Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires federal agencies to identify, remove, and replace all references to credit ratings in their regulations. It responds to longstanding concerns—heightened by the recent financial crisis—that investors place undue reliance on the opinions of a small number of eminently fallible (and perhaps fundamentally conflicted) credit rating agencies. At first blush, the approach adopted in § 939A appears commonsense: if one wishes to reduce reliance on credit ratings, amending regulations that compel investors to consult credit ratings seems like a straightforward place to start. This Note reconsiders: what appears straightforward in principle has proved to be anything but in practice.
As a targeted critique of § 939A of Dodd-Frank, the Note contend that there is a fundamental mismatch between Congress’s diagnosis and prescription. The diagnosis was, inter alia, investor overreliance on credit ratings. Section 939A’s prescription, however, was the removal of “any” reference to credit ratings. Separating the two is Congress’s failure to recognize that overreliance necessarily implies that some level of dependence on credit ratings remains appropriate. The upshot of Congress’s blunt mandate has been a haphazard (and ongoing) process of regulatory reform that, where not facially non-compliant with § 939A, rarely upholds anything more than its letter. As a broader criticism of federal securities regulation, the Note argues that this outcome should not be surprising. Section 939A is afflicted not just by its mismatch between diagnosis and prescription, but also by a flawed motivating ideal best understood as “mandatory self-reliance,” or the belief that independence can be compelled.