street in the gut. It will mean fewer early growth companies. It will mean fewer jobs. It will mean lower wage growth. And it will mean, again, a decimated and declining American Dream.

Mr. Speaker, we should reject the motion to recommit, and we should support the underlying bill.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, while government isn't meant to create jobs, with the help of the President, Congress can set Federal policies that establish a pro-worker, pro-business environment that lifts people out of poverty, helps families, and drives our country forward.

One problem today that is impeding job growth is access to capital for small businesses. American businessmen and -women are often unable to get the loans they need to start a new enterprise or to grow an existing one.

Additionally, if a firm would like to publicly sell stock to raise money, it must register with the Securities and Exchange Commission, which costs $2.5 million, on average; an amount most small businesses simply cannot afford.

Small and emerging businesses are a key to the economic engine in America. The Small Business Administration found that these businesses create over half of the new jobs on an annual basis in this country. More importantly, today's small businesses are tomorrow's success story.

Just think of all the great businesses in this country that started with a dream in a garage: Amazon, Apple, Microsoft, Disney, Harley- Davidson, and Minnesota's own Medtronic. We want to empower the entrepreneurs in this country to dream, innovate, and create jobs that grow our economy.

That is why I introduced the Micro Offering Safe Harbor Act. This bill will make it easier for entrepreneurs and

small businesses to raise money from family, friends, and their personal network without running afoul of the vague and undefined ``private offering'' safe harbor provisions in the Securities Act of 1933.

Thus, the Micro Offering Safe Harbor Act helps bring clarity to existing law so that our current and future job creators can easily raise capital within the confines of an easy-to-understand provision without the help of an expert.

This legislation requires three specific criteria to be met simultaneously in order to trigger a safe harbor exemption for a security offering instead of just one or more. These criteria ensure that: one, each purchaser has a substantive preexisting relationship with an owner; two, there are no more than 35 purchasers of securities from the issuer that are sold in reliance on the exemption during the 12 months proceeding; and, three, the aggregate amount of all securities sold by the issuers does not exceed $500,000 during the 12- month period preceding the offering. The bill also exempts any of the aforementioned security offerings from blue-sky laws, while maintaining antifraud provisions at the Federal and State level.

These provisions protect Americans from criminals trying to swindle them out of their hard-earned money, while making capital more accessible to businesses by investors from around the country.

In fact, I will be offering an amendment to enhance these antifraud provisions. This amendment, which incorporates the suggestions made by my colleagues on the other side of the aisle during a legislative hearing in the last Congress, will ensure that individuals who have been disqualified under the ``bad actor'' disqualification standard, as is listed under current law, are prohibited from using the exemption provided under H.R. 2201, establishing yet an additional layer of investor protection.

Entrepreneurs and small-business owners need access to capital in order to achieve the American Dream. Although small businesses accounted for 99.7 percent of all the businesses in the United States last year, only half of them will survive longer than 5 years, according to our Bureau of Labor Statistics.

Lack of capital or difficulty accessing capital is one of the main causes of failure for many of these small businesses. A 2015 survey conducted by BlueVine found that 75 percent of small and emerging businessowners reported their primary source of funding comes from their own personal finances, followed by banks at 16 percent and family and friends at 6 percent.

While banks and credit unions do their best to offer the funding these businesses need to grow and thrive, there are still 3 million fewer small business loans made annually, today, than there were before the 2008 financial crisis. H.R. 2201 seeks to build off the success of the Jumpstart Our Business Startups Act of 2012, better known as the JOBS Act, and will continue to spur capital formation for the true job creators and drivers of our country's economy.

The Micro Offering Safe Harbor Act helps small and emerging companies add another tool to the toolkit, enabling them to confidently find alternative ways of raising these funds without having to pay for costly securities experts and without the fear of lawsuits if they operate within these easy-to-understand parameters.

That is why the Micro Offering Safe Harbor Act is endorsed by the National Small Business Association; the Small Business & Entrepreneurship Council; the National Federation of Independent Business; the Chamber of Commerce; Heritage Action; and Engine, ``The Voice of Startups in Government.''

The House approved an identical version of this legislation during the 114th Congress as part of the Accelerating Access to Capital Act, and language similar to H.R. 2201 was included in the Financial CHOICE Act, which was adopted by this Chamber in June.

Mr. Speaker, the time has come for Congress to come together and help small businesses help themselves by making this important update and improvement to the Securities Act of 1933.

I want to thank Chairman Hensarling; Capital Markets, Securities, and Investment Subcommittee Chairman Huizenga; and all of the staff on the Financial Services Committee for their hard work on this legislation.

Mr. Speaker, I urge my colleagues to support this legislation and hope that both parties will use H.R. 2201 as a way to show their support for more opportunities and better lives for our job creators.

Mr. Speaker, I include in the Record letters from the National Small Business Association, the Small Business & Entrepreneurship Council, the United States Chamber of Commerce, Heritage Action for America, and Engine.

National Small Business Association.

Hon. Tom Emmer,

House of Representatives,

Washington, DC.

Dear Representative Emmer: On behalf of the National Small

Business Association (NSBA), the nation's first small-

business advocacy organization, with more than 65,000 small-

business members representing every state and every industry

across the country, I commend your leadership for introducing

the Micro Offering Safe Harbor Act (H.R. 2201) as it will

have an immediate and direct impact on small businesses

looking to raise capital. NSBA has long supported the kind of

simplification this legislation would bring for small

businesses.

Capital is the lifeblood of any small business, and often

small-business owners need capital at various stages; some at

their startup and others later when they are looking to

expand. Despite this ongoing need, small-business lending

from banks has decreased over the last decade and many small

businesses have few options for obtaining capital. According

to NSBA's 2016 Year-End Economic Report, small-business

access to capital remains stubbornly unchanged since the

previous year, with just 69 percent of small firms reporting

they are able to get adequate financing. This drop has real-

world implications: 41 percent said lack of capital is

hindering their ability to grow their business or expand

operations, and 20 percent said they had to reduce the number

of employees as a result of tight credit.

Therefore, raising capital though securities is an

attractive alternative option for many small-business owners.

However, the current regulatory requirements are quite

onerous for small businesses, often requiring expensive

specialized counsel for even very small securities offerings.

NSBA supports this targeted legislation that creates a safe

harbor for small securities offerings which meet requirements

clearly identified in the legislation. Under the legislation,

these exemptions include offerings in which each purchaser

has a substantive pre-existing relationship with the owners,

where the issuer has less than 35 purchasers utilizing the

exemption in the preceding 12 month period, or where the

total amount raised during the preceding 12 month period is

less than $500,000. By creating three safe harbor exemptions

for ``non-public offerings,'' businesses can operate with

clarity and a clear conscience knowing that they would be

exempted from registering with the Securities and Exchange

Commission (SEC). Additionally, the legislation also exempts

transactions meeting the specified requirements from state

registration requirements, commonly referred to as ``blue sky

laws.''

Raising capital for small businesses from friends and

family already takes place on a regular basis, except those

transactions often lack the legal protections and structure

of securities law. In addition to expanding access to capital

for small businesses, this legislation will bring those

transactions under a recognized legal framework, and make

resolving disputes that arise much more efficient. Finally,

bringing these existing transactions under an existing legal

framework will provide a sound legal basis for subsequent

larger offerings requiring registration with the SEC.

Access to capital continues to be one of the most pressing

issues facing the small-business community. All small

businesses need an injection of capital at one point or

another, unfortunately in the past several years it has

become difficult for small businesses to get the funds they

need to grow and expand. NSBA is pleased to support the Micro

Offering Safe Harbor Act as it will help small businesses

around the country expand and create new jobs in their

communities.

Sincerely,

Todd McCracken,

President & CEO.

Mr. Speaker, I have an amendment at the desk.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, the amendment I am offering today will enhance antifraud and consumer protections for small businesses and startups seeking to take advantage of the micro offering exemption outlined in the underlying bill.

While the legislation itself requires three specific criteria to be met simultaneously in order to trigger a safe harbor exemption for a security offering, my amendment adds an additional layer of protection to further safeguard investors from bad actors.

Specifically, my amendment prohibits the exemption from being available for those who have been disqualified under the bad actor disqualification standard established by the SEC. This language was included with the support of my colleagues from both sides of the aisle during consideration in committee in the 114th Congress, and I am hopeful they will support its inclusion again in the 115th.

I want to reiterate that nothing in the base text of this bill erodes or limits the ability of Federal or State regulators to prosecute fraud, nor would it prevent private common law causes of action for fraud or breach of contract between the interested parties.

This amendment builds upon these existing protections and drives home the point that the Micro Offering Safe Harbor Act is purely focused on helping our small businesses and entrepreneurs access the tools they need to grow and create jobs in an orderly and legal manner.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I will close at this point.

Mr. Speaker, I want to thank the ranking member for her encouragement and her compliments, and I want to just point out that the Micro Offering Safe Harbor Act was actually improved as a direct result of the ranking member's suggestions.

So, again, I want to thank her for her compliments here today, her encouragement in helping us make this an even better bill for entrepreneurs and small businesses across the country. At this point, I would encourage support for the amendment.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, pursuant to House Resolution 609, I call up the bill (H.R. 2201) to amend the Securities Act of 1933 to exempt certain micro-offerings from the registration requirements of such Act, and for other purposes, and ask for its immediate consideration in the House.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, we know that, unfortunately, after 8 years of bad economic policies from the Obama administration, working people did not receive a pay increase. We know that we had one of the lowest labor participation rates in modern history. We know that the economy was limping along at 1\1/2\ to 2 percent economic growth.

But, fortunately, Mr. Speaker, a new day has dawned and now, all of a sudden, we see that, with the policies of Republicans in Congress, with the policies of the Trump administration, we are seeing promising signs. What we are seeing all of a sudden now is 2 quarters, Mr. Speaker, of 3-plus percent economic growth. This means a difference to working families. They are finally seeing increases in their paychecks, increases in their take-home pay.

That is why one of the most exciting policies that are being worked upon today that we hope to see soon is fundamental, pro-growth tax reform for the entire American economy; one that would grow our economy and that makes a Tax Code fairer, flatter, simpler, more competitive; one that would lower rates for families and allow 90 percent of Americans to fill out their forms on something akin to a postcard; something that would help our small businesses and entrepreneurs.

I look forward, Mr. Speaker, to having that legislation on the floor soon. But we have legislation today that is also important to our small businesses and our entrepreneurs, H.R. 2201, by the gentleman from Minnesota.

What is so important about this legislation, Mr. Speaker, is that it would allow our entrepreneurs and our small businesses to more effectively be able to reach out to family and friends to get the needed capital to start their businesses.

A 2014 survey by the Kauffman Foundation found out that over 28 percent of startups raise their funding from their personal network. Mr. Speaker, we have a challenge, and that is the Securities Act does not clearly define what is a public offering or, conversely, a nonpublic offering. So this makes it very difficult for our early-stage entrepreneurial growth companies to go out and do any kind of private placement to raise funds from friends and family.

Now, we know that a private placement is already something that is established in law. But what isn't established is a bright line, safe harbor for these business enterprises to go out and raise these funds.

So what we also know, unfortunately, from our Securities and Exchange Commission is that a registered offering is simply not economically

feasible for a small business, an entrepreneur, an issuer who is seeking to raise less than $1 million.

So too often, Mr. Speaker, we have a number of these enterprises that, frankly, just never get jump-started because they don't have the opportunity for a private offering. That is why it is so important.

I want to thank the gentleman from Minnesota (Mr. Emmer) for his leadership in bringing this legislation to the House floor today.

So it is a simple piece of legislation. Again, it simply allows a bright line, safe harbor for very small offerings. It requires that each purchaser has a substantive preexisting relationship with an officer, director, or shareholder of the issuer.

The issuer must reasonably believe that there are no more than 35 purchasers of the securities, and the aggregate amount of all securities sold by the issuer cannot exceed $500,000 in a 12-month period.

So, Mr. Speaker, we are talking about a very small portion of startups, but a very vitally important section of our startups that need capital.

Mr. Speaker, a few decades ago there was a company where a gentleman borrowed money from his father to import Japanese sports shoes, and he purchased 200 pairs of these Japanese sports shoes. He started a business called Blue Ribbon Sports, and today we know it as Nike.

A few decades ago there was an investor out in Omaha, Nebraska, who borrowed money from seven friends and family members, including his sister Doris and Aunt Alice. Over the next 9 years, this initial investment grew, and this gentleman purchased something called Berkshire Hathaway, the textile company that has now led to the Berkshire Hathaway empire.

In 1994, there was a gentleman who took a loan from his parents, moved to a two-bedroom, small apartment, and launched a company called Amazon.

We want to make sure that the next Berkshire Hathaway, the next Amazon get launched, and that is why it is so critical we enact H.R. 2201.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks and submit extraneous material on the bill under consideration.

Mr. Speaker, I yield 5 minutes to the gentleman from Minnesota (Mr. Emmer), the sponsor of the legislation and an outstanding member of the Financial Services Committee.

Mr. Speaker, I yield an additional 30 seconds to the gentleman from Minnesota.

Mr. Speaker, I yield myself 30 seconds, just to say, as I listen to the gentleman from Rhode Island and the ranking member, their comments are very interesting, but everything they described is already illegal. Their remarks acknowledge that the SEC can and does bring actions to enforce the securities laws and shut down fraud when they discover the fraud.

Nothing in H.R. 2201 eliminates the DOJ's ability to pursue criminal prosecutions or fraud. Nothing in it impacts the SEC's ability to pursue civil actions against issuers who engage in fraud under section 17(a) of the Securities Act of 1933. It is just a red herring. It is one of the reasons we have had such poor economic growth under the Democratic regime.

Mr. Speaker, I yield 3 minutes to the gentleman from Missouri (Mr. Luetkemeyer), chairman of the Financial Institutions and Consumer Credit Subcommittee of our committee.

Mr. Speaker, number one, I was very pleased to hear one of the most compelling indictments of 8 years of the Obama administration I have ever heard on the House floor, and I thank the ranking member for it.

Mr. Speaker, I yield 3 minutes to the gentleman from Pennsylvania (Mr. Rothfus), who is the vice chairman of the Financial Institutions and Consumer Credit Subcommittee.

Mr. Speaker, I yield 3 minutes to the gentleman from Colorado (Mr. Tipton), who is the vice chairman of the Oversight and Investigations Subcommittee.

Mr. Speaker, I yield myself 10 seconds just to say I heard the word ``protection'' often used by my friend, the ranking member, but she and her friends on the other side of the aisle had 10 years to protect paychecks, protect savings, and protect economic opportunity and the American Dream, and they failed miserably.

Mr. Speaker, I yield 2 minutes to the gentleman from Ohio (Mr. Davidson), a member of the Financial Services Committee.

Mr. Speaker, I yield 2 minutes to the gentleman from Indiana (Mr. Hollingsworth), another member of the Financial Services Committee.

Mr. Speaker, I yield 2 minutes to the gentleman from South Carolina (Mr. Norman), he is not a member of the Financial Services Committee, but we would be proud if he were.

Mr. Speaker, I yield 1 minute to the gentleman from Wisconsin (Mr. Duffy), the chairman of the Housing and Insurance Subcommittee.

Mr. Speaker, I yield an additional 30 seconds to the gentleman from Wisconsin.

Mr. Speaker, I yield myself the balance of my time.

Mr. Speaker, as always, I listen very carefully to my friend, the ranking member. I know that she started off her closing remarks by saying: We don't need this bill, H.R. 2201, because the big banks can loan to the small businesses.

Well, that is fascinating to me, Mr. Speaker, because of the Dodd- Frank Act, which she so jealously supports, all of a sudden, the risk- based capital standards say that the banks have to reserve more for small business loans than they do for sovereign debt and municipal debt.

So all of a sudden, it is because of Dodd-Frank. In addition, we know that the ranking member supports the Federal Reserve policy of paying interest on excess reserves where the Federal Reserve takes taxpayer money to pay the big banks not to loan money. So if the ranking member was curious why the big banks aren't loaning to the small businesses, which they aren't--and prior to the Trump administration, we know that small business lending by banks was at a 25-year low--it is the very reason, Mr. Speaker, that we need the bill, the legislation of the gentleman from Minnesota (Mr. Emmer) so that we can unlock this.

Again, there is no surprise why, after 8 years of Obamanomics and the thinking from my friends on the other side of the aisle, small businesses have languished and why the economy has dropped down to a 1\1/2\ to 2 percent GDP growth. In fact, I think President Obama is one of the few Presidents in American history never to enjoy a year of 3 percent economic growth.

Now, he may personally have enjoyed it, but the American people didn't, Mr. Speaker. But the good news is that there is a change in administration and a change of attitude. That is why it is so important that we be able to get capital to our entrepreneurs, to our small businesses. Let them thrive again on Main Street.

We hear so often the ranking member decry Wall Street. We are talking about offerings of a half a million dollars. No on in Wall Street would touch that with a 10-foot pole. This is about Main Street, not Wall Street, Mr. Speaker.

It is interesting, as I listen to my friend, the ranking member, decry the fact that someone might be able to raise capital under this particular set of circumstances. Well, I have a news flash for all my colleagues. Already the SEC can grant a private offering for exactly the set of circumstances that my friend, the gentleman from Minnesota, puts into his bill. All the gentleman is doing is creating a bright line, safe harbor, so that the next Nike or the next Amazon isn't stopped from launching their enterprise by having to spend a million dollars on lawyers and accountants trying to navigate this uncertain murky labyrinth of SEC waters trying to determine what is a private offering and what is a public offering. That is all he is doing.

Again, this is already legal. It simply is discretionary to decide what is a private offering and what is a public offering by the Securities and Exchange Commission.

We now, Mr. Speaker, have had two quarters of 3-plus percent economic growth. We are seeing working Americans. We are seeing their paychecks increase yet again. We are seeing hope and resilience in the American Dream yet again, but we have so much more work to do, and that is why H.R. 2201 is so critical.

It takes small businesses today to be the big businesses of tomorrow. They are the creators. They are the job engine of America. They are the drivers of increased paychecks, greater economic opportunity, and a bigger, bolder American Dream. I thank the gentleman from Minnesota for this great legislation. I encourage all of my colleagues to adopt it.

Mr. Speaker, I yield back the balance of my time.