Home The Role of the State Regulation Letters that Matter: How Interest Groups Shape Financial Legislation

Letters that Matter: How Interest Groups Shape Financial Legislation

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Members of Congress are inundated with an avalanche of correspondence on a daily basis. But what persuades them to heed the call? Recent research conducted by Renée Adams and Thomas Mosk has revealed that consumer groups and finance trade associations wield significant influence over congressional decision-making, with letters from these groups being particularly effective in eliciting a response. However, that certain congressmembers demonstrate a greater propensity to heed the wishes of well-resourced finance trade associations, which may give rise to biased legislation.

On the 29th of January 2018, a letter was dispatched to Senators Mitch McConnell and Charles Schumer from the four leading finance trade associations, urging them to pass new legislation aimed at diminishing the regulatory oversight of small banks. However, consumer groups strongly opposed the same legislation, cautioning that it would weaken the consumer protections that were put in place following the 2008 financial crisis. Alas, five years after Congress had enacted this legislation, two of the small banks in question collapsed. One is left to wonder whether Congress at the time only listened to the banks and ignored the warnings of consumers.

Petitions of interest groups, such as finance trade associations and consumer groups, could provide congressmembers with policy-relevant information. However, sending letters to Congress does not guarantee that congressmembers will listen. In a new study, we examine whether congressmembers appear responsive to letters by consumer groups and finance trade associations concerning 821 bills introduced between 1999 and 2018.

The letters express the positions of consumer groups and the trade association explicitly and prominently, usually in the subject or first paragraph, e.g. “the undersigned organizations write to express our opposition to the so called “Economic Growth, Regulatory Relief, and Consumer Protection Act”, … The bill already contains destructive policies that roll back or eliminate essential protections put in place by the Dodd-Frank Act after unchecked reckless lending nearly destroyed the US economy.” We code the letters as expressing “wishes” in support/opposition of a bill if they contain such text fragments expressing explicit support/opposition for a bill.

The letters reveal that the “wishes” of consumer groups and finance trade associations are often in conflict. Consumer groups are more likely to oppose bills; finance trade associations are more likely to support bills. For 23% of the bills that both groups write about, consumer groups and trade associations are in direct opposition. How legislators respond to their “wishes” is thus not obvious.

We find that positions advanced in both consumer group and trade association letters predict the voting behavior of legislators. However, on average, congressmembers appear more responsive to consumer group letters. This responsiveness increases when consumer groups and trade associations are in opposition. Given the difference in financial resources between consumer groups and trade associations, this result may appear surprising.

However, the average effects mask substantial heterogeneity across congressmembers and across stages of the legislative cycle. Congressmembers are more responsive to trade association letters if they receive campaign contributions from trade associations. We also find that newly appointed members of the Financial Services Committee become less responsive to consumer groups and more sensitive to trade associations.

The First Amendment right to petition allows citizens to “express their ideas, hopes, and concerns to their government and their elected representatives”. While the constitutional right to petition provides access without respect to the political power of the petitioner, in practice, the organization of Congress and incentives of congressmember could provide unequal access of resource-rich groups at the expense of less powerful groups, such as consumers. Unequal access may result in legislation firmly based on the views of resource-rich groups, such as the 2018 roll bank of banking supervision laws.

Our results show that money does not always “win” and less-resourced groups may be able to compete for legislative attention through the effective structuring of petitioning activity. Our results suggest that the right to petition works, but legislators’ incentives moderate its ability to provide equal access to competing interests. 

Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.