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44–902 PDF 2008

GAO REPORT ON REGULATION B: 

SHOULD LENDERS BE REQUIRED TO 

COLLECT RACE AND GENDER DATA 

OF BORROWERS FOR ALL LOANS? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JULY 17, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–129 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

MELVIN L. WATT, North Carolina, Chairman 

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

MICHAEL E. CAPUANO, Massachusetts 

AL GREEN, Texas 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ED PERLMUTTER, Colorado 

JACKIE SPEIER, California 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

J. GRESHAM BARRETT, South Carolina 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KEVIN McCARTHY, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 17, 2008 ..................................................................................................... 1 

Appendix: 

July 17, 2008 ..................................................................................................... 43 

WITNESSES 

THURSDAY, JULY 17, 2008 

Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System ................................ 7 

Cavalluzzo, Ken, Research Analyst, Wisconsin Capital Management LLC ....... 19 

Corralejo, Jorge C., Chairman, Latino Business Chamber of of Greater Los 

Angeles .................................................................................................................. 24 

Gnaizda, Robert F., General Counsel, The Greenlining Institute ....................... 20 

Himpler, Bill, Executive Vice President of Federal Affairs, American Financial Services Association (AFSA) ........................................................................ 22 

Sullivan, Ann, President, Madison Services Group, on behalf of Women Impacting Public Policy ............................................................................................ 25 

Williams, Orice, Director, Financial Markets and Community Investment, 

United States Government Accountability Office .............................................. 5 

APPENDIX 

Prepared statements: 

Braunstein, Sandra F. ...................................................................................... 44 

Cavalluzzo, Ken ................................................................................................ 55 

Corralejo, Jorge ................................................................................................. 65 

Gnaizda, Robert F. ........................................................................................... 67 

Himpler, Bill ..................................................................................................... 71 

Sullivan, Ann .................................................................................................... 76 

Williams, Orice ................................................................................................. 80 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Watt, Hon. Melvin L.: 

Letter to Federal Reserve Chairman Alan Greenspan from Representative 

Frank and 22 other Democratic Members, dated February 12, 2004 ...... 101 

Response letter from Federal Reserve Chairman Alan Greenspan to Representative Frank, dated March 8, 2004 ..................................................... 103 

Letter to Federal Reserve Chairman Ben Bernanke from Representatives 

Frank, Watt, Waters, Gutierrez, and Lee, dated February 14, 2007 ....... 105 

Response letter from Federal Reserve Chairman Ben Bernanke to Representative Frank, dated March 13, 2007 ................................................... 107 

Letter to the the Government Accountability Office requesting the report 

from Representatives Frank, Watt, and Maloney, dated July 16, 2007 ... 109 

Letter to the National Credit Union Administration from Representative 

Watt, dated July 10, 2008 ............................................................................ 111 

Letter to the Office of Thrift Supervision from Representative Watt, 

dated July 10, 2008 ....................................................................................... 113 

Letter to the Federal Deposit Insurance Corporation from Representative 

Watt, dated July 10, 2008 ............................................................................ 115 

Letter to the U.S. Small Business Administration from Representative 

Watt, dated July 10, 2008 ............................................................................ 117 

Page

VI 

Watt, Hon. Melvin L.—Continued 

Letter to the U.S. Department of Justice from Representative Watt, dated 

July 10, 2008 ................................................................................................. 119 

Letter to the Federal Trade Commission from Representative Watt, dated 

July 10, 2008 ................................................................................................. 121 

Response letter from the Office of Thrift Supervision to Representative 

Watt, dated July 16, 2008 ............................................................................ 123 

Response letter from the Office of the Comptroller of the Currency to 

Representative Watt, dated July 15, 2008 .................................................. 127 

Response letter from the National Credit Union Administration to Representative Watt, dated July 16, 2008 ........................................................ 129 

Response letter from the U.S. Small Business Administration to Representative Watt, dated July 16, 2008 ........................................................ 132 

Response letter from the Federal Trade Commission to Representative 

Watt, dated July 15, 2008 ............................................................................ 134 

Response letter from the Federal Deposit Insurance Corporation to Representative Watt, dated July 16, 2008 ........................................................ 139 

Letter from the National Consumer Law Center to Representative Watt, 

dated July 16, 2008 ....................................................................................... 141 

Letter from the Federal Reserve Bank of Chicago to the Federal Reserve 

Board, dated November 17, 1999 ................................................................. 147 

Federal Reserve Bank of Boston, Working Paper entitled, ‘‘Credit Card 

Redlining,’’ dated February 28, 2008 .......................................................... 163 

Responses to questions submitted to Sandra Braunstein ............................. 202 

Responses to questions submitted to Ken Cavalluzzo ................................... 208 

Responses to questions submitted to Bill Himpler ........................................ 209 

Responses to questions submitted to Ann Sullivan ....................................... 214 

Responses to questions submitted to Orice Williams .................................... 217 

(1) 

GAO REPORT ON REGULATION B: 

SHOULD LENDERS BE REQUIRED TO 

COLLECT RACE AND GENDER DATA 

OF BORROWERS FOR ALL LOANS? 

Thursday, July 17, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Melvin L. Watt [chairman of the subcommittee] presiding. 

Members present: Representatives Watt, Lynch, Cleaver, Green; 

and McHenry. 

Ex officio: Representative Frank. 

Chairman WATT. Good morning, everybody. 

This hearing of the Financial Services Subcommittee on Oversight and Investigations will come to order. 

We will start with opening statements by the members. Without 

objection, all members’ opening statements will be made a part of 

the record, and we will proceed with allowing whomever wants to, 

to make an opening statement since we have so few people here to 

do so today. I will recognize myself for 5 minutes to kind of frame 

the issue for us. 

Today’s hearing is entitled, ‘‘GAO Report on Regulation B: 

Should Lenders Be Required To Collect Race and Gender Data of 

Borrowers for all Loans?’’ The Financial Services Committee has a 

special interest in ensuring fair and equal access to credit, and our 

committee was instrumental in the passage of the Equal Credit Opportunity Act. 

The Federal Reserve issued Regulation B to implement the Act. 

Regulation B currently forbids the collection of racial, gender, and 

other personal characteristics data for loans other than mortgage 

loans, loans such as small business loans or automobile loans, for 

example. 

By contrast, the Federal Reserve’s Regulation C, which implements the Home Mortgage Disclosure Act, commonly known as 

HMDA, requires the collection and public reporting of racial, gender, and personal characteristics data on applicants for home mortgages, and that data is regularly used by Congress, Federal banking regulators, researchers, and the public to discern patterns of 

lending and alert for public possible discrimination. 

2 

Last year Chairman Frank, Congresswoman Maloney, and I requested the GAO to study Regulation B, with particular attention 

to the Federal Reserve’s factual and analytical basis for concluding 

that removing Regulation B’s prohibition on the collection of racial 

and gender data of applicants and borrowers could increase discrimination. Without objection, I will submit a copy of our request 

to the GAO and we will make that a part of today’s hearing record. 

We are pleased that the GAO is here today to release the results 

of the study we requested, and today’s hearing will focus on the 

GAO’s findings and whether lenders should be required to collect 

race and gender data on applicants and borrowers of all loans. The 

GAO report reflects that serious data gaps now exist that impede 

the efforts of Federal banking regulators to enforce fair lending 

laws, especially on loans other than mortgage loans. 

The primary source of data for tracking patterns of non-mortgage 

lending is the Federal Reserve’s survey of small business finances, 

the so-called SSBF. SSBF data is collected from borrowers of small 

business loans rather than from lenders. The data is voluntary, 

self-reported, and not verified by the Federal Reserve. This limits 

the analytical value of the SSBF data. 

By contrast, the likelihood, or at least the possibility, that discrimination is occurring in mortgage lending can be detected from 

data collected under the Home Mortgage Disclosure Act. This data 

is required to be provided annually by a large population of lenders 

and can be used by Federal bank regulators to help facilitate fair 

lending examinations. 

Another limitation of SSBF data has been that the surveys of 

small business finances were conducted only about every 5 years, 

instead of annually, between 1987 and 2003. Additionally, the Fed 

has been habitually slow in reporting the results of the surveys. 

The survey results have therefore often been stale. In fact, much 

of the information reviewed by the GAO for the report we are receiving at today’s hearing is based on SSBF surveys conducted in 

1993 and 1998, more than 10 years ago in some cases. 

Some of the other information in today’s GAO report is based on 

the 2003 survey that was not publicly released until 2006. Perhaps 

recognizing these problems, the Federal Reserve discontinued the 

SSBF in 2007. The Fed now says that elements of the SSBF will 

be incorporated into the Federal Reserve survey of consumer finances, but this is not due to be released until 2010. 

It is hard to believe, as we convene this hearing today, that no 

one in the Federal Government has access to reliable data about 

important lending patterns and the real prospect of disparities and 

discrimination in the provision of credit other than mortgage credit. 

Indeed, the GAO report indicates that one Federal Reserve bank 

has been unable to conduct thorough fair lending examinations and 

unable to review consumer complaints alleging discrimination by 

non-mortgage lenders, due to lack of available data. This is alarming, and, given the recent documented disproportionality of 

subprime mortgage loans to racial and ethnic minorities, I personally think it is unacceptable. 

The Federal Reserve has periodically reviewed Regulation B, 

most recently in 2003, and concluded that amending Regulation B 

to permit the collection of racial, gender, and personal characterisVerDate Aug 31 2005 13:25 Nov 07, 2008 Jkt 044902 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\44902.TXT TERRIE
3 

tics data could increase discrimination. If that is still the Fed’s contention, I certainly hope that it will offer specific evidence for that 

hypothesis at today’s hearing. 

I am anxious to know whether the Fed thinks that the collection 

of racial and ethnic data under HMDA is contributing to, causing, 

or increasing discrimination by mortgage lenders. The Financial 

Services Committee needs to carefully consider the potential cost 

that would result from amending Regulation B to require the collection and public reporting of personal characteristics data on 

loans other than mortgage loans. 

For that reason, the subcommittee invited several lenders to testify at today’s hearing about some of the potential costs that we 

have heard about, but they declined. Perhaps this subcommittee 

will attempt to get details about these costs at a subsequent hearing. 

We all should be attentive to holding down the cost of lending, 

but we also have a public policy obligation to ensure equal and fair 

lending to all Americans, whether they are shopping for mortgage 

loans or non-mortgage loans. 

The GAO report and today’s hearing allow us to start the process 

of evaluating both the cost as well as the benefits of more comprehensive reporting. I encourage our subcommittee members to 

approach this hearing in that spirit, and I thank all of our witnesses for appearing today to assist us as we start this effort. 

I am now happy to recognize my colleague from North Carolina, 

who is substituting for the ranking member. Well, he says he is not 

substituting for Mr. Miller; he says he is standing in for Mr. Miller, 

for our ranking member, Gary Miller, who had another commitment this morning. 

My colleague, Mr. McHenry from North Carolina, is recognized 

for 5 minutes. 

Mr. MCHENRY. Chairman Watt, thank you, and thank you for 

hosting this hearing today. 

And I do think it is important that we follow up on the GAO report on the Equal Credit Opportunity Act, which is a law that is 

intended to enforce our Nation’s fair lending laws. I look forward 

to hearing from the witnesses today, both this first panel and the 

second panel, regarding the efforts to eliminate discrimination in 

the credit industry. 

You know, access to credit has provided enormous opportunities 

and benefits to consumers. I think we have to ensure that credit 

is available to all, regardless of any race, ethnic background, or 

general considerations. And I think it is obvious and clear to all 

that is what we should be doing. 

We have to ensure that families have access and opportunities to 

purchase a home or an automobile, to finance an education, to deal 

with emergencies, and to purchase everyday goods and services. 

For this reason, and ensuring that there’s non-discrimination within lending practices, the Equal Credit Opportunity Act, as implemented by the Federal Reserve by Regulation B, it prohibits lenders from collecting racial, ethnic, and gender information in order 

to make a credit decision. 

So we have to look at the unintended consequences of that, and 

I think it is important that we have this hearing to follow up on 

4 

my colleague’s request for this GAO report. I look forward to hearing the details of it, and I think it is important that we ensure that 

the detection and enforcement tools are there and available to us 

to protect consumers in this country and ensure that our laws our 

working appropriately. 

So with that, I thank you, Chairman Watt, for your leadership, 

and I look forward to this hearing. 

Chairman WATT. I thank the gentleman for his statement and 

for standing in for the ranking member. 

Without objection, all members’ opening statements will be made 

a part of the record in their entirety, and I would be happy to recognize Representative Cleaver for an opening statement if he cares 

to make one. 

Mr. CLEAVER. I will wait, Mr. Chairman, until a question-and-answer period. 

Chairman WATT. Okay. Mr. Green from Texas. 

Mr. GREEN. Thank you, Mr. Chairman. 

I would like to make a statement, and I want to thank your 

ranking member today, Mr. McHenry. You seem to wear that seat 

quite well. 

Mr. Chairman, I thank you for hosting this hearing, because it 

is important for us to make meaningful decisions as to how we can 

eliminate discrimination, not only in lending, but discrimination in 

the main. And the most effective way to do it is to have empirical 

evidence of what is happening. 

The acquisition of empirical evidence necessitates collecting certain evidence, certain information. Unfortunately, we have not devised a system that will allow us to properly collect this information. My belief is that if we have the will, the way is readily available to us. We have to adopt the will to eliminate invidious discrimination. So I am hopeful that at this hearing this morning we 

can hear more about how we can get this done, how we can acquire 

the intelligence necessary to not only prove that the discrimination 

exists but have the intelligence such that it can be used in an efficacious way to deal with the actual problem itself. It is the will 

that we need. The way is available to us. 

And, Mr. Chairman, I thank you very much for hosting the hearing, and yield back the balance of my time. 

Chairman WATT. I thank the gentleman for his opening statement and for his presence today for this important hearing. 

I am now going to proceed with an abbreviated introduction of 

the witnesses. Without objection, therefore, your bios will be made 

a part of the record; and, in the interest of time, I won’t go into 

an elaborate introduction, although both of them deserve and warrant elaborate introductions. 

I think our first panel is extremely important for two reasons, 

because one of the witnesses is testifying about the actual report 

that was requested some time ago, and by and large the essence 

of the report is about the Federal Reserve. So the other witness is 

here in fairness to hear and respond if the Federal Reserve desires 

to do so. 

Our first witness is Ms. Orice Williams. She is the Director of Financial Markets and Community Investment, United States Government Accountability Office. And our second witness on this 

5 

panel will be Ms. Sandra Braunstein, the Director of the Division 

of Consumer and Community Affairs at the Federal Reserve Board. 

Without objection, your entire written statements will be made 

a part of the record, and each of you will be recognized for a 5- 

minute summary of your testimony. We tend to be very liberal in 

our assessment of 5 minutes, especially on this panel, where we are 

getting the basic information. So don’t feel like you are under the 

gun, but try to be as cognizant as you can of the lighting system. 

The green light will be on for 4 minutes and then the yellow light 

will be on for 1 minute. And then the red light will come on, so 

be cognizant of that, but don’t stop when the red light comes on 

if you are trying to finish your statement. 

Thank you all for being here. 

Ms. Williams, you are recognized for 5 minutes. 

STATEMENT OF ORICE WILLIAMS, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, UNITED STATES 

GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. WILLIAMS. Thank you. 

Chairman Watt and members of the subcommittee, I am pleased 

to be here this morning to discuss our report on the Federal Reserve Board’s Regulation B, which is being publicly released today. 

As you know, Regulation B implements the Equal Credit Opportunity Act of 1974. Reg B, as it is known, generally prohibits lenders from collecting certain data from loan applicants such as race 

or gender for non-mortgage loans, including small business or auto 

loans. Whether or not to repeal or amend this regulation has been 

the subject of debate and review for years, including a review in 

1998. 

Effective in 2003, while retaining the broad prohibition, the 

Board authorized lenders to collect such data for the purposes of 

a limited self-test to evaluate their compliance with ECOA. This 

morning, I will highlight the findings from our report. Specifically, 

I will touch on three areas: One, available research on possible discrimination in non-mortgage lending and the data used; two, the 

Board’s 2003 decision to retain the prohibition of voluntary collection of personal characteristics data; and, three, the benefits and 

costs of a data collection and reporting requirement. 

First, what the research shows: We found that most research 

suggests that while discrimination may play a role in certain types 

of non-mortgage lending, data limitations complicate efforts by researchers and regulators to better understand the role that discrimination may actually play. For example, the research indicates 

that minority-owned and African-American-owned small businesses, in particular, are denied loans more often or pay higher interest rates than white-owned businesses, with similar risk characteristics. 

However, the primary data source for these studies, a periodic 

Board survey of small businesses, while providing important insights into possible discrimination, lacks the rigor of the Home 

Mortgage Disclosure Act data, commonly known as HMDA data. 

For example, survey data are collected from borrowers, rather 

than lenders, which limit their usefulness as a means to assess 

lending practices across institutions and the industry. We also 

6 

found that in the absence of personal characteristics data for nonmortgage loans, Federal bank regulators that enforce fair lending 

laws may rely on time-consuming and less reliable approaches to 

identify possible discrimination, such as assuming a loan applicant 

is Hispanic based on his or her last name. 

Next, I would like to discuss the Board’s rationale for retaining 

the general prohibition of voluntary data collection and reactions to 

it. We found that while views varied about the decision to retain 

the prohibition of voluntary data collection, there was general 

agreement that such voluntary data would have limited benefits. 

We found that the Board’s final decision to retain the prohibition 

of voluntary data collection was two-fold. First, it said the proposal 

would have created an opportunity for lenders to use the data for 

discriminatory purposes; and, second, voluntary data would not be 

useful because lenders may use different collection approaches. 

While some researchers and others agreed with the Board’s first 

rationale, others said that data collection alone would not necessarily create the risk for discrimination, because in some cases, 

such as small business lending, lenders may already be aware of 

an applicant’s personal characteristics, given that such lending is 

often done face-to-face. 

On the other hand, a range of researchers, regulatory staff, and 

others generally agreed that voluntary data collection would not 

likely materially benefit efforts to better understand possible discrimination, because the data would be collected on an inconsistent 

basis. Moreover, few lenders, if any, would participate out of concern for additional regulatory scrutiny of their non-mortgage lending practices and the potential for litigation. 

The last issue I will address involves our analysis of the implications of a data collection and reporting requirement. We found that 

while requiring lenders to collect and publicly report data on personal characteristics for non-mortgage loan applicants could help 

address many of the current data limitations, it could impose additional costs on lenders that could be passed on to borrowers. 

While limiting a requirement to certain types of loans, such as 

small business loans, could help mitigate such costs, such a requirement may also involve complexities that would need to be 

carefully considered. For example, to the extent that small business 

lending is more complicated than other types of lending, lenders 

may need to collect and report additional information on a range 

of underwriting standards in addition to data on personal characteristics, so that informed judgments can be made about their lending practices. 

In closing, I would like to note that despite limitations with existing data, one key data source, the Survey of Small Business Finances, is being discontinued. While the Board plans to fold it into 

the Survey of Consumer Finances, how this change will impact researchers who rely on the data remains unclear. 

Given the limitations of voluntary data collection, now is the 

time to fully evaluate the implications of a mandatory reporting requirement, and this hearing is an important step. 

Thank you, and this concludes my oral comments. 

I would be happy to answer any questions that you may have. 

7 

[The prepared statement of Ms. Williams can be found on page 

80 of the appendix.] 

Chairman WATT. Thank you very much for the summary of your 

report. 

Ms. Braunstein, you are recognized for 5 minutes, or thereabouts. 

STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. BRAUNSTEIN. Thank you. 

Chairman Watt, Congressman McHenry, and members of the 

subcommittee, I want to thank you for this opportunity to discuss 

whether personal characteristics data collection for non-mortgage 

loans is appropriate and, if so, the best way to collect it. 

There are four possible approaches to the collection of applicant 

data: A general prohibition on data collection; voluntary data collection; mandatory data collection without public disclosure; and 

mandatory collection with public disclosure. It is important to note 

that the Equal Credit Opportunity Act is silent on the question of 

data collection. 

The first approach, a general prohibition on collecting an applicant’s personal data, is the approach currently followed for nonmortgage loans in Regulation B which implements the Equal Credit Opportunity Act, or ECOA. For credit that typically is granted 

using automated underwriting systems without face-to-face contact 

between the creditor and the consumer, this approach seems appropriate. 

The second option, voluntary collection of applicant data, was 

considered but rejected by the Board in 2003. Voluntary data collection does not appear to be a useful approach. A voluntary collection regime would not produce either reliable or useful market-wide 

data. 

Under a voluntary regime, the data would be incomplete, because 

some creditors would elect not to collect. In addition, the reliability 

of the data could not be assured, because the data that is collected 

would be done with different standards criteria and methods. Thus, 

the data would not be comparable from creditor to creditor. 

The third regime, mandatory collection of personal data without 

public disclosure, is the approach that the Board adopted in 1977 

for mortgage loans to obtain information for monitoring purposes. 

This approach can provide supervisory agencies with additional 

data that can be useful in identifying possible discriminatory practices, however, many creditors such as non-bank finance companies 

and auto dealers are not subject to regular examinations for fair 

lending compliance. Thus, data collection without public disclosure 

may not enhance fair lending enforcement against creditors that 

are not subject to routine oversight. 

Mandatory collection of personal characteristics data with public 

disclosure is the approach used for the Home Mortgage Disclosure 

Act or HMDA. Public disclosure can provide heightened scrutiny of 

lender practices by entities other than enforcement agencies. We 

believe that the availability of the HMDA data has led mortgage 

8 

lenders to review their loan decisions more carefully to ensure compliance with their lending laws. 

Although an approach which includes public disclosure would 

provide greater transparency than mandatory collection alone, it 

also raises significant public policy choices and cost benefit considerations. One fundamental question is the proper scope of any 

mandatory collection, reporting, and public disclosure requirement 

for non-mortgage loans. Should such a requirement apply to all 

non-mortgage loans or some subset of those loans such as small 

business loans? A requirement to collect, report, and publicly disclose race, ethnicity, and gender data for lending other than mortgages, such as small business, may promote fair lending enforcement. 

However, such a requirement would be challenging to implement 

and could impose significant costs on lenders. Small business lending is quite complex and variable. For example, there are many different types of small business lending, including credit lines, business credit cards, vehicle and equipment loans, mortgages, capital 

leases, and trade credit. There are also many different types of 

small business lenders, including banks, credit card companies, finance companies, and trade creditors. Many different types of data 

about business attributes and underwriting standards would have 

to be collected for the data to be useful as a screen for fair lending 

enforcement purposes. 

The Board is committed to addressing racial and ethnic gaps in 

the availability and affordability of credit. However, just as Congress required the collection, reporting, and disclosure of personal 

data in HMDA for mortgage loans, we believe that Congress is in 

the best position to make these important public policy and costbenefit determinations for non-mortgage loans. 

Thank you, and I will be happy to answer any questions from the 

subcommittee. 

[The prepared statement of Ms. Braunstein can be found on page 

44 of the appendix.] 

Chairman WATT. Thank you very much, both of you, for your 

comprehensive statements. 

Let me do a little housekeeping here for the purpose of making 

sure that all the members have a full appreciation of what we are 

trying to develop here. This has actually been going on for a while 

and I don’t want the members to miss what has led up to today’s 

hearing. So let me ask unanimous consent to submit the following 

documents for the record: 

A letter dated February 12, 2004, from Representative Frank 

and 22 Members of Congress to Federal Reserve Chairman Greenspan; a letter dated March 8, 2004, which is the response of Chairman Greenspan to Representative Frank’s letter; 

A letter dated February 14, 2007, from Representatives Frank, 

Watt, Waters, Gutierrez, and Lee to Chairman Bernanke; a letter 

dated March 13, 2007, which is the response of Chairman 

Bernanke to the February 14th letter; 

A letter in preparation for today’s hearing from Chairman Watt 

to the FDIC, the OTS, the OCC, the NCUA, the SBA, the Department of Justice, and the FTC asking for their response to a series 

9 

of questions about the desirability of collecting this kind of data 

and the contents of that letter will speak for itself; 

Responses to the July 10th letter from the FDIC, the OTS, the 

OCC, NCUA, the SBA, and the FTC—we have not yet received the 

response from the Department of Justice and we are still trying to 

get that; 

And a letter dated July 16th to Chairman Watt from the National Consumer Law Center stating its views. 

Without objection, all of those items will be submitted for the 

record. 

I have previously asked for unanimous consent to submit the letter dated July 16, 2007, from Representatives Frank, Watt, and 

Maloney to the GAO which requested today’s report. So I am just 

trying to make sure that everybody is aware that this hearing 

today is another step in a sequence of things that has occurred on 

this issue, as Ms. Williams has indicated. This issue has been 

around for a while and we need to try to address it. Now let me 

proceed with the questioning of these witnesses, and I will recognize myself for 5 minutes for the first questions. 

Ms. Williams, I take it that just about everybody has concluded, 

based on your report, that voluntary reporting and collection of collection and/or reporting of race, gender, and personal characteristics data is probably not worthwhile, because of various issues that 

you identified in your statement. 

You would get all kinds of different responses if it were voluntary as opposed to setting up a set series of things that people 

will be expected to respond to. Is that correct? 

Ms. WILLIAMS. That is correct. 

Chairman WATT. So the options we are looking at, it seems to 

me, are mandatory: either no collection, or mandatory collection, 

with us or somebody, perhaps the Fed, giving guidance about how 

that information would be structured. 

That is a fair summary of where you got to? 

Ms. WILLIAMS. Yes. 

Chairman WATT. And, Ms. Braunstein, I take it that you reached 

kind of the same conclusion. The Fed has reached the same conclusion, and you basically said that there would be costs associated 

with collecting the data, but that there would be benefits flowing 

from the collection of data, and it is the Congress’ prerogative to 

determine whether to collect it or not. 

It is not the Fed’s prerogative to make that determination? 

Ms. BRAUNSTEIN. Correct. 

Chairman WATT. So you have basically thrown the ball back to 

us. Okay. That frames our hearing today, because it seems to me 

that Congress, at the end of whatever series of hearings we have 

on this, has to be evaluating the benefits of collecting the data, the 

detriments of collecting the data, and the cost of collecting the 

data. 

Would that be a fair assessment of what you would think would 

be the appropriate inquiries that we would be making, Ms. Williams? 

Ms. WILLIAMS. Yes, I think that is right. 

Chairman WATT. Okay. Both of you made some reference to cost, 

so let me get you to elaborate, if you can. You described some genVerDate Aug 31 2005 13:25 Nov 07, 2008 Jkt 044902 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\44902.TXT TERRIE
10 

eral problems associated with collecting data, but has anybody 

done any specific looks at what the actual cost would be, Ms. 

Braunstein? 

Ms. BRAUNSTEIN. Yes. The best frame of reference that we have, 

of course, is the HMDA system; and one of the benefits of HMDA 

is that the Congress did set out in a statute a very specific framework for the collection, the public reporting of that data, and it involves a lot of entities. It involves costs on the part of the lenders, 

certainly, who are doing the collection and the reporting. It involves a lot of costs on the part of the supervisory agencies who collect that information from the lenders and then analyze it and report it back out in public. 

So that is our best frame of reference. I don’t have numbers on 

that, but certainly, we would be willing to come up and talk to you 

and your staff, or whomever, about what costs are associated with 

HMDA. I would say they are pretty significant and we have a lot 

of resources ourselves dedicated to this process. Additionally, we 

think that collection of something like small business data would 

be even more complex than mortgage data, because of the nature 

of the loans. 

The products in small business lending are not nearly as homogenous or standardized as mortgage lending, so you are talking 

about a lot of different variables. So I think it would be the HMDA 

cost, probably plus an additional factor to put into place a robust 

system that would be valuable for people. 

Chairman WATT. Okay, before my time runs out, let’s compare 

the cost of collecting HMDA data to the benefits of collecting 

HMDA data. 

Does the Fed have a position on that? 

Ms. BRAUNSTEIN. Yes, as I have said in my testimony, we do 

think that HMDA data has been beneficial in terms of fair lending 

enforcement and in terms of providing information in the public 

that give people an understanding of mortgage lending. It is certainly not determinative of discrimination, but it is a very useful 

screening tool for us in our fair lending examinations. 

Chairman WATT. I ask unanimous consent for one additional 

minute. Would it be correct to say that the collection and public reporting of this data also has been a deterrent to or has deterred 

people, lenders, from engaging in discriminatory practices? 

Ms. BRAUNSTEIN. I think that is fair to say. 

Chairman WATT. Okay. How do you square that with the notion, 

then, that you all have had that somehow collecting this data in 

non-mortgage loans would or could run the risk of encouraging people to discriminate? 

Ms. BRAUNSTEIN. That statement was made in the context of voluntary collection not publicly reported. That context was made regarding just lifting the prohibition, which would have led lenders 

to ask people for this data without anybody checking it. Many of 

the lenders involved do not get regular examinations from supervisory authorities, so we would have no way of knowing if they 

were using it for bad purposes. That was in that context, not in the 

context of a public system. 

11 

Chairman WATT. Okay. And, Ms. Williams, finally, to what extent did you all do any analysis of what the actual cost might be 

of collecting this kind of data in non-mortgage situations? 

Ms. WILLIAMS. Given that there’s no current structure in place, 

the approach we took to collect what the cost would be was largely 

through conversations with regulators, HMDA experience, and also 

talking to lenders and focusing where the cost would be impacted. 

Chairman WATT. And is that fully reported in your report? 

Ms. WILLIAMS. It is. 

Chairman WATT. All right. I thank you. 

My time has expired, and I will recognize Mr. McHenry for 5 

minutes for his questions. 

Mr. MCHENRY. Thank you, Mr. Chairman. And thank you all for 

your testimony. 

You know, I would like to know from you, Ms. Braunstein, the 

Federal Reserve had a prohibition for a few decades, roughly, on 

collection of race, gender, and ethnicity, and then you went to this 

voluntary method. 

What was the thought process to move to the voluntary method 

of collection? 

Ms. BRAUNSTEIN. Actually, let me clarify that. We did not move 

to voluntary collection. We proposed it and then we withdrew that 

application. 

Mr. MCHENRY. What was the thought process behind the proposal? 

Ms. BRAUNSTEIN. The proposal, what we ended up with, was we 

have a little window there where lenders can collect it but only for 

purposes for doing their own self-testing for fair lending. But otherwise, there still is a prohibition in place on collecting this data. 

Mr. MCHENRY. It seems sort of bizarre, because in your testimony you said, and in answering Chairman Watt’s question as 

well, that you have some concerns about ensuring that this data is 

not used for other purposes if that data is requested, if that is the 

intent of Congress and the Federal Reserve. 

So how do you allow people to voluntarily do this as a self-check? 

I mean, it seems bizarre to me that you would say if you collect 

this data you could use it for ill intent, but at the same time, we 

are going to let you voluntarily do that so you can self-check. It just 

seems sort of odd. 

Ms. BRAUNSTEIN. Well, there are self-testing provisions in the 

ECOA, so that is a normal state of affairs where banks do their 

own mystery shopping and testing to make sure that their policies 

are being carried out. And so we did say that if this was a useful 

tool for them, they could do that. I will add that our understanding 

in talking to lenders is that hardly anybody is doing it. For many 

reasons they are not collecting this data, so I don’t think anybody 

has taken us up on that. But we did allow that window. 

Mr. MCHENRY. Could you collect an analysis of the cost of collecting HMDA data, and could you submit that to us? 

Ms. BRAUNSTEIN. We could put together figures, probably, on 

HMDA data. Yes, I would think that we could follow up with you. 

Mr. MCHENRY. Okay, just for the subcommittee to have that information, both the regulatory, the governmental portion of the cost 

and the private sector as well. 

12 

Ms. BRAUNSTEIN. Right. Obviously, we would have to estimate 

the private sector but we will do that. 

Mr. MCHENRY. Ms. Williams, you spoke generally of the cost. 

Can you go into some more detail about the cost of possibly implementing this? 

Ms. WILLIAMS. Our approach on this particular issue, we weren’t 

able to collect specific costs for institutions, because there is no rule 

in place. So the cost would be dictated by the specifics of a rule if 

it were in place in terms of what information had to be kept, what 

was collected, how it was maintained, and if it was publicly reported. 

We focused our conversations with lenders and regulators in 

terms of what are the broad categories that the cost would be incurred in, information systems, training employees, expanding 

their technological capabilities. And views varied about how much 

it would actually cost. Would it be extremely expensive because all 

of these systems would have to be created? Would they be able to 

build on existing systems as well as, for example, small business 

lending may not occur? 

Mr. MCHENRY. What was your conclusion? 

Ms. WILLIAMS. Our conclusion was that there is a potential for 

increased cost. No specific dollar figure was provided. 

Mr. MCHENRY. Okay. Just more? 

Ms. WILLIAMS. More. 

Mr. MCHENRY. So perhaps we need to have another study with 

some parameters on what it would actually cost, but we would 

have to give you some specifics. Is that what you are saying? 

Ms. WILLIAMS. Yes. And historically, when we have attempted to 

quantify costs of a particular change, it is extremely difficult because the specifics aren’t there. And also it is difficult to confine 

how the lenders go about attributing cost to a specific activity. 

Sometimes, they will lump in all the cost of information systems 

to a change without backing out the fact that there are certain 

things that they have to collect regardless of the change in the regulation or not. 

Mr. MCHENRY. Okay. Ms. Braunstein, sampling: Is there a possibility the Federal Reserve could do sampling in order to determine 

in this broad market of lending, you know, the racial breakdown, 

race, ethnicity, and gender breakdown in lending? 

Ms. BRAUNSTEIN. The problem is that we don’t have the contact 

with the borrowers. So right now there is a prohibition in effect for 

the lenders to collect that information. 

Mr. MCHENRY. But it is a Federal Reserve prohibition. 

Ms. BRAUNSTEIN. So there were wouldn’t be the implication that 

it is a sample. Do you see what I mean? The information would 

come to us. Normally, like in HMDA, the information is collected 

by the lenders, and then it comes to us by the lenders. Right now, 

the lenders can’t collect this information. 

Mr. MCHENRY. Yes, because of your prohibition. So you are saying the Federal Reserve can’t do it because the Federal Reserve 

prevents it from being done. So my question is, is there the possibility that you could through the lenders do sampling that is statistically sound? 

13 

Ms. BRAUNSTEIN. We would have to remove the prohibition in 

order to do that. 

Mr. MCHENRY. Actually, if you removed the prohibition, could 

you do that in a statistically sound way? 

Ms. BRAUNSTEIN. Yes, but the concern would be that without 

putting into place a framework for collection sampling, you would 

have similar problems to voluntary collection in that lenders would 

do it differently in different cases, and you would have apples and 

oranges. So, once again, we are talking about the need for a framework or system so that there is consistent data collected. Otherwise, it is not useful. 

Chairman WATT. Thank you. The gentleman from Missouri is 

recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Ms. Williams, on page 9 in your report, you mention in the first 

paragraph that the four Federal bank regulatory agencies said that 

the availability of HMDA data has facilitated the fair lending law 

examination process. How? Can you explain that? 

Ms. WILLIAMS. Yes, the existence of that data allows regulators 

to have information on a specific lender as well as industry-wide 

so they can look at the HMDA data as a baseline and determine 

if they need to look at a particular lending institution or certain 

aspect of the industry while enforcing their fair lending laws so 

they have demographic data. 

Mr. CLEAVER. Okay, that brings about Ms. Braunstein, does the 

Fed share the HMDA data with any other Federal agencies? 

Ms. BRAUNSTEIN. Yes, all the agencies. Well, it is publicly available to everybody, to the— 

Mr. CLEAVER. Public. 

Ms. BRAUNSTEIN. Public, yes. So, yes, it is publicly available. And 

the other agencies, the regulatory agencies, all use it in their fair 

lending examinations. 

Mr. CLEAVER. This data is available, but not necessarily sent to 

State banking? 

Ms. BRAUNSTEIN. Actually, we do send HMDA data every year to 

the State banking agencies. 

Mr. CLEAVER. How long has that been a practice? Forever? 

Ms. BRAUNSTEIN. Well, I don’t know about forever, but it is been 

quite a while. 

Mr. CLEAVER. In your testimony, you discuss how many institutions have been referred to the Department of Justice. Do you have 

any data on how those cases were disposed with the Department 

of Justice? What happened? 

I mean, can you say 12 institutions were taken to Federal court? 

Ms. BRAUNSTEIN. I do not have that information. Certainly, we 

receive information on how those cases are handled, and, there are 

a number of ways that they are. Sometimes, there are settlements 

between Justice and the lenders. Sometimes, the cases are sent 

back to us for disposition. I don’t have those statistics today, but 

we could certainly get you that information. 

Mr. CLEAVER. Yes, I am very much interested in it, because you 

know if there are violations, I think it would help the committee 

to know what the Department of Justice is doing. I mean, you 

know, and are we getting a letter from DOJ, saying you have been 

14 

a bad person or are there penalties that would discourage others. 

So I think that information would be very helpful. 

That is all, Mr. Chairman. 

Chairman WATT. I thank the gentleman, and the gentleman from 

Texas, Mr. Green, is recognized. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank the witnesses for your testimony. It has been very enlightening. 

Sometimes, we can make things a little bit more complicated 

than they actually are. Dr. King spoke of the paralysis of analysis, 

that you can take the simplest thing and analyze it to the point 

that you do absolutely nothing. So let me move quickly to what I 

say is a bottom line, notwithstanding the cost to collect and, by the 

way, that cost cannot only be the dollar amount to collect, but it 

could also be the cost on society for failure to collect the empirical 

evidence necessary. 

You can have a cost that is associated with actually the physical 

process of collecting information. But then, if you don’t collect, society has a cost. It is the cost of dreams not being fulfilled, the cost 

of homes not being purchased, the cost of wealth building not taking place. 

So there are various and sundry costs and we ought not just look 

at the dollar amount associated with the actual collection of data. 

Next point, notwithstanding the complications associated with 

data collection, I understand that it can be difficult. But I also understand that we collect an enormous amount of intelligence on 

things, and we do it most effectively and we do it consistently. And 

we do it in such a way that the information can be used for whatever the stated purpose is. 

So I ask you this: Do you agree that we can construct an effective 

data collection system if we have the will to do so? Can it be done? 

I would like to start with Ms. Williams. 

Ms. WILLIAMS. I think based on the experience with HMDA, 

HMDA is an important precedent to consider. So I think it is within the realm of possibility. 

Mr. GREEN. Okay. Ms. Braunstein? 

Ms. BRAUNSTEIN. Yes, certainly, it could be done. Again, it is a 

cost benefit analysis. 

Mr. GREEN. I understand. Well, cost benefit analysis, let’s just 

take that off the table just for the purpose of our discussion now. 

Assuming that we conclude that the benefits outweigh whatever 

the costs are, can a system be devised so that we can acquire empirical evidence indicating whether or not discrimination has taken 

place? 

Ms. BRAUNSTEIN. I don’t believe as with HMDA that we would 

ever be able to construct a system for small business or other data 

where it was definitive. On discrimination, I think that the HMDA 

system is an excellent screening tool and we use it that way. And, 

we could also build a system, like you say, if there was the will and 

people felt that the benefits were worth it. 

We could build a system for small business lending or other 

kinds of lending that would also be a screening tool, but it would 

not be definitive on discrimination. 

Mr. GREEN. Let me ask you this. If we have a system that allows 

us to ascertain who is involved in the process, whom it is that is 

15 

involved in the process; and, if we can determine what the outcome 

is of the persons involved in the process, are you indicating that 

we don’t have the intellect to put a system in place that will give 

us an opportunity to analyze data and come to conclusions? 

Ms. BRAUNSTEIN. No. I’m not saying we don’t have the intellect. 

I’m saying that the lending process as with HMDA is so complex 

that you need to go beyond what is reported on a data sheet that 

there would be almost an impossibility to collect every single factor 

that would go into a credit decision. 

That is what I am saying. I am not saying we don’t have the intellect. I am saying that you still would need to do investigations 

into files and other policies of the institution and a lot of other 

things in order to definitively— 

Mr. GREEN. Would we be in a position, Ms. Braunstein, to collect 

enough information such that we can do the follow-up investigations that would say to the person making the inquiry, you need 

to do this follow-up investigation? 

Ms. BRAUNSTEIN. Absolutely. 

Mr. GREEN. Could we do that? 

Ms. BRAUNSTEIN. Yes, that is what I was saying. It is a screening 

tool, yes. 

Mr. GREEN. All right. And upon moving forward with the followup investigation, then couple that intelligence with the intelligence 

acquired initially. Then can we start to draw the conclusions? 

Ms. BRAUNSTEIN. Yes. 

Mr. GREEN. Here is a point, friends. Really now, here we are in 

2008, and we are debating whether or not it is appropriate to ascertain, to put in place a proper system to ascertain whether discrimination is taking place. 

Now, there are so many people who can tell you that it is taking 

place and you can always dispute it, but the point is that at some 

point in America, we ought to just get on with it and stop making 

excuses for what we know to be something that can be done. We 

can put this system in place if we so choose. It is a question of will, 

not way. 

Do you differ with me, Ms. Williams? 

Could you say yes or no please? 

Ms. WILLIAMS. No. 

Mr. GREEN. Do you differ with me, Ms. Braunstein? 

Ms. BRAUNSTEIN. No. 

Mr. GREEN. All right. Mr. Chairman, I yield back, and I just beg 

that we get on with the business of eliminating invidious discrimination. It really is time. 

Thank you. 

Chairman WATT. I thank the gentleman for his questions. I ask 

unanimous consent to ask a few more questions, just to be clear on 

a couple of things. So let me ask unanimous consent for 3 additional minutes. 

Ms. Braunstein, it is not clear to me whether I understand that 

you think as a matter of policy it would be better for Congress to 

make the decision whether to construct a system to collect this 

data in non-mortgage situations. 

Is it also the Federal Reserve’s position that you don’t have the 

authority to do it now without congressional legislation? 

16 

Ms. BRAUNSTEIN. We are still looking at that issue. We think 

that it may be unclear as to whether we would have the authority 

to put into place the kind of framework that exists with HMDA, 

which would involve the other regulatory agencies. It involves more 

than just telling banks to collect data. 

Chairman WATT. So, clearly, you would prefer us to do it than 

you all assume that responsibility? 

Ms. BRAUNSTEIN. Yes, that is a decision for Congress. Yes. 

Chairman WATT. Okay. 

Just in follow-up to Mr. Green’s questions, I would like to submit 

for the record the Federal Reserve Bank of Boston’s report on credit card redlining in which it is fairly unequivocal in its assessment. 

Credit cards and the availability of credit cards is one form of credit that we are talking about. It is pretty specific in its observations. 

I will just read one or two sentences that says the paper’s principal observation is that remarkably in spite of identical scores and 

identical community characteristics, an individual in the black 

neighborhood receives less consumer credit than the individual 

than the white area. 

That is in spite of the fact that both have been assessed to have 

been similar risk of non-payment as determined by the credit score, 

the person living in the black area has less ability to access credit. 

That is the Federal Reserve Bank of Boston. That is part of your 

operation, isn’t it? 

Ms. BRAUNSTEIN. Yes, it is. 

Chairman WATT. Okay. And the Federal Reserve Bank of Chicago, that is your operation, too? 

Ms. BRAUNSTEIN. Correct. 

Chairman WATT. Going all the way back to 1999, and I am going 

to ask unanimous consent to put in a letter dated November 17, 

1999, from the Federal Reserve Bank of Chicago and the attachments to that letter where it is pretty aggressive, and its position 

about whether we ought to be mandatorily setting up the system, 

too. 

So just to complete the record, I am just trying to make sure we 

have a full record on this. I noticed that our illustrious chairman 

of the full committee has come in and I would be honored to yield 

to him as much time as he may consume. 

The CHAIRMAN. I thank the chairman. 

If I can make a statement, it was fortuitous that I came here. 

We are talking about the good work that was done by the Federal 

Reserve Bank of Boston and there is also the University of Massachusetts, Boston Center, that studies this. And, of course, my colleague Mr. Lynch is also here. We have learned a lot about this in 

Boston. 

I would just say with regard to collecting this data, I have seen 

this movie before, and it has a happy ending. In the late 1980’s or 

early 1990’s, my then-colleague or former Member of the House, 

Joe Kennedy, led the fight for the Home Mortgage Disclosure Act 

data, and it was very controversial. And in fact, it lost in this committee and was then overturned on the Floor. And a former close 

ally of Newt Gingrich, a former Member from Pennsylvania, Bob 

Walker, took the Floor on a very forceful speech and helped us 

overturn the negative vote; he supported it and said, ‘‘No.’’ 

17 

If this country isn’t going to confront racial discrimination, which 

we all know continues to be a factor, then we are failing ourselves; 

and, there was a good deal of negative argument there and there 

were predictions that collecting the HMDA data on race and gender 

would be terribly disruptive. 

Today, I think there are very few people who aren’t very glad 

that we have it. It has become the common currency, the data that 

has been very important for a lot of discussions; and I have been 

to presentations in the real estate industry and others who are so 

glad to have this data. I just wish people would look at that example, because we had many of the same concerns when we decided 

to do this with regard to HMDA. 

Joe Kennedy took the lead and was under the chairmanship, of 

course, of Henry B. Gonzalez, a great fighter for fairness, and it 

worked very well. I believe it would work very well here, too. So 

I apologize for coming in and out of the hearing, but we are dealing 

with the housing bill and that is taking some of my time. But this 

is a very important hearing. I appreciate the chairman of the subcommittee devoting time to it, and I just want to say again, I hope 

people will look to the example that we had before and how helpful 

it has been. I think that this hearing will be helpful to us in going 

forward as well. 

I thank you, Mr. Chairman. 

Chairman WATT. I thank the chairman for being here, and I 

would just say to the chairman that I think there will not be put 

together a more comprehensive record than we are trying to put together in this subcommittee to support whatever public policy the 

Congress decides to take on this. 

We want to try to be fair. We hope to have a follow-up hearing 

on the cost aspects of it, but I think we have this issue framed 

pretty well. 

The CHAIRMAN. If the gentleman would yield further, when you 

say I appreciate it, it is reinforcing that, because obviously we are 

getting late in this year. But this particular issue will be, unless 

things develop in November very differently than I think most of 

us now expect, I can guarantee people that this will be very high 

on this committee’s agenda in 2009. 

Chairman WATT. I am delighted to yield to the other gentleman 

from Massachusetts, Mr. Lynch, a member of the subcommittee, for 

as much time as he may consume. 

Mr. LYNCH. Thank you, Mr. Chairman. 

I appreciate that and I associate myself with the remarks of the 

full committee chairman, as well. 

Ms. Braunstein, I don’t want to put you on the spot here. I know 

that as far as the GAO report that is central to our discussion this 

morning, the FRB, the Federal Reserve Board, did not take an official position regarding the GAO report. However, I would like to 

really get down to the essence of this in a couple of sentences. And 

I just want to ask you about this partially, if you would be so kind. 

The report states in the third paragraph. It says that, ‘‘Requiring 

lenders to collect and publicly report data on personal characteristics for non-mortgage loan applicants could help address current 

data limitations that complicate efforts to better assess possible 

discrimination.’’ It does go on to raise concerns consistent with the 

18 

chairman’s remarks about costs and how to do this. But just on 

that basic assessment, and I think it is pretty powerful, I want to 

know your own thoughts on this and your own observations from 

your position. 

Is that something that could be done here fairly accurately and 

with a minimal cost being generated? 

Ms. BRAUNSTEIN. First of all, we agree with the position that if 

there was a good data collection, it could be helpful. As to whether 

it could be done with minimal costs, we are not sure. I mean, as 

I have said before, our best frame of reference is the HMDA data, 

and the HMDA data is an excellent system, and everybody benefits 

from it. We believe that wholeheartedly, but it is not without significant costs. So I think again it is a cost-benefit decision that 

needs to be made here. 

Mr. LYNCH. Yes. Ms. Williams? 

Ms. WILLIAMS. Our position is that it could address many of the 

limitations that exist in terms of fully enforcing all aspects of the 

fair lending laws and the costs have to be weighed against that. 

But we do raise the fact that the survey of small business finances 

that is currently used as the data source by researchers that do research in this area and have identified issues will be going away. 

So now really is the time to evaluate given that important data 

source will be going away and how it is going to be replaced is unclear in terms of deciding whether additional information will be 

helpful. And I think in terms of enforcing fair lending laws, it is 

critical that information be available to, at a minimum, the regulators. 

Mr. LYNCH. Yes, I agree; and, maybe I am just providing my own 

testimony, but based on what I have read here and some of the reports provided by the additional witnesses, it would appear, just as 

you say, Ms. Williams, the timing here is very, very critical. And, 

also, the likely benefit in my opinion of getting this additional data 

so that we can more accurately measure and address the discrimination that remains I think outweighs. 

We will have to do this carefully, precisely, and accurately, working with the lending community. But I definitely think this is 

something that is tremendously worthwhile and beneficial to all of 

us, and I think the challenge will be just that—how to do it in a 

cost-effective way. 

But again, I want to thank you both for your testimony and I 

yield back the balance of my time. 

Chairman WATT. I also want to express my thanks to these two 

witnesses for framing this issue and giving us the context for evaluating it; and, particularly, I thank Ms. Williams of the Government Accountability Office for the excellent report that your Office 

has generated in response to our request. 

So with that, this panel is excused, and we will ask the next 

panel of witnesses to come forward. 

While everybody is getting seated, and in hopes that they won’t 

realize how much I butchered their names—I think my staff has 

made it difficult by giving me a bunch of witnesses with complicated names to pronounce. So let me just say that without objection, your full bios will be made a part of the record. We will not 

engage in long introductions in the interest of time. 

19 

Our first witness will be Dr. Ken Cavalluzzo, Wisconsin Capital 

Management LLC. Our second witness will be Mr. Robert F. 

Gnaizda, general counsel, The Greenlining Institute. Our third witness will be Mr. Bill Himpler, executive vice president, Federal Affairs, American Financial Services Association. Our fourth witness 

will be Mr. Jorge Corralejo, chairman of the Latino Chamber of 

Commerce of Greater Los Angeles. And our final witness will be 

Ms. Ann Sullivan, the president of Madison Services Group, on behalf of Women Impacting Public Policy. 

Without objection, your entire written statements will be made 

a part of the record, and each of you will be recognized for a 5- 

minute summary of your testimony. 

Dr. Cavalluzzo, we now recognize you for 5 minutes. 

STATEMENT OF KEN CAVALLUZZO, RESEARCH ANALYST, 

WISCONSIN CAPITAL MANAGEMENT LLC 

Mr. CAVALLUZZO. Thank you. 

Mr. Chairman and other distinguished members of the subcommittee, my name is Ken Cavalluzzo. I am a research analyst 

at Wisconsin Capital Management, an investment firm located in 

Madison, Wisconsin. 

Thank you for the opportunity to speak today about whether 

lenders should be required to collect race and gender data of borrowers for all loans. My testimony today is based on work I started 

as a graduate student at the Wharton School of the University of 

Pennsylvania where I received my doctorate, and continued while 

on the faculty of Georgetown University’s McDonough School of 

Business. 

My research was conducted in collaboration with Dr. Linda 

Cavalluzzo, a senior economist at CNA, and Dr. John Wolken, a 

senior economist at the Board of Governors of the Federal Reserve. 

Our research on this topic has been published in leading, peer-reviewed, academic journals sponsored by the University of Chicago 

and Ohio State University. 

The common finding across all our research is that black-owned 

firms were denied credit at higher rates than white-owned firms. 

Even after controlling for relevant risk characteristics, black-owned 

firms were denied credit at almost twice the rate of white-owned 

firms. The differences are economically meaningful and statistically 

significant. 

We found that black and Hispanic firms were significantly more 

likely not to have applied for credit for fear of being turned down; 

and, we found that blacks, Hispanics, and Asians were significantly 

more likely to have unmet credit needs than were firms owned by 

white males. Our work is based on data obtained from the borrower, that have strengths and limitations relative to lender data. 

These limitations together with the differences we document on 

credit access among demographic groups strongly point to the need 

to collect both borrower and lender data. 

I believe that data should be collected from the lender on the personal characteristics of borrowers of non-mortgage credit. I do not 

believe that collecting such data would be particularly onerous or 

costly to lending institutions. Such collection would not materially 

heighten the likelihood of discrimination. 

20 

According to our data, 78 percent of small business loans are on 

a face-to-face basis, and small business lending tends to be relationship-based. So the opportunity to discriminate on personal 

characteristics already exists, even in the absence of collection of 

such data. 

Collecting personal characteristics data would likely benefit regulators, lenders that do not discriminate, and borrowers. Data collection is an important step towards ensuring equal treatment in 

lending to minority-owned small businesses. 

I recommend that collection of personal characteristics data from 

lenders be mandatory. Data provided by volunteers are unlikely to 

be representative of behavior across the industry. The data should 

be collected and at a minimum reported to the appropriate Federal 

banking regulator. Data reporting is a more expensive activity than 

data collection, yet such costs may be limited to the degree that 

banks already codify their data. But I have an important caveat. 

Reporting personal characteristics data without reporting corresponding information on risk characteristics is a fairly meaningless and potentially dangerous exercise, as such disclosure could 

unfairly characterize some banks as engaging in discrimination. 

Given the importance of financial institutions to the funding of 

small businesses, to the important roles small businesses play in 

the U.S. economy, and the wide differences in acceptance rates 

found between black- and white-owned small businesses, I encourage Congress to consider mandating that all key information to the 

application and pricing decision be made public. 

In this spirit, Congress should revisit the Federal Reserve 

Board’s decision to discontinue the small business data series, 

which provided data from the borrower. The Federal Reserve no 

longer collects small business data from the borrower, nor does the 

Federal Reserve collect such data from the lender. Plain and simple, it is difficult to learn anything without data. 

Markets would function better if applicants knew the information 

that went into the underwriting decision. Regulators could regulate 

better. Borrowers could become better borrowers. Lenders would 

probably become better lenders. Obviously, reporting data is more 

costly than simply collecting it; yet, given the advancements and 

technological developments for data gathering, reporting, and analyzing, historically, it has never been cheaper. 

I appreciate the opportunity to testify and I look forward to any 

additional questions you may have. 

[The prepared statement of Dr. Cavalluzzo can be found on page 

55 of the appendix.] 

Chairman WATT. Thank you very much for your testimony. 

Mr. ‘‘Gnaizda?’’ 

Mr. GNAIZDA. ‘‘Gnaizda.’’ 

Chairman WATT. I have captured your name already, so Mr. 

Gnaizda, you are recognized for 5 minutes. 

STATEMENT OF ROBERT F. GNAIZDA, GENERAL COUNSEL, 

THE GREENLINING INSTITUTE 

Mr. GNAIZDA. Good morning, Mr. Chairman, and members of the 

subcommittee. 

21 

Greenlining believes that this is a unique opportunity, the recommendations of the GAO study. It is a unique opportunity for a 

major economic stimulus far beyond any stimulus so far approved 

by this Congress, and it is a great potential for job creation. 

Two-thirds of all new jobs in this country come from small businesses. Forty-five percent of small businesses are women or minority-owned. There are approximately 13 million in total. Greenlining 

members include the U.S. Hispanic Chamber, the California Hispanic Chamber, the California Black Chambers, and the Asian 

Business Associations. All believe that the GAO study was long 

overdue. 

We have a 15-year history of addressing this matter. Congresswoman Maxine Waters was a leader in 1993 in supporting a revision for mandatory reporting. Greenlining members visited with 

Chairman Greenspan on at least 10 occasions over the last 15 

years on this matter, and with Chairman Bernanke on three occasions since he became chairman. We fully support the GAO study. 

We believe that Congressman Green’s analysis is exactly correct. 

We can paralyze ourselves with over-analysis. We have three recommendations. The first is that the Federal Reserve develop a task 

force and all those lenders who failed to respond to this committee 

be part of that task force to develop common metrics and discuss 

costs if they wish. 

That should be done by September. The minority business associations will join in if requested. We believe the Federal Reserve 

should immediately eliminate its prohibitions and allow any financial institution that wishes to gather the data on a voluntary basis; 

and, we believe by no later than 2011 and hopefully by 2010 there 

will be mandatory reporting, and the reporting of course should be 

public. This is no different than HMDA and no different than SBA 

lending. 

These are the benefits: Number one, transparency; number two, 

this is fully consistent with Chairman Bernanke’s view that the 

Federal Reserve is often operating with inadequate data and needs 

more data—he has reiterated this on many occasions; third, we believe this is a multi-billion-dollar economic stimulus and will create 

hundreds of thousands if not millions of new jobs over the next few 

years; fourth, we think it will discourage discrimination; fifth, we 

have the Wells Fargo model, and I am sorry that they declined to 

testify. They have side-stepped the Federal Reserve’s rule and courageously with the assistance of the Latino business community, 

the black business and the Asian business community developed 

multi-billion-dollar goals for small business lending for women- and 

minority-owned businesses and have achieved all of their goals, in 

many cases exceeded them. 

Lastly, something that has not been discussed is the effective 

marketing opportunities for financial institutions. There is no way 

to effectively market to the 13 million minority- and women-owned 

businesses unless you can get data on it and determine how successful you are. So banks are losing multi-billions in opportunities. 

We will be meeting with the Federal Reserve on Friday to discuss this task force. We would welcome any financial institutions 

joining us, and we will be meeting with Sheila Bair on Friday. And 

this afternoon we will be meeting with Mr. Ryan, the UndersecreVerDate Aug 31 2005 13:25 Nov 07, 2008 Jkt 044902 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\44902.TXT TERRIE
22 

tary on this matter, as well as with OCC and OTS; and we have 

scheduled a meeting for November 18th with Chairman Bernanke 

and the minority business associations. 

We are open, and I am particularly open, to any questions regarding the Federal Reserve and discrimination or their contentions of it, and are open to any questions on costs, because we don’t 

agree on the cost analysis by the Federal Reserve. And we agree 

with you, Congressman McHenry. There are many unintended consequences of not gathering this data; and, we agree of course with 

Congressman Green’s position that this is long overdue. 

So thank you, Mr. Chairman, and members of this committee. 

[The prepared statement of Mr. Gnaizda can be found on page 

67 of the appendix.] 

Chairman WATT. Thank you very much. 

Mr. Himpler, you are recognized for your opening statement. 

STATEMENT OF BILL HIMPLER, EXECUTIVE VICE PRESIDENT 

OF FEDERAL AFFAIRS, AMERICAN FINANCIAL SERVICES ASSOCIATION (AFSA) 

Mr. HIMPLER. Thank you, Mr. Chairman, and, by the way, you 

pronounced my name exactly correct. 

[Laughter] 

Chairman WATT. You and Ms. Sullivan get rewards for having 

simpler-to-pronounce names. 

Mr. HIMPLER. It is a pleasure to be here this morning with you, 

acting Ranking Member McHenry, and the other members of this 

subcommittee. 

I am the executive vice president for the American Financial 

Services Association, AFSA. AFSA’s 350 members include finance 

companies that lend to consumers and small businesses. 

Mr. Chairman, I commend you and your colleagues for holding 

this hearing. We recognize the importance of ensuring that all persons have equal access to credit and are committed to eliminating 

discrimination in lending. 

We believe that ECOA and Regulation B contain the necessary 

restrictions and enforcement tools to end discrimination and we do 

not believe that access to affordable credit will be enhanced by requiring non-mortgage creditors to collect race and gender data. On 

the contrary, imposing data collection obligations may decrease 

credit options available and will increase the cost of credit for consumers and creditors alike. 

While both government and industry strive to make credit application processes as color blind as possible, we believe that the proposed requirement being discussed today goes against this goal. 

Reg B currently prohibits creditors from collecting information 

about the applicant’s personal characteristics including race and 

gender information in connection with non-mortgage credit. This 

prohibition ensures that decisions in non-face-to-face transactions 

are race neutral. 

For example, in the indirect finance situation, an auto finance 

company makes a decision about whether or not to purchase a retail installment sales contract based on the applicant’s credit worthiness, not his or her race. The decision is race neutral, because 

the finance company does not typically have contact with the appliVerDate Aug 31 2005 13:25 Nov 07, 2008 Jkt 044902 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\44902.TXT TERRIE
23 

cant and therefore does not have race information. There is scant 

statistical evidence to demonstrate that race or gender plays a role 

in access to or cost of non-mortgage credit. 

Rather, studies suggest that credit scores and related risk factors 

determine access to credit and the cost of credit. The Federal Reserve Board conducted a study to determine the relationship between credit scores and the actual credit losses and how those relationships vary for groups protected under ECOA. The Board concluded that credit scores accurately predict credit risk for the population as a whole and for all major demographic groups. 

The study revealed that on average, blacks and Hispanics have 

lower credit scores than non-Hispanic whites and Asians. This 

study suggests that if creditors were to collect data on race, the results would demonstrate a disparity in access to the pricing of credit that would be consistent with credit risk factors and not necessarily any discriminatory conduct by creditors. 

The Federal Reserve Board has already concluded the benefits of 

voluntary collection and reporting of race and gender data would 

not outweigh the potential harm. In 2003, the Board decided to retain the prohibition for two primary reasons: First, the collection 

of data not available before could create a risk of discrimination if 

it was made available; and, second, at least the voluntarily-provided data would be of questionable reliability. 

If voluntary data is unreliable, then the alternative would be 

mandatory data collection. From experience with HMDA reporting 

requirements we know that collection and reporting requirements 

require tremendous time and resources. We also know that a mere 

correlation between race and pricing without consideration of detailed creditworthiness factors cannot tell us whether or not illegal 

discrimination has occurred. 

Although collecting the data would provide little additional information, it will cause creditors to incur massive costs. These costs 

will inevitably be passed along at least in part to consumers at a 

time when consumers and creditors alike cannot afford increased 

cost of credit. Imposing mandatory data collection requirements 

should be driven by evidence that there is a lack of access to credit 

or fairness in pricing based on discriminatory factors. 

Today, most non-mortgage credit is underwritten and priced by 

creditors using objective, risk-based credit criteria without face-toface interaction or any information regarding the applicant’s race 

or other prohibited characteristics. These race-blind decisionmaking systems provide the very best assurances that consumers 

receive credit based on objective non-discriminatory criteria. It is 

hard to imagine that mandatory collection of racial information will 

improve this system. Collection and reporting of race and gender 

information also raises serious privacy concerns. 

Our experience with HMDA has shown that it is sometimes possible with the addition of other publicly available data to identify 

consumers in the HMDA loan registers. The collection and reporting of non-mortgage credit data significantly increases the risk that 

a consumer’s sensitive personal information will enter the public 

domain. Also, it may be that consumers will object to being asked 

information about their race and see this as a violation of their privacy. 

24 

In conclusion, Mr. Chairman, we believe that the Equal Credit 

Opportunity Act and Regulation B protect consumers from discriminatory lending practices and the current prohibition on data 

collection should be retained. Going forward, we must be careful 

not to undo the progress that has been made in creating a credit 

granting system that is race- and gender-neutral. 

That concludes my testimony. I thank you for inviting me to testify, and I would be happy to answer any questions. 

[The prepared statement of Mr. Himpler can be found on page 

71 of the appendix.] 

Chairman WATT. Thank you for your testimony. 

Mr. Corralejo, you are recognized for your testimony for 5 minutes. 

STATEMENT OF JORGE C. CORRALEJO, CHAIRMAN, LATINO 

BUSINESS CHAMBER OF GREATER LOS ANGELES 

Mr. CORRALEJO. Thank you, Mr. Chairman, and members of the 

Financial Services Committee for inviting me to participate in this 

very important hearing today. 

I sit here on behalf of the Latino Business Chamber of Greater 

Los Angeles. The Chamber does its best to represent the interests 

of over 200,000 Latino-owned businesses in the Los Angeles area. 

It also represents the interests of tens of thousands or more Statewide, and hundreds of thousands more nationally. 

Because of the dramatic growth of ethnic minority populations 

and their businesses as well, lenders must and are taking a different and more realistic look at their future business client base. 

For example, over 50 percent of the State of California’s population 

is ethnic minority. Their rate of growth and the development of 

small business is higher than the national average. 

In our community, the Latino community, the small business 

growth rate is 3 times the national rate. In our many discussions 

with bankers, they are often at a loss as to how to approach many 

minority business communities. Data collection will immensely 

help them. Through our various Reg B policy discussions within 

our Chamber and with other minority business chambers, we have 

universally agreed upon the need for collection and review of data 

by race, ethnicity, and gender as a benefit to all. This advantage 

would clearly be exercised by lenders in their marketing efforts to 

penetrate new and emerging ethnic communities. Information of 

this type, HMDA, has greatly increased the number of home loans 

to minority communities. 

It is our expectation that the number of loans to small businesses 

would increase several fold with this policy change. The economic 

contributions and growth in minority communities would be substantial. In the minds of Latino business owners, the collection of 

this data makes very good business sense. Minority small businesses depend heavily upon home equity funds for small business 

start-up and/or expansion. 

A major question in the small business arena is how great of an 

impact will the foreclosure crisis have on the small business community and, in this case, minority small business communities. 

Lenders need to know how this crisis impacts the future for small 

business clients and their ability to obtain small business loans in 

25 

the future. The compilation of the data that we are requesting is 

an important component required for the progress of a whole picture on the national economy. 

A key instrument to this policy alternative is the immediate appointment of a task force which would resolve the foremost details 

and the potential cost. This should include all relevant government 

regulators, lenders, and minority small business leaders and associations. The dialogue and strategies that will transpire from these 

meetings will not only bring resolutions to the data collection policy, but inadvertently address other common economic development 

issues as well. 

I sit here today representing hundreds of thousands of Latino 

businesses in their support for legislation requiring the mandatory 

reporting of small business by race, ethnicity and gender by lending institutions with $1 billion or more in assets. 

We further support legislation that would permit all lenders with 

the opportunity to volunteer a report on this same data prior to the 

date for mandatory reporting. 

Thank you very much. 

[The prepared statement of Mr. Corralejo can be found on page 

65 of the appendix.] 

Chairman WATT. Thank you so much for your testimony. 

Ms. Sullivan, you are recognized for your testimony. 

STATEMENT OF ANN SULLIVAN, PRESIDENT, MADISON SERVICES GROUP, ON BEHALF OF WOMEN IMPACTING PUBLIC 

POLICY 

Ms. SULLIVAN. Chairman Watt and members of the subcommittee, thank you for inviting me to testify today. 

I am here today representing Women Impacting Public Policy, a 

bipartisan organization that represents over half-a-million women 

business owners across the country. 

I would like to address two issues today: One, the hurdles that 

women-owned businesses face with respect to access to capital; 

and, two, the need for additional data relevant to small womenowned businesses. 

Let me just say at the outset it was only 34 years ago with the 

passage of the Equal Credit Opportunity Act that women were able 

to obtain their own credit in their own name. In 1988, landmark 

legislation H.R. 5050 built upon that progress by making business 

loans subject to that Act. This had a tremendous effect on the 

growth of women-owned businesses, which now total 10.6 million. 

The Bureau of the Census began counting women-owned businesses in 1972 as a pilot project. The program originally only 

counted sole proprietorships. It was later expanded to include C 

corporations, so it included women-owned businesses with a much 

larger revenue stream. 

Every year, WIPP conducts an annual survey of its membership. 

In the 2008 survey, we found that women are using more sources 

of capital than in the previous 2007 survey, and 60 percent of 

women business owners continue to seek outside funding for their 

businesses: 66 percent of the respondents use bank financing 

backed by home equity loans or other collateralized loans; 49 percent use credit card financing; 36 percent get their funding from 

26 

family and friends; 22 percent use SBA loans; 10 percent utilize 

angel investors; and 5 percent use SBA Microloans. 

The good news from the WIPP’s annual survey is that women appear to be making gains and obtaining credit to grow their businesses, but the struggles still continue. It is much more subtle, if 

discrimination in fact does exist. It is not as blatant as approval 

or denial. Rather, it is in the terms offered. 

While the problems I am going to mention may not be limited 

only to women-owned businesses, and are shared by other small 

businesses, let me just give you a few examples of barriers that 

they face. First, for early-stage businesses, the collateral requirements are high. Unless you have personal property to pledge 

against the loan, it is likely you won’t receive any financing. 

Second, banks will not accept a signed government contract as 

collateral, which is often the most secure stream of funding the 

small business has to offer. Third, government agencies can prohibit small businesses from bidding by setting the bonding requirements artificially high. The small business cannot obtain that level 

of bonding, so they cannot bid. It is an easy way to keep small businesses out. 

Fourth, the ownership terms for venture funding often prohibit 

women-owned businesses from using that avenue for funding; and, 

fifth, SBA loan fees have now become a real issue in whether members choose to use them or not. With regard to SBA loans, 40 percent of all long-term capital for small businesses is provided 

through the SBA loan programs. 

I believe some important changes have taken place since 2004 

that have really had significant consequences for the lending programs. 

Congress stopped subsidizing the rate for small business loans 

and it lowered the guarantee. That resulted in an increase of lender and oversight fees. 

Those increased fees, of course, are passed on to the borrower. 

The House FY 2009 Financial Services Appropriation Bill included 

$100 million to subsidize the loan guarantee program and reduce 

the lender fees. Unfortunately, it was not included in the Senate. 

We hope that the House will insist on its position with regard to 

this funding. 

The topic of discussion in this hearing is whether lenders should 

be required to collect race and gender data of borrowers for small 

business lending. Let me just note that the SBA certainly tracks 

all of its lending. We recommend that the committee take a look 

at how they collect their data and perhaps use it as a model for 

possible expansion of data collection for small business loans. 

The data on women-owned businesses and small businesses in 

general is hardly robust. Very few sources of data exist. The Census Bureau Statistic of U.S. businesses produces data by NAIC’s 

codes. Every 5 years, the Census Bureau conducts an economic census and that data lags 3 years behind. The Bureau of Labor Statistics produces employment statistics by firm size, which we use. 

Studies on small business lending, as you know, are very limited. 

One of the few sources that we had, which I understand is not 

going to be continued, is the Federal Reserve’s survey of small 

business finances. 

27 

We in the small business community, especially the womenowned business community, use that survey as the basis for many 

of our statistics. With regard to whether or not the data should be 

mandated, we do not feel qualified to comment, but we encourage 

the committee to seek the most reliable method of data collection. 

With increased data collection, privacy issues should also be considered. 

Regulation B was amended to track minority and women lending. We would request assurances that this additional data collection includes safeguards to protect the data from unlawful usage. 

In summary, the GAO report was not really able to ascertain 

whether or not women-owned businesses faced higher credit denial 

rates than white, male businesses. But from the many stories we 

hear across the country, we know that it is a difficulty for womenowned businesses to obtain growth capital for their businesses. 

We believe that increased information on lending can be a very 

valuable tool to identify potential barriers to obtain that capital. 

Thank you for giving me the opportunity to testify. I am happy 

to answer any questions. 

[The prepared statement of Ms. Sullivan cn be found on page 76 

of the appendix.] 

Chairman WATT. Thank you, and thank all of the witnesses for 

your testimony. 

We will now proceed to the questions of the members, and I will 

recognize myself for 5 minutes for questions. 

One of the concerns that has been raised is the great variation, 

once you get outside the mortgage data collection, the great variation in kinds of loans. You have automobile loans. You have credit 

cards. You have small business loans. You have various and sundry 

other kinds of credit extended. 

Mr. Cavalluzzo, Mr. Gnaizda in particular, are there some categories where we should possibly looking at not collecting data? 

Mr. CAVALLUZZO. Well, my work found large differences among 

small business lending, and, the differences that we found were far 

greater than what researchers have found in the home mortgage 

market. 

So I would definitely stress that area needs to be looked at. Now, 

as far as areas that may not need to be looked at, people have suggested, and whenever I raise the question of credit cards, because 

credit cards are through the mail, that discrimination is not an 

issue. 

Chairman WATT. That is what Mr. Himpler said. I think there 

are some categories where you can’t get to the race data, but is 

that really true? 

Mr. CAVALLUZZO. Well, that is what I was just about to say. You 

know, how do they decide who gets those mailings? Are certain zip 

codes receiving fewer mailings? I think the area that one would 

want to focus their energies would be a little bit different. So in 

credit cards, we might want to look at how people are deciding 

where these mailings get sent. 

In auto loans, a large percentage of auto loans are done at the 

dealership. The underwriter never interacts, meets with the borrower; however, there is the potential for issues at the dealership 

and that may be an area that could use some focus. 

28 

With auto loans, because there is a strong incentive to sell the 

car, we might not see differences at the acceptance stage, but we 

might see it in pricing. 

Mr. GNAIZDA. Mr. Chairman, our members have a slightly different view. They believe that the greatest consequences are in regards to potential discrimination and lack of marketing opportunities for small businesses; and, our position would be we would 

focus on that. But we have no objection; and, in fact, we strongly 

support full data collection in every area, because in every area 

there will be forms of discrimination. However, there may not be 

the will in Congress to go that far, and there may be increasing 

political opposition if we expand it beyond small business; and, that 

is why we have done it that way. 

Regarding the studies on discrimination, the Federal Reserve has 

never done a good study on small business discrimination; and the 

GAO has never done a study, although they have done a little analysis. We did an analysis 10 years ago for Los Angeles and South 

Central, and what we found is that most African-American and 

Latino business owners said that it was not discrimination that 

was the problem. It was the fear of discrimination; that is, they 

didn’t even apply for the credit because they feared discrimination. 

That is consistent with Capital Management’s position as well. 

We have also done a follow-up study in July of 2008, regarding 

Latino and Asian-American business owners in California. It is a 

random survey. It is small. We are going to turn it over to the Federal Reserve on Friday. We are going to ask them to follow up. It 

shows that 75 to 80 percent believe there’s either discrimination or 

lack of interest in small, minority-owned businesses. So I think we 

have the empirical evidence or we could easily demonstrate it to 

focus on small business and mandatory collection. 

Chairman WATT. Would the problem of fearing rejection or fearing discrimination be addressed by reporting in some measure? 

Mr. GNAIZDA. Yes, because Wachovia Bank, Bank of America, 

and Wells Fargo, for example, because I have spoken to all of their 

chairmen, would aggressively market to minority- and womenowned businesses. They now won’t do that except for Wells Fargo 

because they can’t collect the data, and therefore they can’t tell 

how successful they are. No one wants to pour hundreds of millions 

of dollars into marketing without being able to look at the results. 

So I think almost instantly we’ll be successful, and that is why 

we are going to urge the Federal Reserve immediately, as of January 2009, to allow any financial institution that wishes to replicate 

the Wells Fargo model. 

Chairman WATT. My time has expired. The gentleman from 

North Carolina is recognized for 5 minutes for questions. 

Mr. MCHENRY. Thank you, Mr. Chairman. Now, to follow up on 

your answer, Mr. Gnaizda, so what you are saying is Bank of 

America and those large institutions you mentioned currently discriminate because they don’t have to report data? 

Mr. GNAIZDA. No. I didn’t say they discriminate. 

Mr. MCHENRY. Well, that is what I understood. You said they 

wouldn’t market to them, because they don’t have to disclose the 

data. 

29 

Mr. GNAIZDA. No. They won’t market effectively because they 

can’t measure the results. So, there’s a form of inadvertent discrimination, but deliberately, Bank of America does not in my opinion want to discriminate. They recognize the enormous potential, 

particularly of minority- and women-owned businesses. In California, Bank of America knows that half of all new businesses are 

minority-owned. 

Mr. MCHENRY. So therefore, wouldn’t they market generally? 

Mr. GNAIZDA. Yes. 

Mr. MCHENRY. Across communities; isn’t that being done? 

Mr. GNAIZDA. No, they would use what I would call a white, male 

business approach that is tried and true, and they don’t use any 

other approach except for Wells Fargo, which has its own form of 

measuring results. It is not as accurate as would be under mandatory reporting, so I think this will be a golden opportunity for every 

major financial institution. And, Greenlining has met with occasionally every one of those. 

Mr. MCHENRY. Let me ask this question, Mister— 

Will you say your name? 

Mr. CAVALLUZZO. Cavalluzzo. 

Mr. MCHENRY. Cavalluzzo, thank you. 

You know, in terms of economics, if there is a vacuum created, 

someone will move into that vacuum. And based on the data you 

present, it seems to me that somebody can make a fortune by providing a service to a group that has been discriminated against. 

At least that is one way to look at it as, you know, why are people not jumping into that lurch? Can you give me based on your 

study in that regard? 

Mr. CAVALLUZZO. We actually tried to address the point that you 

just raised by saying, ‘‘That is right.’’ Taste-based or prejudicial 

discrimination is not profit maximizing; and, in fact, if it exists, 

competition over time should try to mitigate it. People ought to 

come in and fill that background. So we looked at differences in different types of markets to see if the markets with less competition, 

the differences are more pronounced. 

We found some modest evidence that indeed was the case. Unfortunately, I don’t have a good answer for you as to why we are still 

seeing these differences, even though I think you are right. Now, 

some forms of discrimination are economic based, despite being illegal, such as what’s known as statistical discrimination. That is, if 

it is costly or difficult to measure risk characteristics of the borrower one could use race as a proxy or as a measure of that as opposed to collecting the data. 

We can’t disentangle those issues as clearly as I would like to be 

able to, so it is hard to know why people haven’t come in. 

Mr. MCHENRY. Okay. You know, in your study, the question I 

have is you went to the borrowers to do the study because you 

couldn’t get the data from the lenders. 

Is there a potential if you had the information from the lenders 

that the conclusion would be different or perhaps more refined? 

Can you address it from that data set since that is what we are 

talking about? 

Mr. CAVALLUZZO. Lender data has its advantages without a 

doubt. We would get a much better sense of the true underwriting 

30 

model. We would know better what’s on the application and would 

be able to construct models that perhaps better resemble what goes 

into the actual underwriting decision. 

We had very rich data. The small business data series provided 

very rich data. It is hard to say with any empirical study, even 

using lender data, if we saw large differences, that those differences would be due definitively to discrimination. 

I don’t know that we could make much stronger statements than 

we have already made, but it would complete the picture more. 

We have looked at it from the borrower’s side. We have looked 

at it from the lender’s side and collectively here is what the data 

point to. 

Mr. MCHENRY. Thank you. 

Chairman WATT. The gentleman from Missouri. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Mr. Himpler, I am going to ask you questions simply because I 

can pronounce your name easily, so I am not picking on you. Your 

testimony, however, is amazing. On page 3 of your testimony, you 

open and say, ‘‘There is scant statistical evidence to demonstrate 

that race and gender play a role in access to or the cost of nonmortgage credit.’’ 

How do you respond to the GAO report, which suggests that discrimination does in fact play a role in non-mortgage lending? 

Mr. HIMPLER. Congressman, the GAO concluded that it may play 

a role. It doesn’t say that it does. Two, the report by the GAO is 

based on reports. It is not based on statistical analysis. 

Mr. CLEAVER. How can you be certain that there is no discrimination unless you already have the data and you are analyzing it? 

Mr. HIMPLER. We believe that the regulators have the data that 

they need. 

Mr. CLEAVER. Based on what? 

Mr. HIMPLER. Based on their ability to take a look at individual 

loan files. 

Mr. CLEAVER. No. No, the regulators have data. How do you 

know they have it? 

Mr. HIMPLER. I do know, in one instance in particular I will 

speak to, that the Fed has worked with the credit bureaus to get 

essentially the same sort of data that we would get from a sort that 

we are talking about by looking at credit histories, credit scores, by 

census track. 

You are going to achieve the same outcome so that you have with 

what we are looking at achieving. 

Mr. CLEAVER. So you have analyzed it? 

Mr. HIMPLER. No, sir. I have not analyzed it. 

Mr. CLEAVER. How do you know? If you haven’t analyzed it, how 

do you know? 

Mr. HIMPLER. How do I know what, sir? 

Mr. CLEAVER. How do you know the data Federal agencies are 

collecting would suggest that there would be no discrimination? 

Mr. HIMPLER. I don’t know that, sir. What I am saying is the evidence that is out there right now does not provide us with empirical data to make that conclusion. 

Mr. CLEAVER. So there is no discrimination? 

31 

Mr. HIMPLER. I am not saying there is no discrimination, sir. 

What I am saying is that the request to collect the data that we 

are talking about will, like HMDA, not show discrimination. What 

it does is provide a flagging system for the regulators to do further 

analysis. But at the end of the day, regulators or researchers have 

to look at individual loan files to determine whether or not discrimination existed. There is no way of getting around it, and we 

have talked about comparing this to HMDA. 

I think it is important for the committee to understand. Ms. 

Braunstein made a comparison that we want to make sure we don’t 

compare apples and oranges. Extending the analogy from HMDA 

to other types of lending is not like comparing apples and oranges. 

It is like comparing apples and concrete. With mortgage lending, 

you have a nationalized, standardized system. 

Using Fannie and Freddie automated underwriting, everybody is 

playing from the same deck of cards, if you will, or the same song 

sheet in terms of criteria that they use. When it comes to small 

business lending, when it comes to personal loans, when it comes 

to auto finance, you don’t have any sort of nationalized, standardized system. So, the question was raised as to whether or not we 

could do this. 

Yes, we could collect all the information that is necessary to 

make the determination. But essentially, what that would be is an 

unusable database. 

Mr. CLEAVER. Maybe I can get at it from this way. 

Mr. HIMPLER. Sure. 

Mr. CLEAVER. In your testimony you asked that we not act 

against Regulation B so that we will not undo the progress that 

has been made in creating a credit granting system that is race 

and gender neutral. 

Tell me what progress you are speaking about. 

Mr. HIMPLER. Essentially what we are talking about is as recent 

as 20 years ago. I would like to make the analogy that credit was 

like an on/off switch. If you had pristine credit history you had access to credit. If you didn’t, you were dealing with folks that nobody 

wants to deal with. With the technology developments and riskbased pricing, we have gone from an on/off switch to more of a dial. 

Creditors base the prices that they charge customers using the 

credit factors that those borrowers bring to the table. It is not an 

either/or. It is a range. 

Mr. CLEAVER. So we have made significant progress, and your 

goal is to make sure we don’t undo it. 

Mr. HIMPLER. Absolutely, I mean, the one thing Mr. Gnaizda 

mentioned was his analysis, and we would be more than happy to 

work with his organization to take his study to the regulators, have 

them assess the study in order to validate it to the lending institutions they are talking about, to the market, to the folks in every 

community across this great land. 

Mr. CLEAVER. Yes. I mean, you are talking about progress. And 

I have been black every day of my life and I, you know, can sit here 

and talk to you about progress. And I am troubled by the fact that 

you are almost suggesting here that there is no problem, and we 

probably shouldn’t even be doing this hearing. 

32 

Mr. HIMPLER. That is not what I intended to convey at all. We 

share your commitment to wanting to end discrimination. We are 

just not sure that collecting the data set of the type we are talking 

about, putting race and rates and gender information together 

without any credit information or other credit factors gets us in 

that direction. 

Those data sets are already available to regulators if they want 

to access them, essentially through the credit bureaus as a screening tool. But at the end of the day, you still have to look at the 

individual loan files. There is no way of getting around it. That is 

what Ms. Braunstein meant. 

Mr. CLEAVER. Yes, you look at an individual loan file, and there 

is plenty of information that can be extracted that can be used for 

discrimination. I mean, somebody’s name is Shaft, or they have a 

zip code or Mr. T, or something, and you know if they went to Howard University. I mean, there are all kinds of ways to extract information for purposes of discrimination, and I don’t think we ought 

to deny that. 

That is one of the reasons it is continuing to hang around is because we are denying it instead of challenging it, and I am just 

concerned. I read your report three times, because I wanted to conclude that I had misread it; but I didn’t, and I am extremely concerned, you know. You even speak about the negative effects of 

data collection, as if collecting the data will generate greater discrimination. How do you do that? 

Mr. HIMPLER. Not greater discrimination; it will reduce access to 

credit. It will raise the cost for creditors. Ultimately, it will raise 

that cost and at least in part will be passed the law into the consumer. As costs rise, people have less access to credit. 

Mr. CLEAVER. Of course, that is already happening. 

Mr. HIMPLER. You just don’t want to make it worse. 

Mr. CLEAVER. Worse than what happened in the subprime market? 

Mr. HIMPLER. Yes. 

Mr. CLEAVER. I mean, every study shows that people were targeted for subprime loans. People went after certain people. The 

brokers, the real estate companies in some instances, went after a 

target group. Am I wrong? 

Mr. HIMPLER. I am not familiar with the studies you are talking 

about, sir. 

Mr. CLEAVER. Okay, well, let’s not—forget a study. Who do you 

think were the targets of the subprime loans? You don’t know? 

Mr. HIMPLER. No. 

Mr. CLEAVER. In almost all the newspapers, it has been clear, 

Latinos and African Americans. And I know that is surprising to 

you. 

Mr. HIMPLER. No, I would say a substantial number of subprime 

borrowers are Asians and non-Hispanic whites. 

Mr. CLEAVER. Well, why do you think they were targeted? 

Mr. HIMPLER. Based on the credit factors that they brought to 

the table, sir. 

Mr. CLEAVER. That had nothing to do with race? 

Mr. HIMPLER. I am not going to sit here and say that there are 

no instances of discrimination. I have no evidence to back up that 

33 

claim, but we in the lending community base our credit decisions 

on objectified credit histories that we get from the credit bureaus. 

The Federal Reserve came to this conclusion that credit scores are 

predictive. 

Mr. CLEAVER. My final question: Your recommendation is that 

we do nothing? 

Mr. HIMPLER. My recommendation is that we not do this. 

Mr. CLEAVER. So what should we do? 

Mr. HIMPLER. One of the things is that in listening to Mr. 

Gnaizda, he has proffered a study that he thinks will move the ball 

forward in terms of encouraging major institutions to get more aggressive in their marketing. I will commit to you right here today. 

We would be happy to work with his organization, to go to the regulators, to validate their results. And once they get the Federal 

regulators’ seal of approval, which I think is what would help gain 

the confidence of the financial institutions, and take that to the financial institutions. 

Mr. CLEAVER. That is a good answer. 

Mr. GNAIZDA. I don’t think that is a solution of any kind at all. 

Greenlining has raised with every financial institution, including 

your members, doing such studies. They have always refused to do 

so. We have had to foot the bill ourselves. 

We are happy to work with the Federal Reserve and we will 

make our invitations to the major financial institutions independent of the association, and independent of any delay, because 

I don’t want to have a delay until we have a study of 5 million, 

which your members will probably request at a minimum. 

Mr. HIMPLER. And, all I am saying is taking your results, having 

the Federal regulators look at them as an independent reviewing 

body, and then taking those results forward. 

Chairman WATT. The gentleman’s time has expired. 

We are going to go another round, because I have a few more 

questions. 

Mr. Himpler, did your organization support collection of HMDA 

data? 

Mr. HIMPLER. No. We did not. 

Chairman WATT. Okay, so you oppose that, too? 

Mr. HIMPLER. Yes. 

Chairman WATT. A part of our responsibility that we have undertaken is to try to look at the cost. And on page 4 of your testimony 

you cite the ‘‘massive’’ cost that creditors would incur if they were 

required to collect this data. 

Can you quantify what ‘‘massive’’ is? What information do you 

have that you can provide to the committee about the extent of the 

cost that would be associated with this? 

Mr. HIMPLER. Like Ms. Braunstein, it would be a back of the envelope estimate, Mr. Chairman. 

Chairman WATT. But we are looking for something more than a 

back of the envelope, and I am not sure that you should have it 

this morning; but if you come before this subcommittee and testify 

that there is a ‘‘massive’’ cost associated with it, then we need to 

be evaluating what that cost is. And the only way we can do that 

is to get something other than a conclusory word like ‘‘massive.’’ 

Mr. HIMPLER. May I? 

34 

Chairman WATT. So I am not suggesting that I need it this 

morning, but part of our responsibility is to look at the actual projected cost. And if you have information on that, we would welcome 

you to submit it in writing to us, not do it on the back of an envelope. Because our inquiries are a little bit more serious than the 

back of an envelope would suggest. 

Mr. HIMPLER. I did not mean to imply the inquiry was not serious. What I can tell you in terms of using the word ‘‘massive’’ is 

that a substantial number of lending institutions, finance companies that were discussed by Ms. Braunstein, do not come under 

Federal oversight. 

Chairman WATT. I am aware of that. That was my next question, 

in fact, but the cost of doing this for them would be? 

Mr. HIMPLER. A significantly higher portion relative to their 

business size. 

Chairman WATT. What makes you conclude that? 

Mr. HIMPLER. A number of them are not computerized in terms 

of their lending. A lot of loan files are— 

Chairman WATT. Who is not computerized in their lending? Tell 

me somebody who is not computerized in their lending that is engaged in the lending business? 

Mr. HIMPLER. I would say Regional Finance of Mississippi. 

Chairman WATT. Regional Finance of Mississippi? 

Mr. HIMPLER. A number of our companies are small companies. 

Chairman WATT. I understand that, but you said you were going 

to give me the names of some people who are not computerized and 

they are issuing credit? 

Mr. HIMPLER. No. No, in terms of the data set in terms of collecting HMDA-like data, they do not have it. 

Chairman WATT. I understand that. Nobody has a system set up 

to collect this data at this moment. We understand that. I mean, 

because nobody has required them to collect it up to this point, but 

when you represent to me that somehow this is disproportionate 

for people who are regulated or unregulated as opposed to those 

who are regulated, I don’t understand that. 

Mr. HIMPLER. This type of data collection is not something you 

can buy right off the shelf, so you have to outsource that, bring 

people in to work with your systems, work with your lending officers and your branches. 

Chairman WATT. Mr. Himpler, I am going to issue you an open 

invitation. We have made a commitment here this morning to have 

a hearing about the cost, because I think it is important for us to 

assess not only the benefit of collecting data, but the cost that 

would be incurred in the collection process. And, so, if you would 

in the next 30 days give us as complete information as you can give 

us about your analysis of what you characterize as ‘‘massive’’ costs 

associated with what could be required. 

I understand that there are costs associated. We haven’t denied 

that. It was part of my opening statement if you were here. And 

I understand that it is our obligation to assess at some level the 

benefits against the cost, and the only way we can do that, I think, 

we know the benefits of doing this, although you argue with those, 

too. 

35 

What we are interested in is getting a better handle on what the 

cost would be, and so I am issuing you an invitation to submit that 

in writing. 

Mr. McHenry. 

Mr. MCHENRY. Mr. Himpler, what are the privacy concerns? 

You have testified about HMDA data, last year in the prior Congress. I don’t have the date in mind, but can you talk about the 

privacy concerns in collecting this type of data? 

Mr. HIMPLER. Sure. In the HMDA context, using HMDA loan 

registers and other publicly available data, currently, you can determine exactly who got what loan in giving census tracks—not 

across-the-board—but it is possible to do. 

Our fear in this regard is that particularly with respect to auto 

finance lending, looking at census tracks and other available information such as title registries, that you would be able to do exactly 

the same sort of thing, redact out of the data collection what rating 

your neighbor got on his or her Honda Accord or Ford Escort. 

Mr. MCHENRY. Okay. You know, the issue here, we go back to 

HMDA data. This is instructive for me. It seemed like the large financial institutions were not serving the groups that we are concerned about here today. And I think that was brought out. 

Mr. Gnaizda, you are nodding, but I think the HMDA data 

showed that some of these large financial institutions were not 

going out and doing it. And back to my concept with Mr. 

Cavalluzzo, at least the economic notion, I don’t know if it is reality, and that is what we are trying to hash out here today. I 

think the chairman’s intent to see if this data bears that out, but 

the vacuum is filled. 

I believe in terms of the HMDA data, the data showed that the 

subprime marketplace when it actually filled that vacuum, some of 

these larger institutions were not doing this. So you had smaller 

institutions that had different pricing models that went in and figured out a way to do it. And Mr. Gnaizda, go right ahead. 

Mr. GNAIZDA. Yes, we quite agree with you. That is the problem, 

that if you created an enormous vacuum the unregulated will engage in unscrupulous behavior. That has what has caused the 

subprime crisis. 

Mr. MCHENRY. Well, that is not all of it. Let’s not simplify this. 

I mean we have a huge economic issue here, and you can’t simplify 

it to simply say you had a bunch of legal operators. You can’t simplify it. 

Mr. GNAIZDA. You had, for example, those on the edge like Countrywide that dominated the market and forced the scrupulous with 

a couple of exceptions to compete with them. 

We don’t want to create the lowest common denominator. We believe that the HMDA data you raised demonstrated the importance 

of this data. Richard Rosenberg, then president of the Bank of 

America, had told Greenlining members that Bank of America took 

advantage of every opportunity to make loans to African Americans 

and Latinos and resented the community’s views that they did not. 

When HMDA data was forced upon them, the first year after they 

collected it, he asked us to come and meet with them. And he said, 

‘‘I was wrong. We did not maximize the opportunities, and now we 

will.’’ 

36 

And that is exactly what I think will happen when we have Reg 

B being abolished and there is mandatory reporting. The major 

banks and their CEOs will come here in 5 years and perhaps thank 

you. 

Mr. MCHENRY. So would you say, I mean, I know you are not in 

a lending marketplace, but I would say that a car loan is different 

from a home loan and is different from just a personal loan. And 

having gotten all three, I know the hoops that you go through are 

very different and your asset requirements and everything else. 

So in terms of getting the depth of the pricing model and the risk 

model, how do you really do that, Mr. Cavalluzzo in terms of statistical analysis? Because you may have one firm, and you can see 

this with banks currently in terms of how strong certain banks are 

versus how at risk others are based on their own pricing model. 

You know, I go to one bank and they say, you know, heck no, we 

are not giving you a loan. You turn around to another bank and 

you can get it. You know, so in terms of the pricing model, how can 

you account for that in a statistically reliable way comparing apples to apples? 

Mr. CAVALLUZZO. That is right. Small business lending is a very 

complex issue. When I went to banks to start my research, I found 

some banks told me, ‘‘We just look at the credit score. That is what 

we use.’’ Other banks wanted a full balance sheet, income statement, to understand the business that the firm is engaging in. It 

is a very hard problem. 

Even bank underwriting models vary by the institution. So in 

part, and that is one of the limitations to borrower data, that lender data could help to address—getting data from the lender would 

potentially allow a researcher to let that underwriting model vary. 

Mr. MCHENRY. Well, if the chairman will indulge me for a moment here, there are two elements there. There is the competitive 

nature between the institutions doing the lending, and you have 

some institutions that believe their pricing model, their assessment 

of risk, is better and sharper than the other guy’s down the block. 

Therefore, they don’t want to release that. So you have some privacy issues within institutions. Secondly, counter to that you have 

individuals as a consumer in trying to get a loan who don’t know 

the different pricing mechanisms. So how do you on one hand let 

individuals know in the same manner allow these institutions to 

figure out their competitive advantages. I mean, how do you keep 

that data, you know, out of the competitor’s hands. 

Mr. CAVALLUZZO. Well, the name of the lending institution 

doesn’t have to be disclosed within the data. 

Mr. MCHENRY. But you can pretty easily figure it out. I am from 

a small town; and, I mean, you can give me a data set, and I guarantee I can figure out which one of the three banks in my town it 

is. 

Mr. CAVALLUZZO. If the data set were restricted to your town. 

But if the data set were for the entire country or the entire State, 

I think it would be much more difficult. 

Mr. MCHENRY. But in terms of lending, you can see census track 

information is what Mr. Himpler pointed out. 

How do you restrict that? You know, because we do have privacy 

concerns. 

37 

Mr. CAVALLUZZO. I think that the regulators need to take care 

with data that they actually do disclose, I don’t think that they 

necessarily need to disclose information that would allow a researcher to identify the particular institution. 

Yet, still, a researcher can learn an enormous amount from that 

set of data. In our data we had no idea what the lending institutions were. In fact, regional codes were nine large regions across 

the country. 

Mr. MCHENRY. But it is sort of a sliding scale. It is tricky to do. 

Mr. CAVALLUZZO. To mask certain pieces of the data? 

Mr. MCHENRY. Yes. 

Mr. CAVALLUZZO. I don’t believe it is that tricky. 

Mr. MCHENRY. Okay. Well, thank you for your testimony. I appreciate you all going through the second round. 

And, Mr. Chairman, I think the question here, and I am glad you 

are going to go for a hearing on the cost, because I think it is a 

great unknown. Everybody admits it will cost something. The question is what is that cost. We know the consumer will bear that cost, 

whatever it is, whether it is very small or very large. 

And so, Mr. Chairman, I think it is a laudable goal, and we have 

to figure out the best way of approaching it. I am grateful you are 

having this hearing. 

Chairman WATT. Mr. Cleaver. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I have two questions. 

How are you today, Ms. Sullivan? 

Ms. SULLIVAN. You don’t want me to fall asleep, right? 

[Laughter] 

Mr. CLEAVER. Yes, well, your name is easy to pronounce and I 

just wanted to make sure you were included. Thank you. 

Mr. Himpler. 

Mr. HIMPLER. Still here, Congressman. 

Mr. CLEAVER. I am stuck on ‘‘We must be careful not to undo 

progress that has been made in creating a credit planning system 

that has race and gender neutral.’’ And I am trying to see how we 

are on the verge of undoing that progress. 

Mr. HIMPLER. It is a very good question, first off. What I said in 

the first round of questions was that we have gone from a denial 

of access or the unavailability of credit to segments of our population as recently as 30 years ago to systems now where we can 

base credit approvals on objective, credit-scoring models that take 

advantage of objective criteria that does not involve prohibited 

characteristics in granting those approvals. 

Our concern was that with some of the collection: (1) it will increase the cost that will be passed along to the consumer—that increased cost may take some folks out of the equation in terms of 

affordability; and (2) it will raise privacy concerns because of the 

availability of publicly available data matched up with the type of 

collection that we have that will increase the fear that Mr. Gnaizda 

talked about earlier from wanting to have their private information 

revealed and would thus opt out. 

We think both cost and from privacy concerns that could roll us 

back. 

Mr. CLEAVER. Roll us back to 30 years ago. 

38 

Mr. HIMPLER. Not to 30 years ago, but it is backwards. It is not 

forwards. 

Mr. CLEAVER. I am getting a headache. 

Mr. HIMPLER. I don’t mean to give you a headache, Congressman. 

Mr. CLEAVER. No, it is too late. You know, there are all kind of 

ways to find out. I mean, to look at a document and see red flags, 

if you want to call it that, that would point to a specific racial or 

ethnic group and then make decisions based on that. I mean, you 

would not think that the gentleman sitting next to you to your left 

is Irish by looking at the name. Am I right about it? 

Mr. HIMPLER. Yes, you are right, but you wouldn’t think by looking at my name that I am half Mexican either, would you? 

Mr. CLEAVER. No. No. But I could tell by your statement that you 

haven’t been treated that way. 

Mr. HIMPLER. Not true. 

Mr. CLEAVER. That is all, Mr. Chairman. 

Chairman WATT. Thank you. 

Bottom line here, our inquiry is cost versus benefit, benefit 

versus cost. So let me just ask each one of the five witnesses to address, first of all, Ms. Sullivan, going from you to Mr. Cavalluzzo. 

What is your assessment of the cost benefit analysis on HMDA? 

Has HMDA been more beneficial than costly? 

And what is your assessment of the projected cost-benefit analysis on other kinds of lending other than mortgage lending if we 

were to require it be reported mandatory, Ms. Sullivan, HMDA cost 

benefit, non-HMDA cost benefit? 

Ms. SULLIVAN. We are not experts on HMDA. But I would say 

that all this talk about how much everything is going to cost is just 

confusing. And maybe the data is so much more comprehensive 

that you are talking about than what the SBA collects; they are not 

direct lenders. 

Lending institutions are reporting to them. I have never heard 

of any onerous costs associated with it. I have participated in plenty of small business lending Roundtables in the House and the 

Senate and no one has ever raised that. It seems to me that it is 

pretty simple. 

With regard to 7(a) loans, I can see that only 4 percent of African 

Americans used the loans in FY 2001 and it increased 5 percent 

in FY 2007. Clearly, the 7(a) program is not reaching out to the African-American population. It looks like there needs to be some improvement. I mean just even simple data collection like this is helpful to our segments of the industry, and it is also helpful to policymakers. It gives you benchmarks about where the lending is and 

what needs to be improved. I just don’t see why this can’t have the 

same relevance and the same kind of benefits for a larger data collection that you are talking about. 

Chairman WATT. Mr. Corralejo. 

Mr. CORRALEJO. ‘‘Corralejo.’’ 

Chairman WATT. ‘‘Corralejo.’’ 

Mr. CORRALEJO. Thank you. 

You know, I hear discussion about the ultimate costs passed back 

onto the borrower, and that could be the case. We don’t know. But 

I think that there is such a potential for growth here in the minorVerDate Aug 31 2005 13:25 Nov 07, 2008 Jkt 044902 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\44902.TXT TERRIE
39 

ity communities, I don’t think they need to be passed along to borrower. There is another option here. I think this is a question of 

growth. I think the same way that HMDA has attributed to greater 

loans to minority communities, I think this will be the same thing 

with minority business people. So, as banks grow and they open 

new branches, there are costs at opening branches, but the benefits 

far outweigh the costs. And I think that is the formula that we are 

looking here: does that potential really exist. 

And in our discussions with numerous bankers—we have numerous bankers as our partners—they are dying for a way to figure 

this out. Not that they have yet, but I think clearly this is one of 

the means and methods that we seriously need to take a look at. 

So I think in the end my assumption is that this is a cost of increased business and not necessarily passed along to the borrower. 

Chairman WATT. I take it you are not dealing with those banks 

or members of Mr. Himpler’s association. 

Mr. CORRALEJO. But we deal with small banks, and that is why 

in our testimony we talked about banks with 1 billion in assets or 

more, because we understand there are differences. So these are 

the details that need to be worked out. 

Chairman WATT. Mr. Himpler, on the cost benefit analysis of 

HMDA, first of all, and you have already actually testified about 

the cost benefit analysis of your assessment of the cost benefit 

analysis of what may be proposed, but I am not sure I have you 

on record. 

I know your association opposed collection of HMDA data, but 

now that it is out there, it has been done for a while, what is your 

assessment of the cost benefit analysis? 

Mr. HIMPLER. It would be silly to say that it hasn’t been beneficial to the regulators in terms of their ability to identify potential 

problems and do further investigation. But you can’t get a determination of actual discrimination from HMDA data. There is no 

credit information. 

Chairman WATT. What we do want to look at is pushing the data 

fields collection of other data fields where you can make that determination. But that is a subject for another day. 

Mr. HIMPLER. Right, I will leave it alone, but that does come at 

a potential cost of harm to the business community in terms of 

comparing race and rates, or ethnicity and rates, without any credit information that they are guilty until proven innocent. And that 

is a cost. So there is cost and benefit, and there is also the cost of 

the collection you have for the first time in the last 3 and 4 years, 

a number of mortgage companies that had never collected HMDA 

data period. So there was a ramp-up to that. 

As far as the cost associated with the proposal today, I just want 

to make sure folks understand exactly what we are saying: that 

there are easier ways to do this; that we will achieve the same sort 

of outcome from data sets that are already out there from the bureaus with respect to research or that can be used by the regulators as a flagging mechanism to do the further analysis that they 

need to do on a more cost-effective basis. 

Chairman WATT. Mr. Gnaizda. 

Mr. GNAIZDA. Yes. 

Chairman WATT. Same questions. 

40 

Mr. GNAIZDA. Yes, Mr. Chairman, we have analyzed the HMDA 

data. 

The number of African Americans and Latinos who have received 

home loans at fixed rates—these are prime fixed-rates every year 

once HMDA data was available—increased substantially. So there 

are millions of African Americans and Latinos and Southeast 

Asians who own homes today at fixed rates and are not subject to 

the present crisis due to HMDA collection. We believe many major 

banks, if their CEOs came, would testify to that. 

Now, with regard to cost-benefit-analysis regarding the future 

and small business lending, the benefits outweigh any possible 

cost, even if exaggerated three-fold. And that is because the same 

thing that happened with HMDA, more homeowners, as Mr. 

Corralejo has said, there will be more small businesses that are 

women-owned and minority-owned that will be the beneficiaries of 

prime, small business lending by major financial institutions. And 

we believe that the Federal Reserve can assist in this. 

That is why we are going to meet with Ms. Braunstein on Friday. They should call a task force immediately, and they should 

have the 10 largest financial institutions doing small business 

lending. We have identified them, and they should bring them in 

quickly, and by September begin a task force. 

Thank you. 

Chairman WATT. You have gone over that and that is why I am 

stopping you. 

Mr. Cavalluzzo. 

Mr. CAVALLUZZO. First, I am not aware of the data sets that Mr. 

Himpler refers to on this topic; and, I know the literature extremely well in this area. I think that the differences we document 

in our research, while I understand that there are costs to the 

lending institutions, I think the differences we document suggest 

that the cost to society are potentially quite large and that, I think, 

fair treatment needs to examine both the costs to the lender and 

the cost to society at large. The cost to lending institutions, though, 

may be less than I think we were being led to believe, because 

banks already codified this data. 

Many banks transfer this data to credit scoring models, so that 

these credit scoring models can be refined and improved upon. 

Banks pay credit scoring agencies to do this, so a lot of this data 

collection and transferring is already taking place. 

I think that banks could actually find this data useful, so that 

they can better understand the lending process. The lending process doesn’t need to be a black box to consumers or lenders. If people can understand what it takes to improve their credit score, 

then they are better borrowers. 

I think there are benefits to many pieces of society, rather than 

just the cost to lender. Lenders may actually find benefits in all of 

this. In particular, we may find that these data help us fill that 

vacuum that is out there for these firms that aren’t getting the 

credit they need. 

Chairman WATT. Your testimony has been amazingly helpful, I 

think, in helping us evaluate that. 

The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. Mr. 

41 

Himpler, for example, we will submit the request for your cost information in writing. 

Without objection, the hearing record will remain open for 30 

days for members to submit written questions to these witnesses 

and to place their responses in the record. 

We thank you all immensely for being here today, and for your 

interest in this subject, and unless Mr. McHenry has any other 

comments, I declare that the hearing is adjourned. 

Thank you so much. 

[Whereupon, at 12:37 p.m., the hearing was adjourned.] 

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