Cozen Currents: Democrats’ Oversight Agenda

“Democrats are making plans to investigate the Trump administration if they win control of at least one chamber of Congress in the midterms. Rather than pursuing President Trump directly, however, they plan on going through the private sector.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• In anticipation of winning control of the House in the November midterm elections, Democrats are developing their oversight strategy with an eye towards outflanking President Trump by going around the administration.
• A subcommittee of the House Energy and Commerce Committee will hold a hearing this week on Section 230 of the Communications Decency Act, which provides immunity for online platforms regarding third-party content, as the law marks its 30th anniversary.
• Turmoil in the private credit market is testing the Trump administration’s regulation by competition approach to the rapidly growing industry.

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Democrats’ Potential Post-Midterms Oversight Agenda

Lessons Learned from Trump 1.0. While Democrats have made no secret of their desire to scrutinize President Trump if they take the House in November, they have also made clear the lessons learned during the first Trump administration: a private sector strategy may be more effective.

• Leading Democrats have said they do not want to be perceived as only focused on President Trump. Instead, they plan to cast a much wider net focused on issues impacting the daily lives of Americans. At the same time, they see strategic benefit in pursuing information from the private sector that could lead back to the president and the administration. Republican investigations in recent years, such as the investigation into Hunter Biden, provides a roadmap for seeking information about a president indirectly at first.
• Democrats believe the private sector will not be able to stonewall investigators in their pursuit of information regarding the Trump administration. That said, President Trump has shown a willingness to fight in court even when not pursued directly to prevent the disclosure of information. Regardless, if Democrats win the House or Senate, the shape of investigations will look different in 2027 than it did in 2017.

Spotlight on the Private Sector. Corporations and their dealings with the White House are likely to face particularly close scrutiny from Democrats, who believe such dealings may involve favoritism or self-dealing.

• One of the main avenues for these probes will be companies’ relationships with the White House. This could include some of the deals made since Trump came into office, as his administration has taken a much more active role in private-sector dealmaking. In addition, donations made by private entities to initiatives such as Trump’s ballroom renovations or his inaugural fund are likely to come under significant scrutiny from lawmakers seeking to determine whether they may be connected to securing policy wins. Handling these inquiries correctly from the start will be essential for businesses to avoid jeopardizing their own policy interests in Congress.
• In addition to relationships with the Trump administration, Rep. Robert Garcia (D-CA), the top Democrat on the House Oversight Committee, said in a recent interview that “larger corporations” would be a central focus of any investigations, especially businesses that “use data to manipulate pricing,” “foreign interests that are driving up the cost of housing,” and benefits and opportunities being directed to “friends and family” of Trump.
• These investigations will likely consist not only of document requests but also of high-profile public hearings. Such hearings have grown increasingly popular among lawmakers as a chance to force private industry leaders to defend past decisions. Few industries are likely to be spared potential grilling from a Democratic-led committee, but some sectors may face greater scrutiny, given the questions already raised by lawmakers since Trump returned to the White House, including crypto, pharmaceuticals, oil and gas, and AI.

Empowered Investigators. Lawmakers have become increasingly emboldened as investigators in recent years, embracing the power of the committee gavel and the subpoena.

• Lawmakers of both parties have become increasingly willing to push the boundaries of what is considered possible in their investigations. Recent examples include the depositions of former Secretary of State Hillary Clinton and former President Bill Clinton, as well as the subpoena of Attorney General Pam Bondi. The signal from these actions is that investigators feel nothing is beyond their reach.
• In a Congress often made up of small majorities, lawmakers have found it increasingly difficult to legislate. As such, they have been embracing the power of the committee gavel and its associated subpoena power, with more than just the oversight committee chairs taking up expansive oversight agendas. This trend is likely to continue after the midterm elections. These investigations have also shown themselves to have real-world impacts. Notably, responses to the December 2023 testimony from college presidents before the House Education and Workforce Committee regarding antisemitism on their campuses has led lawmakers to increasingly embrace oversight activities as an avenue for advancing their policy and political agendas.

Section 230 at 30

Happy Birthday to Section 230. Section 230 of the Communications Decency Act of 1996, a law foundational to the modern internet, marks its 30th anniversary this year.

• Section 230 shields platforms from legal liability for user-generated content. In recent years, the law has come under attack from both sides of the aisle, though for different reasons. Republicans have raised alarms about censorship and bias against conservative viewpoints, while Democrats have been more concerned about misinformation and hate speech online. The Biden administration’s alleged coercion of social media companies’ moderation of content related to Covid-19 and election misinformation has been a flash point.
• Congress has not amended Section 230 since 2018, when lawmakers passed FOSTA-SESTA, a law that aimed to fight online sex trafficking. While Republicans and Democrats may believe that reforms to Section 230 are needed, what exactly should be done about the law is a more challenging question that does not garner consensus. The rise in AI-generated content (distinct from the user-generated content addressed by the law) and the growth of social media have raised additional questions about the future of Section 230.

What’s Next for Section 230? Congress has begun exploring potential for updates to Section 230.

• In December, a bipartisan group of senators introduced a bill that would sunset Section 230 within two years of enactment, establishing a forcing mechanism for Congress to replace it with a new approach to liability for online content. Senator Marsha Blackburn included a Section 230 sunset provision in the legislative framework for AI she released last week. In a previous Congress, Senator Brian Schatz (D-HI) and Senate Majority Leader John Thune (R-SD) introduced a bill with transparency rules for social media content moderation and an update to Section 230 to require online platforms to remove illegal content, as determined by courts.
• Last week, the Senate Commerce Committee held a hearing on Section 230. Committee Chair Ted Cruz (R-TX) said that lawmakers “should consider whether reform of Section 230 is needed to encourage more speech online and stop Big Tech censorship,” though senators appeared skeptical of outright repeal.
• On Thursday, members of the House will have a say when the House Energy and Commerce Committee Subcommittee on Communications and Technology holds a hearing on the law. Committee Chair Brett Guthrie (R-KY) and Subcommittee Chair Richard Hudson (R-NC) announced that the Subcommittee “will examine what parts of the law have worked, what have not, and how Congress can build on those lessons to modernize our laws.” Despite interest in revisiting Section 230, lawmakers still have a long way to go to develop a viable path forward.

Increasing Public Scrutiny of Private Credit

Regulation Through Competition. Trump administration prudential regulators believe that deregulating the banking sector, and thereby increasing the ability of banks to engage in certain lending activities, is the best way to address the rise of private credit.

• Whereas Biden-era regulators assessed the potential to place regulatory guardrails around the nascent private credit industry, and nonbanks writ large, via the Financial Stability Oversight Council (FSOC), Trump 2.0’s bank regulators have all but closed that door. Explaining the administration’s overarching view of private credit last October, Securities and Exchange Commission (SEC) Chair Paul Atkins told industry officials, “This administration’s view — from all of us in the financial services regulatory sphere — we don’t view the private markets as being systemically important.” Treasury Secretary Scott Bessent put a finer point on the issue this winter, overhauling the FSOC to refocus its mission on deregulation.
• For Bessent and the White House, the thesis is that by deregulating the banking industry, the administration will free up banks to reengage in activities that have shifted to nonbanks. This would allow them to rein in industries like private credit via bank deregulation instead of new regulation. Speaking at the Milken Institute Global Conference last year, Bessent said, “I think private credit is an incredible new…bolt on to the world’s deepest…capital markets, but the growth of private credit tells me that the regulated banking system has been too tightly constrained.” Comptroller of the Currency Jonathan Gould concurred in a January letter to lawmakers, saying that bank deregulation will “reduce burden, empower banks, and mitigate the demand that has underpinned the growth of private credit.”
• To that end, prudential regulators have moved quickly to overhaul bank regulation. This effort entailed proposing a reduced enhanced supplemental leverage ratio last year, overhauling the Federal Reserve’s stress testing and supervisory regimes, and relaxing community bank regulations. Regulators recently reproposed the Basel III Endgame capital rules, which, when paired with a reduction in the Global Systemically Important Bank (GSIB) surcharge and the stress tests, will result in an aggregate capital decrease of about 4.8 percent for the largest banks. Further significant measures to free up bank capital remain in the works with Bessent recently stating that “Bank liquidity is the next big-ticket item.”

Monitoring the Situation. While prudential regulators have no immediate plans to regulate private credit, recent market turmoil is leading them to place a watchful eye on the industry.

• Back in December, Bessent told the New York Times DealBook Summit, “My worry is that in a downturn, [private credit] could be very pro-cyclical…when you have investors, they will always panic at the bottom.” He noted that it is easier to address this situation in the better regulated banking sector. Now, as a handful of private credit funds limit redemptions amid investor concerns, Bessent is signaling that regulators are keeping a watchful eye on the industry for signs of contagion. In February remarks before the Economic Club of Dallas, Bessent said, “What we are concerned about and/or what our focus is, doesn’t have to be a concern, is what is the relationship between private credit and the regulated sector?”
• While Bessent and other regulators haven’t indicated that they’ll use regulation to address these concerns, Semafor reports that regulators’ worries could bleed into the effort to expand access to alternative assets in defined contribution plans. This is a top priority for the private credit industry. Also in his February remarks, Bessent said, “The other thing that I would say, and everyone in private credit/private assets should listen to this, [is that] this administration, led by Treasury, is committed that the individual investors will not become the dumping ground for residual…if there is something rotten, it is not going to be handed to the individual investors.” Semafor reports that Bessent’s concerns are among the reasons that the Department of Labor has yet to publicly propose its rule on incorporating private assets into defined contribution plans despite its submission to the White House for review in January.
• The open question for Bessent and other regulators is whether the choppiness in the sector warrants rethinking other industry priorities. In addition to the rule around private assets in retirement plans, SEC Chair Paul Atkins told lawmakers in February that his agency is seriously considering revising the definitions of an “accredited investor” and a “qualified purchaser.” The former of which is something the SEC Small Business Forum proposed changing in early 2025 to include “additional measures of sophistication, including through an investor test.” Atkins has repeatedly suggested that those changes could come alongside additional reporting guardrails for the industry, something that could take on greater importance should the turmoil continue.

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