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| <title> - THE END OF RELATIONSHIP BANKING? EXAMINING THE CFB`S `SMALL BUSINESS LENDING DATA COLLECTION' RULE</title> | |
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| [House Hearing, 118 Congress] | |
| [From the U.S. Government Publishing Office] | |
| THE END OF RELATIONSHIP BANKING? EXAMINING THE CFPB'S `SMALL BUSINESS | |
| LENDING DATA COLLECTION' RULE | |
| ======================================================================= | |
| HEARING | |
| BEFORE THE | |
| SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS | |
| OF THE | |
| COMMITTEE ON SMALL BUSINESS | |
| UNITED STATES | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED EIGHTEENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD | |
| MARCH 28, 2023 | |
| __________ | |
| [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] | |
| Small Business Committee Document Number 118-006 | |
| Available via the GPO Website: www.govinfo.gov | |
| __________ | |
| U.S. GOVERNMENT PUBLISHING OFFICE | |
| 51-443 WASHINGTON : 2023 | |
| HOUSE COMMITTEE ON SMALL BUSINESS | |
| ROGER WILLIAMS, Texas, Chairman | |
| BLAINE LUETKEMEYER, Missouri | |
| PETE STAUBER, Minnesota | |
| DAN MEUSER, Pennsylvania | |
| BETH VAN DUYNE, Texas | |
| MARIA SALAZAR, Florida | |
| TRACEY MANN, Kansas | |
| JAKE ELLZEY, Texas | |
| MARC MOLINARO, New York | |
| MARK ALFORD, Missouri | |
| ELI CRANE, Arizona | |
| AARON BEAN, Florida | |
| WESLEY HUNT, Texas | |
| NICK LALOTA, New York | |
| NYDIA VELAZQUEZ, New York, Ranking Member | |
| JARED GOLDEN, Maine | |
| KWEISI MFUME, Maryland | |
| DEAN PHILLIPS, Minnesota | |
| GREG LANDSMAN, Ohio | |
| MORGAN MCGARVEY, Kentucky | |
| MARIE GLUESENKAMP PEREZ, Washington | |
| HILLARY SCHOLTEN, Michigan | |
| SHRI THANEDAR, Michigan | |
| JUDY CHU, California | |
| SHARICE DAVIDS, Kansas | |
| CHRIS PAPPAS, New Hampshire | |
| Ben Johnson, Majority Staff Director | |
| Melissa Jung, Minority Staff Director | |
| C O N T E N T S | |
| OPENING STATEMENTS | |
| Page | |
| Hon. Dan Meuser.................................................. 1 | |
| Hon. Greg Landsman............................................... 2 | |
| WITNESSES | |
| Mr. Troy Peters, President and Chief Executive Officer, JBT, | |
| Jonestown, PA.................................................. 6 | |
| Mr. Lucas White, President, The Fountain Trust Company, | |
| Covington, IN.................................................. 8 | |
| Mr. Michael Wilson, Chief Experience Officer, Members 1st FCU, | |
| Enola, PA...................................................... 9 | |
| Ms. Luz Urrutia, Chief Executive Officer, Accion Opportunity | |
| Fund, San Jose, CA............................................. 11 | |
| APPENDIX | |
| Prepared Statements: | |
| Mr. Troy Peters, President and Chief Executive Officer, JBT, | |
| Jonestown, PA.............................................. 28 | |
| Mr. Lucas White, President, The Fountain Trust Company, | |
| Covington, IN.............................................. 31 | |
| Mr. Michael Wilson, Chief Experience Officer, Members 1st | |
| FCU, Enola, PA............................................. 38 | |
| Ms. Luz Urrutia, Chief Executive Officer, Accion Opportunity | |
| Fund, San Jose, CA......................................... 61 | |
| Questions for the Record: | |
| None. | |
| Answers for the Record: | |
| None. | |
| Additional Material for the Record: | |
| Center for Responsible Lending (CRL), the National | |
| Association for Latino Community Asset Builders (NALCAB), | |
| and the National Coalition for Asian Pacific American | |
| Community Development (National CAPACD).................... 65 | |
| Colt Energy, Inc............................................. 69 | |
| Consumer Bankers Association (CBA)........................... 70 | |
| Consumer Financial Protection Bureau......................... 75 | |
| Honorable Greg Landsman--CFPB Symposium Report............... 123 | |
| Independent Community Bankers of America (ICBA).............. 131 | |
| National Association of Federally-Insured Credit Unions | |
| (NAFCU).................................................... 171 | |
| National Community Reinvestment Coalition (NCRC)............. 186 | |
| NCRC Fact Sheet.............................................. 191 | |
| Responsible Business Lending Coalition (RBLC)................ 197 | |
| Testimony of Nick Powell, Chairman, Colt Energy.............. 201 | |
| THE END OF RELATIONSHIP BANKING? EXAMINING THE CFB`S `SMALL BUSINESS | |
| LENDING DATA COLLECTION' RULE | |
| ---------- | |
| TUESDAY, MARCH 28, 2023 | |
| House of Representatives, | |
| Committee on Small Business, | |
| Subcommittee on Economic Growth, | |
| Tax, and Capital Access, | |
| Washington, DC. | |
| The Subcommittee met, pursuant to call, at 10:01 a.m., in | |
| Room 2360, Rayburn House Office Building, Hon. Dan Meuser | |
| [chairman of the Subcommittee] presiding. | |
| Present: Representatives Meuser, Williams, Luetkemeyer, Van | |
| Duyne, Alford, LaLota, Landsman, Velazquez, Chu, and Davids. | |
| Chairman MEUSER. All right. This hearing will come to | |
| order. Thank you. Thank you. This is the Subcommittee on | |
| Economic Growth, Tax, and Capital Access. This meeting has now | |
| come to order. | |
| Without objection, the Chair is authorized to declare a | |
| recess of the Committee at any time. | |
| I will now recognize myself for my opening statements. The | |
| title of this hearing is ``The End of Relationship Banking: | |
| Examining the CFBP's Small Business Lending Data Collection | |
| Rule.'' | |
| Again, good morning, and welcome to this hearing, examining | |
| the Biden Administration's continued regulatory overreach and | |
| its very harmful impact on America's small business economy. | |
| First, I want to thank our witnesses very much for being | |
| here today. We appreciate you taking the time to join us and | |
| sharing all of your insights. | |
| Today's hearing addresses a vital part of our country's | |
| economy, small community lending institutions and the role they | |
| play in assisting our small businesses. As we meet here today, | |
| the financial institutions across the country are actively | |
| engaged as we know in lending to main street America and our | |
| nation's entrepreneurs who are in the process of starting their | |
| own businesses. | |
| As our witnesses will discuss with the Subcommittee, the | |
| relationships between local lenders and the businesses in their | |
| communities takes years to build and refine. These community | |
| lenders are also the ones best suited to determine the | |
| structure of the loans that provide to their customers personal | |
| touch, knowing the customer, that it is impossible for a large | |
| national institution to replicate. | |
| Unfortunately, President Biden's Consumer Financial | |
| Protection Bureau (CFPB) is poised to throw another wrench into | |
| this vital aspect of our economy. The CFPB is proposing to | |
| implement a new rule, the Small Business Lending Data | |
| Collection Rule, that will impose burdensome new reporting | |
| requirements that would harm small business lending. This rule | |
| will alter the behavior of small financial institutions and | |
| make them hesitant to continue lending to small businesses | |
| based on their long-established relationships with main street | |
| America. | |
| This rule was born out of an obscure provision in Dodd- | |
| Frank almost 13 years ago. Most Members of Congress were too | |
| busy debating too-big-to fail to even pay attention or realize | |
| it was in there. | |
| Making matters worse, this rule will add an even larger | |
| regulatory cost burden to these small financial institutions | |
| that are already struggling to keep up with the Biden | |
| administration's costly regulatory agenda. According to the | |
| SBA's Office of Advocacy, this rule, ``may be unnecessarily | |
| burdensome to small entities, may impact the cost of credit for | |
| small businesses, and may lead to a decrease in lending to | |
| small, minority- and women-owned businesses.'' This is from the | |
| Office of Advocacy. The Office of Advocacy also estimates that | |
| the rule will have an initial $126 million impact on small | |
| financial institutions, and then going forward, an annual | |
| impact of $153 million. Unlike mega-banks that can absorb such | |
| costs, these will crush smaller institutions that do not have | |
| the budget to absorb such new regulatory burdens. The Office of | |
| Advocacy also expressed concern that this rule failed to | |
| properly consider alternative, less burdensome alternatives to | |
| the rule. These alternatives should have included exempting the | |
| smallest lenders but were never seriously considered. | |
| The rule also creates racial profiling issues, privacy | |
| concerns, an unrealistic implementation window, and mandates | |
| excessive data collection of small business owners. In the | |
| digital age we live in, such personal information in the hands | |
| of so many different entities should give all of us, especially | |
| the CFPB, pause on such requirements. | |
| At a time when main street America is dealing with | |
| unprecedented levels of inflation, interest rates that are | |
| being raised at the fastest pace since the 1980s, supply chain | |
| disruptions, and a prolonged labor shortage, adding more | |
| burdens to our country's job creators, and our banks, is the | |
| last thing the CFPB should be doing, but that is exactly what | |
| the Bureau and the Biden administration seem determined to do. | |
| Our small businesses and local community lenders deserve so | |
| much better. | |
| Without objection, I would like to enter into the record | |
| letters detailing the impact this rule would have on small | |
| business lending from the National Association of Federal | |
| Credit Unions, International Community Bankers Association, the | |
| Consumer Bankers Association, and the American Bankers | |
| Association. It seems this rule has brought community banks and | |
| credit unions together. So I guess there is a silver lining | |
| here somewhere. | |
| With that I will yield to our Ranking Member from Ohio, Mr. | |
| Landsman. | |
| Mr. LANDSMAN. Thank you, Mr. Chairman, for holding this | |
| very important hearing and examining the CFPB's small business | |
| lending role and examining ways to create a much more fair and | |
| successful equitable lending system. For far too long, women- | |
| and minority-owned small businesses have experienced obstacles | |
| to accessing capital. Part of the reason is the lack of data | |
| and transparency related to small business lending. | |
| The scant data that exists continues to show that these | |
| businesses lack the same access to external financing when | |
| compared to traditionally owned firms. And during hard economic | |
| times, the barriers to access capital are even greater. | |
| According to the CFPB, minority- and women-owned small | |
| businesses were disproportionately hurt by the pandemic because | |
| they had fewer cash reserves and faced deeper hurdles to | |
| accessing capital. | |
| The Paycheck Protection Program highlighted the disparities | |
| between these white-owned businesses and businesses of color. | |
| The Federal Reserve Bank of New York found that the PPP loans | |
| only reached about 20 percent of the eligible firms in states | |
| with the highest densities of black-owned firms. The report | |
| confirmed what we already suspected, the presence of racial | |
| disparities in banking relationships and significant gap and | |
| credit access in underserved communities. | |
| Section 1071 of Dodd-Frank passed over a decade ago | |
| attempts to remedy this situation by requiring financial | |
| institutions to simply collect and report on the demographics | |
| of small business owners applying for financing. Doing so | |
| facilities the enforcement of fair lending laws and identifies | |
| business and community development needs for small businesses. | |
| I am encouraged that the CFPB will be issuing a final rule | |
| in the next few days. It has been a long 12 years to get to | |
| this point which included a lawsuit to prevent the previous | |
| administration from intentionally delaying this rule. The CFPB | |
| has conducted considerable outreach to small firms which | |
| included convening of the Small Business Regulatory Enforcement | |
| and Fairness Act panel in October 2020 to hear suggestions and | |
| recommendations for small entity representatives. This, in | |
| addition to adhering to the required APA notice and comment | |
| process where the agency considered thousands of comments from | |
| the public. There are going to be discussions today that this | |
| rule discourages small financial institutions from making loans | |
| to small firms. I for one do not agree with that conclusion. | |
| Just like the data requirements for HMDA do not negatively | |
| impact the mortgage lending industry, this rule will not be | |
| detrimental to small businesses' lending market. It is my hope | |
| that this rule will actually increase lending to small | |
| businesses in general. | |
| With that said, Mr. Chairman, I would like to request to | |
| enter into the record a report titled ``Addressing the gap in | |
| consumer protection for small business consumer through | |
| multiple research program,'' which includes the data collected | |
| is essential to combat institutional systemic discrimination | |
| and the costs associated with the rule far outweighed by the | |
| need to create a more transparent system for small business | |
| lending in this marketplace. | |
| So this is a motion to enter this into the record. | |
| Chairman MEUSER. Without objection. | |
| Mr. LANDSMAN. Thank you, Mr. Chairman, and I yield back. | |
| Chairman MEUSER. Thank you again. | |
| I now recognize Mr. Williams of Texas, the Chairman of the | |
| Full Committee for his remarks. | |
| Mr. WILLIAMS. Good morning. I want to thank all the | |
| witnesses for being here today. And I want to thank my | |
| colleague, Dan Meuser, my friend also, for holding today's | |
| Small Business Subcommittee on Economic Growth, Tax, Capital | |
| Access hearing on the CFPB's 1071 rule. | |
| Today's hearing is critical to examining the future of main | |
| street America. Banks are the lifeblood for small businesses | |
| looking to grow or expand their operations, and I can tell you | |
| as a small business owner for over 52 years, I can tell you | |
| there has not been a day in my life where I have not owed a | |
| community bank money. And I do not think there is another | |
| agency in Washington that brings and causes more anxiety and | |
| nervousness to small businesses than the CFPB. This agency is | |
| quick to issue fines and enforcement actions against businesses | |
| and financial institutions without ever telling them the rules | |
| of the road before they are penalized. This regulation by | |
| enforcement is detrimental to main street businesses that crave | |
| certainty. | |
| So this 1071 rule looks to make this problem even worse. | |
| Financial institutions are going to have to dedicate | |
| significant time and resources in order to comply with this | |
| overly burdensome new data reporting regime. We need more loan | |
| officers in our lending institutions and credit unions and not | |
| more compliance officers, and we are looking to get more money | |
| into the hands of job creators instead of needing to hire more | |
| compliance officers like I said that are nothing but a drain on | |
| our bottom lines. | |
| So with that, I am looking forward to today's discussion, | |
| and I hope we can shine a light on the most harmful aspects of | |
| this very harmful rule that will be finalized any day now. | |
| So Mr. Chairman, thank you, and I yield the time back. | |
| Chairman MEUSER. Thank you very much, Mr. Chair. I | |
| appreciate you being here with us this morning. | |
| So I will now introduce our witnesses. | |
| Our first witness today is Mr. Troy Peters. He resides in | |
| my district. Mr. Peters is the president and CEO of Jonestown | |
| Bank and Trust, which is celebrating its 150th anniversary this | |
| year. Headquartered in Jonestown, Pennsylvania, which is in my | |
| district, the bank's primary focus is on lending to small | |
| businesses and retail banking. Mr. Peters knows firsthand how | |
| vital banks like his are to the local community and being | |
| readily able to provide a line of credit, and by extension, a | |
| line of opportunity for someone to pursue their dream of | |
| opening small businesses. And what will be a common theme in | |
| today's hearing, the CFPB's Small Business Lending Data | |
| Collection Rule will have a major adverse effect on both Mr. | |
| Peters' bank and the local communities he has dedicated himself | |
| to serving. With a career spanning over 30 years, Mr. Peters | |
| has indispensable knowledge of the community banking industry | |
| and will provide firsthand experience of how this rule will be | |
| another blow to our country's small banks and main street | |
| America. Mr. Peters, thank you for joining the Committee today. | |
| It is now also my honor today to introduce our next | |
| witness, Mr. Lucas White. Lucas White is a fourth generation | |
| community banker and an active Member of his community. He has | |
| served as president of The Fountain Trust Company since 2016, a | |
| $600 million community bank with five locations in Fountain | |
| County, Indiana. Mr. White is also Chairman-elect of the | |
| Independent Community Bankers of America (ICBA), a national | |
| trade association focused on advocating on behalf of more than | |
| 5,000 community banks across the United States. At ICBA, Mr. | |
| White is a Member of the executive committee and a board of | |
| directors and is Chairman of the Federal Delegate Board. He is | |
| also a Member of the ICBA's Policy Development Nominating | |
| Committee. So thanks very much for being here with us. Also, | |
| while graduated from Indiana University with a bachelor's | |
| degree in philosophy and Indiana University-Bloomington, Morris | |
| School of Law years later, Mr. White still actively practices | |
| law in the family firm of White and White Attorneys today. | |
| Community banks channel local deposits into main street America | |
| and help spur job creation, foster innovation, and assist in | |
| fulfilling the American dream for many entrepreneurs. Mr. | |
| White's extensive career knowledge in community banking makes | |
| him well informed about the issues facing small businesses in | |
| main street communities today. Mr. White, again, thank you for | |
| making the trip and being with us. | |
| It is now my honor to introduce our next witness, Mr. Mike | |
| Wilson, to today's hearing. Mr. Wilson is the chief experience | |
| officer for Members First Federal Credit Union headquartered in | |
| Enola, Pennsylvania, just outside my district. Members 1st over | |
| a half million Members, 60 branch locations across 9 counties | |
| in Central Pennsylvania, including in the great 9th District of | |
| Pennsylvania. Mr. Wilson's role is crucial as he is responsible | |
| for ensuring exceptional Member experience on behalf of the | |
| entire credit union. He does this through providing leadership | |
| and direction for the credit union's retail operations, | |
| customer service areas, we well as public relations, marketing, | |
| community outreach, internal and external communications, and | |
| financial literacy. Mr. Wilson, you sound like you are kind of | |
| a busy guy. Mr. Wilson graduated from Central Penn College with | |
| a bachelor of science in business and went on to earn his MBA | |
| from Eastern University. Through his passion for people and | |
| entrepreneurial thinking, Mr. Wilson has been recognized for | |
| his professional accomplishments with numerous business awards, | |
| including Emerging Business Leader of the Year to the | |
| Harrisburg Regional Chamber and Capital Region Economic | |
| Development Corporation. Mr. Wilson's extensive career and | |
| dedication to his community through local banking makes him as | |
| well informed as anyone about the issues facing small | |
| businesses and main street communities today. Mr. Wilson, we | |
| thank you for joining the Committee today and we are looking | |
| forward to your testimony very much. | |
| I now recognize the distinguished Ranking Member, Mr. | |
| Landsman of Ohio, to introduce his witness for today's hearing. | |
| Mr. LANDSMAN. Thank you, Mr. Chair. | |
| Our final witness today is Ms. Luz Urrutia, CEO of the | |
| Accion Opportunity Fund, which is a nonprofit CDFI located in | |
| California focused on national microlending strategy to meet | |
| the needs of small businesses. She has spent her career in | |
| banking and financial services, particularly in underserved | |
| markets. Prior to joining Accion Opportunity Fund--I think it | |
| is Accion. Did I get that--sorry, my fault. She worked for | |
| Dollar Financial Group as CEO for the Americas. In this role | |
| she helped transform the organization into a responsible | |
| consumer finance business for underserved communities. She has | |
| served on the CFPB's Consumer Advisory Board, the Consumer | |
| Advisory Council of the Federal Reserve Bank, and the Board of | |
| the Financial Health Network. And on the SBREFA panel that | |
| examined the CFPB Small Business Lending rule which is the top | |
| of the hearing today. Recently, she received the Latino | |
| Leadership Award for the Silicon Valley Business Journal. Ms. | |
| Urrutia received a bachelor of science in Business | |
| administration and finance and an MBA from Georgia State | |
| University. Thank you for joining us. We look forward to | |
| hearing your testimony. | |
| Chairman MEUSER. Thank you, Ranking Member Landsman. Nice | |
| to have you with us. | |
| So before I recognize our first witness, I remind the | |
| witnesses that oral testimony is restricted to 5 minutes in | |
| length. When the light in front of you turns yellow you have 1 | |
| minute remaining. When the light turns red, you are over time | |
| and need to conclude your testimony as quickly as possible. | |
| I do now recognize Mr. Peters for his 5 minute opening | |
| remarks. Troy? | |
| STATEMENTS OF TROY PETERS, PRESIDENT AND CEO, JBT; LUCAS WHITE, | |
| PRESIDENT, THE FOUNTAIN TRUST COMPANY; MICHAEL WILSON, CHIEF | |
| EXPERIENCE OFFICER, MEMBERS 1ST FCU; LUZ URRUTIA, CHIEF | |
| EXPERIENCE OFFICER, ACCION OPPORTUNITY FUND | |
| STATEMENT OF TROY PETERS | |
| Mr. PETERS. Chairman Meuser, Ranking Member Landsman, | |
| Chairman Williams, and Members of the Subcommittee, I am Troy | |
| Peters, President and CEO of Jonestown Bank and Trust Co. (JBT) | |
| headquartered in Jonestown, Pennsylvania. I testify today on | |
| behalf of the Pennsylvania Association of Community Bankers, | |
| and I also am a Member of ICBA. My bank is celebrating its | |
| 150th anniversary this year. Our name has never changed. We | |
| have nearly $900 million in assets, 11 full-service branch | |
| locations, and 160 employees. Our focus is on small business | |
| and retail banking. We are also active in indirect auto | |
| lending, and we serve the legal cannabis related businesses | |
| throughout Pennsylvania and surrounding states. | |
| Community banks like mine provide the bulk of all small | |
| business loans in America. We are different than large banking | |
| institutions that operate under a contrasting business model | |
| that focuses on large companies and loan sizes. Main street | |
| businesses, like my customers, prefer to work with a local | |
| community bank because we are relationship lenders. We | |
| intimately know our markets and our customers. | |
| The CFPB's Small Business Lending Data Collection rule is | |
| unfortunately squarely aimed at smaller banks like mine. We are | |
| disproportionately disadvantaged to take on additional system | |
| and personnel costs associated with compliance to this rule. | |
| Now, although much of the costs would need to be passed on to | |
| the borrower, it continues to promote further bank | |
| consolidation, which means fewer local community banks to serve | |
| the small business segment. | |
| When my career began, this country had over 12,500 banks. | |
| Today there are just over 4,000. Now, due to consolidation, a | |
| small business's access to capital is being pushed into | |
| metropolitan markets where relationship banking just does not | |
| count for much. | |
| I also worry about the integrity of the data to be | |
| collected. In most cases, when a small business is seeking | |
| financing, they are looking for the best solution and talking | |
| to multiple lenders. Five banks could be collecting this data, | |
| but only one will fund the loan. Each bank would be reporting | |
| the data, which would make drawing any meaningful conclusion | |
| difficult at best. | |
| Small business loans are tailored to the specific | |
| business's needs and it would be very difficult or impossible | |
| to collect the exact data points to tell the entire story of | |
| the structure, pricing, or counteroffers. There are just too | |
| many variables to these loans. They are not as homogeneous as, | |
| say, car loans. Making application and loan data public would | |
| certainly be objectionable to my clients and it is quite | |
| concerning. Publicly displaying sensitive information, like how | |
| much money they applied for, what the purpose of the loan is, | |
| and their revenue number is not the kind of information they | |
| want or expect to be made public from a private transaction. | |
| This disclosure could also create a competitive | |
| disadvantage for them, such as revealing a planned business | |
| investment. Even worse, publishing information that a sole | |
| proprietor's loan request was denied in a small community like | |
| ours, is akin the posting a bounced check to the wall behind | |
| the store cash register. The public humiliation shouts, ``Do | |
| not do business with this person; they are a deadbeat!'' My | |
| customers adamantly do not want this. | |
| I have customers like Jay. Jay came to our country seeking | |
| opportunity, and after years of hard work and savings, he was | |
| able to open his own small business near our town of 1,900 | |
| people where my bank is headquartered. A few years ago, when | |
| the qualified mortgage (QM) rule was implemented, Jay was ready | |
| to build his modest dream home. As a long-time customer, I | |
| would have loved to help him achieve this dream, but his | |
| mortgage request did not comply with the QM rules. And without | |
| access to the traditional banking system, Jay turned to an | |
| unregulated, hard money lender. His interest rate was higher | |
| the loan did not come with complete disclosure, flexible terms, | |
| or collection practices. | |
| I feel like this rule will cause similar unintended | |
| consequences and will not be in the best interest of my clients | |
| and the communities that we serve. My hope is that the CFPB | |
| will not go beyond the statutory requirements intended for this | |
| rule. They should not add additional data points. They should | |
| exempt smaller banks like mine, reduce the revenue thresholds, | |
| and not breach the privacy of my customers. | |
| I love the community banking industry and I love helping my | |
| customers, and I thank you for convening today's hearing and | |
| the opportunity to offer the community bank perspective. Thank | |
| you. | |
| Chairman MEUSER. Thank you, Mr. Peters. | |
| I now recognize Mr. White for his 5 minute opening remarks. | |
| STATEMENT OF LUCAS WHITE | |
| Mr. WHITE. Chairman Meuser, Ranking Member Landsman, and | |
| Members of the Subcommittee, I am Lucas White, President of The | |
| Fountain Trust Company in Covington, Indiana. I testify today | |
| on behalf of the Independent Community Bankers of America | |
| (ICBA) where I am Chairman-elect. Thank you for this | |
| opportunity. | |
| Community banks are committed to meeting the credit needs | |
| of all small businesses in compliance with fair lending laws. | |
| However, we believe the CFPB's forthcoming rule under Section | |
| 1071 of the Dodd-Frank Act will have serious, unintended | |
| consequences. If finalized without significant changes, the | |
| rule will have a chilling effect on customized lending, | |
| compromise borrower privacy in the rural and small-town markets | |
| I serve, and reduce access to credit for certain borrowers. | |
| As described in my written statement, ICBA is urging the | |
| CFPB to stay the effective date until the Supreme Court has | |
| ruled on the constitutionality of the agency. | |
| Is this rule ``the end of relationship banking,'' as the | |
| hearing title suggests? I absolutely believe that it puts | |
| relationship banking at risk and should be amended by the | |
| Bureau or by Congress at the earliest opportunity. Relationship | |
| banking is the key value proposition that community banks like | |
| mine offer. | |
| Relationship banking is our competitive advantage against | |
| the larger financial institutions and nonbank lenders. | |
| The Fountain Trust Company has served markets in West | |
| Central Indiana since 1903 with small business, agricultural, | |
| and consumer lending. Relationship banking is the foundation of | |
| our success. It explains our resilience through numerous | |
| economic and agricultural crises. | |
| When it comes to serving small business, we form | |
| partnerships that go well beyond lending. Community banks | |
| provide practical, real world business counseling that is | |
| especially important to small businesses. Customized lending is | |
| key to these relationships. | |
| Small business lending is not and should not be a | |
| commodity. Underwriting is based on numerous borrower | |
| characteristics and market variables. Loans are typically | |
| customized to suit borrowers' needs and preferences and give | |
| them the best chance of success. The data collected under 1071 | |
| will not reflect the full scope of underwriting and may suggest | |
| discrimination where none exists. | |
| Fortunately, our examiners are best positioned to make this | |
| judgment and application of fair lending laws. | |
| Section 1071 is simply the wrong tool for the job. Lenders | |
| will respond by standardizing loan features to protect | |
| themselves from charges of discrimination. As a result, small | |
| business customers will not have access to credit that is | |
| customized to their needs. Importantly, minority and women | |
| borrowers whom this rule is supposed to help often benefit from | |
| customized lending. | |
| This was the outcome of the qualified mortgage rule which | |
| was also a provision of the Dodd-Frank Act. It effectively | |
| forced residential mortgages into a box. | |
| As I discuss in my written statement, QM effectively | |
| undermined our mortgage lending. Section 1071 without needed | |
| accommodations threatens to do the same to our small business | |
| lending. | |
| A recent loan will illustrate my point. We worked with a | |
| local farmer who wanted to open a butcher shop, a vertical | |
| integration that made good business sense. We offered him two | |
| customized loan options, a fixed rate and a variable rate. I | |
| personally walked him through the benefits and drawbacks of | |
| each and how future interest rates could affect his loan | |
| payments and cash flows. This personalized customer service is | |
| what community banks do best and what sets us apart from the | |
| competition. | |
| Unfortunately, Section 1071 would make customized multiple | |
| option lending difficult. It is impossible to compare loan data | |
| across customers who have chosen different options and | |
| demonstrate that lending is not discriminatory. Thus, Section | |
| 1071 will limit the scope of loan choices available to small | |
| businesses. | |
| On top of that, the publication of my borrower's loan data | |
| under 1071 would surely compromise his financial privacy. He is | |
| the only butcher in town. In the small communities I serve, | |
| businesses are readily identifiable. Loan offers contain | |
| critical business information and reflect the business owner's | |
| personal financial position as a guarantor of the loan. | |
| I discuss additional objections to 1071 in my written | |
| statement, but the effect on customization and the compromise | |
| of borrower privacy are our primary concerns. The rule could be | |
| greatly improved by recommendations described in my written | |
| testimony that would exempt more banks and borrowers from the | |
| rule. ICBA thanks the Members of this Subcommittee and | |
| Committee who have introduced legislation to make the rule more | |
| workable. | |
| Thank you again for the opportunity to testify. I look | |
| forward to your questions. | |
| Chairman MEUSER. Thank you, Mr. White. | |
| I now recognize Mr. Wilson for his 5 minute opening | |
| remarks. | |
| STATEMENT OF MICHAEL WILSON | |
| Mr. WILSON. Good morning, Chairman Meuser, Ranking Member | |
| Landsman, and Members of the Subcommittee. My name is Michael | |
| Wilson, and I am testifying today on behalf of the National | |
| Association of Federally Insured Credit Unions (NAFCU). I | |
| currently serve as Chief Experience Officer of Members 1st | |
| Federal Credit Union, headquartered in Enola, Pennsylvania. | |
| While small businesses only make up 4 percent of our total | |
| membership, we are very proud of our work in the community as a | |
| small business lender over the last 20 years in 9 counties | |
| across Central Pennsylvania where relationships mean | |
| everything. | |
| We appreciate the opportunity to participate in this | |
| discussion regarding the 1071 rulemaking process at the CFPB. | |
| Section 1071 requires financial institutions to report data | |
| about small businesses and their owners in order to facilitate | |
| enforcement of fair lending laws. While NAFCU lauds this goal, | |
| there is widespread concern about how the CFPB is proposing to | |
| carry out its authority in this area. We outline our concerns | |
| with the proposed rule in detail in our written statement but | |
| would like to highlight a few of our major points here. | |
| The definition of a covered financial institution. | |
| Establishing a 25 loan threshold for reporting is a lower level | |
| than even well-established home mortgage disclosure act or HMDA | |
| limits. Such a low threshold could drive smaller lenders out of | |
| small business lending all together due to the compliance | |
| costs, a fact that the Bureau acknowledges in the proposed | |
| rule. | |
| The small business definition. While the CFPB has a | |
| proposed $5 million threshold, NAFCU believes it should be | |
| consistent with the SBA's $1 million standard. | |
| Covered credit transactions. NAFCU recommends that the | |
| Bureau establish a de minimis threshold consistent with the | |
| NCUA's $50,000 call report threshold. Congress has excluded | |
| Member business loans under $50,000 from the credit union | |
| business loan cap and the NCUA has recognized this and excluded | |
| such loans from call reports. We believe the CFPB is vastly | |
| underestimating the number of credit unions that would be | |
| impacted by the new burdens of this rule because it used the | |
| call report data that excludes these loans in its analysis but | |
| the Bureau did not account for the de minimis threshold by | |
| proposing its own in the rule. By not recognizing this | |
| distinction, the CFPB threatens to compound the compliance | |
| burdens of this rule for credit unions. | |
| Protected demographic information and visual observation. | |
| Under the proposed rule, an employee could be forced to | |
| determine the ethnicity and race of a small business applicant | |
| via visual observation. NAFCU unequivocally opposes any | |
| requirement that an employee of a credit union make visual | |
| observations concerning the race, gender, or other sensitive | |
| data about a small business owner. Not only is this an | |
| unconscionable idea but it also threatens the integrity of any | |
| Section 1071 data collected. | |
| One-time and ongoing compliance costs. NAFCU is | |
| significantly concerned that the Bureau, as happened with its | |
| HMDA proposal, has materially underestimated the one-time and | |
| ongoing costs credit unions are likely to face under the rule. | |
| Mandatory compliance schedule. The proposed rule's 18-month | |
| mandatory compliance schedule will be aggressive, even for the | |
| largest, most tech-savvy credit unions. The vast majority of | |
| credit unions will be forced to rely on multiple IT vendors to | |
| come into compliance. Past experience with the Bureau's | |
| implementation of HMDA suggests that the Bureau is likely | |
| underestimating the time required for IT venders to adapt their | |
| products to comply with major rulemaking. NAFCU has encouraged | |
| the Bureau to adopt a phased, mandatory compliance schedule | |
| based on loan volumes that begins no sooner than 3 years | |
| following the Bureau's adoption of a final rule. We are | |
| supportive of efforts to address concerns about the compliance | |
| deadline, such as the Small Lender Act offered by | |
| Representative French Hill. | |
| In conclusion, with the final Section 1071 rule set to be | |
| released, NAFCU urges the CFPB to exercise its discretionary | |
| authority to exempt smaller institutions from this rule as the | |
| compliance costs outweigh any benefit. If such an exemption is | |
| not granted under the CFPB Section 1022 authority, we would | |
| hope to see significant changes to the proposed rule as | |
| outlined above. Even though small businesses make up a small | |
| percentage of our membership, the cost associated with | |
| complying would have a negative impact on our Members and their | |
| access to credit. Should the bureau not address our concerns, | |
| we urge Congress to step in with your oversight authority and | |
| to consider statutory changes such as enacting the small lender | |
| act. Failure to do so will threaten access to credit for many | |
| of our nation's main street small businesses who rely on | |
| community lenders like credit unions to meet their capital | |
| needs. | |
| I thank you for the opportunity to testify today and look | |
| forward to answering your questions. Thank you. | |
| Chairman MEUSER. Thank you for your compelling testimony, | |
| Mr. Wilson. | |
| I now recognize Ms. Urrutia for her 5 minute opening | |
| remarks. | |
| STATEMENT OF LUZ URRUTIA | |
| Ms. URRUTIA. Good morning, Chairman Meuser, Ranking Member | |
| Landsman, and Members of the Committee. Thank you for the | |
| opportunity to testify and discuss CFPB Section 1071. | |
| My name is Luz Urrutia and I am the CEO of Accion | |
| Opportunity Fund, the leading CDFI nonprofit providing access | |
| to loans, business advising, and networks to underinvested | |
| entrepreneurs. | |
| I spent my entire career in for-profit financial services | |
| which included nearly two decades at Wachovia, then as co- | |
| founder and CEO of a community bank and a CEO of a payday | |
| lending company where I helped to ensure that they provide | |
| responsible financial services to their customers. I joined AOF | |
| as its CEO because of my experience as a lifelong for-profit | |
| banker and my passion for providing responsible financial | |
| services to underinvested communities. I know for a fact that | |
| business and lenders can generate profit and do the right thing | |
| investing in all communities. | |
| As CEO, I am very proud of the impactful work AOF has done | |
| to provide capital to entrepreneurs that are often left behind | |
| by our financial mainstream system. Today, we have deployed | |
| over $700 million to more than 25,000 entrepreneurs, and 80 | |
| percent of our borrowers are people of color, women, and | |
| immigrants. In fact, women make up one out of every three | |
| clients we serve. It is because of the entrepreneurs we serve | |
| that I have advocated for rules like 1071 which will allow our | |
| entire financial services system to fully see and better serve | |
| all of our entrepreneurs. | |
| And this transparency is not just about fairness. It is | |
| also about strengthening the economy. A recent study shows that | |
| minority- and women-owned small businesses employ nearly 20 | |
| million people and generate over $2 trillion in economic | |
| activity. | |
| I know this to be true, personally and as the CEO of AOF, | |
| because I think about clients such as Reign Free from Oakland, | |
| who started and scaled her catering business after repeatedly | |
| being told that she did not qualify for a loan. We were her | |
| first lender to say yes. I also think about Alicia Villanueva | |
| from Hayward, who took $5,000, bought her first van, and now | |
| she has the most burgeoning tamale business nationwide. | |
| I am proud that we provide loans to everyone--Black, White, | |
| Latino, Asian, and low-income, but I am especially proud of our | |
| investment in Black and Latina women who are starting up more | |
| businesses in this country than any other group. I am proud | |
| that AOF supports these entrepreneurs and the businesses that | |
| they found, the employees they hire and train, and the economic | |
| activity they generate. | |
| However, for decades, entrepreneurs like these women have | |
| not been seen by our financial system. While I am on here to | |
| defend or promote every letter of Section 1071, I recognize | |
| that this rule will accomplish three important things: It will | |
| help small business lenders. It will help entrepreneurs that | |
| desperately need access to capital, and help policymakers that | |
| want to invest in our economy without creating new direct | |
| entitlement programs. | |
| First, this rule would help the market to better address | |
| both the lack of access to affordable capital, and the rise of | |
| irresponsible lending. For the first time, everyone in | |
| financial services would be able to see which business models | |
| are successful at reaching minority-owned, women-owned, and | |
| other small businesses. This transparency would attract | |
| investment capital and partnerships into models that really | |
| work. We can have a market-based model and pro-innovation | |
| approach to regulation, one that will actually help lenders | |
| expand customer acquisition, something that all community banks | |
| and lenders really want and need to do. But we need clarity on | |
| who the businesses are, who is serving them, and what capital | |
| are they getting, because we cannot manage what we do not | |
| measure. | |
| Second, as lenders, the better we understand these | |
| businesses, it will help tailor products and services to meet | |
| their needs. The more knowledge we gain about our markets, our | |
| customers, and their needs, the better equipped we are to | |
| building long-term profitable relationships. | |
| Finally, this rule helps spur additional investments in | |
| small businesses, which is the best way to reduce inequities | |
| without having to create new government programs. Instead, it | |
| will allow all of us to do what our organizations have | |
| successfully done for years--expand access to capital for | |
| underserved entrepreneurs by leveraging existing public and | |
| private sector partnerships. | |
| For these reasons, I am very pleased to testify on how we | |
| can ensure that Section 1071 accomplishes its goals of spurring | |
| additional investment in all our entrepreneurs. | |
| I will conclude by saying that access to capital for small | |
| businesses is a bipartisan priority. There are Mom and Pop | |
| stores in communities that are rural and urban; red and blue; | |
| Black and White, Hispanic, and Asian, and they are all powering | |
| our economy. But we cannot do that without Section 1071 to | |
| shine light on these small businesses' credit applications. | |
| Because as I said before, we cannot manage what we do not | |
| measure, and sunlight is the best disinfectant. As we implement | |
| this rule well, we will finally will be able to increase access | |
| to capital for small businesses and create a more transparent, | |
| bipartisan, and successful financial system. | |
| Thank you, and I look forward to your questions. | |
| Chairman MEUSER. Thank you, Ms. Urrutia, I appreciate that. | |
| We will now move to the Member questions under the 5-minute | |
| rule. And I recognize myself for 5 minutes. | |
| Mr. White, I will start with you. And really, to all of our | |
| witnesses. The CFPB's mission statement is as follows. I am | |
| going to summarize. | |
| We aim to make consumer financial markets work for | |
| consumers, responsible providers, and the economy as a whole. | |
| We protect consumers from unfair, deceptive, or abusive | |
| practices and take action against companies that break the law. | |
| We arm people with the information, steps, and tools that they | |
| need to make smart financial decisions. | |
| Mr. White, do you think that this rule will help the CFPB | |
| to accomplish this mission? | |
| Mr. WHITE. Mr. Chairman, thank you. | |
| I do not believe this rule will help CFPB achieve its | |
| mission. The first part of the mission statement was something | |
| along the line of having markets help consumers. And I would | |
| reference the QM rule that came into effect as part of Dodd- | |
| Frank. As I said in my testimony, customized lending is | |
| absolutely key to small business lending. We had that type of | |
| lending with consumer mortgages prior to the QM rule. As a | |
| result of the QM rule, we now have all of our consumer | |
| mortgages in a matrix. We had a customer prior to QM. Her name | |
| is Mae. She owns a local Chinese restaurant. We had a consumer | |
| mortgage with her. After QM, we could not verify enough income | |
| and we had to turn her down when she wanted to buy a new house. | |
| And so that is an example of where a rule like this can | |
| undermine what the CFPB's mission is. | |
| Chairman MEUSER. Sure. So, will the CFPB's 1071 reporting | |
| rule in any way improve your lending practices and make them | |
| fair? Will you have more businesses in some way because this | |
| rule is in effect? And I will also ask, and I am going to ask | |
| Mr. Peters this and as well Mr. Wilson, is it fair to compare a | |
| mortgage loan to a business loan? | |
| Go ahead, Mr. White. You go first. | |
| Mr. WHITE. they are completely different. Each business is | |
| different. Their cash flows are different. Their needs are | |
| different. And that is the reason we tailor our loan products | |
| specifically to what that customer needs. And so you cannot | |
| compare consumer lending at all to small business lending in my | |
| eyes. | |
| Chairman MEUSER. Mr. Peters? | |
| Mr. PETERS. Yeah, I would agree. They are two different | |
| situations. I mean, small businesses are unique. They are at | |
| different stages in their lifecycle. Oftentimes you are | |
| counting on pro forma income or projections, whereas in | |
| consumer lending it is documented past. So I think it is two | |
| different types of lending. | |
| Chairman MEUSER. And continuing, Mr. Peters, will this have | |
| any effect in extending relationships with small businesses in | |
| your community? I mean, let's face it. We are talking about | |
| expanding lending here, not what occurred with the PPP where | |
| fraud came into play. Now, we all know that knowing the | |
| customer within the PPP reduced potentiality of fraud | |
| immensely; right? I mean, it did not happen with knowing the | |
| customer. But would this help you accentuate and enhance your | |
| business base in any way in your view and change your proactive | |
| practices to outreach to your community? | |
| Mr. PETERS. I do not believe so. I think we are only as | |
| strong as our communities as a community bank. And we want to | |
| build stronger communities. So, I do not think that it would | |
| help that or change the outlook at all. | |
| Chairman MEUSER. Well, it is certainly your reputation. | |
| Mr. Wilson, let me ask you, can you explain how your | |
| employees are going to feel about having to potentially guess | |
| the racial information of customers based upon appearance, | |
| surname, when it is not self-reported by the small business | |
| which is their right and as this rule would require? | |
| Mr. WILSON. I would imagine that would put our associates | |
| in a very uncomfortable situation. I think about the 19- or 20- | |
| year-old teller who is in their entry-level role and being, you | |
| know, put in a very awkward situation like that would be very | |
| difficult for them. In addition to that, it could really | |
| compromise the data which could undermine exactly what the | |
| attempt is here to help. | |
| Chairman MEUSER. All right. Thanks. | |
| And I am going to go back to you, Mr. Peters. Would this | |
| rule require you to increase employees, increase your costs for | |
| compliance, add additional burdens to your ability to be a | |
| thriving lender in your community? | |
| Mr. PETERS. Yes, it would. I mean, you are talking about | |
| systems and when systems are put into place what a lot of | |
| people do not think about is there needs to be somebody to run | |
| that system. The care and feeding of it, in addition to | |
| compliance, to the checking, the double checking, the software, | |
| to gather and report it. I would say something like this would | |
| touch at least 15 different people in our bank and probably add | |
| in the neighborhood of $500 to $800 per loan in the startup | |
| year. | |
| Chairman MEUSER. Thank you. My time has expired. Thank you | |
| for your testimony. | |
| I now recognize the Ranking Member for 5 minutes for | |
| questions. | |
| Mr. LANDSMAN. Thank you, Chairman. | |
| So I appreciate everyone being here. The fact that we have | |
| a community bank and a credit union, a CDFI, part of this | |
| hearing is to better understand what is a proposed rule. Right? | |
| You know, the rule is still being finalized, input is being | |
| gathered, information from everybody is collected. And so it | |
| will be important for us to, I think, wait to see what this | |
| proposed rule is, though it does seem to me that this is a very | |
| straightforward thing. And Mr. Wilson touched on this which is | |
| although it may have been Ms. Urrutia, sorry, who said it but | |
| this is about collecting data and trying to better understand | |
| who does this best. And not an entitlement program which is I | |
| think a really important thing to keep in mind. And you know, | |
| to do it in a way that does not overburden folks obviously is | |
| important and clearly the testimony today suggests that, you | |
| know, for some of our banks it does. I will just way of | |
| background and then I will ask my question, I represent a | |
| district with a large number of smaller businesses, women-owned | |
| businesses, Black-owned businesses. We have a lot of childcare | |
| providers, most of whom are run by Black women, owned by Black | |
| women. And their ability to access capital has been tough. And | |
| you know, post-pandemic it has been even tougher because of the | |
| cost of capital; right? So accessing affordable capital. And so | |
| it does seem to me very straightforwardly that, you know, the | |
| more data that we are able to collect, the better it is that we | |
| will be able to understand what is working and what is not. And | |
| I think the question is how you do that in a way that is not | |
| overly burdensome and does not lead to this situation where | |
| folks are being left out or you cannot provide loans. | |
| So I guess my question first Ms. Urrutia, sorry, I am | |
| struggling with that one, is do you believe that this will | |
| undermine, you know, small banks, their ability to provide | |
| these loans? | |
| Ms. URRUTIA. I think it would be the opposite. I think | |
| that, this rule is going to lead actually to more small | |
| business lenders wanting to get into the market because | |
| everyone is going to become more aware, more knowledgeable, and | |
| more informed about the scope and scale of small businesses and | |
| the impact that they have on our economy. And frankly, how much | |
| they are growing and how profitable they are for institutions | |
| that want to serve them responsibly. You know, we saw this | |
| development with HMDA. It did not pull lenders away. In fact, | |
| as more data was reported, more competition emerged, better | |
| products were developed, and everybody won, the consumer and | |
| the lenders. | |
| The CFPB issued a lender survey and developed cost | |
| estimates that were then reviewed by lenders, and many smaller | |
| financial institutions were asked this question during the | |
| rulemaking process and responded to say that it would not force | |
| them out of the market. The Bureau also estimated the cost per | |
| application would range anywhere between $7 for the larger | |
| banks with more technological capabilities to $28 for the | |
| smaller banks. And so, you know, for the first time I think | |
| everyone in financial services would really have access to see | |
| what the market is made up of and to be able to reach | |
| successfully more minority-owned, women-owned, and other small | |
| businesses. And I think once again, the transparency is going | |
| to attract quality responsible business models to want to serve | |
| a very burgeoning, growing, and profitable market which is the | |
| small business lending community. | |
| Mr. LANDSMAN. You have been able to do a lot and this has | |
| helped you better understand the impact. What is your | |
| recommendation or suggestion, advice in terms of managing the | |
| data collection and pursing the intent of the rule which is to | |
| increase lending to folks that have struggled to get lending, | |
| to get the capital? | |
| Ms. URRUTIA. Yeah. So just, our own perspective, last year | |
| we did about 3,000 loans to small business entrepreneurs. That | |
| is an enormous amount of lending. And you know, like every | |
| other CDFI, we are required to collect and report data on a | |
| variety of data points--interest rates, fees, origination cost, | |
| race, gender, ethnicity. And CDFIs do that. | |
| Mr. LANDSMAN. I have run out of time and I apologize. I | |
| spoke a lot. But as the hearing continues I think just getting | |
| that sense as to what advice, recommendations would be great. | |
| Thank you, Mr. Chair. | |
| Chairman MEUSER. Thank you. The Ranking Member's time has | |
| expired. | |
| The Chair now recognizes Mr. Luetkemeyer from Missouri for | |
| 5 minutes. | |
| Mr. LEUTKEMEYER. Thank you, Mr. Chairman. | |
| Mr. White, when Congress passed Dodd-Frank 12 years ago it | |
| included Section 1071, which requires companies to inquire | |
| whether customers are a small business, woman-owned business, | |
| or minority-owned business at the credit application stage. | |
| However, in the 1970s, Congress passed the Equal Credit | |
| Opportunity Act which prohibits race as part of lending | |
| criteria. If the CFPB's proposed rulemaking would make | |
| financial institutions essentially guess the applicant's | |
| ethnicity if an applicant does not want to provide such | |
| information it would appear to me that would be racial | |
| profiling if I am not mistaken. | |
| Mr. Wilson, does that proposed rule go against the Equal | |
| Credit Opportunity Act which has been in law since the 1970s? | |
| Mr. White, I am sorry. | |
| Mr. WHITE. As Mr. Wilson actually said earlier, we are | |
| concerned with having to guess the race of our customers. We | |
| have to do that under HMDA currently but through PPP we learned | |
| that a substantially higher number of small businesses declined | |
| to provide that information than homeowners. And so as a result | |
| of that, our employees are going to be guessing that | |
| information a lot more than what they do under HMDA. And that | |
| will eventually kind of erode the data. As we say in the | |
| banking industry, ``garbage in, garbage out.'' With models, it | |
| will be very hard to analyze the data. | |
| Mr. LEUTKEMEYER. Okay. The Equal Credit Opportunity Act is | |
| a law though, is it not? | |
| Mr. WHITE. Yes. We cannot discriminate, period. | |
| Mr. LEUTKEMEYER. This is a rule by the CFPB; right? | |
| Mr. WHITE. Yes. | |
| Mr. LEUTKEMEYER. Does a law overrule a rule? | |
| Mr. WHITE. No. | |
| Mr. LEUTKEMEYER. No? | |
| Mr. WHITE. The statute rules. | |
| Mr. LEUTKEMEYER. They are equal in substance? Equal in | |
| importance? One does not overrule the other? | |
| Mr. WHITE. Statute technically I think overrides a rule but | |
| we have to follow both. And as long as they do not conflict---- | |
| Mr. LEUTKEMEYER. Well, does this not conflict here because | |
| you are basically racially profiling with the way the new rule | |
| is proposed versus the Equal Credit Opportunity Act that says | |
| you cannot do that? | |
| Mr. WHITE. It certainly opens up the risk to that. | |
| Mr. LEUTKEMEYER. So, okay, as an attorney, would you not be | |
| concerned by your officers opening yourself up to a lawsuit in | |
| this situation? If you comply with one rule here, are you | |
| against, are you doing something in contradiction to the law? | |
| Mr. WHITE. It certainly increases our risk of opening | |
| ourselves up to litigation. That is correct. | |
| Mr. LEUTKEMEYER. How would you advise your customers, your | |
| clients in this situation? If you were a bank attorney--not the | |
| CEO now. If you are a bank attorney for a group of banks, what | |
| would you advise them to do here? | |
| Mr. WHITE. When the rule requires our employees to guess, | |
| there is not much more we can do than say give it your best | |
| guess. | |
| Mr. LEUTKEMEYER. So as long as you are guessing according | |
| to what the rule tells you to do you are going to be okay? | |
| Mr. WHITE. Well, hopefully. I will say as a community bank | |
| we know our customers. | |
| Mr. LEUTKEMEYER. Is that away to do business, Mr. White? | |
| Mr. WHITE. No, it is not. | |
| Mr. LEUTKEMEYER. To guess what is going to happen? | |
| Mr. WHITE. We do not prefer to guess when it comes to doing | |
| business. | |
| Mr. LEUTKEMEYER. Okay. Thank you for that. | |
| Mr. Peters, you made a statement a minute ago that each | |
| bank has to collect the data and report it even if you do not | |
| make the loan. It would seem to me that is going to skew your | |
| data if you are going to have to continue to report it. | |
| Somebody who is not a worthwhile individual, he goes to seven | |
| different institutions and gets turned down, that is going to | |
| skew the data, is it not? | |
| Mr. PETERS. Yeah. I think definitely so. You know, most | |
| times a small business is not going to just go to the first | |
| lender. They are going to shop their deal and try to talk to a | |
| number of banks about it. The banks are also going to help them | |
| put together the structure of that loan. So it may look | |
| different in different applications in different spots and only | |
| one bank will fund the loan but they will all be reporting the | |
| data and I think it would be very difficult to find meaning in | |
| that kind of data. | |
| Mr. LEUTKEMEYER. Mr. White, CFPB wants to collect a series | |
| of personal and detailed data from small businesses but refuses | |
| to release which information they will publicize or share how | |
| they plan to make that determination. My bill, the Business | |
| Loan Privacy Act will require the CFPB to do a separate notice | |
| and comment rulemaking to determine what information will be | |
| published by the Bureau. | |
| Mr. White, do you believe the CFPB should have a separate | |
| rulemaking for this, allowing small businesses and lenders to | |
| be part of the conversation? | |
| Mr. WHITE. Absolutely. And on behalf of ICBA, I would like | |
| to thank you for that legislation that you have introduced. | |
| Small businesses and community banks should have a voice in | |
| what data is made public because that is where our privacy | |
| concerns come up for our customers. | |
| Mr. LEUTKEMEYER. Well, it looks to me like your clients', | |
| your customers' information is going to be much more public | |
| than what it is now if this goes through. Do you have concerns | |
| about that information being made public and having some | |
| ramifications of that to your customers? | |
| Mr. WHITE. We do. Small businesses prefer their information | |
| to remain confidential. And when our customers realize that | |
| their data is being made public it provides an incentive to go | |
| to a larger bank where their information can basically be | |
| hidden in the data. And if they come to our bank like that | |
| butcher I talked about, everybody is going to know who it is | |
| but if he goes to a big bank he may not. | |
| Mr. LEUTKEMEYER. So what you are saying is instead of being | |
| able to do business with your local community bank, if you | |
| prefer not to have everybody in the community know what you are | |
| doing and what your business is you may go down the road to | |
| some bigger bank or some other community and as a result you | |
| are not doing business with your own community bank any longer. | |
| Mr. WHITE. That is exactly right. | |
| Mr. LEUTKEMEYER. And so it will hurt the community banks by | |
| doing this. | |
| Mr. WHITE. Highly likely. Yes. | |
| Mr. LEUTKEMEYER. Okay. Thank you very much for your | |
| testimony today. Mr. Chairman, I yield back. | |
| Chairman MEUSER. The gentleman yields. | |
| The Chair now recognizes the Ranking Member of the Full | |
| Committee, Ms. Velazquez from New York for 5 minutes. | |
| Ms. VELAZQUEZ. Thank you very much. And thank you to all | |
| the panelists for your insightful information. | |
| Ms. Urrutia, you said, you stated that we cannot fix what | |
| we cannot measure. And so when we were going through the | |
| pandemic and we issued the first tranche of money to provide | |
| relief to small businesses, anecdotal data was telling us that | |
| the smallest of the small businesses and Black and Latino and | |
| Asian businesses were left behind no matter how hard they try. | |
| Do you know why? Because the banks did not proactively help | |
| anyone but their customers. So I requested when I was consulted | |
| by the leader in the House to sign onto another tranche of | |
| money I said, no, I want to see the data. I want to see if | |
| everyone, every small business that is in need of help has been | |
| provided by the banks. And the Secretary of the Treasury | |
| Mnuchin refused. And then when he saw that definitely we will | |
| not be part of providing more relief unless we saw the data, | |
| what the data told us was exactly what the anecdotal data was | |
| telling us, anecdotal stories was telling us. And so, we added | |
| money for nation lenders to be able to provide relief to small | |
| businesses. | |
| Ms. Urrutia, you were a Member of the CFPB and the notice | |
| of the proposed rulemaking provides that the applicants | |
| themselves do not have to provide their information. But, if | |
| the applicants do not provide the information, the financial | |
| institution must provide it based on visual observation or | |
| surname. In fact, those SBREFA panels were conducted by former | |
| Director Kraninger, who was appointed by President Trump. Is | |
| that not correct, Ms. Urrutia? And so it is also fair to say | |
| that the CFPB under both the Trump and the Biden administration | |
| thought that crafting and finalizing this rule was necessary to | |
| protect small businesses. | |
| Ms. Urrutia, can you explain why the data collection | |
| requirements being proposed by the CFPB are not overly | |
| burdensome on small depository and non-depository institutions? | |
| Ms. URRUTIA. Yeah. So as I explained earlier, you know, my | |
| previous experience as a banker and my current experience as | |
| the CEO of the largest nonprofit CDFI, I do not believe that | |
| the data collection being proposed under 1071 is overly | |
| burdensome. As I was stating earlier, we do on average 3,000 | |
| loans, small business loans a year. And like every other CDFI, | |
| we are required to collect and report comparable data to | |
| Section 1071 on small businesses on an annual basis and report | |
| that data to the CDFI fund. Many of the CDFIs that report with | |
| us are also small, community-based organizations and the | |
| information reported includes transaction-level data, such as | |
| interest rate, origination fee, points, terms, amounts, | |
| payments, race, ethnicity, age, and gender. | |
| Ms. VELAZQUEZ. Thank you for that answer. | |
| Can you expand on why you believe the work done by the CFPB | |
| is necessary to small businesses as consumer? | |
| Ms. URRUTIA. Well, if you look at the small businesses, you | |
| know, they are often called Mom and Pop businesses. And that is | |
| because they are small and they are run by the same consumers | |
| that the CFPB is trying to protect. These businesses do not | |
| have CPAs or CFOs making financial decisions for the family-run | |
| businesses and they have the same level of sophistication as | |
| the average American household. And these Mom and Pop stores | |
| are in rural and urban communities and are powering our | |
| economy. And their success is our success but they need capital | |
| to grow. And unfortunately---- | |
| Ms. VELAZQUEZ. But are you not concerned about the | |
| potential upfront or ongoing compliance costs? | |
| Ms. URRUTIA. I can tell you that our compliance cost up | |
| front was $35,000 and annually it is $10,000, regardless of | |
| number of loans that we are doing. And so I think that the | |
| costs are manageable compared to the benefits of having access | |
| to data that is going to help all of us better serve small | |
| businesses in America. | |
| Ms. VELAZQUEZ. Thank you. I yield back. | |
| Mr. LALOTA. Thank you. | |
| The Chair recognizes himself for 5 minutes. | |
| I am Nick LaLota. I represent a Long Island district, the | |
| 1st District of New York. We are about a couple hours east of | |
| Manhattan. We are a suburban district with many Mom and Pop | |
| businesses. They are struggling under the high inflation, high | |
| interest rates, excessive regulations, and labor shortages just | |
| to name a few. Members of this Committee from both sides of the | |
| aisle agree that these challenges are real and persistent | |
| throughout the country. And with that in mind, it is troubling | |
| to me and other Members on the Committee that the Consumer | |
| Financial Protection Bureau is using resources at its disposal | |
| to create rules to add to these very real pressures instead of | |
| mitigating them. Hopefully at a future hearing we can have a | |
| representative from the CFPB to explain to us the timeliness of | |
| this rule. Thankfully, you, as today's witnesses, have beyond a | |
| doubt demonstrated that these new regulations would have | |
| duplicative measures and would cost millions per year to comply | |
| with and would irreparably harm our relationship banking. | |
| My first question is to you, Mr. White. Sir, thank you so | |
| much for being here. | |
| As you stated in your testimony, you have 130 employees | |
| across many locations. How difficult would it be for your | |
| business to create a firewall as has been described today? | |
| Mr. WHITE. Any time when you have a bank our size with our | |
| number of employees, any new regulation is hard to figure out | |
| how are we going to do this with the employees we have. And I | |
| will explain what we do on HMDA because it is fairly similar to | |
| what will happen with 1071. Our loan processor enters the data. | |
| We then have three separate people review that data before we | |
| file it or report it. And we still have the random mistake | |
| after three levels of review. And so when you consider last | |
| year we did approximately 770 loans that would be subject to | |
| 1071, you are looking at HMDA on steroids basically in terms of | |
| the amount of manpower and time that it would take. | |
| Mr. LALOTA. Thank you. And following up on that, you also | |
| illustrated problems with the scope of the data collection. For | |
| example, the 25 loan threshold is far too low and the borrower | |
| gross annual revenue threshold is too high, meaning the data | |
| collection requirements would apply to a majority of community | |
| banks. In your opinion, what should the threshold be? | |
| Mr. WHITE. ICBA is advocating for a $1 billion asset | |
| threshold. Banks below $1 billion would be exempt. If the CFPB | |
| or the government stays with a number of loans we would support | |
| French Hill's bill which has a 500 loan limit. Twenty-five | |
| loans a year is so low it is honestly a little bit offensive | |
| that that is considered an exemption. | |
| Mr. LALOTA. Thank you so much. | |
| And Mr. Peters, in your testimony you talked about the | |
| decline of community banks and the resulting consolidation. And | |
| I share these concerns, sir. How do you think small businesses | |
| like the ones in my district on Long Island and throughout the | |
| country will fare if there are fewer choices when it comes to | |
| lenders? | |
| Mr. PETERS. Well, I think we have the best financial system | |
| in the world, and I think part of that is having choices as | |
| businesses and consumers in competition. And I think in this | |
| case if you are concerned about the privacy of the data you may | |
| want to go to a larger lender where your data could be harder | |
| to find by the public. If I was denied the loan, I do not want | |
| my community to know that so I think it does not play in favor | |
| of our small business clients and communities. | |
| Mr. LALOTA. Thank you, Mr. Peters. And following up with | |
| that, you discussed that making application loan data public | |
| will be opposed by your clients for a variety of legitimate | |
| reasons. Do you think that this will make your clients less | |
| likely to apply for those loans? | |
| Mr. PETERS. I think in some cases it could push them to | |
| other lenders that will not follow those rules such as I | |
| mentioned in my testimony with hard money lenders that fall | |
| under these thresholds and can ensure privacy of data. And that | |
| is something that is very important to my clients. | |
| Mr. LALOTA. Thank you. And thank you for all the witnesses | |
| being here. I yield back the balance of my time. | |
| I now recognize Ms. Chu from California for 5 minutes. | |
| Ms. CHU. Thank you. | |
| Ms. Urrutia, we know that women- and minority-owned small | |
| businesses still face significant barriers in access to | |
| capital. These gaps were particularly clear during the Paycheck | |
| Protection Program and the initial PPP application did not ask | |
| for demographic information. And so there were shocking | |
| results. In fact, because the SBA was not gathering this data, | |
| investigators at the LA Times in my area published a report in | |
| 2021 and they have to use census track data in order to look at | |
| majority ethnic census tracks. And they determined that | |
| businesses in majority White neighborhoods received loans at | |
| twice the rate that majority Latino census tracks received the | |
| loans, 1.5 times the rate of businesses in majority Black | |
| areas, and 1.2 times the rate in Asian areas. And so we clearly | |
| need it, that data transparency. What happened with PPP shows | |
| us why we have to have this information. And as a result, we | |
| did this $60 billion set aside for the mission-based lenders to | |
| provide loans to those in minority and women-owned areas. And | |
| this problem was ameliorated tremendously and now the loans | |
| were shown to be given to those in those underserved areas. | |
| So Ms. Urrutia, can you speak to the lessons of the PPP and | |
| why the data transparency like this required by Section 1071 is | |
| needed to both understand and address discrimination and | |
| disparities in small business lending? | |
| Ms. URRUTIA. Sure. I can share my own personal experience | |
| about discrimination in the financial system. When I started | |
| working for a bank, I was turned down because I did not have | |
| credit. And so the fact that I was an immigrant and I had | |
| limited credit history made me invisible and unbankable. Fast | |
| forward 18 years, that experience led me to find a community | |
| bank and then I wanted to raise capital. And I kept on hearing | |
| no, no, no at every turn of the way until I show up with a | |
| couple of male board Members and then the capital to form the | |
| bank started flowing. Twenty-one years later things have not | |
| changed. Two percent of venture capital goes to women. Four | |
| percent of commercial loans goes to women. In the meantime, it | |
| is women that today are building small businesses at a higher | |
| rate than any other demographic in this country. So the | |
| problems persist, and unless we put sunshine in this problem we | |
| are never going to solve the problem that women and communities | |
| of color face accessing capital from financial institutions. | |
| Ms. CHU. Thank you for that. | |
| And Ms. Urrutia, well, for one thing we do know that the | |
| CFPB Home Mortgage Disclosure Act rule has been in place for | |
| more than 40 years and has been instrumental in giving the CFPB | |
| the data they need to identify and root out discriminatory | |
| lending practices. And even more importantly, mortgage lending | |
| activity has not decreased or been otherwise negatively | |
| impacted due to compliance costs. | |
| Now, there was some discussion earlier about, well, | |
| mortgage loans are different from business loans and so that is | |
| why with business loans you should not look at demographic | |
| data. How do you answer that? | |
| Ms. URRUTIA. You know, I think this can be very much | |
| compared to HMDA. There was anecdotal evidence that underbanked | |
| populations were not being served and that capital flows were | |
| falling short when reaching certain communities. But without | |
| the data there was no proof and HMDA was that data. The result | |
| really was real access to capital for those communities, and | |
| really great benefits were achieved for both the individuals | |
| and the institutions that were providing the capital. As a | |
| result, lenders got into mortgage lending because they thought | |
| it was profitable, it was growing, and they could really do | |
| great work. There is plenty of evidence following the HMDA data | |
| expansion between 1993 and 1999, the number of home purchases | |
| made. For Latino consumers, it increased over 120 percent. For | |
| Native Americans, 119 percent. For African Americans, by 91 | |
| percent. And plenty of more statistics that show that increase | |
| in the flow of capital happened to underserved communities. | |
| There were certainly other factors that contributed to this but | |
| HMDA was a key part of that expansion. So it has been done | |
| before. | |
| Now, we do have some recommendations. Having a national | |
| database, and one thing I want to focus is on privacy. If you | |
| look at 40 years of HMDA's existence, not a single home loan | |
| has been identified. And the CFPB also contends that the | |
| publication of HMDA, which has similar data points to Section | |
| 1071, has not resulted in any measurable increase in fraud or | |
| identity theft. | |
| Ms. CHU. Thank you. | |
| Mr. LALOTA. The gentlelady's time has expired. | |
| I now recognize the gentlelady from Texas, Ms. Van Duyne, | |
| for 5 minutes. | |
| Ms. VAN DUYNE. Thank you very much, Mr. Chairman. thank you | |
| for holding this important hearing on a very concerning rule | |
| coming from the Biden administration which once again will | |
| hamper growth and create additional regulatory burden in an | |
| already difficult environment. | |
| As we have already talked about in this hearing multiple | |
| times, the inflationary environment created by this | |
| administration has led to the rise of interest rates, which has | |
| limited the access to capital for small businesses. This rule | |
| is confusing to interpret, and it will be confusing to | |
| implement, which will lead to higher compliance costs from what | |
| we have understood today and will once again be passed along to | |
| small business owners further increasing the cost of capital. | |
| We have heard a couple of strange statements today. | |
| Mr. Peters, I am going to ask you, do you have any clients | |
| who you have given loans to that are women? | |
| Mr. PETERS. Absolutely. Quite a few. | |
| Ms. VAN DUYNE. Do you have any minority clients? | |
| Mr. PETERS. I do. | |
| Ms. VAN DUYNE. Mr. White, do you have female and minority | |
| clients that you have actually given loans to as well? | |
| Mr. PETERS. Yes. Absolutely. | |
| Ms. VAN DUYNE. I am going to ask you, Mr. Wilson? | |
| Mr. WILSON. Absolutely. In fact, we were the ninth largest | |
| provider of small dollar PPP loans in the credit union space in | |
| the country. | |
| Ms. VAN DUYNE. That included women and minorities? | |
| Mr. WILSON. Absolutely. | |
| Ms. VAN DUYNE. And then I am going to ask you as well, you | |
| have women and minority clients as well? | |
| Ms. URRUTIA. Absolutely. | |
| Ms. VAN DUYNE. Mr. Peters, does every small business who | |
| applies for a loan qualify? | |
| Mr. PETERS. No. | |
| Ms. VAN DUYNE. Why? | |
| Mr. PETERS. We are relationship lenders so we are not just | |
| looking at a scorecard or a matrix. You know, the foundation of | |
| relationship lending is the five Cs of credit. We are looking | |
| at character. We are looking at capacity, collateral, capital, | |
| and conditions. You need to find the story behind the applicant | |
| and you cannot do that with a check box. | |
| Ms. VAN DUYNE. Okay. I am going to ask you, Mr. White, the | |
| same question. | |
| Mr. WHITE. I agree with Mr. Peters. One thing I will add is | |
| that I mentioned the relationship banking and counseling our | |
| business customers and giving them real-world business advice | |
| is part of what a community bank does. When we have small | |
| business owners that do not qualify for one reason or another | |
| we work with them to show them what they need to do to qualify | |
| in the future, whether that is improve their cash flow, improve | |
| their collateral or whatever it may be, we work with our | |
| customers to get them to a point where they can qualify. | |
| Ms. VAN DUYNE. Mr. Wilson, does every single small | |
| business, even if they need the capital that comes to your | |
| bank, are they able to qualify? | |
| Mr. WILSON. Well, in addition to following a similar | |
| process to Mr. Peters and Mr. White, we also take it a step | |
| further and assign every small business their own personal | |
| concierge. So even if they cannot qualify, we would provide | |
| them with a continuum of services, and even individuals who may | |
| be able to help them down the road. | |
| Ms. VAN DUYNE. Are you required to do that by law? | |
| Mr. WILSON. Absolutely not. | |
| Ms. VAN DUYNE. So why do you do it? | |
| Mr. WILSON. Because it is the right thing to do in our | |
| communities that we serve. | |
| Ms. VAN DUYNE. Thank you. | |
| Mr. Peters, you had mentioned that per cost of loans if | |
| this regulation were to go through, it would possibly increase | |
| between $500 and $800 per loan. Can you define what you think | |
| would be adding to that increase? | |
| Mr. PETERS. Well, there is a number of systems costs. One, | |
| banks are relying on their core vendor. So there would have to | |
| be that integration to the core. There would have to be | |
| additional software to capture and report the data. There would | |
| be somebody that runs that system. There would be audit of that | |
| system. There would be compliance. There would be training the | |
| lenders on how to tactfully try to gather that information | |
| accurately. So it is going to affect at least 15 people and a | |
| number of systems. And as my IT group continually reminds me, | |
| systems do not run on their own. | |
| Ms. VAN DUYNE. So is your company, is your bank going to | |
| just go ahead and take those costs or will those be reflected | |
| in the costs that you charge your small businesses? | |
| Mr. PETERS. I think it would have to be reflected into the | |
| rate and fees that are charged to the small businesses. | |
| Ms. VAN DUYNE. And Mr. White, I am going to ask you the | |
| same question. Do you see that happening? | |
| Mr. WHITE. Yes, I do. When the examiners come in and | |
| examine us, one of the things they look at are our earnings. | |
| And so banks have to be profitable to get good ratings. If we | |
| do not make money at some point we will go out of existence. | |
| And so at some point as the regulations get added onto and | |
| added onto, those costs do have to be passed on to the | |
| customers. | |
| Ms. VAN DUYNE. Thank you. | |
| And Mr. Wilson, do you think that this additional | |
| regulation will make loans cheaper for your small businesses or | |
| do you think it is going to make it more expensive? | |
| Mr. WILSON. It would certainly be an adverse impact. We | |
| have 60 branches in the communities that we serve so think of | |
| that as 60 individuals that then have to be completely | |
| retrained. All of those systems that go into place, much like | |
| Mr. Peters was saying, the domino effect of all of these things | |
| is extensive. Just by comparison, we have been working on CECL | |
| for nearly 5 years so it is no small undertaking. It is not | |
| like simply flipping a switch and wallah, there is the data. | |
| Ms. VAN DUYNE. Thank you. I really appreciate all of your | |
| input today and I think it is pretty clear that this additional | |
| regulation is bad for small businesses, will increase the | |
| costs, and it takes the personal touch that you offer all of | |
| your small businesses. So thank you for your testimony here | |
| today and I yield back. | |
| Mr. LALOTA. Thank you. | |
| The Chair now recognizes the gentleman from Missouri, Mr. | |
| Alford, for 5 minutes. | |
| Mr. ALFORD. Thank you, Mr. Chairman and Ranking Member for | |
| holding this important hearing. And thank you to our witnesses | |
| for being here today. | |
| Small businesses are supported by community banks and | |
| credit unions for their day-to-day business needs. And we have | |
| seen a lot on the news lately about our financial system. But | |
| what we really do not see in the news cycle and the headlines | |
| is how strong our community banks are and our credit unions and | |
| how they are still a fortress for our communities. | |
| Since the onset of the bank collapses earlier this month, | |
| my team and I have been in touch with a lot of community | |
| bankers and credit unions around the district and around the | |
| state. Since day one, it has been crystal clear to me that our | |
| financial institutions and Missouri stand ready to serve | |
| customers' needs just as they have been doing for decades. What | |
| they truly do is relationship banking. And I want to give you a | |
| personal example. | |
| Just today, I have several accounts, one at a very large | |
| national bank that you would recognize the name, and several | |
| community banks. And I have a mortgage with a community bank | |
| and I did not have enough money in my checking account to cover | |
| the mortgage payment due today. My banker, who I had a | |
| relationship with before I even thought about running for | |
| office texted me this morning and said, hey, Mark, we need to | |
| move some money over from one of your accounts to cover your | |
| mortgage. Large banks will not do that, folks. Large banks will | |
| not do this. It is this Committee's job to allow small | |
| businesses to thrive. To do that we have to make sure that | |
| community banks and credit unions that serve small businesses | |
| and individuals are not overburdened by needless regulation | |
| from the unconstitutional Consumer Protection Bureau simply to | |
| appease the Biden's far left agenda. | |
| So I want to get in with my question with you, Mr. Peters, | |
| Mr. White, and Mr. Wilson. Community banks and credit unions do | |
| not have large legal and compliance departments. | |
| Mr. Peters, will the 1071 rule put you at a competitive | |
| disadvantage compared to institutions that have larger | |
| departments to handle such needs? | |
| Mr. PETERS. Certainly, it would be a heavier lift for us. | |
| We do not have the robust systems or the program capabilities | |
| internally to build this, report this data as a much larger | |
| organization would have. | |
| Mr. ALFORD. Mr. White? | |
| Mr. WHITE. We do not have thousands of employees like the | |
| mega banks. We do not have dozens or hundreds of people in our | |
| compliance department. Up until just 8 or 10 years ago it was | |
| actually the Dodd-Frank Act that required my bank to hire a | |
| chief compliance officer. Prior to that, my dad and my brother, | |
| who are also with the bank, they were primarily responsible for | |
| compliance. So we do not have the people or the means to spread | |
| this over. | |
| Mr. ALFORD. Mr. Wilson, I feel you would probably say | |
| pretty much the same thing. You are going to have to pick up | |
| the slack from somewhere else. How is that going to affect your | |
| customers in general? | |
| Mr. WILSON. Sure. Similar to what I said previously, we | |
| would have to make this up in infrastructure, staffing costs, | |
| retraining. These things have to be passed along somewhere. | |
| That is bad for the consumer. And if it makes it too burdensome | |
| for small institutions that means less competition which | |
| ironically is bad for the consumer. So think about that for a | |
| minute. | |
| Mr. ALFORD. Mr. Wilson, my friend from Missouri, Mr. | |
| Luetkemeyer touched on this a little bit earlier. I want to | |
| delve a little bit deeper into it. The rule that calls for the | |
| collection of all sorts of data including race, if race is not | |
| evident, is it true that a teller has to assume or I guess, I | |
| know Mr. Peters you said that they are going to be tactfully | |
| gathering the information. It seems it could be rather | |
| sensitive. How do you go about this, Mr. Wilson? | |
| Mr. WILSON. I mean, the thought of putting our entry level | |
| folks in this situation is extremely uncomfortable. We have | |
| made so much progress socially, you know, and such a focus on | |
| diversity, equity, inclusion, belonging, programming, but to do | |
| something like this would quite frankly set us backwards and it | |
| is not something that we would want to put our entry level | |
| associates in that situation of having to guess whether it is | |
| in person or over the phone, it is just not right. In addition | |
| to that, it could seriously compromise the data if they are | |
| wrong based on assumptions. | |
| Mr. ALFORD. Thank you so much again for being here today. | |
| This is very important and, you know, we do not need more | |
| regulation. We need community banks to support our businesses | |
| and our individuals to make us successful in America. | |
| Thank you, and I yield back. | |
| Mr. LALOTA. The gentleman yields. | |
| The Chair now recognizes the Chairman of the Small Business | |
| Committee, the gentleman from Texas, Mr. Williams for 5 | |
| minutes. | |
| Mr. WILLIAMS. Thank you, Chairman. And I want to, in full | |
| disclosure, before I get started, I am a car dealer. That is | |
| what I do. When I am not here I own car dealerships in Texas so | |
| it makes me kind of a halfway banker. And I have seen a lot of | |
| this through a lot of years and we seem to be going back to | |
| where ewe were back in the 1960s, and it is not good. And I | |
| want to thank all of you again, our witnesses for being here | |
| today. And before I ask them more specific questions about this | |
| rule I want to take advantage of having some experts in our | |
| community banking system in this room. | |
| So Mr. Peters, you being an expert, okay, I want to get | |
| your opinion on how small businesses have been adjusting to | |
| this high interest rate environment we now are in, something | |
| that did not have to happen, and the general health of small | |
| businesses looking to access capital. | |
| Mr. PETERS. Well, certainly, the cost of capital, the cost | |
| of loans on a variable rate basis is increasing which puts | |
| strain on cash flow and reduces the ability to expand and to | |
| hire. And I think the sentiment in many areas where I bank and | |
| in the market is that this could lead to recession and that we | |
| had better prepare for that and reduce our spending. | |
| Mr. WILLIAMS. Well, and small businesses, you know, | |
| interest, again, I am a car dealer, interest in my business | |
| tears everything apart from margins to so forth. And when you | |
| have a situation like this you are going to have businesses lay | |
| off people, are you not? They are going to try to cut costs and | |
| people are the highest expense in most businesses. And then the | |
| idea that they can raise prices to cover that cost is | |
| ridiculous because we have got inflation now so we are going to | |
| raise prices. So, this high interest rates we are in is causing | |
| just a lot of problems. I tis going to be hard for small | |
| businesses to recover. We know that. That is why I am a big tax | |
| cutter. | |
| I think everyone in this room shares the objective of | |
| making it easier for viable small businesses to get a loan and | |
| start working towards the American dream. I believe if we want | |
| to make this a reality, imposing a significant new regulatory | |
| cost is not the way to do it. We talked about that. Most of the | |
| time these people we are hiring, they add no value to our | |
| business as far as what they sell. They are an expense. And | |
| these new costs will have to be passed along to consumers. | |
| There is a point that you cannot do that any longer; right? You | |
| just cannot keep passing costs on. And small business loans | |
| will get more expensive. All of you have said that. They are | |
| already now. So instead we should be examining the regulatory | |
| hurdles that are disproportionately harming community banks and | |
| credit unions. And not by imposing an expensive new government | |
| mandate is going to fix it because once you get the mandate it | |
| is hard to back it off. | |
| So Mr. White, can you give this Committee some suggestions | |
| of things we should be examining to make it easier for your | |
| institutions to get money into your community? So what should | |
| we be doing to help you and in the end we help you, you help | |
| your borrower? | |
| Mr. WHITE. In general, I would say let us do what we do | |
| best, which is help our customers. Do not dictate how we have | |
| to do business to help our small businesses. In particular, on | |
| 1071, I would say we talked some about the exemption for banks | |
| under $1 billion in assets. We would also encourage the revenue | |
| threshold to be reduced from $5 million to $1 million. That is | |
| still going to cover the vast majority of small businesses in | |
| the country. We would also support a mission-based exemption | |
| for NDIs and CDFIs as well. But fundamentally, community banks, | |
| we know how to help our customers. We have done it for | |
| generations. We are stable and successful at doing that. And we | |
| just need to be allowed to do it. | |
| Mr. WILLIAMS. Yeah. If the government would get out of your | |
| life it would be pretty good, would it not? And maybe we could | |
| insert the customer to tell you if you are doing a good job or | |
| not and let you compete. | |
| Mr. WHITE. As I said earlier in my testimony, we often, to | |
| small business customers and our ag customers, give them an | |
| option, whether it is an ag line of credit, do you want a fixed | |
| rate for a year, do you want a variable rate based off of | |
| prime? We walk them through the differences and we let them | |
| pick and they appreciate that. | |
| Mr. WILLIAMS. I have some time left. Mr. Wilson, do you | |
| want to add to that? What can we do to help you? | |
| Mr. WILSON. Well, our whole philosophy is built around | |
| people helping people. We started 73 years ago when nine people | |
| put money into a pot to lend each other money for appliances | |
| during the war. So we are very good at what we do. We want to | |
| continue to serve our Members. We want to continue to make our | |
| associates happy because then they serve our Members well and | |
| that in turn makes our communities a thriving place. I think it | |
| is critical to mention that it is not 1071 or nothing. There | |
| are already incredibly extensive rules, data collection, things | |
| that are being provided on a quarterly and annual basis. So at | |
| a minimum what NAFCU is asking for is consistency. You have | |
| three different definitions. You have what the NCUA has. You | |
| have what the SBA has. You have what the CFPB has. That makes | |
| it incredibly burdensome for institutions. | |
| Mr. WILLIAMS. My time is up, Mr. Chairman. I yield back. | |
| Mr. LALOTA. I would like to thank all of the witnesses for | |
| participating today, to the Members for their thoughtful | |
| questions. | |
| And without objection, Members have 5 legislative days to | |
| submit additional materials and written questions for the | |
| witnesses to the Chair which will be forwarded to the | |
| witnesses. | |
| If there is no further business, without objection, the | |
| Committee is adjourned. | |
| [Whereupon, at 11:26 a.m., the subcommittee was adjourned.] | |
| A P P E N D I X | |
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