The End of Relationship Banking? Examining the CFPB's 'Small Business Lending Data Collection' Rule (House Small Business subcommittee hearing, March 28, 2023)
Summary
Printed record of a hearing of the House Committee on Small Business, Subcommittee on Economic Growth, Tax, and Capital Access, held March 28, 2023, titled The End of Relationship Banking? Examining the CFPB's Small Business Lending Data Collection Rule, Small Business Committee Document Number 118–006. Opening statements came from Hon. Dan Meuser and Hon. Greg Landsman. Witnesses were Troy Peters, president and chief executive officer of JBT; Lucas White, president of The Fountain Trust Company; Michael Wilson, chief experience officer of Members 1st FCU; and Luz Urrutia, chief executive officer of Accion Opportunity Fund. The appendix prints their statements plus material from the Center for Responsible Lending, Consumer Bankers Association, the Consumer Financial Protection Bureau, ICBA and NAFCU. The subcommittee adjourned at 11:26 a.m.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“The End of Relationship Banking? Examining the CFPB's 'Small Business Lending Data Collection' Rule (House Small Business subcommittee hearing, March 28, 2023).”
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THE END OF RELATIONSHIP BANKING? EXAM-
INING 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
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 VELÁZQUEZ, 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
(II)
CONTENTS
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 Coali-
tion 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
(III)
THE END OF RELATIONSHIP BANKING? EX-
AMINING 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, Velázquez, 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 as-
sisting 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 rela-
tionships between local lenders and the businesses in their commu-
nities 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 cus-
tomer, that it is impossible for a large national institution to rep-
licate.
(1)
2
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 al-
most 13 years ago. Most Members of Congress were too busy debat-
ing too-big-to fail to even pay attention or realize it was in there.
Making matters worse, this rule will add an even larger regu-
latory cost burden to these small financial institutions that are al-
ready 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 im-
pact the cost of credit for small businesses, and may lead to a de-
crease in lending to small, minority- and women-owned busi-
nesses.’’ 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 Advo-
cacy also expressed concern that this rule failed to properly con-
sider 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 enti-
ties should give all of us, especially the CFPB, pause on such re-
quirements.
At a time when main street America is dealing with unprece-
dented levels of inflation, interest rates that are being raised at the
fastest pace since the 1980s, supply chain disruptions, and a pro-
longed 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 adminis-
tration seem determined to do. Our small businesses and local com-
munity lenders deserve so much better.
Without objection, I would like to enter into the record letters de-
tailing the impact this rule would have on small business lending
from the National Association of Federal Credit Unions, Inter-
national 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
3
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 ac-
cessing capital. Part of the reason is the lack of data and trans-
parency related to small business lending.
The scant data that exists continues to show that these busi-
nesses 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 disproportion-
ately hurt by the pandemic because they had fewer cash reserves
and faced deeper hurdles to accessing capital.
The Paycheck Protection Program highlighted the disparities be-
tween 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 sim-
ply collect and report on the demographics of small business own-
ers applying for financing. Doing so facilities the enforcement of
fair lending laws and identifies business and community develop-
ment 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 con-
siderable 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 dis-
cussions today that this rule discourages small financial institu-
tions 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 pro-
tection for small business consumer through multiple research pro-
gram,’’ which includes the data collected is essential to combat in-
stitutional 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.
4
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 Sub-
committee 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 busi-
ness 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 busi-
nesses than the CFPB. This agency is quick to issue fines and en-
forcement actions against businesses and financial institutions
without ever telling them the rules of the road before they are pe-
nalized. This regulation by enforcement is detrimental to main
street businesses that crave certainty.
So this 1071 rule looks to make this problem even worse. Finan-
cial 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 institu-
tions and credit unions and not more compliance officers, and we
are looking to get more money into the hands of job creators in-
stead 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 appre-
ciate 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 dis-
trict. 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 dis-
trict, 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 pro-
vide 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 bank-
er and an active Member of his community. He has served as presi-
5
dent 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 execu-
tive 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 ac-
tively practices law in the family firm of White and White Attor-
neys 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 Wil-
son, 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 excep-
tional 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 recog-
nized for his professional accomplishments with numerous business
awards, including Emerging Business Leader of the Year to the
Harrisburg Regional Chamber and Capital Region Economic Devel-
opment Corporation. Mr. Wilson’s extensive career and dedication
to his community through local banking makes him as well in-
formed as anyone about the issues facing small businesses and
main street communities today. Mr. Wilson, we thank you for join-
ing the Committee today and we are looking forward to your testi-
mony 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 finan-
cial services, particularly in underserved markets. Prior to joining
Accion Opportunity Fund—I think it is Accion. Did I get that—
6
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 com-
munities. 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 COM-
PANY; MICHAEL WILSON, CHIEF EXPERIENCE OFFICER,
MEMBERS 1ST FCU; LUZ URRUTIA, CHIEF EXPERIENCE OF-
FICER, 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 be-
half of the Pennsylvania Association of Community Bankers, and
I also am a Member of ICBA. My bank is celebrating its 150th an-
niversary this year. Our name has never changed. We have nearly
$900 million in assets, 11 full-service branch locations, and 160 em-
ployees. Our focus is on small business and retail banking. We are
also active in indirect auto lending, and we serve the legal can-
nabis related businesses throughout Pennsylvania and surrounding
states.
Community banks like mine provide the bulk of all small busi-
ness loans in America. We are different than large banking institu-
tions 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 un-
fortunately squarely aimed at smaller banks like mine. We are dis-
proportionately disadvantaged to take on additional system and
personnel costs associated with compliance to this rule. Now, al-
though much of the costs would need to be passed on to the bor-
rower, it continues to promote further bank consolidation, which
7
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 mar-
kets 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 draw-
ing 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 counter-
offers. 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 pub-
lic 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 op-
portunity, 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 quali-
fied 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 tradi-
tional 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 commu-
nities 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.
8
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 oppor-
tunity.
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 fi-
nalized without significant changes, the rule will have a chilling ef-
fect 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 propo-
sition 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 Cen-
tral Indiana since 1903 with small business, agricultural, and con-
sumer lending. Relationship banking is the foundation of our suc-
cess. It explains our resilience through numerous economic and ag-
ricultural 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 un-
derwriting 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. Im-
portantly, minority and women borrowers whom this rule is sup-
posed 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 residen-
tial mortgages into a box.
As I discuss in my written statement, QM effectively undermined
our mortgage lending. Section 1071 without needed accommoda-
tions threatens to do the same to our small business lending.
9
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 in-
terest 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 op-
tion 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 informa-
tion 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 im-
proved 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 Mem-
ber Landsman, and Members of the Subcommittee. My name is Mi-
chael Wilson, and I am testifying today on behalf of the National
Association of Federally Insured Credit Unions (NAFCU). I cur-
rently 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 lend-
er 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 busi-
nesses 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 de-
tail 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-es-
tablished home mortgage disclosure act or HMDA limits. Such a
10
low threshold could drive smaller lenders out of small business
lending all together due to the compliance costs, a fact that the Bu-
reau 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 Bu-
reau establish a de minimis threshold consistent with the NCUA’s
$50,000 call report threshold. Congress has excluded Member busi-
ness 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 bur-
dens 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 rec-
ognizing 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 ob-
servation. 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 of-
fered 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 ad-
dress our concerns, we urge Congress to step in with your oversight
authority and to consider statutory changes such as enacting the
11
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 com-
munity 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 Mem-
ber 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 Oppor-
tunity 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 in-
cluded nearly two decades at Wachovia, then as co-founder and
CEO of a community bank and a CEO of a payday lending com-
pany where I helped to ensure that they provide responsible finan-
cial 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 commu-
nities. 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 be-
cause 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 peo-
ple and generate over $2 trillion in economic activity.
I know this to be true, personally and as the CEO of AOF, be-
cause 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 in-
vestment 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
12
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 minor-
ity-owned, women-owned, and other small businesses. This trans-
parency 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 meas-
ure.
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 hav-
ing 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 addi-
tional investment in all our entrepreneurs.
I will conclude by saying that access to capital for small busi-
nesses 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 econ-
omy. 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 cap-
ital 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 wit-
nesses. 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 con-
sumers from unfair, deceptive, or abusive practices and take action
against companies that break the law. We arm people with the in-
13
formation, steps, and tools that they need to make smart financial
decisions.
Mr. White, do you think that this rule will help the CFPB to ac-
complish 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 dif-
ferent. 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 situa-
tions. 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 docu-
mented 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 com-
munity?
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 infor-
mation of customers based upon appearance, surname, when it is
14
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 compli-
ance, 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 sys-
tems 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 check-
ing, the double checking, the software, to gather and report it. I
would say something like this would touch at least 15 different peo-
ple 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 pro-
gram 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 ob-
viously is important and clearly the testimony today suggests that,
you know, for some of our banks it does. I will just way of back-
ground 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.
15
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 want-
ing 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 respon-
sibly. You know, we saw this development with HMDA. It did not
pull lenders away. In fact, as more data was reported, more com-
petition 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 in-
stitutions were asked this question during the rulemaking process
and responded to say that it would not force them out of the mar-
ket. The Bureau also estimated the cost per application would
range anywhere between $7 for the larger banks with more techno-
logical 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 rec-
ommendation 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 cap-
ital?
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 in-
cluded Section 1071, which requires companies to inquire whether
customers are a small business, woman-owned business, or minor-
ity-owned business at the credit application stage. However, in the
1970s, Congress passed the Equal Credit Opportunity Act which
16
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 con-
cerned 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 pro-
vide 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 im-
portance? 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?
17
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 applica-
tions 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 dif-
ficult 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 Pri-
vacy Act will require the CFPB to do a separate notice and com-
ment rulemaking to determine what information will be published
by the Bureau.
Mr. White, do you believe the CFPB should have a separate rule-
making 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 busi-
nesses 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 in-
formation 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, ev-
erybody 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 big-
ger 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.
18
Mr. LEUTKEMEYER. Okay. Thank you very much for your tes-
timony today. Mr. Chairman, I yield back.
Chairman MEUSER. The gentleman yields.
The Chair now recognizes the Ranking Member of the Full Com-
mittee, Ms. Velázquez from New York for 5 minutes.
Ms. VELÁZQUEZ. 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? Be-
cause the banks did not proactively help anyone but their cus-
tomers. 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 Sec-
retary 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 anec-
dotal 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 ap-
pointed 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 require-
ments 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 or-
ganizations and the information reported includes transaction-level
data, such as interest rate, origination fee, points, terms, amounts,
payments, race, ethnicity, age, and gender.
Ms. VELÁZQUEZ. 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
19
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 busi-
nesses and they have the same level of sophistication as the aver-
age 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 un-
fortunately——
Ms. VELÁZQUEZ. 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 manage-
able compared to the benefits of having access to data that is going
to help all of us better serve small businesses in America.
Ms. VELÁZQUEZ. 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 Dis-
trict 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 fu-
ture hearing we can have a representative from the CFPB to ex-
plain to us the timeliness of this rule. Thankfully, you, as today’s
witnesses, have beyond a doubt demonstrated that these new regu-
lations would have duplicative measures and would cost millions
per year to comply with and would irreparably harm our relation-
ship 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 cre-
ate 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 ex-
plain 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 re-
port 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 il-
lustrated problems with the scope of the data collection. For exam-
ple, the 25 loan threshold is far too low and the borrower gross an-
20
nual revenue threshold is too high, meaning the data collection re-
quirements 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 gov-
ernment 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 thresh-
olds 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 Pro-
gram 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 neighbor-
hoods received loans at twice the rate that majority Latino census
tracks received the loans, 1.5 times the rate of businesses in major-
ity 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
21
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 work-
ing 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 want-
ed 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 busi-
nesses at a higher rate than any other demographic in this coun-
try. 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 institu-
tions.
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 prac-
tices. And even more importantly, mortgage lending activity has
not decreased or been otherwise negatively impacted due to compli-
ance 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 com-
pared to HMDA. There was anecdotal evidence that underbanked
populations were not being served and that capital flows were fall-
ing 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 bene-
fits 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 fol-
lowing the HMDA data expansion between 1993 and 1999, the
number of home purchases made. For Latino consumers, it in-
creased 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 under-
served communities. There were certainly other factors that con-
tributed to this but HMDA was a key part of that expansion. So
it has been done before.
22
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 re-
sulted 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 ham-
per 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 pro-
vider 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 ap-
plies 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 re-
lationship lending is the five Cs of credit. We are looking at char-
acter. 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
23
customers and giving them real-world business advice is part of
what a community bank does. When we have small business own-
ers 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 serv-
ices, 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 commu-
nities that we serve.
Ms. VAN DUYNE. Thank you.
Mr. Peters, you had mentioned that per cost of loans if this regu-
lation 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 soft-
ware 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 exam-
ine 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
24
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 com-
parison, 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 regu-
lation 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 mort-
gage payment due today. My banker, who I had a relationship with
before I even thought about running for office texted me this morn-
ing 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 regu-
lation from the unconstitutional Consumer Protection Bureau sim-
ply 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 disadvan-
tage compared to institutions that have larger departments to han-
dle 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.
25
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 actu-
ally the Dodd-Frank Act that required my bank to hire a chief com-
pliance 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 institu-
tions 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. Luetke-
meyer 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 situa-
tion 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 com-
promise 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 regula-
tion. 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 advan-
tage 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
26
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 ex-
pense 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 institu-
tions 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 bor-
rower?
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 in-
27
sert 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 appre-
ciate 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 insti-
tutions.
Mr. WILLIAMS. My time is up, Mr. Chairman. I yield back.
Mr. LALOTA. I would like to thank all of the witnesses for par-
ticipating today, to the Members for their thoughtful questions.
And without objection, Members have 5 legislative days to sub-
mit 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.]
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