The House voted Wednesday to amend the Dodd-Frank financial reform law with the help of 36 Democrats, even though the White House has threatened to veto the bill.
Members passed the Small Business Capital Access and Job Preservation Act, H.R. 1105, in an easy 254-159 vote.
Dodd-Frank currently requires these firms to register with the Securities and Exchange Commission (SEC). But supporters said this is a needless burden because they had nothing to do with the financial crisis five years ago.
"This is a provision ... that many of us believed was aimed at Wall Street, but ends up hurting main street," said House Financial Services Committee Chairman Jeb Hensarling (R-Texas).
Democrats who support the bill openly acknowledged that Dodd-Frank is not perfect, and that Congress should be open to making changes to the law.
"[N]ot everything in Dodd-Frank is important and good," said Rep. Jim Himes (D-Conn.). "Like all other works of mortals, there are things in this that are probably unintended and perhaps overreaching.
"I happen to believe that the requirement that private equity funds register with the SEC is one of those areas."
Himes noted that people directing money to private equity firms are not ordinary retail investors, and instead are accredited investors who often hire lawyers to negotiate the terms of their investment.
Rep. Jim Cooper (D-Tenn.) added that private equity firms invest in thousands of companies across the country, and have helped create 7.5 million jobs. He also said the cost of registering with the SEC is daunting for small private equity firms.
"It costs between three-quarters of a million dollars and a million dollars a year for them just to do the paperwork," Cooper said. "That's money taken away from job creation. That's money that's embalmed in red tape."
As indicated from the vote, the bill did face some Democratic opposition from members who argued that the bill would only make the financial markets less transparent.
"One of the most important lessons that we did learn during the financial crisis is that systemic threats seem to always bubble up from the opaque and unregulated segments of the market," said Rep. Stephen Lynch (D-Mass.). "Giving this exemption will allow threats to once again grow in the dark corners of our financial system, only showing themselves when it is too late to prevent serious harm to the American taxpayer."
That was the argument the Obama administration made on Tuesday, when it said the bill would "deny investors access to important information intended to increase transparency and accountability and to minimize conflicts of interest."
Just before the final vote, the House rejected an amendment from Rep. Carolyn Maloney (D-N.Y.) that would have required private equity firms with U.S. assets worth anywhere from $150 million to $1 billion to register with the SEC, but also would have required the SEC to create a simpler registration process. But members defeated this proposal in a 186-225 vote.
House passage sends the bill to the Senate, but the White House veto threat makes it likely that the Senate will not consider it either before or after the Christmas break.