Examining the Role of Community Development Financial Institutions and Minority Depository Institutions in Small Business Lending (House Small Business subcommittee hearing, May 18, 2021)
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Transcript of the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access hearing Examining the Role of Community Development Financial Institutions and Minority Depository Institutions in Small Business Lending, on May 18, 2021, published as Small Business Committee Document Number 117–013. Representatives Sharice Davids and Dan Meuser gave opening statements. Witnesses were Aissatou Barry-Fall of Lower East Side People's Federal Credit Union, Everett Sands of Lendistry, Robert James II of Carver Development CDE and the National Bankers Association, and Walter L. Davis of Peachtree Providence Partners Holding Company. The appendix adds a question from Ranking Member Luetkemeyer answered by James, and material from CUNA and NAFCU.
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“Examining the Role of Community Development Financial Institutions and Minority Depository Institutions in Small Business Lending (House Small Business subcommittee hearing, May 18, 2021).”
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EXAMINING THE ROLE OF COMMUNITY
DEVELOPMENT FINANCIAL INSTITUTIONS AND
MINORITY DEPOSITORY INSTITUTIONS IN
SMALL BUSINESS LENDING
HEARING
BEFORE THE
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
HEARING HELD
MAY 18, 2021
Small Business Committee Document Number 117–013
Available via the GPO Website: www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
44–565 WASHINGTON : 2021
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELÁZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
MELISSA JUNG, Majority Staff Director
ELLEN HARRINGTON, Majority Deputy Staff Director
DAVID PLANNING, Staff Director
(II)
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CONTENTS
OPENING STATEMENTS
Page
Hon. Sharice Davids ................................................................................................ 1
Hon. Dan Meuser ..................................................................................................... 3
WITNESSES
Ms. Aissatou Barry-Fall, President & CEO, Lower East Side People’s Federal
Credit Union, New York, NY .............................................................................. 5
Mr. Everett Sands, Founder & CEO, Lendistry, Brea, CA .................................. 7
Mr. Robert James II, President, Carver Development CDE, Chairman, Na-
tional Bankers Association, Savannah, GA ....................................................... 9
Mr. Walter L. Davis, Founder, Peachtree Providence Partners Holding Com-
pany, Charlotte, NC ............................................................................................. 10
APPENDIX
Prepared Statements:
Ms. Aissatou Barry-Fall, President & CEO, Lower East Side People’s
Federal Credit Union, New York, NY ......................................................... 26
Mr. Everett Sands, Founder & CEO, Lendistry, Brea, CA ........................... 32
Mr. Robert James II, President, Carver Development CDE, Chairman,
National Bankers Association, Savannah, GA ........................................... 41
Mr. Walter L. Davis, Founder, Peachtree Providence Partners Holding
Company, Charlotte, NC .............................................................................. 49
Question and Answer for the Record:
Question from Hon. Luetkemeyer to Mr. Robert James II and Answer
from Mr. Robert James II ............................................................................ 53
Additional Material for the Record:
Credit Union National Association - CUNA ................................................... 54
National Association of Federally-Insured Credit Unions - NAFCU ........... 56
(III)
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EXAMINING THE ROLE OF COMMUNITY
DEVELOPMENT FINANCIAL INSTITUTIONS
AND MINORITY DEPOSITORY INSTITUTIONS
IN SMALL BUSINESS LENDING
TUESDAY, MAY 18, 2021
HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in Room
2360, Rayburn House Office Building and via Zoom, Hon. Sharice
Davids [chairwoman of the Subcommittee] presiding.
Present: Representatives Davids, Newman, Chu, Evans, Mr.
Kim, Bourdeaux, Meuser, Van Duyne, and Donalds.
Also Present: Representative Luetkemeyer.
Chairwoman DAVIDS. Good morning, everyone. I call this hear-
ing to order.
Without objection, the Chair is authorized to declare a recess at
any time.
Let me begin by saying that standing House and Committee
rules and practice will continue to apply during hybrid proceedings.
All Members are reminded that they are expected to adhere to
these standing rules including decorum.
House regulations require Members to be visible through a video
connection throughout the proceeding, so please keep your cameras
on. Also, please remember to remain muted until you are recog-
nized to minimize the background noise. If you participate in an-
other proceeding, please exit this one and log back in later.
In the event a Member encounters technical issues that prevent
them from being recognized for their questioning, I will move to the
next available Member of the same party and I will recognize that
Member at the next appropriate time slot provided they have re-
turned to the proceeding.
For those Members physically present in the Committee room
today, we will continue to wear masks and socially distance while
the Chairwoman and Ranking Member work with the office of the
attending physician on updated guidelines and procedures. Mem-
bers and staff are expected to wear masks while in the hearing.
With that said, Members will be allowed to briefly remove their
masks when recognized by the Chair for statement and questions.
I know we all look forward to returning to normal but appreciate
(1)
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everyone’s patience while we prioritize the health and safety of our
staff and each other.
Access to capital is the lifeblood of American small business.
When small firms obtain adequate funding, they can grow their
business, create jobs, and bolster the overall economy. Unfortu-
nately, accessing capital is the single greatest challenge facing
most entrepreneurs. This is especially true for the underserved
groups like women, minorities, and folk who do not have the same
opportunities to access funding as their peers.
Businesses owned by women and people of color who obtain loans
often receive less money and pay higher interest rates. Fortunately,
there are institutions working to close this lending gap. Commu-
nity development financial institutions (CDFI) and minority deposi-
tory institutions (MDI) operate to get money to entrepreneurs tra-
ditionally ignored by big banks. CDFIs provide a range of financial
products and services on a fair and transparent basis in economi-
cally distressed markets such as mortgage financing, flexible un-
derwriting, and loans and investments to small businesses in low-
income areas.
MDIs are depository institutions where 51 percent or more of the
stock is owned by minority individuals, including Black Americans,
Asian Americans, Hispanic Americans, and Native Americans. As
of December 31, 2020, there are 142 MDIs ensured by the FDIC.
MDIs better serve borrowers who live in low and moderate income
or LMI census tracts.
Over the past year, we have seen a wealth of evidence show-
casing the power of these institutions in reaching undeserved
groups. The pandemic highlighted and exacerbated the deep in-
equalities present in the small business sector. In 2020, Black,
Latino, and Asian Americans experienced drops in business owner-
ship rates much higher than their White peers. These same groups
also had less access to federal relief programs, like the Paycheck
Protection Program (PPP) due to their lack of an account with a
big bank.
Recognizing this inequality in capital access, I and other Mem-
bers of this Committee worked to empower CDFIs and MDIs to get
emergency relief to these communities. We passed set-asides and
multiple bills to appropriate funds so that community lending insti-
tutions, including CDFIs, could participate in the PPP on an equal
footing with other lenders. We crafted these set-asides to maximize
PPP lending in traditionally underserved business communities
and we found that they were effective.
During the COVID-19 pandemic, small businesses reported the
greatest levels of satisfaction with CDFIs and small banks. SBA’s
data also shows that CDFIs were best able to reach underserved
small businesses. CDFIs were the only type of lender that per-
formed above program average when it came to the percentage of
loans less than $150,000. The percentage of loans made in low or
moderate income areas and the percent of loans made in rural
areas. The pandemic taught us a critical lesson in the power of
community financial institutions, to reach communities that other
lenders neglect.
Moving forward, we must examine the SBA’s programs that em-
power CDFIs and MDIs to find ways to improve them. For exam-
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ple, efforts like the Community Advantage Loan Program, the 504
or CDC Loan Guaranty Program, the Microloan Program has also
proven effective in helping CDFIs and MDIs get capital to under-
served communities.
Today, I would like us to look at what programmatic changes can
be made and what legislation we can pass to help improve the abil-
ity of these mission-based lenders to reach their target markets. As
this Congress and the administration work toward achieving an eq-
uitable recovery for everyone, we must fully harness CDFIs and
MDIs to reach this goal.
I will now yield to the Ranking Member for his opening state-
ment.
Mr. MEUSER. Well, I thank you, Madam Chair. Good morning
to all. And I thank you for holding this important hearing to ex-
plore the topic of access to capital for small businesses and how
community financial development institutions and minority deposi-
tory institutions assist the nation’s underserved small businesses.
Access to capital is a true driver of whether a small business start-
up or entrepreneur can sustain business operations. The ability to
obtain capital can be the difference between expanding and ceasing
operations.
Unfortunately, when restrictions and shutdown measures were
mandated on small businesses by state and local governments to
prevent the COVID-19 from spreading, traditional financing op-
tions quickly became even more limited. Instantly, small busi-
nesses were faced with very devastating challenges. As a response,
Congress created numerous relief programs focused on providing
capital to small businesses and their employees.
To create efficiencies and develop capital in a swift manner, the
Paycheck Protection Program replicated the strong private lender
model used within the SBA’s 7(a) Loan Program. Private sector
lenders responded quickly and assisted small businesses through
the emergency period and a total of over 5,000 private sector lend-
ers participated in the PPP.
To reach underserved businesses in urban and rural areas, in-
cluding minority-owned businesses, CDFIs and MDIs were wel-
comed into the program as well. Beyond acting as important lend-
ers and intermediaries, CDFIs and MDIs were categorized as com-
munity financial lenders and were on the frontlines assisting small
businesses throughout the pandemic. From when the program
opened in April 2020 through the conclusion of the first round in
August 2020, over 114,000 PPP loans were made by 308 CDFIs for
a total of $7.5 billion. Quite a bit. Likewise, approximately 175
MDIs played an important role in PPP during the same time period
by making 123,000 PPP loans for $10 billion.
Fast-forward to today, and CDFIs and MDIs are still actively
participating in the PPP program. Aside from providing critical ac-
cess to capital, CDFIs and MDIs were answering questions, pro-
viding technical assistance, and responding to the needs of the na-
tion’s smallest firms and organizations and they were quite active
in Pennsylvania, which was very appreciated. I would also like to
thank all the lenders that participated in PPP, including the na-
tion’s CDFIs and MDIs for assisting small businesses through
these somewhat dark days.
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But more work needs to be done. It is important for Congress to
examine the role these lenders had over the last year. Moreover,
Members of Congress must also examine the relief options used
during COVID-19 to measure programs’ efficiencies and overall ef-
fectiveness. Hearings like this one will help guide us as we explore
numerous capital access issues, including the most efficient ways
to deliver credit to small businesses. We learned a lot during this
emergency period. We should use this information to continue to
refine and sharpen all of the existing traditional tools available
within the federal government.
I would like to thank all the witnesses for joining us today. I look
forward to the conversation.
Madam Chair, thank you for calling his hearing and I yield back.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
I would like to take a moment to explain how the hearing will
proceed. Each witness will have 5 minutes to provide a statement
and each Committee Member will have 5 minutes for questions.
Please ensure that your microphone is on when you begin speaking
and that you return to mute when you are finished.
With that, I would like to introduce all of our witnesses.
Our first witness is Ms. Aissatou Barry-Fall, the President and
CEO of the Lower East Side People’s Federal Credit Union. A lead-
er in the community development credit union movement and one
of the earliest institutions to obtain CDFI certification from the
Treasury. Since its founding, they have provided vital financial
services and community development investments in low-income,
immigrant, and underserved communities in New York City. Ms.
Barry-Fall began her career as a teller almost 30 years ago. Wel-
come, Ms. Barry-Fall.
Our second witness is Mr. Everett Sands. Mr. Sands is the
Founder and CEO of Lendistry, a minority-led and technology-en-
abled small business lender with CDFI certification and one of the
largest lenders in SBA’s Community Advantage Program.
Lendistry is also a Member of the Responsible Business Lending
Coalition, a leading advocacy group for transparency and fairness
in the lending process. He has over 20 years in national community
banking and began his career working at two MDIs. Welcome, Mr.
Sands.
Our third witness is Mr. Robert James II. Mr. James is the
President of Carver Development CDE, an affiliate of Carver State
Bank in Savannah, Georgia, one of the oldest Black-owned banks
in the United States. He is also the Chairman of the National
Bankers Association, the leading trade organization for the coun-
try’s minority depository institutions. An attorney by trade, he has
spearheaded numerous initiatives to bring private and public in-
vestments to underserved communities. Welcome, Mr. James.
I would now like to yield to our Ranking Member, Mr. Meuser,
to introduce our final witness.
Mr. MEUSER. Thank you, Madam Chair.
Our next witness, Walter Davis. Mr. Davis is the Founding Mem-
ber of Peachtree Providence Partners Holding Company with loca-
tions in Charlotte, North Carolina and Atlanta, Georgia. Peachtree
Providence Partners was formed in 2014 and specializes in advi-
sory and consulting services, as well as financial solutions. Prior to
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forming Peachtree Providence Partners, Mr. Davis was Vice Chair-
man, Chief Executive Officer, and Founder of CertusBank, and be-
fore that he was managing partner of Integrated Capital Strate-
gies. Mr. Davis has also held executive level roles with Wachovia
Corporation which is now Wells Fargo and Bank of America. Along
with numerous board, trustee, and academic positions, Mr. Davis
is an advisor on opportunity zones and was Chair of Vice President
Pence’s Economic Inclusion Task Force. Mr. Davis has a degree
from the University of South Carolina and the University of North
Carolina Chapel Hill. Mr. Davis, I would like to welcome you to the
Subcommittee today and I am looking forward, we all are, to your
thoughts and ideas.
Thank you to all of the witnesses for joining us, and I yield back.
Chairwoman DAVIDS. Thank you for doing that introduction.
Ms. Barry-Fall, you are now recognized for 5 minutes.
I believe you might be muted still.
STATEMENTS OF AISSATOU BARRY-FALL, PRESIDENT & CEO,
LOWER EAST SIDE PEOPLE’S FEDERAL CREDIT UNION;
EVERETT SANDS, FOUNDER & CEO, LENDISTRY; ROBERT
JAMES II, PRESIDENT, CARVER DEVELOPMENT CDE, CHAIR-
MAN, NATIONAL BANKERS ASSOCIATION; WALTER L. DAVIS,
FOUNDER, PEACHTREE PROVIDENCE PARTNERS HOLDING
COMPANY
STATEMENT OF AISSATOU BARRY-FALL
Ms. BARRY-FALL. Can you hear me now?
Chairwoman DAVIDS. There we go.
Ms. BARRY-FALL. Thank you.
Chairwoman Davids, Ranking Member Meuser, and Members of
the Subcommittee, thank you for inviting me to testify at today’s
hearing.
I am the CEO of the Lower East Side People’s Federal Credit
Union, a not-for-profit community development financial institution
and minority designated credit union located in New York City. We
are also a proud Member of Inclusiv, a national network of nearly
400 community development financial institution and minority-des-
ignated credit union located in New York City. We are also a proud
Member of Inclusiv, a national network of nearly 400 community
development credit unions. Together they serve 14 million predomi-
nantly low-income and minority communities and manage $190 bil-
lion in community-controlled assets.
During the pandemic, while working to help our Members access
stimulus payments, deal with financial insecurity and access emer-
gency loans, community development credit unions also mobilized
to become a critical conduit to getting the Paycheck Protection Pro-
gram out to minority small and micro businesses.
Our credit union was established in 1986 as a response to the
closure of the last bank branch serving the Lower East Side of
Manhattan. Thirty-five years later, we continue to play the same
critical role as the only regulated CDFI in our community. We now
manage around $90 million in assets and 9,000 people through
three community institutions.
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Our loan portfolio has more than $22 million in mortgages, over
$20 million in loans to low-income housing cooperatives, and $16
million in Paycheck Protection Program loans.
Like other community development credit unions, we are the fi-
nancial first responders. We are there when disasters strike. We
were first to open in the aftermath of 9/11. Last year, we did it
again. In a time of crisis, we inevitably see increased demand on
our services.
Our experience with PPP was in itself a journey. We could not
participate in the first round as the money ran out even before we
could get on the SBA platform. In the second round, we faced some
significant logistic challenges but our team quickly gained the ex-
pertise needed to ramp up our lending. We now have a strong pipe-
line that we hope to continue processing as long as the $9 billion
set-aside is still available.
Most of our business borrowers are micro and very small entre-
preneurs. They come to us frustrated by their negative experiences
with other financial institutions.
Our average PPP loan is around $30,000. Our median loan is
$21,000. The largest loan we made was $750,000 and the smallest
was for only $220. Yes, $220.
Our role is to serve those that other lenders do not. They are the
minority businesses that would have been left behind were it not
for the work of the CDFIs and MDIs.
Our numbers are consistent with what Inclusiv has been track-
ing from its network. In 2020, community development credit
unions originated $1.8 billion in PPP loans. This number is likely
to be bigger this year. In fact, community based lenders collectively
have deployed more than $22 billion in PPP loans so far. To finish
strong, we ask SBA to share daily updates with community lenders
on how much funding is available.
Moving forward, I would ask you to take advantage of this mo-
ment to create a strong framework to serve minority businesses.
CDFI credit unions are a key to help these businesses, not just sur-
vive but to grow and thrive.
I propose the following:
Open the SBA Community Advantage Program to CDFI credit
unions.
Improve the traditional 7(a) SBA program. The loan guarantee
process is cumbersome to borrowers and challenging for community
lenders.
SBA should streamline approval for loans under $150,000.
Provide resources to support technical assistance and training to
ensure entrepreneurs can really succeed. We spend a significant
portion of our time helping borrowers navigate the lending process.
Keep capital flowing. We are encouraged by the inclusion of $12
billion for the CDFIs and MDIs in the COVID relief bill and we
plan to access all those opportunities. We applied for a $3 million
grant under the CDFI Fund Rapid Response Program. This capital
infusion will enable us to continue mobilizing funds to fill our lend-
ing.
We urge the CDFI Fund to move forward with that review proc-
ess quickly and to prioritize on-the-ground CDFIs that are working
directly with consumers, homeowners, and businesses.
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We intend to apply for secondary capital through the U.S. Treas-
ury’s Emergency Capital Investment Program (ECIP). We encour-
age Treasury to make this program as flexible as possible and to
ensure that the information requested in those applications is in
line with the NCUA review. We also urge NCUA to make their re-
views consistent and expeditious.
I thank you again for this opportunity and look forward to an-
swering your questions.
Chairwoman DAVIDS. Thank you, Ms. Barry-Fall.
Mr. Sands, you are now recognized for 5 minutes.
STATEMENT OF EVERETT SANDS
Mr. SANDS. Thank you. Good morning, Chair Davids, Ranking
Member Meuser, Ranking Member Williams. Thank you calling a
hearing on The Role of CDFIs and MDIs in Small Business Lend-
ing and for inviting me to testify.
My name is Everett K. Sands, and I have more than 20 years
of experience in lending at MDIs, national banks, and at the only
fintech CDFI, Lendistry.
For the past 5 years, as founder and CEO of Lendistry, my focus
has been on responsible lending to underserved small businesses,
and particularly those owned by minorities, women, veterans, and
people in rural areas.
Lendistry is also a Community Development Entity (CDE), and
a Member of the Federal Home Loan Bank of San Francisco, and
a SBA lender.
Lendistry ranks second nationwide in SBA Community Advan-
tage lending, which ranges from $50,000 and $250,000, and more
than 60 percent of Lendistry’s total outstanding principal loan bal-
ance is with minority and women-owned borrowers, and 70 percent
to underserved small businesses.
Lendistry’s intentional focus on these businesses and our ability
to efficiently process high volumes of applications, have enabled us
to make an impact during this period of urgent need. Over the past
13 months, Lendistry has been the primary point of contact in con-
necting more than a quarter of a million affected small businesses
with $3.2 billion in loans and grants and we aspire to grow to at
least $5 billion by year end.
In addition to providing PPP loans nationwide, including at least
one county represented by every Member of this Subcommittee,
Lendistry has served as the administrator for COVID relief grant
programs offered by the states of California and Pennsylvania, and
we have provided businesses in every county of those states with
critically needed equity capital.
My message today is that the single most effective way for Con-
gress and the Federal Reserve to substantially expand capital ac-
cess to small and underserved businesses is to focus on making sig-
nificantly more capital available to CDFIs and MDIs.
One unmistakable lesson of the determined economic relief ef-
forts led by Congress over the past year in response to COVID is
that small and underserved businesses are far and away more suc-
cessful in accessing capital from CDFIs and MDIs than from other
sources.
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Furthermore, as a signatory to the Small Business Borrower’s
Bill of Rights, we at Lendistry see that the lesson also contain a
market-oriented solution to the predatory lending problem, with
the potential for greater supply of responsibly-priced capital chan-
neled through CDFIs and MDIs. Yet, paradoxically, CDFIs and
MDIs face more barriers to gaining an adequate supply of capital
to deploy than other federally-regulated and federally-certified fi-
nancial institutions.
In short, CDFIs and MDIs are essential, yet underutilized, pieces
of the small business funding infrastructure.
The stakes in addressing this paradox are enormous. Disparity
in access to capital on responsible terms is a critical hurdle for
small businesses, both in powering the nation’s economic and jobs
recovery and in narrowing the racial wealth gap.
The capital access landscape many small businesses must tra-
verse as they grow resembles the desert where the lifeblood of re-
sponsibly-priced capital is scarce. Worse, it is a desert that is made
almost impossibly steep by the prevalence of predatory lenders that
have filled a void left by two decades of bank consolidation. After
a year of COVID relief, there is clear and compelling evidence that
measures making capital available to CDFIs and MDIs will trans-
form this steep desert that small businesses must cross on their
path to growth and into a more fertile and flatter playing field.
Congress and the Federal Reserve already have put in place key
building blocks for addressing the problem of CDFIs and MDIs
lacking the capital necessary to be significantly more impactful for
small businesses. The work to do is relatively straightforward.
Let me summarize three categories of recommendations which I
have described in greater detail in my written testimony.
First, leverage several key building blocks that already have
been established by Congress and the Federal Reserve by estab-
lishing mechanisms that are exactly analogous to ones that have
already proven to be effective in opening the flow of capital to
CDFIs and MDIs. My recommendations in this regard are making
greater use of the Paycheck Protection Program liquidity facilities
in all SBA programs; expanding SBA community advantage in
three dimensions—length, loan amount and geographic reach; and
making greater use of the Federal Home Loan Bank and programs
that guarantee loans, such as the recently renewed State Small
Business Credit Initiative.
The second category of recommended actions is optimizing the
complementary nature of traditional banks, on one hand, and
CDFIs and MDIs, on the other, for the benefit of small businesses.
My recommendations in this regard focus on enhancing the incen-
tives for traditional banks to partner with CDFIs and MDIs.
And the third area of recommendation is to create an office with-
in SBA dedicated to supporting the efforts of CDFIs and MDIs as
small business lenders.
Thank you again to the Subcommittee and the staff for the op-
portunity to provide my perspectives and recommendations. I look
forward to engaging you further in response to your questions.
Chairwoman DAVIDS. Thank you, Mr. Sands.
Mr. James, you are now recognized for 5 minutes.
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STATEMENT OF ROBERT JAMES II
Mr. JAMES. Thank you, Chairwoman Davids, Ranking Member
Meuser, Chairwoman Velázquez and Members of the Sub-
committee. Good morning and thank you for this opportunity to
testify on the role of CDFIs and MDIs in small business lending.
It gives me great hope that one of this Subcommittee’s first hear-
ings of the 117th Congress is aimed at shining a light on this crit-
ical issue.
My name is Robert James II, and I am president of Carver De-
velopment CDE, an affiliate of Carter State Bank in Savannah,
Georgia. I am also Chairman of the National Bankers Association
(NBA). The NBA is the leading trade association for the country’s
Minority Depository Institutions. Our mission is to advocate for the
nation’s MDIs on all legislative and regulatory matters concerning
and affecting our Members, as well as the communities we serve.
Many of our Member institutions are also CDFIs, and many are
banks of choice for consumers and businesses who are underserved
by traditional banks. NBA Members are on the frontlines, reducing
the economic hardship in minority communities, which historically
are the most vulnerable during any slowdown and have been hit
hardest by this pandemic.
The House Small Business Committee and Chairwoman
Velázquez have been instrumental in the inclusion of several provi-
sions in multiple relief packages adopted during the course of the
pandemic that ensure that MDIs and the small businesses and in-
dividuals that we serve are not forgotten during this national
emergency.
The creation of the Emergency Capital Investment Program and
the $3 billion plus up of the CDFI Fund will allow institutions like
those within the NBA to make more credit available to individuals
and small businesses in LMI communities. The NBA applauds the
Congress for the adopting these two important capital measures
and we look forward to working with you on other measures that
will help the communities we serve.
It is important to note that 70 percent of minorities do not have
a bank branch in their neighborhood and 94 percent of Black small
businesses are the sole proprietors that are typically underbanked
or unbanked.
Given the challenges faced by these small businesses, especially
minority-owned small businesses, it is imperative to assess which
type of banks are best positioned to provide access to capital for
these communities. National banks may not be fastest in reaching
this constituency but were principally minority communities that
have accounted for 50 percent or more of the debts from this pan-
demic.
Traditionally, CDFIs and MDIs are critical economic develop-
ment engines in minority and low-income communities, particularly
due to our trusted relationships. Unfortunately, our relatively
small scale and underrepresentation in the implementation of
many of the relief efforts show that more intentional inclusion is
required in program design. We saw this play out during each
round of the PPP. Congress devised the program as a mechanism
to aid small businesses suddenly found themselves forced to close
during stay-at-home orders, a set of conditions that have favored
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larger businesses, including delaying the application of sole propri-
etorships, and program rules not allowing enough time for our
MDIs and CDFIs to work with very small, under-resourced, minor-
ity-owned businesses has limited their access.
In light of the nature of this hearing, the NBA is pleased to rec-
ommend several potential policy options for consideration, includ-
ing the establishment of an MDI office at the SBA which will focus
on integrating our institutions as the outreach servicing minority
small businesses across the country.
A critical component for this office would be a mandate for the
SBA to preserve and promote minority depository institutions by:
(1) preserving the number of MDIs; (2) providing technical assist-
ance to ensure maximum efficiency in program implementation;
and (3) promoting and encouraging the creation of new MDI part-
nerships.
It is very similar to requirements that make regulatory agencies
currently comply and we believe that these requirements of the of-
fice ensure that MDI partners are able to effectively engage with
the SBA.
Several other options are outlined in my written testimony in-
cluding passage of the Ensuring Diversity Community Banking
Act, Consumer Credit Enhancements, and Small Business Faith-
Based and Nonprofit Institution Credit Enhancement.
In conclusion, the MDA applauds the Subcommittee for holding
this important hearing and supports the Full Committee’s ongoing
efforts to ensure equity for all American small businesses. While
we commend Congress on its leadership to date, much work needs
to be done. We continue to support the MDI sector as we respond
to the credit needs of small businesses that our Members [inaudi-
ble]. In this regard, the NBA and its Member institutions look for-
ward to working closely with the Committee and the Subcommittee
to find workable solutions that ensure minority small businesses
ultimately have every opportunity to thrive.
Thank you again for the opportunity to testify. I will be pleased
to answer any questions.
Chairwoman DAVIDS. Thank you, Mr. James.
Mr. Davis, you are now recognized for 5 minutes.
STATEMENT OF WALTER L. DAVIS
Mr. DAVIS. Thank you, Chairwoman Davids, Ranking Member
Meuser, and Members of the Economic Growth, Tax, and Capital
Access Subcommittee. It is a pleasure to be with you today.
I come before you today with extensive senior executive leader-
ship experience with some of the nation’s largest financial institu-
tions, as well as an entrepreneur.
Specifically, I previously co-founded and served as the chief exec-
utive officer of the African American founded and managed,
CertusBank. Having reached the level of more than $2 billion in
assets, CertusBank operated as the largest bank in the U.S. found-
ed and managed by African Americans.
Prior to my work at CertusBank, I served as an executive vice
president at Wachovia Corporation, which is now Wells Fargo
Bank. While there, I managed a $70 billion retail credit and small
business portfolio.
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It is in this context that I would like to share some thoughts on
the state of CDFIs and MDIs, as well as suggest some policies to
improve the flow of capital into small businesses.
It is important to note that when we are speaking of CDFIs and
MDIs, which include Black banks, in the broader context, what we
are speaking of is our national access to capital and financing in-
frastructure for minority businesses and entrepreneurs. Quite
often, these enterprises are doing and seeking to do business in the
places that pose the greatest challenges and risks in the market-
place. These markets are often at the bottom of the economic lad-
der and separated significantly from the mainstream economy.
These are the areas that are generally referred to as distressed or
underserved markets and communities. These areas are reflected
in what we now designate as opportunity zones, which by the way
I had the privilege to work closely with Senator Scott and his staff
on the opportunity zone legislation.
These communities do not have the same support or capital ac-
cess system as mainstream communities. We admonish them to
take advantage of what is the core of America, our unparalleled
capitalist free enterprise system. But what happens when the fed-
eral government does not ensure that the free enterprise system is
there for them like it is the mainstream marketplace? What hap-
pens is this: The disproportionate economic devastation that we see
in communities persists. And these conditions are the bedrock of
much of the social dysfunction and yes, racial unrest that we are
experiencing today.
No business can grow without access to capital. The role of the
government in my view is to make certain that the proper infra-
structure is there to ensure equitable access to capital. During the
pandemic, The Federal Reserve and Treasury did a laudable job
working in tandem to make certain large financial institutions
were able to meet the needs of their large and mid-sized clients
through mechanisms such as the Commercial Paper Funding Facil-
ity, the main street Lending Program, and the Primary Dealer
Credit Facility, among others. In this same period, we saw the SBA
administer the Payment Protection Program and Economic Injury
Disaster Relief Loan facilities but without the same efficiency. We
witnessed once again that Black and Brown businesses were shut
out of the all-important flow of capital during these programs’ ini-
tial stages.
Adjustments were made and the calvary was called in to help get
PPP loans to those most in need. In this instance, the calvary con-
sisted of CDFIs and MDIs. CDFIs and MDIs handled the bulk of
Black and Brown small business relief efforts.
I would like to say that I am not against the market and policy
support for our large American businesses. We truly need that. I
am saying that as a federal government, we must be as dedicated
to providing for the needs of minority businesses in distressed com-
munities.
Now, for a moment, let’s talk about Black banks and their role
in supporting underserved communities. One hundred years ago in
1921, 120 Black-owned banks were in existence across the U.S.
Twenty years ago, that number had been reduced to 40, and today
only 19 Black-owned banks remain in operation. One might think
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consolidation and moves to achieve economies of scale drove this
shrinkage. However, there is only one of these institutions that has
$1 billion in assets.
In an economy where there are multiple trillion-dollar banks,
this is inexcusable. We expect Black-owned Banks to serve the
‘‘least of these.’’ We need these institutions to be strong; however,
we need to take a close look at some type of infrastructure, invest-
ment, and regulatory relief.
As it relates to solutions, we have talked about the Emergency
Capital Investment Program. I believe this is a great program.
However, right now currently the SBA will not allow banks to in-
vest capital received from ECIP into SBICs (Small Business Invest-
ment Corporations). According to the SBA there are over 300 SBIC
licenses and less than five in the hands of Black-owned fund man-
agers.
Given the dire need of capital in the underserved market and
particularly, Black communities, a provision should be made to
allow CDFIs and MDIs to invest in ECIPs without restriction. Also,
Congress should consider allowing CDFIs and MDIs to take in eq-
uity capital from opportunity zone investors and in turn lend it out
to entrepreneurs will allow for more capital flow into minority and
business communities.
I can speak more during Q&A about other thoughts but I thank
you for your time and appreciate you allowing me to address you
this morning.
Chairwoman DAVIDS. Thank you, Mr. Davis.
And thank you to everybody who has testified so far this morn-
ing. We appreciate everything you have shared with us.
I am going to start by recognizing myself for 5 minutes.
Mr. James, in the last few months, we have seen a concerted ef-
fort from the White House and the SBA to reach the smallest of
small businesses through the Paycheck Protection Program. As
they were largely shut out of the program early on, how would you
evaluate SBA’s outreach to the lending community and the empha-
sis on targeting the hardest to reach at this point?
Mr. JAMES. Thank you for the question, Chairwoman.
As you know, the role out of the program was a bit rocky. In the
first round of the program, the SBA was very much focused on
speed to market and getting capital in the hands of small busi-
nesses. Unfortunately, there was not really a lot of intentionality
in the design of the program and so it was very difficult for particu-
larly small institutions to access and deliver resources to the com-
munities that we serve.
In addition, in the second round of the PPP program, the issues
were a little bit better. It was a little smoother. We were able to
access certain set-aside funding for small businesses in the commu-
nities we served. But there were issues in terms of the rules of the
program, in terms of calculations, particularly for small sole propri-
etors and the way that they were required to calculate their eligi-
bility. Then, in the third round of the program when it rolled out,
we received very little notice. The program rolled out in early Jan-
uary. We received very little notice at our institutions about the
change of technology platforms and the way that the program
would be administered. And so that presented some challenges be-
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cause many of our institutions had worked out their own process
during the first two rounds and then they had to change processes
with very, very little notice. Then, we had another situation where
the new administration came in and made a very welcomed change
to the calculation rules to allow more sole proprietors to access cap-
ital based on their gross income and not their net but that then
caused it to slow down again due to the rule changes, changes in
application forms which again impacted the ability to serve those
small business customers effectively and efficiently.
So in future programs like this, Chairwoman Davids, I would
just recommend that we design them on the frontend with a little
bit more intentionality about how to make the capital available to
the smallest and hardest to serve businesses and our institutions,
as well as I am sure the other Members of the panel today would
be happy to provide this Committee and the Congress in the future
with very specific suggestions like the creation of an MDI office at
the SBA which would really improve our ability to again make pro-
gram designs very efficient going forward.
Chairwoman DAVIDS. Thank you.
Mr. Davis, and this question can be for anyone else on the panel
who also wants to share. I am curious after your testimony, we
know that access to capital is a challenge for clients of CDFIs and
MDIs, but also for the institutions themselves. And earlier this
year, Treasury announced the launch of the Emergency Capital In-
vestment Program (ECIP) to provide emergency capital to CDFIs
and MDIs.
I guess I am curious about your ideas about how we ensure that
Treasury maximizes those benefits of this particular program and
then also, if you have anything additional about the infrastructure
needed to support MDIs and that sort of thing.
Mr. DAVIS. Certainly. Thank you for the question, Chairwoman.
The ECIP program I think is a really good idea. It is a novel
idea. Two percent cost of capital being driven down to 50 basis
points. And sometimes starting at 2-1/2 percent for subordinated
debt I think is great. The issues that you have to think about is
that this is for the best of institutions, the most well run. There
are a lot of weaker institutions that serve these communities that
need help as well. Tier one capital, as we know, is the lifeblood of
any financial institution, especially a depository institution. And so
if we think about a business model where these folks are set up
to serve the poorest of communities, the profitability model is going
to be a little bit different. And so I think that we can enhance this
program by taking a look at what are those efforts that we can
make for those weaker MDIs that are out there? How can we sup-
port them in a different way? I think that is going to be critical
from my perspective.
Chairwoman DAVIDS. Thank you. And I realize that my time
has now expired.
I am going to now recognize the Ranking Member, Mr. Meuser
from Pennsylvania.
Mr. MEUSER. Thank you, Chairwoman.
Chairwoman DAVIDS. For 5 minutes.
Mr. MEUSER. So this is a very important subject and really
quite intriguing.
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Mr. Davis, I would just like to start with you. How do you feel
the undeserved small businesses were served by the PPP and the
EIDL programs via the CDFIs and the MDIs? I mean, in general
or specifically, how do you feel the programs went?
Mr. DAVIS. Thank you, Ranking Member Meuser.
So, in general, I think the program went fine. As it relates to the
EIDL program, the SBA administered those loans directly, and as
we know, the SBA is not set up generally to make loans directly.
So I would sort of think about something a little bit different in
working through the intermediaries such as the MDIs and CDFIs
as it relates to that.
Paycheck Protection Program, I think that worked generally
well. A lot of feedback that I received from MDIs was two things.
One was their lack of infrastructure to be able to handle the num-
ber of requests they had because they were the ones really serving
those that had been left out and those most in need.
Number two, they talked about the amount that they were paid
for these loans, and so I think that is something that we should
look at. But in general, it was fine. As I stated in my comments,
the SBA had to readjust, as did everyone else because the busi-
nesses that were most vulnerable were the ones that were being
left out initially.
Mr. MEUSER. All right. Thanks.
So as the country opens up and the stores open up, how do you
view the state of solvency of underserved small businesses and
their continued access to capital?
Mr. DAVIS. So I think that one of the things I would look at is
the main street Lending Program that the Federal Reserve imple-
mented. I actually like the structure of that program. You know,
5-year loan, 5 percent is held by the institution and there are no
payments the first year. Interest only the second year. And then
amortized. And so something more downstream for smaller busi-
ness in order to have the same effect so that it is sustainable over
time. I know we talk about the PPP program but generally, that
is a one time injection into these businesses. What we need is a
sustainable capital infrastructure. The private markets are the
most efficient markets. And so government’s role in making sure
that we establish those markets as a backstop so that these institu-
tions can make more loans and have more flexibility in my opinion
is what we need to take a look at.
Mr. MEUSER. Okay. I am very interested in revitalization in
suburban, rural, as well as urban areas. So you brought up the
idea of equity capital investments and the CDFIs within oppor-
tunity zones and creating opportunity funds. I do not know how
much we can cover that right now but would you like to elaborate
for 30 seconds on your point there?
Mr. DAVIS. Sure. As it stands today, MDIs and CDFIs are not
considered qualified opportunity businesses. The opportunity to
have investors invest in a fund and that fund in turn invest in
these MDIs, especially, is a good opportunity to inject capital into
these institutions so that they can further lend out in these com-
munities. Right now, that does not exist as a provision. And so in
my opinion, that is something that you should take a closer look
at.
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Mr. MEUSER. Okay, great.
And I want to ask your thoughts on this. The Restaurant Revi-
talization Fund is depleted. It was $30 billion, I believe, and they
have got nearly $70 billion. How is that affecting your commu-
nities, and do you have restaurants coming to you through the
CDFIs and the MDIs in a panic? How are the restaurants faring
and how are the CDFIs serving them?
Mr. DAVIS. The restaurants have been in a tough situation. Ob-
viously, when we shut the country down to some extent, these busi-
nesses where we have a lot of service individuals were some of the
most vulnerable. And so when you think about those businesses, a
lot of them went away and will not come back. One of the things
that we really need to contemplate is being able to take a little
more risk in the startups that we are going to see. We have to have
more businesses willing to start up as we come out of this economic
morass that we have been in. And so the restaurant business is one
that I think is important and we are going to have to take a closer
look at so I like the idea of the fund. Let’s take care of those busi-
nesses from a smart perspective.
Mr. MEUSER. Sure. Thank you.
And Madam Chair, I know I am past my time. I would like to
follow up with our witnesses on these very important issues so I
would just like to perhaps do that with you, Madam Chair. But I
yield back. Thank you.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
The Chair would now recognize Rep. Evans for 5 minutes.
Mr. EVANS. Thank you, Madam Chair.
Madam Chair, I would like to question Mr. Sands. Mr. Sands,
tell me about your partnership with the PACBFI Network and your
work with California. Do you think the PACBFI network is a struc-
ture that be beneficial to other states? Mr. Sands?
Mr. SANDS. Thank you, Representative Evans.
I do. And just for background, Lendistry partnered with 17
CDFIs, bringing 18 CDFIs together, including MDIs. We took
roughly about 64,000 applications in a period of 20 days for $1.1
billion in requests to service the state. As I believe you know, but
just in case, we were able to reach underserved small businesses
in rural areas, revitalization areas. We had a significant amount of
women-owned businesses and minority-owned businesses.
Lendistry was then able to repeat that same process of roughly 60
institutions in California and take 334,000 applications in roughly
15 days. The collaborations that we are now building with CDFIs,
MDIs, and other mission-based organizations shows that there is
a huge opportunity to deploy a significant amount of capital if
given the opportunities with CDFIs and MDIs. Thank you.
Mr. EVANS. Thank you.
Mr. Davis, do you foresee CDFI continuing to use fintechs to as-
sist them with their services? What are the benefits and chal-
lenges? And how can you provide better support to CDFIs that
wish to use fintechs?
Mr. DAVIS. Thank you, Representative Evans for that question.
I am a big believer in financial institutions having robust digital
capabilities as it relates to the future. And so when we think of a
combination of CDFIs and fintechs, I think that could be a fairly
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novel idea. I think that a lot of people are going online now. Digital
wallets. Digital is big. But I believe we will not see people in our
lifetime get away from walking into bricks and mortar. That is just
something that is going to be there. And especially in the commu-
nities that are the most vulnerable. If you pass by any bank branch
in a distressed community on Friday afternoon, or you pass by any
check cashing institution, you see lines. And so I think that as we
can make a combination with digital robust capabilities of fintechs,
along with CDFIs and MDIs, we can broader serve the commu-
nities that we are after.
Mr. EVANS. Mr. Sands, do you think fintechs should have a per-
manent place in SBA programs, especially to help targeted, under-
served small businesses? And if so, why?
Mr. SANDS. Representative Evans, they do have a permanent
place. That would be Lendistry. We are a fintech CDFI. We have
proven that scale is something that can be done, that we can reach
underserved small businesses. And I think that what fintech has
allowed is a couple of things. The first thing I would mention is an
unbiased approach to how we look at lending. Technology does not
look at who the applicant is. It just takes them in and looks at
their qualifications.
The second thing is it allows us to collaborate with those who
might not otherwise have the ability to provide technology. I do
agree with Mr. Davis, there will be people who will come into a
physical location but I believe it is also not a silver bullet. We have
to recognize that most people, even underserved, even when they
do not have broadband, do have a cellphone.
The third thing I would mention is scalability, and the ability to
scale is really, really important. And that goes not only just in vol-
ume, that goes in being accessible to small businesses when small
businesses are doing their personal items. Banks are traditionally
open from 9:00 to 5:00. Small businesses are open from 5:00 to
9:00. And so we have to think about these things, and we have to
think about how to be more accessible to these small businesses
when they are available and when they are doing their loan activi-
ties. Thank you.
Mr. EVANS. Thank you.
Mr. Davis, would you like to add any comment relating to the
question I just asked?
Mr. DAVIS. No, sir. Thank you, though.
Mr. EVANS. Thank you. And I yield back the balance of my
time, Madam Chair.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
The Chair will now recognize Mr. Luetkemeyer, the Ranking
Member of the Full Committee. You are now recognized for 5 min-
utes.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Great panel today. We have got a lot of great folks here who
have got a lot of personal knowledge of the industry and how these
programs all work.
Let me start with Mr. Davis. You made the comment a few min-
utes ago and you have managed a small business portfolio at Wells
Fargo, that we need to do something different with regards to de-
livery of these programs. And it would seem to me that as success-
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ful as the PPP program was and as disastrous as the EIDL pro-
gram has been from the standpoint of fraud and abuse and mis-
management, the template is there for us to look at perhaps going
to more direct lending from—take away the authority of SBA and
use this third party, whether it is the banks, credit unions, or
CDFIs, to be able to be the intermediary, the place where these
loans originate, where the grants originate and have SBA become
a grantor or a guarantor, I should say on these programs.
Do you think that is a viable option all things considered by the
way that the lack of fraud and abuse in the PPP program where
the third-party bank was involved in making these loans versus
the EIDL program which it looks like here I have got a number of
$62.7 billion potentially in fraud and I know that there was an-
other $6.7 billion identity theft alone. Those are unacceptable fig-
ures. We have to do something different. So is this something you
think would be workable?
Mr. DAVIS. As it relates to taking direct authority from the
SBA, I do think it is something that is workable. Again, I go back
to my thought that the markets are much more efficient and the
thought process around using intermediaries, trusted inter-
mediaries, when we give them the back-office support. A lot of
MDIs and CDFIs complained during this last crisis that their tech-
nological backbone was not adequate to handle the volume that
they received. And I think there is something that we can do to
take a look at that. But I am a big believer in the intermediary sys-
tem. And so I would not argue with looking at taking away the
SBA’s direct lending authority.
Mr. LUETKEMEYER. Mr. James, I serve on the Financial Serv-
ices Committee as well and the Ranking Member on the Financial
Institutions Subcommittee. I have seen you appear before us a
number of times. You are a very impressive individual with your
background and your knowledge. And I am thankful you are on the
Committee today because I think you bring a lot of expertise to it.
So you heard my question to Mr. Davis. What would your opinion
be of that situation, trying to find a better way to deliver the dol-
lars to those folks who need it most, and it seems to be you are
taking it right to the community versus having to go through some
other government entity here to make that happen. What would
your opinion be to that?
Mr. JAMES. Thank you for the question, Ranking Member
Luetkemeyer. It is great to see you again. And thank you for your
work on Financial Services, which has been very beneficial to our
institutions.
Yes, sir. I believe that there is a real opportunity to look at the
infrastructure that we built here in the past year and a half or so
within CDFIs and MDIs. Leveraging additional technology, cre-
ating processes within our institutions. Many CDFIs did not have
existing relationships with the SBA and now they do. Many of our
MDIs had allowed their relationships to go dormant due to issues
that they had had previously in many previous years with having
the SBA honor guarantees and some other problems that occurred
in previous generations. And so now that those relationships have
been renewed and reactivated and we have created systems, I real-
ly do think that there is an opportunity for Congress to look at pro-
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viding additional back office support to our institutions and really
leveraging this capability that we built again to respond to the
pandemic and potentially allow us to be the ones that are driving
the resources into the communities. The issue of avoiding fraud
and abuse is one that regulated institutions in particular have to
take very, very seriously. So we have to comply with the Bank Se-
crecy Act and anti-money laundering requirements. We have to
know our customers. And so the regulated financial institutions in
particular are excellent at making sure that we identify who we
are dealing with, whether we are doing it in a digital format or an
in-person format. And so I do think that there is a great deal of
opportunity to be explored in increasing our authority to deal with
those customers that are closest to us, where we have the relation-
ships, and where we also have the compliance infrastructure to
make sure that the funds are going to the places that we intend
for them to go.
Mr. LUETKEMEYER. Thank you for that answer. That is ex-
actly what I was hoping you would say and I think you have ar-
ticulated it better than I can. And I probably will submit for the
record another question here with regards to the troubled debt re-
structuring and forbearance I think has been very, very helpful to
all of the institutions—banks, credit unions, CDFIs, all of those
folks who are working with these entities and hold loans that have
been able to give the kind of forbearance it takes to be able to ride
out this situation we are in. So I appreciate your being here today
and I look forward to sending that question and your response to
it. thank you, sir.
I yield back.
Mr. JAMES. Thank you.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
The Chair will now recognize Rep. Bourdeaux for 5 minutes.
Ms. BOURDEAUX. Thanks so much. Thank you, Chairwoman
Davids and Ranking Member Meuser.
It is great to see Georgia so well represented on today’s panel
with Mr. James from Savannah, as well as Mr. Davis, whose work
goes to support Georgia small businesses. As the only Georgia
Member on the Committee, thank you for your work to support the
small businesses in our state.
My first question is for my fellow Georgian, Mr. James, but I
welcome any input from some of the other witnesses if you have
thoughts or experiences to share.
Mr. James, as you know, the initial rounds of the Paycheck Pro-
tection Program did not really reach many of the underserved busi-
nesses who needed help the most. And thanks to the work of Chair-
woman Velázquez, many Members on this Committee, as well as
your organization, subsequent rounds have shown improvement.
But of course, now we have the next phase, which is PPP loan for-
giveness. And I am curious how you and your Members have found
access to PPP loan forgiveness and how is that process working
with minority-owned businesses? And is there more than can be
done to reengage minority-owned small businesses and ensure they
have the information necessary to apply for loan forgiveness?
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Mr. JAMES. Representative Bourdeaux, thank you so much for
the question. It is great to represent the State of Georgia here
today.
Yes. The forgiveness process is actually extremely important to
our institutions. Obviously, all of our institutions, whether they be
regulated or unregulated CDFIs and MDIs, as well as the large in-
stitutions, we entered into the PPP program as a bargain counting
on 100 percent guarantee from the SBA and easy to navigate for-
giveness process. We are grateful to the Committee for stream-
lining the forgiveness process, particularly for those borrowers
under $150,000. The original application that came out before the
Committee and Congress took that action was going to be too oner-
ous. It was frankly more onerous than the original application
itself and it was going to be very discouraging to us helping our
customers receive that forgiveness.
One of the things that many of our institutions are doing is actu-
ally engaging even additional support. I know that my institution
in Savannah, we have engaged a consultant specifically to assist
our customers with that forgiveness process at no cost to them. Our
median PPP borrower was about $26,000. We extended over 200
percent of our bank’s capital to PPP because we saw the demand
was really off the charts. And so we also decided early on this year
that we needed to engage some additional assistance to make sure
that our borrowers were able to complete even the streamline proc-
ess. And so we just recently began a process of specific one-on-one
outreach to our customers to make sure that they know what they
need and they complete the process and get those loans forgiven so
that they are not dragging debt into their additional efforts to re-
covery.
Ms. BOURDEAUX. Just to follow up on that. We did a quick sur-
vey—this was earlier in the year—of some small businesses in the
district and just sort of found that minority-owned businesses
seemed less likely to be getting the loan forgiveness and getting
that process in place. Do you see any disparity in that and do you
have any insight on what might be the causes of it?
Mr. JAMES. Well, you know, I think a lot of the disparity is the
same sort of kind of structural disparity that you may have seen
in the initial onset of the program. And so it is really important
for financial institutions, whether they be MDIs, CDFIs, or large,
traditional financial institutions to again do that one-on-one work.
Our smaller institutions, the MDIs and the CDFIs, are the ones
that are the closest to those individuals, the closest to those cus-
tomers. We have those relationships and are taking the extra steps
of providing support to our customers. I can certainly see how dis-
parities are starting to pop up, and so I do believe that there is a
real need for SBA, as well as the originating lenders to roll up their
sleeves, particularly for smaller borrowers to ensure that they are
making the kind of outreach to ensure that those folks do not have
an obligation that they did not otherwise intend.
Ms. BOURDEAUX. Okay. Thank you so much.
Do any of the other panelists have any comments on that par-
ticular aspect of the PPP program?
Okay. If not, I think I am out of time. I yield back. Thank you.
Chairwoman DAVIDS. Thank you. The gentlelady yields back.
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And the Chair will now recognize Mr. Donalds of Florida for 5
minutes.
Mr. DONALDS. Thank you, Madam Chair.
To the panelists, thank you so much for your time and your testi-
mony. It has been very, very good, actually, so I really appreciate
your time and you being here.
Mr. Davis, you mentioned opportunity zones in your testimony,
a program in the Tax Cuts and Jobs Act of 2017 that has faced a
lot of scrutiny despite obvious gains, America’s most distressed
communities have experienced. MDIs and CDFIs are left out of this
provision.
Mr. Davis, can you speak to how CDFIs and MDIs could benefit
small businesses if they were to be designed as opportunity zones?
Mr. DAVIS. Thank you, Representative Donalds for that ques-
tion.
These institutions, as I said before, are a critical part of the com-
munity. And as it relates to investment of equity capital especially,
they are highly important. If you think about the designation of op-
portunity zones, (it was highly politicized, so that aside) I think
that it is a good program that can continue to be tweaked around
the edges because we now do have those designations. And the idea
in the spirit of the legislation was to unleash as much capital as
possible into these communities without damaging the fabric or the
individuals in those communities. And so because these MDIs and
CDFIs have a real community component to them, they are much
more capable of investing it and loaning to the folks and the busi-
nesses in these communities and others. And I think because they
are so close to the ground, it would be a great opportunity to have
them engaged and have the ability to be able to accept qualified
opportunity fund investments.
Mr. DONALDS. Thank you for that response. That is actually
quite helpful.
We often hear about how minority and rural microenterprise
owners were late to access PPP and EIDL at the beginning of the
pandemic. While I believe many other factors played into this, I
think the root of the problem is largely due to the lack of financial
institutions in these areas as a result of Dodd-Frank. Regulations
meant to punish big banks actually hurt smaller institutions the
most. From the second quarter of 2008 to the third quarter of 2020,
CDFIs had a decline of over 47 percent and over a third of MDIs
went under during that same timespan. The widespread loss of
these businesses present a serious threat to the financial stability
of consumers and businesses located in areas almost exclusively
served by community banks and other minority depository institu-
tions.
Mr. Davis, what steps do you think Congress could take to kind
of spur development in these institutions?
Mr. DAVIS. So Representative Donalds, you bring up an inter-
esting point. The cost of compliance, regulatory compliance is very
burdensome on financial institutions. And if you think of these in-
stitutions that are the smallest and those that are lending to the
least of these, that regulatory burden is something to consider.
Scale is important in the financial services business. When I men-
tioned that we went from 120 to 40 to today 19 Black-owned banks
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and only one of them has a billion dollars in assets, that is inexcus-
able. So an investment in those banks from an infrastructure
standpoint. But the regulatory piece has to be addressed as well.
I have got experience with a regulator who said if you are going
to build a $5 billion bank, you build a $5 billion infrastructure even
before you get there. And so I have seen how these regulatory bur-
dens can actually hurt institutions.
Do not get me wrong. We need strong institutions there and we
need regulations. But I think that there is some type of opportunity
for Congress to look at how these banks are regulated as well as
some type of backstop. And I am sure Mr. James can probably
speak to that more articulately than I can. But that is my opinion,
sir.
Mr. DONALDS. That is actually a great segue because I was
going to ask Mr. James for his opinion as well.
So Mr. James, if you could comment I would appreciate it.
Mr. JAMES. Thank you, Congressman.
Mr. Davis is correct. I think that we need to find the right type
and amount of regulation. None of our institutions want there to
be unsafe or unsound lending practices. We certainly want to be
very, very compliant with Know Your Customer and the Bank Se-
crecy Act and AML, but there is certainly an enormous burden.
And that burden does not change regardless of the size of your in-
stitutions. You still have to comply with the same laws and regula-
tions no matter the size of your institution. Of course, small scale
and minimal capital will impact our ability to efficiently provide
that type of compliance which impacts our ability to provide service
back to the community. And so just having a right size type of reg-
ulation based on our institution size and our reach into the commu-
nity would be welcomed. And so we welcome Congress and to have
the opportunity to work with you to try to find the right size regu-
lations for institutions that are serving the smallest and most hard
hit and vulnerable communities.
Mr. DONALDS. Thank you.
Madam Chair, I apologize for being slightly over my time but I
yield back.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
The Chair will now recognize Ms. Chu for 5 minutes.
Ms. CHU. Thank you.
Mr. Sands, community financial institutions like CDFIs and
MDIs have been instrumental in delivering PPP assistance to un-
derserved communities throughout this pandemic and I am particu-
larly interested in your perspective as a CDFI and one of the coun-
try’s largest community advantage lenders. PPP showed that the
community advantage model can work at scale by leveraging mis-
sion-based lenders to connect small businesses in underserved mar-
kets to capital. One reason this model works is because community
advantage lenders, unlike traditional banks and 7(a) lenders pro-
vide technical assistance to their clients. This assistance not only
helps them to secure that initial community advantage loan but
also prepares them for future growth.
So could you discuss the role of technical assistance and mission-
oriented lending and how this strengthens the Community Advan-
tage Program?
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Mr. SANDS. Absolutely. Thank you, Representative Chu. And I
am glad to see you representing California.
I would like to say that I think technical assistance, we all
know—all the lenders who are on the panel and in the room and
who have done the studies—we know that providing technical as-
sistance services has a direct correlation to having lower default
and loss rates inside of our institutions. Community development
financial institutions have been focused on providing assistance
and that assistance is helping these borrowers to not only have ac-
cess to community advantage and PPP loans, but other loans his-
torically, and they do much better in terms of paperwork compli-
ance and different things like that as they are scaling their busi-
nesses. Thank you.
Ms. CHU. Thank you for that.
Ms. Barry-Fall, PPP funding is exhausted for traditional lenders
and is nearly exhausted for community financial institutions like
CDFIs and that means time is almost out for us to address racial
disparities in the program. Earlier this month the L.A. Times pub-
lished an investigation finding that in Los Angeles, businesses in
majority White communities received PPP loans at twice the rate
of those in Latino neighborhoods, 1.5 times the rate of Black neigh-
borhoods, and 1.2 times the rate of Asian neighborhoods.
I sent a letter to SBA and Treasury asking for an official analysis
of racial disparities and a plan to address this issue. Can you ex-
pand on any racial disparities and PPP uptick that you have seen
in your community and talk about ways that SBA and Congress
can leverage community financial institutions moving forward to
address these disparities?
Ms. BARRY-FALL. Can you hear me?
Ms. CHU. Yes.
Ms. BARRY-FALL. Yes. Thank you for your question, Congress-
woman.
One of the things that we have considered is who is getting the
PPP. As of now, we are just kind of processing all the PPP applica-
tions that we are receiving. And we serve our majority is like low-
income communities. We are not like really kind of going through
the whole detail of the application and find out like what is the
percentage of it. But I am sure like because we have been like serv-
ing mostly our Members, I am sure like we have been targeting
like our target market rate.
Ms. CHU. Thank you for that.
Mr. Sands, thank you for your recommendations for the Commu-
nity Advantage Program. It aligns with my legislation that passed
the House, unanimously passed this last December which proposed
to authorize the program for 5 years, increase the maximum loan
amount to $350,000, and expand targeting of underserved busi-
nesses. And we have to make sure that as we recover from COVID
that there is long-term small business recovery. As a major lender,
can you discuss how giving the program long-term statutory au-
thorization will lift it out of the short-term status and impact the
program’s effectiveness?
Mr. SANDS. Thank you again for the question.
I actually think it is quite surprising that anyone would not have
voted for the bill. Number one, it is the only program in SBA’s his-
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tory, and possibly in any of administration’s history, that has dou-
ble digit numbers in terms of lending to Asians, African Americans,
and Hispanic Latinos. That alone shows that the program works
and that alone shows that the program should have possibly its
own appropriation, possibly higher loan guarantees, and other
things to supercharge it. I would also like to make a recommenda-
tion that we look at the PPLF facility as possibly a funding source
for Community Advantage going forward. If the CDFIs and MDIs
had that ability and had that access to capital, I think you would
see those numbers be even more expanded and even more tremen-
dous than what they are today compared to the other programs.
Thank you.
Ms. CHU. Thank you. I yield back.
Chairwoman DAVIDS. Thank you. The gentlelady yields back.
The Chair will now recognize Ms. Van Duyne for 5 minutes.
Ms. VAN DUYNE. Thank you very much, Chairwoman Davis
and Ranking Member Meuser for holding this hearing today.
During my tenure as mayor, the City of Irving witnessed unprec-
edented economic growth and development. We added thousands of
new jobs and billions of dollars to our local economy. With these
improvements, we were able to bring in jobs, build new places to
live, and create more opportunities for people to learn, thrive, and
grow. I appreciate the opportunity to hear from today’s panel on
how we can better foster capital for our small businesses.
But I am also very deeply concerned about the current economic
environment that they face. They are falling by the wayside as the
Biden administration touts unemployment benefits that contrib-
uted to one of the most disappointing jobs reports that we have
seen in history and continue to provide the necessary and unneces-
sary stimulus that is leading to skyrocketing inflation, protections,
and all Americans.
We cannot talk honestly about wanting to provide opportunities
for small businesses in underserved communities while Congress
stands by and actively competes against them for employees. The
number of employees I have spoken with in my district desperately
seeking employees is staggering. Make no mistake; the federal gov-
ernment is actually hurting the very businesses in need of help.
I am looking forward to the work ahead on this Committee as
the economy reopens and we need to transition out of the pandemic
response. But this Committee also needs to hear directly from ad-
ministration officials who are in charge of these programs. And I
would like to reiterate my request to bring Small Business Admin-
istration officials in front of this Committee as soon as possible.
Until that time, I look forward to hearing our witnesses’ thoughts
on improving the flow of capital to small businesses.
With that, I would like to ask Mr. Davis, while I was working
at HUD, I worked a lot with opportunity zones and I think they
are strong drivers of economic activity in communities due to the
incentives for private investment and minimal red tape. In your
testimony you mentioned allowing CDFIs to receive equity invest-
ments as opportunity zone businesses. Can you talk more about
how this would work? And are there any other improvements to op-
portunity zones that you think should be made to help small busi-
nesses even further?
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Mr. DAVIS. Thank you, Representative Van Duyne, for that
question.
Starting with the last first, I think that one of the things we talk
about in the bill of opportunity zones and tweaking it is trans-
parency. What we do not have today is a measuring or reporting
mechanism to know exactly who we are helping and how we are
helping them. And so I think that is going to be an important issue
going forward as we think about tweaking this.
The other thing as this relates to getting capital flow into these
businesses, during my testimony I also talked about the ECIP pro-
gram at SBIC. A lot of people forget about SBICs as part of the
SBA. And these licenses are very valuable. Two to one, three to one
matches. And so again in my testimony I stated out of over 300,
only 5 are in the hands of Black-owned founders. That means 1
percent of those dollars go to Black-owned businesses; 1 percent go
to Hispanic businesses as I am told by the SBA.
We need every bit of capital flowing to these communities that
we can get because when they thrive, we thrive broadly. And so as
we think about improving the flow of capital, I think that is one
opportunity to really do it along with opportunity zones as well.
I want to reiterate something Mr. Sands said though as it relates
to technical assistance. Whatever we do, Representative Van
Duyne, as we think about how we get more capital flowing, and I
have talked about startups before, this technical assistance piece is
going to be critical. And I think that, for example, you can be the
best chef in the world but meeting payroll, growing a business, un-
derstanding staff are different things. And so I think those are all
elements that go into this.
Ms. VAN DUYNE. Excellent.
Can you also identify any burdensome, like be specific about bur-
densome regulations on lenders that make it difficult for them to
make loans in these underserved communities?
Mr. DAVIS. I would first off start with the overall cost of compli-
ance and regulation. The cost is the same, as Mr. James said, it
does not matter what size you are. You still have the same costs.
In these institutions, we need scale. And in order to scale, there
has to be invested equity capital. And so until we look at a dif-
ferent way to reform the regulatory aspects of how these institu-
tions are regulated specifically, I think that it is going to be inter-
esting overall. So I would not look at any one specific regulation.
I would look at the cost and burden of overall regulation because
that is where it really hurts these small institutions.
Ms. VAN DUYNE. Okay. Thank you.
I think I am over my time.
Chairwoman DAVIDS. The gentlelady yields back.
It looks like, okay, I thought maybe one more Member would be
joining us.
Well, first of all I would like to say thank you again to all of our
witnesses for joining us today. I also want to thank you for your
work on behalf of America’s underserved small businesses, particu-
larly over this last year that we know has been so difficult during
the pandemic. I know I heard stories from lots of employees at or-
ganizations like yours that went to great lengths to help their cli-
ents access the relief that they needed to stay in business and keep
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their doors open. So your tireless efforts have made a difference in
the lives of so many entrepreneurs. And I know I, and so many oth-
ers, appreciate you all for that.
And then moving forward, we have to utilize and maximize your
work ethic and also the connection to underserved communities to
help ensure that we do not leave people behind as our economy re-
covers.
To that end, I am committed to working with the SBA to help
its capital access program serve the underbanked and also to mon-
itor the engagement of the federal banking regulators with CDFIs
and MDIs as it relates to small business lending.
So today’s hearing has given us a lot of ideas about ways to em-
power CDFIs and MDIs, and I am looking forward to working with
the Members of this Committee to act on those recommendations.
I would ask unanimous consent that Members have 5 legislative
days to submit statements and supporting materials for the record.
Without objection, so ordered.
And if there is no further business to come before the Committee,
we are adjourned. Thank you.
[Mr. Walter L. Davis did not submit his QFR’s in a timely man-
ner.]
[Whereupon, at 11:21 a.m., the subcommittee was adjourned.]
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APPENDIX
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Æ
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