[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
SLIPPING THROUGH THE CRACKS: POLICY
OPTIONS TO HELP AMERICA'S CONSUMERS
DURING THE PANDEMIC
=======================================================================
VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION
AND FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
MARCH 11, 2021
__________
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Serial No. 117-9
__________
U.S. GOVERNMENT PUBLISHING OFFICE
44-342 PDF WASHINGTON : 2021
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANN WAGNER, Missouri
JIM A. HIMES, Connecticut ANDY BARR, Kentucky
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas BARRY LOUDERMILK, Georgia
AL LAWSON, Florida ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa TED BUDD, North Carolina
SEAN CASTEN, Illinois DAVID KUSTOFF, Tennessee
AYANNA PRESSLEY, Massachusetts TREY HOLLINGSWORTH, Indiana
RITCHIE TORRES, New York ANTHONY GONZALEZ, Ohio
STEPHEN F. LYNCH, Massachusetts JOHN ROSE, Tennessee
ALMA ADAMS, North Carolina BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan LANCE GOODEN, Texas
MADELEINE DEAN, Pennsylvania WILLIAM TIMMONS, South Carolina
ALEXANDRIA OCASIO-CORTEZ, New York VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on Consumer Protection and Financial Institutions
ED PERLMUTTER, Colorado, Chairman
GREGORY W. MEEKS, New York BLAINE LUETKEMEYER, Missouri,
DAVID SCOTT, Georgia Ranking Member
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California BILL POSEY, Florida
AL GREEN, Texas ANDY BARR, Kentucky
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JUAN VARGAS, California BARRY LOUDERMILK, Georgia
AL LAWSON, Florida TED BUDD, North Carolina
MICHAEL SAN NICOLAS, Guam DAVID KUSTOFF, Tennessee, Vice
SEAN CASTEN, Illinois Ranking Member
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
RITCHIE TORRES, New York WILLIAM TIMMONS, South Carolina
C O N T E N T S
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Page
Hearing held on:
March 11, 2021............................................... 1
Appendix:
March 11, 2021............................................... 43
WITNESSES
Thursday, March 11, 2021
Griffith, Joel, Research Fellow, Financial Regulations, the Roe
Institute for Economic Policy Studies, the Heritage Foundation. 13
Harrington, Ashley C., Federal Advocacy Director and Senior
Counsel, Center for Responsible Lending (CRL).................. 6
James, Robert E. II, President, Carver Development CDE, and
Chairman, National Bankers Association......................... 7
Sanchez-Adams, Carla, Attorney, Team Manager of Survivor-Centered
Economic Advocacy Team, Texas RioGrande Legal Aid.............. 9
Shultz-Wilson, Valarie, Managing Partner, Shultz&Co Nonprofit
Management Consultants......................................... 11
APPENDIX
Prepared statements:
Griffith, Joel............................................... 44
Harrington, Ashley C......................................... 51
James, Robert E. II.......................................... 80
Sanchez-Adams, Carla......................................... 89
Shultz-Wilson, Valarie....................................... 105
Additional Material Submitted for the Record
Perlmutter, Hon. Ed:
Written statement of Legal Services Alabama.................. 107
Written statement of the Consumer Bankers Association........ 110
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 114
Written statement of the National Association of REALTORS.... 118
McHenry, Hon. Patrick:
Written statement of the Association of Credit and Collection
Professionals.............................................. 121
Written statement of the Credit Union National Association... 128
Meeks, Hon. Gregory W.:
Written responses to questions submitted to Robert E. James
II......................................................... 132
SLIPPING THROUGH THE CRACKS: POLICY
OPTIONS TO HELP AMERICA'S CONSUMERS
DURING THE PANDEMIC
----------
Thursday, March 11, 2021
U.S. House of Representatives,
Subcommittee on Consumer Protection
and Financial Institutions,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:59 a.m., via
Webex, Hon. Ed Perlmutter [chairman of the subcommittee]
presiding.
Members present: Representatives Perlmutter, Meeks, Scott,
Velazquez, Sherman, Green, Foster, Vargas, Lawson, San Nicolas,
Casten, Pressley, Torres; Luetkemeyer, Lucas, Posey, Barr,
Williams of Texas, Loudermilk, Budd, Kustoff, Rose, and
Timmons.
Ex officio present: Representative Waters.
Chairman Perlmutter. The Subcommittee on Consumer
Protection and Financial Institutions will come to order.
Without objection, the Chair is authorized to declare a recess
of the subcommittee at any time. Also, without objection,
members of the full Financial Services Committee who are not
members of this subcommittee are authorized to participate in
today's hearing.
Staff has been instructed not to mute Members, except where
a Member is not being recognized by the Chair and there is
inadvertent background noise. Members are reminded that all
House rules relating to order and decorum apply to this remote
hearing.
Before we begin, I want to take a moment and talk about our
subcommittee and the road ahead. This is our first subcommittee
hearing. This is the first time I have chaired a subcommittee,
and I want to say to my friends on both sides of the aisle, my
door is open to everyone. This subcommittee will cover a lot of
important issues, and there are many opportunities to work
together.
As we turn the corner on the pandemic, we must ensure that
the financial system remains stable.
Next, there must be equity in the recovery. This means the
Community Reinvestment Act (CRA) works to root out
discrimination and empowers Minority Depository Institutions
(MDIs) and Community Development Financial Institutions
(CDFIs). It also means strong consumer protections and making
sure everyone has a chance to share in the recovery.
Last, the pandemic has shown how important access to
financial services is, and I look forward to working on helping
unbanked and underbanked communities gain access to banking
services.
I am also pleased that the ranking member of this
subcommittee is my friend from Missouri, Blaine Luetkemeyer. I
look forward to working with you, Blaine, and I think we can do
a lot of good things together.
The title of today's hearing is, ``Slipping Through the
Cracks: Policy Options to Help America's Consumers During the
Pandemic.'' I will now recognize myself for 4 minutes for an
opening statement.
Just this week, a constituent of mine called my office--we
will call her Mrs. McGillicuddy. She was looking for help. Mrs.
McGillicuddy called because, like many Americans, she lost
income during the pandemic. She could not afford her car
payments anymore and her car was repossessed. If that was not
enough, she is being charged an additional $500 repossession
fee for the privilege of having her car taken away.
One of the words Mrs. McGillicuddy used to describe her
situation was, ``unfair.'' And she is right. Her situation is
unfair, and the virus is unfair. COVID-19 has impacted
Americans from all walks of life, but it has disproportionately
affected lower-income Americans, communities of color, and
service-sector workers, who have continued to work in person
throughout the pandemic.
For many of us, we are doing okay, and the vaccines are a
light at the end of the tunnel. But for millions of Americans
who have lost income, savings, or opportunities, there is a
long road to recovery ahead. As of today, more than 10 million
Americans are still out of work. Twenty-nine million Americans
have gotten sick with the virus, and COVID-19 has claimed the
lives of more than half a million. This is the health and
economic crisis of our lifetime.
Congress has passed several laws providing relief to
consumers and small businesses, including yesterday's historic
American Rescue Plan. These packages have included forgivable
small business loans and direct payments to individuals and
families, but even these relief efforts have further
illustrated a world of haves and have-nots in our country,
particularly with financial services.
Small businesses with strong relationships with financial
institutions were the first to get access to the Paycheck
Protection Program (PPP). Folks with bank accounts linked to
the IRS for direct deposit were the first to get their economic
impact payments. And if you did not have a good relationship
with a bank or a credit union, you had to wait, and some are
still waiting.
The purpose of this hearing is to explore gaps in consumer
protections during the pandemic, and to evaluate policy
responses to ensure that all consumers and small business
owners can get through this period of uncertainty and share in
the economic recovery.
The hearing will also address racial and economic
disparities exacerbated by the pandemic. Specifically, today we
will explore issues in debt collection, credit reporting,
private student loans, non-agency-backed mortgages, small
businesses, and commercial rent.
Let's go back to my example of Mrs. McGillicuddy for a
moment. She had her car repossessed and owes fines on top of
that. But without a car, it is more difficult for her to get to
a job interview or to get to work when she is employed. This
will prolong her financial recovery.
Now, picture her situation for millions and millions of
other Americans who might be slipping through the cracks and
facing similar financial challenges. This will hurt those
millions of individuals and families, and also do damage to our
economy as a whole. If we want a full recovery and an inclusive
recovery, we must have comprehensive and thorough consumer
protections.
It is now my pleasure to recognize the ranking member, Mr.
Luetkemeyer, for 5 minutes for an opening statement, and I
yield back.
Mr. Luetkemeyer. Thank you, Mr. Chairman, and
congratulations, Congressman Perlmutter. Ed, you and I have
been friends for a long time, and I am looking forward to your
chairmanship, and your common-sense approach to things, and
hopefully, we can do a lot of good for the good citizens of the
United States, including our constituents, and the economy as a
whole. I look forward to your leadership.
The country is finally beginning to open back up.
Currently, we have administered more than 90 million vaccine
doses. States across the country are beginning to lift their
lockdowns, and we are starting to get back to business as usual
around the country.
As we begin to put the coronavirus pandemic behind us, it
is appropriate to measure how consumers and businesses have
fared over the past year. It is true that the pandemic has hit
certain consumers and businesses harder than others. For
instance, part-time workers have been especially hard-hit.
Commercial real estate, including restaurants and other small
businesses, have also struggled. I welcome conversations that
examine what Congress can do to help these sectors and
consumers.
I believe that there are meaningful bipartisan initiatives
this subcommittee can work on to improve how consumers and
businesses can get better access to financial systems.
Unfortunately, when I looked at the 18 pieces of legislation
attached to this hearing, I did not see meaningful efforts to
improve financial access. Instead, the Majority has decided to
retract policies from last year's Health and Economic Recovery
Omnibus Emergency Solutions (HEROES) Act that have no chance of
becoming law, even with Democrats controlling the House, the
Senate, and the White House, and seek to fundamentally alter
key aspects of a lending market, which will only limit access
to credit for low- and moderate-income Americans.
One of the most concerning trends of the legislation
attached to this hearing is the erosion of the accuracy of
consumer credit files. As I have noted many times in this
committee, eliminating valuable credit information would mean
that lenders would not have access to information to determine
the creditworthiness of borrowers. In those instances, lenders
will be forced to increase the cost of credit to account for
the additional risk of an incomplete credit file. This will
ultimately decrease access to credit for those who need it
most.
Furthermore, Congress has already taken action to protect
the credit files of consumers during the pandemic. Section 4021
of the Coronavirus Aid, Relief, and Economic Security (CARES)
Act protects borrowers from negative credit reporting that
results from loan accommodations made during the national
emergency associated with COVID. The CARES Act also requires
lenders to report accounts with an accommodation as current to
the credit bureaus if the borrower is meeting the requirements
of the payment plan.
Another dangerous trend my colleagues on the other side of
the aisle are pursuing is related to debt collection. Multiple
pieces of legislation attached to this hearing would suspend or
prohibit debt collection. What my colleagues fail to realize is
that the majority of the debts being serviced by debt
collectors originate from small businesses that do not have the
means to collect the debts themselves. In addition, prohibiting
debt collectors from communication with debtors eliminates the
ability of collectors to work with consumers and get them on a
path to repay their debts.
Let's be clear: Payment for services rendered is a
fundamental premise of the free market system and a functional
economy. No business can survive if they cannot collect the
money owed them for their services.
As I said before, I welcome the conversations to improve
access and functionality of the financial system. I believe
there are bipartisan solutions to increase transparency and
functionality in both credit reporting and debt collection,
while still maintaining the fundamental principles of lending
and a free market economy.
For example, in just the past few years, we have seen
innovation in financial services result in increased access to
low- and moderate-income consumers. From the uses of
alternative data in credit reporting, the rise in mobile
banking, and fintech partnerships, financial products are
adapting to serve the consumers who need them most.
If my colleagues truly want to have conversations around
ensuring consumers do not slip through the cracks, I believe
this committee should focus on common-sense solutions that seek
to broaden the pool of individuals involved in the financial
system and drive upward mobility for all Americans as opposed
to increasing government control and countless roadblocks to
financial services.
Furthermore, in a truly partisan manner, none of the
legislation attached to this hearing was introduced by a
Republican. Failure to allow Republican measures to be attached
to this hearing prevents this subcommittee from having
conversations with subject matter experts on the merits of
these bills.
One such piece of legislation introduced by Full Committee
Ranking Member McHenry, the Protecting Consumer Access to
Credit Act, would remove non-elective medical debt from a
consumer's credit report and grant the Consumer Financial
Protection Bureau (CFPB) authority over the cybersecurity
efforts of the credit reporting agencies. I am disappointed
that we will not be able to discuss this legislation and other
common-sense bills at this hearing.
With that, I look forward to hearing from the witnesses
today on the panel. And, Mr. Chairman, I yield back.
Chairman Perlmutter. Thank you. The gentleman yields back.
I would like to yield 1 minute to the Chair of the Full
Committee, Chairwoman Waters from California.
Chairwoman Waters. Thank you, Chairman Perlmutter. Your
leadership of the Consumer Protection and Financial
Institutions Subcommittee is starting off strong with your
first hearing as Chair. Congratulations.
While we have reason to be hopeful about the future, the
pandemic is still raging, and consumers and small business
owners remain vulnerable. Under the leadership of President
Biden and Vice President Harris, Congress passed this week,
H.R. 1319, the American Rescue Plan Act of 2021, to boost the
pandemic response and provide additional support for workers,
consumers, and small businesses.
However, additional borrower protections could not be
included in the bill, given the limitations of the
reconciliation process. And Congress and the Administration
have a lot more work to do to help consumers and small
businesses who are most in need, especially those communities
of color which have been hit the hardest by the pandemic
crisis.
So, I look forward to hearing from our witnesses today, and
I yield back the balance of my time. Thank you.
Chairman Perlmutter. Thank you. The gentlewoman yields
back.
And to our witnesses today, thank you very much for being
here. You have heard some buzzers in the background. Earlier, I
mentioned to you all that we are having a whole series of votes
on the House Floor, so there will be a little coming and going
of Members as people go to vote. We will try to keep things
moving along as much as we can without interruption, but it
will be a little bit interesting for my first hearing to have
all these votes.
I want to welcome each of our witnesses, and I am pleased
to introduce our panel.
Ashley Harrington is the Federal advocacy director and
senior counsel at the Center for Responsible Lending. Thank you
for being here.
Robert James is the president of Carver Development CDE,
and chairman of the National Bankers Association. Thank you,
sir, for your attendance.
Carla Sanchez-Adams is an attorney and a team manager of
the Survivor-Centered Economic Advocacy Team for Texas
RioGrande Legal Aid. Thank you for being part of our panel.
Valarie Shultz-Wilson is the managing partner at Shultz&Co
Nonprofit Management Consultants. I appreciate you being here.
And Joel Griffith is a research fellow at the Roe Institute
for Economic Policy Studies at the Heritage Foundation.
We thank you all for joining us. Witnesses are reminded
that your oral testimony will be limited to 5 minutes. You
should be able to see a timer on your screen, and that will
indicate how much time you have left, and a chime will go off
to alert you, as well. I would ask you to be mindful of the
timer, and quickly wrap up your testimony if you do hear the
chime, so that we can be respectful of your time and others.
And without objection, your written statements will be made
a part of the record.
Once the witnesses finish their testimony, each Member will
have 5 minutes to ask questions.
And without objection, I would like to introduce into the
record two letters that we received dated March 10th: the first
is from the Consumer Bankers Association, signed by Mr. Richard
Hunt, president and CEO; and the second is from the National
Association of Federally-Insured Credit Unions, signed by Mr.
Brad Thaler, vice president of legislative affairs. Without
objection, it is so ordered.
Ms. Harrington, you are now recognized for 5 minutes for
your testimony.
STATEMENT OF ASHLEY C. HARRINGTON, FEDERAL ADVOCACY DIRECTOR
AND SENIOR COUNSEL, CENTER FOR RESPONSIBLE LENDING (CRL)
Ms. Harrington. Thank you. Good morning, Chairman
Perlmutter, Ranking Member Luetkemeyer, and subcommittee
members. I also want to thank Chairwoman Waters and Ranking
Member McHenry for their leadership of this committee. Thank
you for the opportunity to testify at today's hearing.
I am the Federal advocacy director and a senior policy
counsel for the Center for Responsible Lending, an affiliate of
Self-Help, one of the nation's largest community economic
development lenders.
A year ago today, the World Health Organization declared
that we were in a global pandemic. In the past year, we have
watched as the number of lives lost grew to an alarming 520,000
souls, and as families and communities struggle to adjust to a
new reality.
The economic crisis caused by COVID-19 has devastated the
financial lives of millions of Americans. We have seen the
images: long lines of cars outside food banks; the shuttered
storefronts of restaurants and other small businesses; and
people sleeping in parking lots in the shadow of empty Las
Vegas hotels. People have lost their jobs at a nearly
unprecedented rate. Many low-income renters and homeowners have
been unable to make their monthly payments, while racking up
debt, and praying for a change in fortune.
The financial devastation from the COVID recession has not
been evenly shared. The pain has been most acute for Black,
Latino, and low-income Americans, as well as women--groups that
typically have far less of a financial backstop to begin with
due to ongoing systemic inequities. Black women and Latinas are
especially suffering and currently have the highest
unemployment rates of any group.
Federal policymakers have responded with relief that has
been both essential to preventing additional widespread
suffering in the form of another Great Depression, and also
insufficient in meeting many basic human needs. Lawmakers
should be commended for these urgently-needed relief packages,
including the just-passed American Rescue Plan. But packing it
up and calling it a day would ignore the precarious position in
which countless families find themselves.
To sufficiently protect American consumers and set the
stage for an equitable recovery, policymakers must take a range
of steps. These include straightforward, common-sense actions,
such as extending the Paycheck Protection Program, which will
expire at the end of March, and ensuring that the many very
small businesses have a chance to get full loans under their
recently-fixed Schedule C solution; requiring that private
mortgage loans adopt the foreclosure moratorium and forbearance
policies offered by Fannie Mae, Freddie Mac, and the FHA, as
well as mirror the federally-backed loans in providing a post-
forbearance solution that does not increase borrowers' monthly
payments; addressing the nation's student debt crisis, starting
with executive action to cancel $50,000 per Federal borrower,
and ensuring that relief is extended to private student loan
borrowers and other Federal borrowers who have thus far been
excluded from Federal support; stopping banks from gouging
consumers with overdraft fees that are unreasonable, harmful,
and regressive through comprehensive reform, including a limit
on the number of fees that can be charged; and, before a fast-
approaching Spring deadline, using the Congressional Review Act
to overturn a 2020 OCC rule that severely weakened State usury
laws that protect people and small businesses from predatory
high-interest loans; and exempting consumer stimulus payments
from assignment and garnishment by debt collectors.
These steps will help everyone as we work to move from
rescue to recovery. They will be particularly impactful for
people of color and low-income, low-wealth people who have had
to bear the brunt of every crisis we have faced, including this
one.
This is a watershed moment. We get to determine how we
respond to a crisis that is compounding longstanding inequities
that have plagued our country for centuries. We get to prove
that the lessons of the Great Recession will not go unheeded.
In short, we get to do better. The policy choices made now will
determine whether the next new normal will look more like the
old status quo or whether economic opportunity and financial
stability are widely available to everyone.
Thank you. I look forward to answering your questions.
[The prepared statement of Ms. Harrington can be found on
page 51 of the appendix.]
Chairman Perlmutter. Thank you, Ms. Harrington.
Mr. James, you are now recognized for 5 minutes for your
testimony.
STATEMENT OF ROBERT E. JAMES II, PRESIDENT, CARVER DEVELOPMENT
CDE, AND CHAIRMAN, NATIONAL BANKERS ASSOCIATION
Mr. James. Thank you, Chairman Perlmutter, Ranking Member
Luetkemeyer, Chairwoman Waters, and members of the
subcommittee. Good morning. And again, thank you for this
opportunity to testify on ways to protect communities and
minority small businesses during the pandemic. It gives me
great hope that one of this subcommittee's first hearings of
the 117th Congress is shining a light on these critical issues.
Again, my name is Robert James II, and I am the president
of Carver Development CDE, an affiliate of Carver State Bank of
Savannah, Georgia. I am also the chairman of the National
Bankers Association (NBA).
The NBA is the leading trade association for the country's
Minority Depository Institutions (MDIs). Our mission is to
advocate for the nation's MDIs and the communities they serve.
Many of our members are also CDFIs and have become the banks of
last resort for the underserved. Our member banks are on the
front lines, reducing economic hardship in vulnerable, hard-
hit, minority communities. Our banks, many of which have
existed for over 100 years, are best-positioned to help these
communities recover and overcome many of the systemic issues
that have placed them at an economic disadvantage.
The House Financial Services Committee and Chairwoman
Waters have been instrumental in the inclusion of several
provisions in multiple relief packages adopted during the
course of the pandemic that ensure MDIs and the small
businesses and individuals we serve are not forgotten during
this national emergency.
Tier 1 capital, or the equity invested in a bank, is the
most critical component of the resilience of any bank, and it
is what allows us to grow and scale. MDIs, particularly
African-American MDIs, have historically lacked access to
capital markets that would allow them to scale. Without
sufficient Tier 1 capital, not only are banks limited in the
amount of deposits they can take in, but they are also hampered
in their ability to weather loan losses. In this unprecedented
economic crisis, many financial institutions, particularly
those in underserved communities, will have increased
delinquent loans.
The creation of the Emergency Capital Investment Program
and the $3 billion in additional funding for the CDFI Fund will
help institutions like ours provide more access to credit to
low- and moderate-income (LMI) communities. The NBA applauds
Congress for the adoption of these two important measures, and
we look forward to working with you on additional legislation
to ensure that our communities experience lasting, material
changes that will support a broad and deep economic recovery
for all Americans.
As you know, the situation brought on by the pandemic is
dire in our communities, and we all need to do our part to
ensure that individuals in the middle of this health crisis,
particularly minority communities that have accounted for over
50 percent of the debts, have equal access to government relief
funding. It is important to note that an average of 70 percent
of minorities do not have a bank branch in their neighborhood,
coupled with 94 percent of Black small businesses being sole
proprietors that are typically underbanked.
Given the challenges faced by small businesses, especially
minority and all small businesses, it is imperative to assess
which banks are best-placed to provide access to capital for
these communities. This is especially true in the Black
community.
Unfortunately, our smaller size has not always allowed us
to act as quickly or with as much scale as the current
situation demands. We saw these disparities play out during
both rounds of the Paycheck Protection Program. Congress
devised this program as a mechanism to aid small businesses who
suddenly found themselves forced to close during stay-at-home
orders. A set of conditions that have favored larger
businesses, including many of the large banks only approving
loans for existing customers, delaying the applications of sole
proprietorships, and not allowing enough time for banks like
ours to help our customers through the application process,
shut out many minority-owned businesses.
Recent efforts to expand eligibility in the PPP program
have been welcomed, but our members need more time to help the
smallest businesses. Many of our banks have seen double the
applications with this problem and see no way to get these
customers served by the program's sunset at the end of March.
We are also focused on the long-term recovery, which is why
the MDIs and CDFIs need capital and need to be included in
programs like the State Small Business Credit Initiative
(SSBCI).
We also recommend MDI-focused offices in agencies like the
SBA and the CDFI Fund to ensure MDI access to these existing
programs for, again, a long-term recovery.
The NBA has recommended several potential solutions to
Congress and the Administration, including: passage of the
Ensuring Diversity in Community Banking Act; consumer, small
business, and nonprofit credit enhancements; an MDI investment
tax credit; fully supporting and funding the CDFI Fund; Federal
deposits in MDIs; and many others.
The NBA, again, applauds the subcommittee for holding this
important hearing, and for the full committee's ongoing efforts
to ensure equity for all businesses and the community. We look
forward to working with you, and thank you for the work that
you have already done. I am happy to answer any questions.
[The prepared statement of Mr. James can be found on page
80 of the appendix.]
Chairman Perlmutter. Mr. James, thank you for your
testimony.
Ms. Sanchez-Adams, you are now recognized for 5 minutes for
your testimony.
STATEMENT OF CARLA SANCHEZ-ADAMS, ATTORNEY, TEAM MANAGER OF
SURVIVOR-CENTERED ECONOMIC ADVOCACY TEAM, TEXAS RIOGRANDE LEGAL
AID
Ms. Sanchez-Adams. Chairman Perlmutter, Ranking Member
Luetkemeyer, Chairwoman Waters, and members of the
subcommittee, thank you for inviting me to testify today on
behalf of my organization and the low-income Texan consumers we
represent. My name is Carla Sanchez-Adams, and I am a managing
attorney at Texas RioGrande Legal Aid, or TRLA.
As the leading provider of free legal aid in Texas and the
second largest legal aid in the country, TRLA serves nearly
25,000 people annually. TRLA serves the largest geographic area
of any legal aid in the U.S., covering some of the poorest
counties in the nation. More than 2.7 million residents of
southwest Texas are considered eligible for our services.
The COVID-19 pandemic triggered a health crisis and a
simultaneous economic crisis. Prior to the pandemic, systemic
inequalities and disenfranchisement already existed among
marginalized social groups, such as minorities, women,
individuals with disabilities, survivors of domestic abuse, and
immigrants. TRLA's clients all belong to one or more of these
social groups, and we found that COVID-19 exacerbated these
pre-existing inequalities.
In my written testimony, I address three harms faced by our
client population during the pandemic: one, the rise of debt
collection activity; two, the impact of credit reporting on
debt and poverty; and three, the failure to protect consumers
from fraud.
In my oral testimony, I will focus on two key points.
First, we have observed how credit reporting has left many
vulnerable Texans prone to future disenfranchisement and
poverty. Although there are many problematic types of debt
found in consumers' credit reports, I want to highlight the
problem of coerced debt.
Each year, approximately 800,000 women in the U.S. are
physically assaulted by an intimate partner. One in four women
will have experienced some form of intimate partner violence in
their lifetime. During the pandemic, domestic violence has
increased and many survivors find themselves without any
available options to relocate and leave abusers.
In addition to physical violence, survivors are subject to
other forms of abuse, including economic abuse. In fact, it is
estimated that 94 to 99 percent of domestic violence survivors
experience economic abuse. While economic abuse spans a wide
array of tactics, damage to credit is of particular importance.
Abusive partners damage credit by fraudulently opening accounts
in the survivor's name, lying about paying bills in the
survivor's name, overcharging credit accounts, or coercing
survivors to sign for loans, credit lines, or other expenses.
This type of activity is known as coerced debt. Coerced debt
encompasses all non-consensual credit-related transactions, and
although the term is most used in the context of intimate
partner violence, it also exists in other contexts, such as
elder and child abuse.
The appearance of coerced debt on a consumer report is so
destructive because credit reporting permeates almost every
aspect of a consumer's financial life and can make or break the
financial security of an individual. Consumer reports and
credit scores are used by potential creditors, landlords,
employers, telecom and utility companies, and even the
government.
As a result, coerced debt ultimately impairs a survivor's
ability to obtain the credit, job, or housing needed to stay
safe. Traditional lenders become less accessible, and survivors
are left to obtain credit from predatory sources, such as
payday lenders. These high-cost loans aggravate an already-
desperate financial situation, trapping survivors in
insurmountable debt. Without economic security, domestic
violence survivors cannot have physical security.
Coerced debt is best understood in two buckets: one,
fraudulent debt; and two, coercive debt. Fraudulent debt fits
the basic understanding of identity theft. The coerced debt
victim did not know about the account or charges, did not
authorize the opening of the account or the use of an existing
account, and did not benefit from the debt.
On the other hand, coercive debt is incurred by force or
threat of continued violence or other forms of abuse. The
victim does not really consent to the debt, but opens a new
account or allows the use of an existing account out of fear of
the repercussions of saying no to the abuser.
Currently, only coerced debt victims who fit neatly into
the bucket of fraud have avenues for relief. However, the vast
majority of coerced debt victims in the coercive bucket have no
remedies. Texas addressed this problem by amending our
definition of identity theft to include coercion, but coerced
debt victims from everywhere else in the country do not have
this solution and need help.
We have also seen an increase in aggressive collection
activities. The number of default judgments obtained in 2020
increased despite a moratorium. Lenders were quick to repossess
vehicles when consumers were unable to make timely payments on
auto loans and, based on our observations, refused to work out
payment plans or forbearance options.
Simultaneously, we saw debt collectors more aggressively
pursue post-judgment collection, like bank garnishments. These
collection methods led to seizure of economic impact payments
(EIPs). And, because not all EIPs were or are protected from
garnishment, collectors have taken advantage of consumers in
already vulnerable circumstances and diminished the important
work of Congress in providing much-needed relief.
I yield back. Thank you.
[The prepared statement of Ms. Sanchez-Adams can be found
on page 89 of the appendix.]
Chairman Perlmutter. Thank you, Ms. Sanchez-Adams.
Ms. Shultz-Wilson, you are recognized for 5 minutes for
your testimony.
STATEMENT OF VALARIE SHULTZ-WILSON, MANAGING PARTNER, SHULTZ&CO
NONPROFIT MANAGEMENT CONSULTANTS
Ms. Shultz-Wilson. Good morning. First, I would like to
thank Full Committee Chairwoman Waters and Subcommittee
Chairman Perlmutter and Ranking Member Luetkemeyer for inviting
me here today to testify on behalf of the low-income and low-
wealth consumers that I have served over the past 30 years. I
come before you today to provide a face behind the statistics
and the data on the economic toll of COVID-19 on these
communities.
During my career, I have had the privilege to lead several
nonprofit organizations--some small, with $500,000 operating
budgets, and some large, with $50 million operating budgets,
but with one goal in mind, and that is always to serve the
community.
I have been CEO of organizations such as the Connecticut
Food Bank and the Urban League of Southern Connecticut. It is
at the Urban League where we provided much-needed services to
consumers, which included first-time homebuyer education,
credit repair, financial education, foreclosure prevention,
loan modification, and student loan services. My vocation and
passion and commitment revolve around empowerment. I have
devoted my life to these endeavors and will continue to do this
work. It is important that we all, in the nonprofit community,
continue to stand in the breach to help consumers.
The economic devastation that has impacted small business
owners, including sole proprietorships in the Black and Latino
communities, continues to disenfranchise these groups.
As heartbreaking as these scenarios are, many consumers are
forced to use title loan companies, payday lenders, and other
predatory lending businesses just to make ends meet. Rather
than allowing borrowers to speak with someone to address these
issues, many institutions are now forcing consumers to use
computers. They are forcing them to go to their websites, and
this includes mortgage companies, student loan companies, and
auto finance companies. Many of our consumers have lost their
internet. Many did not have computers to begin with, and if
they did, some of them have been forced to sell their computers
or to pawn them--we know that pawn shops are a business that is
booming today--which eliminates their ability to communicate
with financial services institutions.
In addition, bank fees and overdrafts have plagued low-
income consumers, causing many to lose their traditional bank
accounts and to become unbanked, forcing them to rely on check-
cashing establishments that charge predatory fees, to the
detriment of our consumers.
Credit card companies monitor credit reports and raise
interest rates based on credit usage. Late payments and missed
payments generate additional fees that folks from low-income
and low-wealth communities cannot afford. Many of them are
having to choose between feeding their families and providing
essential basic services for their families.
In Connecticut, I serve on the board of the Community
Foundation for Greater New Haven, which has launched a $26
million initiative called Stepping Forward, a program which has
set aside money to provide low-interest loans and grants to
Black-, Latino-, and women-owned businesses impacted by the
pandemic. It is also providing capacity-building grants and
operational support to the nonprofit community who are in the
trenches doing this work every day to ensure economic
empowerment and stability. Nonprofit organizations like the
Foundation stand in the breach and provide a safety net to many
consumers who may not be eligible for traditional financial
services.
Recently, JPMorgan Chase announced that it would pledge $30
billion to close the racial wealth gap in Black and Latino
communities over the next 5 years by funding organizations such
as CDFIs, and Black-owned banks, and by providing down payment
assistance for people of color. I am very pleased that they
have decided to launch this initiative. However, if credit
restrictions are not relaxed, many of our low-income and low-
wealth consumers will not be able to take advantage of this
program and the wealth gap will remain.
In closing, low-income and low-wealth consumers need help.
We need policies now that will allow businesses and consumers
to be resurrected and made economically viable for the future.
We need policies now that address structural barriers to
resources, financing, and capital.
Thank you so much for your time today, and I look forward
to addressing your questions.
[The prepared statement of Ms. Shultz-Wilson can be found
on page 105 of the appendix.]
Chairman Perlmutter. Ms. Shultz-Wilson, thank you for your
testimony.
And Mr. Griffith, you are now recognized for 5 minutes for
your testimony.
STATEMENT OF JOEL GRIFFITH, RESEARCH FELLOW, FINANCIAL
REGULATIONS, THE ROE INSTITUTE FOR ECONOMIC POLICY STUDIES, THE
HERITAGE FOUNDATION
Mr. Griffith. Thank you, Chairman Perlmutter, Ranking
Member Luetkemeyer, and members of the subcommittee for the
opportunity to testify today. My name is Joel Griffith, and I
am a research fellow at the Heritage Foundation.
Are Americans slipping through the cracks in our economy?
That is a very important question. Without a doubt, many are
still suffering from the historic plunge in economic output
that was triggered by the widespread shutdowns imposed last
March.
For the first time in our nation's history, governments
across the country intentionally suppressed the supply of goods
and services and artificially suppressed consumer demand.
Within months of these shutdowns, more than 20 million jobs
were lost. In April 2020, the U.S. unemployment rate was nearly
15 percent, a full 4 percentage points above the previous post-
World War II high.
Of course, the partial reopening of the economy did spur a
robust recovery. Economic growth in the third quarter smashed
all prior records, growing at a 33 percent annual pace. But
this highest economic rebound this summer, the highest in
history, proves that those who were properly informed of the
actual risks of COVID and of the appropriate mitigation
measures are enthusiastically participating in the reopening,
going back to work, and going back to their lives.
Financial conditions for most consumers actually show
marked improvement compared to pre-pandemic. We have an
increase in overall credit scores, and that reflects the
surprising reality.
Over the past year, delinquency rates on consumer loans
actually plunged. In fact, delinquency rates now are the lowest
in more than 30 years.
Auto delinquencies in quarter three of 2020 were
substantially lower than the year before, dropping by nearly
one-third.
Mortgage delinquencies, as well, are holding up relatively
well through the crisis. They have edged up slightly by .4
percentage points. Contrast this to the Great Recession where
mortgage delinquencies nearly quadrupled, soaring to 12
percent.
Rental delinquencies also appear to not have substantially
increased. The Census Bureau's Household Pulse Survey indicates
that 21 percent of renters did fail to pay rent in December,
but this is up just slightly from the 18 percent reported in
March of 2020. National Multifamily Housing Council data
confirms this trend.
We have an elevated savings rate; it hit an all-time high
in April 2020. This helped drive down the amount of credit card
debt outstanding to under 4.5 percent of disposable income. By
the middle of last year, this was down sharply from the 8
percent rates that we saw during the Great Recession more than
10 years ago.
Overall, the data are encouraging, in that consumers are
more financially secure now than before the pandemic began.
However, it is very important that we compare this national
financial data to State-specific unemployment economic output
data. We know that nearly 10 million people who have lost their
jobs during the pandemic still are without work.
The economic misery from these shutdowns is concentrated
geographically in those regions affected by continued onerous
restrictions, such as curfews, capacity limitations, and
distancing guidelines, and full business closures in States
like California.
The Federal Reserve State Coincident Index shows the
approximate GDP by State, and it actually shows that in eight
States, the economy now is bigger than it was before the
pandemic. These are States that have reopened, like Utah and
Georgia. Contrast this with the deep recession that lingers in
Hawaii, Michigan, Rhode Island, Massachusetts, and New York,
many of which have economies that are nearly 10 percent smaller
now than they were a year ago.
In December, the 10 States with the fewest restrictions in
place were averaging just 4.7 percent unemployment. Meanwhile,
Los Angeles suffers from 10 percent unemployment. In New York
City, it's up 8 percent. In El Centro, California, unemployment
is near 20 percent. These economies are shut down. Compare that
with unemployment in numerous towns and cities in Alabama,
Idaho, Nebraska, and Utah where unemployment is actually under
3 percent.
Politicians in State and local governments who continue to
advocate for shutdowns and economic restrictions are pushing
millions of those who are unemployed or financially underwater
off an economic cliff. And, meanwhile, they are telling the
public that these individuals are merely slipping through the
cracks.
Unfortunately, some are now using the persistent economic
troubles in parts of the nation to push through a wish list of
harmful credit policies. This includes suspending
capitalization of interest and debt collection and
repossession, along with suppression of accurate, predictive
credit reporting. Policymakers need to consider the unintended
consequences of these actions, which will result in less
available credit for both consumers and businesses, often to
those who most need it.
In summary, the financial condition for many families has
improved over the past year, but restrictions that are still in
place in some State and local governments on basic economic
activity continue to hold back millions of individuals from
gainful employment and financial help. Using the economic
misery that persists across portions of the nation as an excuse
to advance a wish list of extreme proposals will suppress
future economic growth.
Congress should instead focus on better positioning our
nation to lead in the [inaudible]. Thank you.
[The prepared statement of Mr. Griffith can be found on
page 44 of the appendix.]
Chairman Perlmutter. Thank you, Mr. Griffith. And thanks to
all of our panelists for their testimony.
I am going to go vote, so I am going to turn over the chair
to Mr. Casten, and I am also going to recognize him for 5
minutes for his questions of this panel. Thank you.
Mr. Casten. [presiding]. Thank you so much, Chairman
Perlmutter, and thanks to all whom I have hopped over in the
seniority as Ed and I try to shuffle through the voting pattern
here.
Mr. James, I want to brainstorm with you a little bit. And
this is an idea without legislation, so I am not--none of these
are intended to be leading questions. But, it strikes me that
there is a--as we have gone through and passed these really
important and necessary eviction moratoriums, there are two
parties to that. There are the tenants, who have not been
evicted and have not been financially squeezed, and then there
are the landlords, who are trying to figure out how to make
sure that they can stay current on their mortgage payments.
And I wonder if you have any data? Because on the one hand,
in talking with, particularly some of the low- and moderate-
income property owners in my district, a lot of them have said
that among their tenants, when they miss a payment, they can
come current and stay current again, but oftentimes, these
folks do not have the income to ever catch up on all of the
back rent, so their credit scores permanently struggle. And, on
the other hand, for the landlords, they are always carrying
this bad debt expense because if you have someone who is
staying current on their payments but not catching up on the
back end, you are carrying some assets on your books that
everybody knows needs to be partially written off.
My first set of questions is for tenants who fall behind,
do you have any data on what portion--even before COVID, what
portion never catch up? And how does that vary between low-,
and moderate-, and higher-income tenants? Have you ever seen
[inaudible] office?
Mr. James. Thank you for your question, Congressman. I
don't have any data on that specific issue, but I can respond
and just agree with you that it is a very vexing question. In
our institution, Carver State Bank in Savannah, Georgia, we
actually see both sides of this because a lot of our retail
customers are the tenants who reside in some of these low- to
moderate-income residences. But, then, a lot of our borrowers--
one of the specialties that we have is actually lending to
small landlords, who own one, two, three, or four units of
property that they rent out in LMI communities. So, we kind of
refer to that as sort of naturally occurring affordable
housing.
And we have been surprised that more of our landlords have
not fallen behind. We did extend very generous forbearances at
the beginning of the pandemic to all of our borrowers across-
the-board to make sure that people did not have cash flow
chops. We have been able to find that our past dues have been
reasonably strong. We have not seen a lot of impact. I think
that that is because many of the lower-income tenants and
moderate-income tenants have been able to access local programs
in our community to help them to keep up with their rent.
So, I do not have sort of universal data on the question,
but we would certainly be happy at the NBA to explore this
issue further, because we do recognize it not just at my bank
in Savannah, but across our membership. We do recognize that
there is a potential for this to be a really serious problem.
Mr. Casten. I would love to see some data. And I want to
let some of the folks who spend their time exclusively on the
consumer side of this weigh in. Ms. Sanchez-Adams, I don't know
if you have any thoughts?
But what strikes me is in some sort of completely ideal
policy mode, if we were to say that the Federal Government
would provide X percent of back rent, if landlords agreed to
write off the balance. And I don't know what X is, right? But,
there is some number there where we protect tenants' credit
scores and we enhance the borrowing position of those
landlords. Because when you go out to write the mortgage, you
are sitting there saying, yes, I know you have these assets,
but not there. And if you have any analysis of where that is, I
would love to see it. Maybe we can follow up after the hearing.
Ms. Sanchez-Adams, with the little time I have left, do you
have any thoughts on that question?
Ms. Sanchez-Adams. Sure. So, on the one hand, if low-income
tenants are living in public housing, they do have a portion of
their rent that is being paid by housing authorities and, so,
those tenants are not necessarily falling behind on their
payments. They have steady incomes from public benefits and
things like that, so that is not the case there. It is more the
middle income that do not have public benefits that maybe have
seen reduced income cut.
The last thing that I will say, though, is that the credit
reporting is easy to fix if you just put a moratorium on
reporting of it for this certain period. That might be able to
alleviate some of what you are talking about.
Mr. Casten. Okay. Like I said, this is brainstorming. I
don't have a specific policy, but I would love to work with you
on that.
I am out of time now, and I recognize my friend, Mr. Barr,
for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman. I appreciate that.
We recently held a hearing in the Oversight and
Investigations Subcommittee examining portions of the
population who are being left behind by the banking system.
And, during that hearing, one witness highlighted the problem
of credit invisibility, where individuals have no credit
record, and the three nationwide credit reporting agencies
don't really have any information about these people. Credit
invisibility disproportionately impacts consumers in rural
areas and can perpetuate the cycle of reduced access to
traditional financial services.
Mr. Griffith, how would you recommend that we address the
problem of credit invisibility, especially in underserved
communities?
Mr. Griffith. Thank you for your question. Yes, this is
definitely a problem where there are a significant number of
people who either have insufficient credit to have a credit
score or they actually have no credit lines at all. But what we
see is that we have a number of institutions, including the
credit bureaus such as Experian, that are making it possible
for people to begin adding alternative credit lines, such as
their housing payments, cell phone bills, and other
nontraditional types of credit, and this is beginning to be
factored into some of these scores.
So, the private sector recognizes this is a problem. In
fact, they have an interest, as well, in reaching an expanded
marketplace because many of these individuals are people who
are financially responsible; it is just that they don't have a
credit score associated with their name.
I think my fear is that policymakers will use this as a
reason to put mandates in place, not recognizing all of the
requirements that are incurred when you actually have somebody
put it into the credit bureaus. There is time spent. There is a
legal liability, as well. And we see significant progress being
made right now in the private sector.
Mr. Barr. Yes, I agree with you, Mr. Griffith. I think
innovation, especially in fintech with alternative data, is a
way in which the private sector, without any government
intervention, has provided greater access to credit for
underserved individuals.
One other question related to that, Mr. Griffith, how might
nationalization of credit reporting, as some on the other side
have suggested, adversely affect underserved individuals'
ability to gain access to financial services?
Mr. Griffith. Thank you. Nationalization of this in terms
of requiring credit companies to not report certain stints of
bad credit, will actually impact those who are trying to
develop their credit. It will impact them most adversely, and
that is because you are going to require institutions, whether
it is an automobile company, whether it is an appliance
company, wherever you are looking at to get that credit, you
are going be requiring them to fly really in the dark and, so,
their risk is going to be elevated. They are going to either
have to exclude more people from the universe of people that
they will lend to, or they are going to have to adjust interest
rates, not just for those who are higher-risk, but for those
who are actually paying their bills on time, because the credit
agencies will no longer have access to that information to have
the ability to provide it.
Mr. Barr. Yes. One of the things I am worried about is
policymakers using the pandemic as an excuse to eliminate risk-
based pricing. Lenders and other financial market participants
really rely on risk-based pricing for their products and
services. They use the best, most complete information
available to assess the creditworthiness of the borrower and
his or her ability to repay, and mispricing risk could lead to
negative terms for customers and ultimately undermine their
financial stability.
Mr. Griffith, final question, what impact would a
government-imposed prohibition on risk-based pricing have on
the price, availability, or access to financial services? And
do you believe that suppressing one's credit data could
ultimately cause undue hardships for consumers?
Mr. Griffith. Yes. The unintended consequences are very
severe with this. If you [inaudible] ability to actually
accurately report somebody's financial situation or how they
perform during a time of economic stress like we have certainly
seen over this past year, you are going to diminish that
availability.
Those who have a very long-established track record or who
can prove their income, are likely going to be fine. They will
be able to obtain that credit. But it is those people who
actually need credit the most, sometimes in periods of
emergencies, who are going to be the most harmed, because they
won't be able to find the credit when they need it. They are
going to have to pay higher interest rates for legitimate
credit. Or, even worse, you are going to see a lot of people
forced into that unlawful black market, and you are going to
see them pawning off belongings or even using a loan shark,
where their physical life might actually be in danger.
Mr. Barr. My time has basically expired, so I do not have
the time for another question. But, one final comment on debt
collection.
I worry that, again, policymakers will use the pandemic as
an excuse to restrict legal debt collection. And, of course,
debt collection and remedies for lenders is key to providing
access and creating a willingness for lenders to actually
extend credit, so I don't want to go there either. But with
that, I yield back, and I appreciate the opportunity to
participate in this hearing.
Mr. Casten. Thank you. The Chair will now recognize Ms.
Velazquez, who is also the Chair of the House Committee on
Small Business. Ms. Velazquez, you are recognized for 5
minutes.
Ms. Velazquez. Thank you, Mr. Chairman. Before I start with
my questions, I would like to respond to Mr. James, who raised
the issue of the necessity to extend the PPP loans process
beyond March 31st.
I am happy to report that Mr. Luetkemeyer and I reached an
agreement, a deal, last night on extending PPP for 2 months.
And, for new loans, an extra 30 days for SBA to go over pending
applications, until June 30th. So, I want you to know that, and
I want to thank Mr. Luetkemeyer for his cooperation.
Ms. Harrington, one of the bills that we are discussing
today is my bill, the Small Business Lending Fairness Act,
which will prohibit the use of confessions of judgment in
commercial lending transactions at the Federal level. Can you
explain the confession of judgment practice and how it is often
used to harm unsuspecting small business owners and borrowers?
Ms. Harrington. Thank you, Congresswoman. Absolutely. This
is a really problematic practice and tool and just another
example of why we need more oversight.
These are tools that are placed in contracts. Business
owners have been forced to sign them, and it means they are
basically agreeing in advance for a default judgment against
themselves, and it really puts them in a very severe
predicament. And then, it exposes them to so much harm later
and so much financial constraint, and this is what we have
seen. We saw it in New York, in your home State. We have seen
this happen, and we have seen the economic strain it causes,
the mental health strain it causes, and just how abusive and
predatory this practice really is.
Ms. Velazquez. And can you explain, please, why this is
something that we need to prohibit at the Federal level, and
why it should not be left to the States, as some might argue?
Ms. Harrington. It is basic principles of fairness and
consumer protection. This is essentially contracting away your
legitimate rights, your legitimate defenses, and so, we need to
be protecting consumers as much as possible and creating a
ceiling, and creating a floor for consumer protections at the
Federal level, and then States can go beyond that. But we want
to make sure that consumers are as protected as possible,
especially when we are seeing such predatory acts going on.
Ms. Velazquez. Thank you. Ms. Harrington, as you know, the
Truth in Lending Act (TILA) requires transparent disclosures
for consumer loans, but not for small business loans. I have
been working with Senator Menendez on legislation that will
extend TILA to small business loans. How would extension of the
TILA statute to small business loans better protect small
business borrowers and enable them to make fully informed
comparisons on their financing options?
Ms. Harrington. I think it would be really impactful. It
would enable them to compare products, to know when they are
being offered high-cost, predatory loans. But in addition to
that, we should really be thinking about a Federal rate cap
because that will protect consumers and small businesses and
ensure that they have the best protections.
TILA is great, and TILA for small businesses would be
wonderful, but we need a rate cap. We need to be protecting
them as much as possible.
Ms. Velazquez. And can you please explain how transparent
and standardized pricing is particularly important to small
business owners during this time of COVID, particularly those
that are women- and minority-owned?
Ms. Harrington. This is why women and people of color are
actually more likely to rely on online lenders. They have
traditionally been shut out of the traditional credit market in
many ways, and we saw that play out, especially during the
first round of the Paycheck Protection Program. And because
they have been more likely to use online lenders, these fintech
lenders that use excessive pricing models, they are more at
risk of being subjected to these higher-cost products. So, they
definitely need that protection so that they are able to fully
evaluate, but they also need real access to affordable, safe
credit products, and more banks need to be in the business of
serving all small businesses.
Ms. Velazquez. Thank you. Mr. Chairman, I yield back. Thank
you.
Mr. Casten. The Chair now recognizes Mr. Posey from Florida
for 5 minutes.
Mr. Posey. I thank the chairman and the ranking member for
holding this hearing.
Many of us believe our financial institutions and markets
are the envy of the world. Over a long and innovative history,
they have evolved to process information, reflect that
information in prices, and send those price signals to lenders
and borrowers to provide gains from trade to both parties.
Borrowers, as well as lenders, benefit from markets based on
good information. To jeopardize these informative functions
would risk creating a market for lenders where good credit
risks could not be distinguished from bad credit risks. The
result would be a market where credit access is difficult and
expensive for everybody.
Today, with the rush in the House to reinvent all of our
best institutions, I am reminded of a variation of an old joke
where a constituent comes to a Congressman and asks, ``Who was
it that invented progressivism? Was it the politicians or the
scientists?'' The Congressman replied, ``Why, the politicians,
of course.'' The constituent responds, ``Well, that explains
it. The scientists would have tried it on mice first.'' Our
first duty is to avoid adverse and unintended consequences. We
cannot try out these programs in a lab. We have to rely on
principles and common sense.
And, so, Mr. Griffith, could you please describe how our
financial markets would be affected by imposing restrictions on
credit reporting?
Mr. Griffith. Thank you, Congressman, for your question.
When you impose restrictions on credit reporting, what you are
really doing is you are forcing lenders to fly blind. You are
disabling their ability to actually judge risk based on
somebody's past decisions, but also the circumstances they find
themselves in.
I understand that the intentions are good, because we want
the people to have access to the credit necessary to fund their
dreams. But what you are in effect doing is you are increasing
the risk that is involved in making those lending decisions,
because now a company is not actually able to model what the
risk is in making a loan to an individual.
The less information that a company has to make a decision
for anything in business, especially when it comes to lending--
the less information that they have, the more likely that they
are going to either choose not to actually provide the loan, or
they are going to have to increase the interest rate on that
loan or on loans they make to others to compensate themselves
for that increased risk. So, you will end up seeing a number of
people priced out of the marketplace or not have access at all.
And, then, the worst-case scenario is you end up with
individuals who have to pawn their possessions or seek
financing on the black market where the rules to protect them
do not apply at all.
Mr. Posey. Thank you. What are the effects of eviction
restrictions that are imposed for too long periods of time?
Mr. Griffith. Thanks for that question. We have seen
eviction moratoriums for some of the national level, and state
and local levels, through this period. And what is very
interesting, as I mentioned in my testimony, is that we
actually see rental payments only up slightly over the past
year.
So, what we have seen is we have seen a lot of folks who
are not paying their rent because they know they cannot be
evicted. And, even if the eviction moratoriums are lifted in
the near future, much of that revenue that was not paid to the
landlords, is not going to be returned. That is just going to
be an expense that the landlord is going to have to eat. It is
going to harm the business.
But that is going to have an impact beyond just the
landlords. You are going to see now with this knowledge that
these moratoriums might be imposed, you are going to see
lenders once again have to tighten up their risk parameters, as
well. They might have to charge extra for security deposits.
There might be instances in which they choose not to rent to
someone for whom the credit score might not be high enough.
And, of course, Congress, the government, can try to work
around that, as well, and force them to rent out those
properties, but then you are going to see landlords keeping
more money on retention because they are still going to have to
pay for repairs, upkeep, taxes, and their own mortgage
payments.
So, the repercussions are still going to be not just on the
landlords, but be on those who are looking for a place to rent,
as well. Often, it is going to be those who are most in need of
a rental place because they cannot yet buy a home.
Mr. Posey. What would you change about the CARES Act
provisions that have targeted pandemic relief of credit
reporting and mortgage forbearance and evictions?
Mr. Griffith. When it comes to these eviction moratoriums,
any of these really should have been done on a State and local
level, and only used very sparingly. The ability to actually
possess your own private property and enforce the contractual
arrangement that you have underpins our entire economic system.
It has made us the most prosperous economy in the history of
mankind. When you start eroding those property rights and the
ability to actually enforce the contract, you are [inaudible]
private property in general.
Mr. Posey. Thank you.
Chairman Perlmutter. The gentleman's time has expired. Mr.
Posey yields back. I would like to thank Mr. Casten for
covering for me.
And I would now like to recognize the Chair of the Full
Committee, Chairwoman Waters, for 5 minutes.
Chairwoman Waters. Thank you very much, Mr. Perlmutter, for
the time. I would like to direct this question to Robert James,
president of Carver Development CDE, and chairman of the
National Bankers Association.
As you know, before Chair Yellen left the Federal Reserve,
she placed a cap on the assets of Wells Fargo. Wells Fargo
indicated they wanted to do PPP, but because of the cap, they
would not be able to do it. And there was an agreement made
that they would be able to do PPP if, in fact, they would
donate, contribute to CDFIs and MDIs, all who need capital. We
have been working hard for years to do everything that we can
to increase the capital for our banks, minority banks, and for
our CDFIs.
And, so, what I want to know is, have Wells Fargo and other
banks who said they were going to follow suit and they were
going to make the PPP funds that they had earned because of
their work, that they were doing with distribution of PPP,
available to the MDIs and the CDFIs? We don't know if they
followed through. And I just talked with one of our staffers
who indicated that they are trying to track it, also.
But, have you had any experience? Do you know whether or
not our MDIs and CDFIs have been receiving donations,
contributions from either Wells Fargo or any of the other banks
who claimed that they were going to do it?
Mr. James. Thank you, Chairwoman Waters, for that great
question.
We do know that Wells Fargo, as well as a handful of the
large financial institutions in addition to them--just a
handful--have been making some capital equity investments in
some of the MDI banks. I am not sure if those funds were
previously earmarked or if they were of the funds that are
coming from the PPP fees. And I am familiar with the commitment
that you reference.
I do know that some of the capital investments have started
to flow into our banks. But, of course, those are transactions
where our banks are selling a security to Wells or some of the
other large institutions, so they are receiving a preferred
stock investment. Sometimes, it is common that they are
receiving a security in exchange for that. There has not been
an enormous amount of just grant activity from the large
institutions into the MDI sector.
Chairwoman Waters. Okay. Yes, that is different. That is
different because you have a term sheet that you have to
negotiate. And sometimes, we worry about what they are asking,
so I am hopeful that those who are negotiating that kind of
investment will be very careful to protect the ownership of our
minority banks.
But, here is what I want to ask also on Wells Fargo. They
are touting a down payment assistance program. Have you heard
about any of the beneficiaries being worked with?
Mr. James. Chairwoman Waters, I am not specifically
familiar with that program, so I cannot speak on it one way or
the other, just I know that it is occurring.
Chairwoman Waters. Would you do me a favor? As the chairman
of the National Bankers Association, could you make inquiries
of the bankers in the National Bankers Association to find out
who are the recipients of contributions, donations from Wells
Fargo and others? And, whether it is like you are indicating
here today, all of the relationships basically, as you
understand it, are transactional relationships where they are
equity investments?
Mr. James. Chairwoman Waters, we will absolutely get that
information to you and your staff as soon as possible. Thank
you.
Chairwoman Waters. I would appreciate that because we
intend to follow up. Oftentimes, we have the banks indicating
they have programs that are assisting MDIs and CDFIs, but we
never really understand what they have done, or how much they
have done. We have never done a good job of following up. And
this time, I am going to actually engage in that effort so that
we can know whether or not they are living up to what they are
representing so that we can deal with it.
So, thank you so much for being here today and for agreeing
to do some follow-through on this.
Mr. James. Absolutely. And thank you for your continued
support. We appreciate it.
Chairwoman Waters. You are so welcome.
I yield back the balance of my time, Mr. Perlmutter.
Chairman Perlmutter. Thank you. The gentlelady yields back.
The ranking member of the subcommittee, the gentleman from
Missouri, Mr. Luetkemeyer, is recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman. And I just wanted
to open with a statement with regards to the PPP program. I
know several of the witnesses referenced this. And I know that
Chairwoman Velazquez of the House Small Business Committee--
which I am also the ranking member of--and I had an agreement
last night and the bill was dropped, I think late last night or
this morning, to extend the PPP program. And I want to extend
my congratulations and thankfulness to her for her help and
willingness to work in a bipartisan fashion on that issue, and
we look forward to that bill's passage on a bipartisan basis,
as well.
As we go through the--getting everybody back up to speed
here, one of the things that is concerning to me has been the
lockdowns. My State came basically out of the lockdown back in
mid-May, and we had a 5 percent increase in revenues from 2020
over 2019. I live close to the Lake of the Ozarks, one of the
greatest recreation areas in the middle of the country there.
We had double visitation in 2020 over 2019, and 2019 was the
second-highest visitation year in history for the Lake. So, it
is huge economic activity that can come back after the
lockdowns. And so, to me, the greatest, biggest deal in coming
back for our economy is to get everybody out of the lockdown,
get everybody vaccinated, and off and running.
Mr. Griffith, I just would like to ask you your perspective
on that comment?
Mr. Griffith. You are absolutely right. Thank you for that
question. Yes, what you see across the country right now is
really almost a tale of two different economies. I have visited
New York City multiple times over the past year during the
lockdowns, and it is just so sad when you see entire blocks of,
not just businesses that are temporarily closed, but they are
closed for good.
And then, visiting family and friends in Florida and
Georgia, it is a different universe. You have restaurants that
are--many restaurants and bars in New York City, for instance,
and retail establishments that are shut down forever, have
relocated to Florida because they can actually run those
businesses there. And, of course, the tax structure is better.
The same thing goes with California. Look at California
compared to Utah. California compared to any other--or Texas.
[Audio malfunction.]
Mr. Luetkemeyer. Okay. You are fading out on me here, Mr.
Griffith. Let me ask another question very quickly as soon as
you get back up and running here.
Mr. James, I appreciate your testimony this morning. One of
the things that we have talked about throughout this pandemic--
and it is something I have been pushing for a long time--has
been forbearance by the regulators with regards to enabling
banks and credit unions, and pretty much the financial services
industry as a whole, to be able to give time to their customers
to be able to get back on their feet. I think that the quick
rebound that we have seen so far, and I think you can
anticipate coming shortly, would indicate that people can get
back, businesses can get back to a new normal, which would be
similar to what it was in the 3 years prior to the pandemic.
And so, my question to you is, in the CARES Act, and in the
bill at the end of the year, we had an extension of the total
debt restructuring rule, as well as Current Expected Credit
Losses (CECL). How important do you think the continuation of
those forbearance tools, or the forbearance on those
regulations, is going to be in the coming months and years
here?
Mr. James. Ranking Member Luetkemeyer, thank you for the
question. We actually are very much in agreement with any kind
of assistance that we can get from our regulatory partners and
are grateful for Congress including those provisions in the
recent relief packages.
It is of critical importance that our institutions are not
forced to declare troubled debt and that we have time to work
with our customers to allow them back. Most of our banks in the
MDI community experienced this in the last economic slowdown in
2008 and 2009, where we were forced to write down certain
credit, even in the event that we knew that the borrower was
going to be able to recover it. And, so, we are grateful for
Congress including that. We are grateful for your advocacy on
that point, and we welcome the continuation of the easing of
those regulations so that we can work with our customers.
Mr. Luetkemeyer. Thank you for that response because I
think that it is extremely important to be able to allow people
and businesses time to work through this. I think we can
actually get back on our feet very quickly if we don't become
really punitive from the regulatory side. So, thank you for
that.
Going back to Mr. Griffith, and talking again about getting
our country back on track, it would seem to me that what showed
in the 3 years prior to the pandemic was that low taxes and
minimal regulation really inspired and enabled and empowered
the businesses and people to be able to drive our economy. How
important do you think it is going to be, Mr. Griffith, to
continue that low tax, minimal regulatory [inaudible] to be
able to make it--
Mr. Griffith. If we want to go back and see median
household income hit new all-time highs and see record-low
unemployment across the entire nation, we do need to keep an
eye on the ball there, and that is knowing what works and
continuing with those advances.
Mr. Luetkemeyer. Thank you very much.
Chairman Perlmutter. Thank you. The gentleman's time has
expired. Thank you very much.
I remind everybody, if you are not speaking, please make
sure you are muted so that we don't have feedback.
I now recognize the gentleman from California, Mr. Sherman.
Mr. Sherman. Thank you, Mr. Chairman, and congratulations
on your first hearing of one of the most important
subcommittees in the House of Representatives.
Glass-Steagall was the law of this country for a long time,
but in Gramm-Leach-Bliley, we at least allowed financial
institutions in one part of the financial world to be aligned
with those in another so that your credit union could also sell
you insurance. But, the basic rule there was that we drew a
line between financial services on the one side and the rest of
commerce on the other. There was, however, one vestigial
exception to this that was not part of any overall plan reached
in the latter part of the last century, but it went back well
over 100 years, and that is the industrial loan company.
Ms. Harrington, just over a week ago, it was reported that
Wal-Mart had hired Goldman Sachs' head of consumer banking, and
announced a partnership with Ribbit Capital, in an apparent
attempt to expand itself into the financial services world.
Wal-Mart and other major retailers have at one time or
another sought State-issued industrial loan company (ILC)
charters to break that wall between commerce on the one hand
and banking and financial services on the other.
On December 15, 2020, just as the last Administration was
leaving, the FDIC adopted rules that paved the way for nonbanks
to own ILC-chartered banks without being subject to the same
oversight requirements.
Do you see this as a problem for consumers and taxpayers
when it looks like Wal-Mart can get involved in financial
services and not be subject to the same rules?
Ms. Harrington. Absolutely, and I am so glad that you asked
this question, Congressman. This is something that we have been
advocating about for a while. We really urge Congress to impose
a moratorium and close that loophole. This is really
concerning. There are six ILC applications pending right now.
We saw what would happen with ILCs in the last recession,
actually. There was a major meltdown from that. They pose a lot
of systemic risk, and consumer protection concerns. We all
should be worried about these companies and these pending
applications, and we urge Congress should impose a moratorium.
Mr. Sherman. Hopefully, the new FDIC will take a look at
the moratorium that had been imposed for many years and re-
evaluate this last-minute change of policy in December of last
year.
Mr. James, I was a strong advocate for the extension of
Section 4013 of the CARES Act, which allows banks to modify
certain loans, work with the borrower, and restructure, whether
it be a consumer loan or a commercial loan, without that debt
being classified as a troubled debt restructuring and hitting
the bank's capital. But, we have this unusual end date for this
program, where it is supposed to end at the end of this year or
60 days after there is a an end of a declaration of national
emergency, and we do not know when that is.
So, the banks are trying to decide what to do and to do
their business planning without having a definite date.
Wouldn't it be easier to plan if you knew that this special
provision was going to expire on December 31st, or maybe
earlier?
Mr. James. Thank you, Congressman. Again, we would very
much appreciate some certainty on that particular issue. And,
quite frankly, in the MDI community, what we have experienced
is that oftentimes, with our borrowers, the shock happens a
little bit later. People will make payments, will stay current,
and then it will happen a year from now, or later.
What we need is to be able to just work with our customers.
We know our customers. We are on the ground, and we think that
we can manage that risk the best from the grass roots
perspective. And, so, we appreciate the suggestion in your
question, as well as in Ranking Member Luetkemeyer's question.
Just very quickly on the ILC issue, as heavily-regulated
institutions, we certainly invite all financial services
providers to be subject to the same regulatory partnerships
that our institutions are subject to, and, so, we welcome the
committee's actions on those in that regard, as well.
Mr. Sherman. Thank you for your answer. I yield back.
Chairman Perlmutter. The gentleman's time has expired.
The gentleman from Oklahoma, Mr. Lucas, is recognized for 5
minutes.
Mr. Lucas. Thank you, Mr. Chairman, and I, too,
congratulate you on this challenge that you have taken on for
the next 2 years. And I also was very impressed with the line
of questioning from the Full Committee Chair about what she
personally expected. I am sure that will be a topic of
discussion later at some point.
But for the moment, let's cut back to the fundamental
issues at hand here. Congress has leaned on the strength of the
banking system throughout the COVID-19 pandemic. We gave
financial institutions enormous tasks of delivering billions of
dollars to support small businesses all over the country. Banks
have also offered avenues to help individuals and businesses
affected by the pandemic by deferring payments, waiving fees,
and all sorts of modifications.
Mr. Griffith, how can Congress ensure that financial
institutions continue to have the flexibility to meet their
customers' needs during the pandemic?
Mr. Griffith. Thank you for that question, Congressman. I
think it goes to allowing the private sector to actually enter
the--there was some discussion just a second ago, for instance,
about Wal-Mart's efforts to provide banking services at its
locations. And, of course, we have competing interests--some
interests that do not want another competitor entering the
marketplace. In this situation, if we want to actually reach
more of those who are unbanked, it seems to make a lot of sense
that there would be an institution with thousands of additional
locations being able to access those individuals. That is one
way.
Second of all, Congress can refuse to actually interject
themselves in the systems that already are set up between
merchants, between customers, and between other banks.
We saw several years ago caps that were placed on debit
card transaction fees, for instance. I understand, once again,
the intentions may have been good, to help consumers, but what
did that result in? Well, that resulted in a giant shift of
wealth from small retailers to big retailers. And, it also
resulted in many consumers who are middle class and lower
middle class no longer having access to free checking accounts,
because every time they would swipe that card through, a lot of
those fees would go to actually providing basic services, such
as no-fee checking accounts. So, we actually hurt the very
people we were intending to help.
Right now, the financial sector is innovating tremendous--
just think about all of these new apps that we use to go back
and forth with people, such as Venmo and PayPal. This is
innovation that is occurring organically, on its own, because
there is a desire on the part of businesses to meet the needs
of consumers. Both sides win. The businesses, the providers
make money, and the consumers win because it makes their lives
easier and oftentimes less expensive.
The worst thing that we can do is to implement bad policy
with the best of intentions because you end up hurting the
people you are trying to help.
Mr. Lucas. Mr. Griffith, the next one I want to bring up,
many people might consider to be a paradox or something ironic.
But you and I both know, in economics, there is a reason for
everything. Everything. So, could you further discuss why, as
COVID-19, the pandemic, has severely damaged the U.S. economy,
the average American's credit score actually improved? Some
would call that a paradox, but there is a reason. Can you
discuss that for a moment?
Mr. Griffith. Thank you, Congressman. Yes, we saw credit
scores actually increase over the past year. That is for one
big reason, which is that people ended up saving more of their
money than they have at any time in our nation's history--the
savings rate that briefly eclipsed at 25 percent of income. And
that was in large part because most people, thankfully, were
able to retain their jobs but unfortunately were not able to
actually engage in the marketplace. And instead of spending the
money, they actually paid down debt or saved or invested.
But, another piece of this was we saw a lot of transfer
payments in the form of enhanced unemployment benefits that
paid people more off the job than on the job. And, then, also
stimulus checks that went to most Americans indiscriminately,
thousands of dollars in stimulus checks. And this is another
thing. It is tough with politics. It maybe makes for good
politics to give people free money. The problem is, of course,
that we borrowed from future generations to do that. And people
acted responsibly in their own way with that free money, but
they are actually going to be paying for it for many, many
years to come. And that explains a big chunk of why we actually
saw credit scores increase, and we also saw the amount of
disposable income use and credit card debt actually shrink
dramatically over the past year.
Mr. Lucas. Are you telling me, Mr. Griffith, that nothing
is ever free?
Mr. Griffith. Nothing is ever free. In fact, we are already
starting to pay for this. We see the uptick in inflation. We
have seen economists on both the left and the right warn that
this latest package that was passed could have very severe
consequences in terms of our monetary system going forward.
We will pay for this one way or another, either through
higher inflation or higher taxes, or other consequences. We are
going to pay for it at some point.
Mr. Lucas. With that, I yield back to my good friend from
Colorado, the chairman.
Chairman Perlmutter. Thank you, Mr. Lucas.
Mr. Green, the gentleman from Texas, is recognized for 5
minutes.
Mr. Green. Thank you, Mr. Chairman, and my compliments to
you for the outstanding job you are doing. But it is what I
expected, so thank you very much.
I want to associate myself with the remarks of the Chair of
the Full Committee. I enjoyed hearing her make comments about
the small banks, the minority banks, and I completely agree
with her, which is a good segue into H.R. 1669, Mr. James. This
is a piece of legislation that Chairwoman Waters assigned to
me, and I am proud that the legislation has been made a part of
the package, the Rescue Plan, and it deals directly with small
banks, minority-owned banks, MDIs.
I am sure, Mr. James, that you are familiar with President
Vignaud, and Chair of the Board Lawal with Unity National Bank
in Houston, Texas, which happens to be in my congressional
district. Are you there, Mr. James?
Mr. James. I am here. Yes, I am very familiar. Thank you.
Mr. Green. I can tell you that President Vignaud speaks
highly of you. I am appreciative that you are part of this
hearing today.
This bill would restart the State Small Business Credit
Initiative (SSBCI) and it courts $10 billion in getting this
credit initiative regenerated, and it is expected that this
would stimulate up to $100 billion.
My concern is whether or not the intentionality that we had
in mind when this bill was being crafted, and hopefully will
pass, is going to actually be implemented. Because the thought
was that Treasury would make sure that these funds, in
implementing the program, would be moved through CDFIs and
MDIs, and we would like to see that you and other small
depository institutions would have the opportunity to receive
these funds and to work with them to make sure they get to
small businesses.
One of the reasons that I am so interested in seeing it
work through this process is because you didn't get any PPP
help, and I was one of the persons who pushed for PPP help for
small banks. I thought that it could be done, but it wasn't,
and I respect those who were not able to do what they probably
wanted to do, as well, but couldn't get done. So, I have great
respect for them and appreciate what they have done since that
time.
So, the question to you is, do you think that Treasury
should help us to get this money to the CDFIs and MDIs and then
to the small businesses that can benefit from the program?
Mr. James. Thank you for the question, Congressman Green,
and thank you for your leadership. Just very quickly, Laurie
Vignaud, President of Unity National Bank, and Kase Lawal, who
is their chairman, are very active members of the NBA. Laurie
is a great member of our board and we are happy to have her
service and leadership.
Yes, to answer your question, we think it is very, very
important that the Small Business Credit Initiative funds are
at least in part directed towards CDFIs and MDIs that are
really closest to these small businesses.
And, again, it is a very common-sense concept that you
raise, Congressman Green, to make sure that the banks that are
closest to the smallest businesses have access to a proven
program to help them leverage funds to ensure that they can
offer more credit to the businesses that need it the most. It
makes an incredible amount of sense to marry CDFIs and MDIs
that, again, have a mission to serve minority businesses, a
mission to serve rural communities, low-income borrowers, to
marry those mission-driven banks and institutions with a
program like the SSBCI program that has the possibility of
being leveraged up 10 times, as you so clearly articulated.
So, yes, we strongly support Treasury acting with
intentionality to make sure that our institutions, our banks,
as well as other CDFIs, have full access to the SSBCI program
and are able to get those resources into the hands of small
borrowers in low-income communities.
Mr. Green. My time is about up, so let me simply thank you
and the other MDIs for the outstanding work that you do in
communities that, if not for you, might not receive the kind of
payment assistance that they get from other lending
institutions.
And I, of course, will yield back the balance of my time.
Thank you so much, Mr. Chairman.
Chairman Perlmutter. The gentleman from Texas yields back.
The gentleman from Georgia, Mr. Loudermilk, is now
recognized for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman, and
congratulations to you for your new position here. I have
always enjoyed working with you, and I appreciate that you need
me on this subcommittee, as well.
Chairman Perlmutter. To the panelists, I say, everybody is
congratulating me because they never thought I would make it
this far.
[laughter]
Mr. Loudermilk. Thank you, Mr. Chairman, and I have always
enjoyed working with you.
But I must admit, I am disappointed to see legislation in
this hearing to eliminate the OCC's True Lender Rule. This is
something that we worked on very hard in the previous
Congresses to get done. And, the rule provides clarity that is
so critical and important for the bank-fintech partnerships,
which have resulted in incredible advances in access to credit
for consumers and businesses who have been unable to obtain a
traditional bank loan. And it is odd that the Majority is
opposing another fintech provision again, seeing that fintech
companies have been by far the number-one source of PPP loans
to minority-owned businesses.
The FDIC's new Chief Innovation Officer recently said that
the best way of banking the underbanked is through technology.
So, instead of opposing fintech, I believe we, in a bipartisan
way, should be embracing it and seeing how we can use it more
effectively to help small businesses and individuals,
especially those that were underbanked.
On another topic, our country has a credit-based economy.
That means it is essential for lenders to evaluate borrowers'
ability to repay loans, and it is also essential for lenders to
be able to collect debts. Otherwise, no rational lender would
blindly extend credit that may never be paid back, which would
further hurt those who need access to credit the most.
Mr. Griffith, as you know, removing important information
from credit reports is a bad idea. Instead, Republicans, led by
Ranking Member McHenry, have proposed legislation to make
targeted reforms, such as removing paid medically-necessary
debt from credit reports after one year. Could you comment on
that proposal?
Mr. Griffith. Thank you, Congressman. Thank you for your
question.
And you are so right. When it comes to making reforms in
the credit system, we have to keep in mind what those negative
consequences, unintended consequences, might be. We know that
lenders, banking institutions in particular, need to be able to
make proper judgments when it comes to making risk assessments.
This option that you have talked about is certainly far
more targeted in its approach because it does not just
eliminate all collections from off the report; it focuses in on
those which were incurred through no fault of the customer's
own. They are usually medically-necessary procedures.
But, more importantly, it would only eliminate from that
report those that have been fully repaid. I think that is an
essential improvement over some of these other suggestions.
I think it is important to note, as well, that oftentimes
when it comes to getting a loan, lenders actually do take those
provisions into account already. Even if it shows up as a
medical lien on the credit report, lenders do have the option
to take that into consideration, especially when it has been
repaid, and we see a number of people who have been able to
secure financing, even with that on the report.
Mr. Loudermilk. Thank you. I grew up in a low- to middle-
income family. My dad worked construction, and started his own
business when I was in high school. And I remember, he was
trying to expand the business. He had more work than he had
employees or capital to actually expand his business. And he
went to the bank and he came back--this was in the early
1980s--and I asked him if he got the loan, and he said, ``No, I
wasn't able to get the loan because, basically, you have to
prove you don't need the loan to get a loan.''
And, so, lenders are an intrinsic part of our economy,
especially for those who don't have the resources. It is an
equalizer, you might say, because if it wasn't for the lenders,
only those that already had the resources would be able to
conduct business.
So, what incentive would lenders have to make loans if they
are unable to collect on those debts?
Mr. Griffith. Yes. It's an important distinction that you
have made between medically-necessary, paid debt and medical
debt that has not been repaid. I think a lot of folks may not
be familiar with how that process works. If you have an
emergency medical procedure, if you have a need for that, a
hospital is required to give you that procedure whether or not
you have medical insurance and whether or not you are covered
by any of the government programs. And they do that knowing
that they can go ahead and collect later, and ultimately they
can put that on your credit report, which is an encouragement
for you to repay that loan.
And, it is an incentive for people to try to be
responsible, to try to maintain health coverage. Because if you
know that you can have any medical procedure that you need, and
you might be billed for it but it is never going to show up on
your credit report, that is an incentive for some to actually
go ahead and just move that responsibility for their health
onto those around them. Because it is not the hospital
ultimately that is paying for that; it is everyone else in your
community. So, I think that legislation is important to keep.
Mr. Loudermilk. Thank you. I yield back.
Chairman Perlmutter. The gentleman yields back.
The gentleman from California, Mr. Vargas, is recognized
for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman. And I want
to add my congratulations to you, too. I have to say that you
even seem taller.
Chairman Perlmutter. Let's not go there, please.
[laughter]
Mr. Vargas. And, I have to say, my good friend from
Oklahoma said that, in a sense, there is no free lunch, that we
are borrowing from future generations. I have to say, it rings
sometimes a little hollow to me when I did not hear the same
speech when the Republicans did their tax giveaway of about
$1.9 trillion to the wealthiest Americans. And we were going to
do that again on the backs of future generations because that
went right into the deficit and it is going right into the
debt. I did not hear that same speech. It seems that speech
only comes along when Democrats are in charge, so it always
rings a little bit hollow to me. I hate to say that. But, that
is the way it rings to me when you have the same issues, but
there is a giveaway to the rich and no one says anything about
that. And, then, when you try to help out people who are poor
or struggling, they say, oh, that is going to come out of the
future generations. I don't agree with that.
But anyway, in a normal economy when a borrower requests
forbearance on a loan, it could be the sign of a borrower's
inability to pay that loan, moving forward. However, as we
know, this is the pandemic, so a lot of people have asked for
forbearance. And one of the bills that I have is the Promoting
Access to Credit for Homebuyers Act. It basically says that
when you are doing this--my legislation would prevent Fannie
Mae, Freddie Mac, and the FHA from treating mortgages
differently, but solely on the basis of this forbearance
because of the pandemic.
So, I would like to ask Ms. Ashley Harrington, would you
further explain why any penalties that are imposed on borrowers
for requests for forbearance could be detrimental to equal
access to homeownership, especially when it comes to this issue
now during the pandemic?
Ms. Harrington. Absolutely. Homeownership, first of all,
remains so out of reach still for so many people of color and,
so, we need to be at this time protecting homeownership rates
as much as possible and keeping people in their homes, both
from the economic standpoint and from the public health
standpoint. People being in their homes and being safe and
having a safe place to go makes all of us safer and makes our
economy better.
And, so, if we don't prevent these negative consequences
from happening, what we may see down the road is a foreclosure
crisis. And, what we are trying to avoid is that happening
because that has impacts. That is very negative for not just
the individuals involved and their families, but it can have a
ripple effect on the communities around them. So, we want to be
very careful to have as many protections in place as possible,
and we need to be acting to have the private-backed mortgages
mirror what is happening with the federally-backed mortgages,
as well, so that all borrowers can have some of those
protections.
Mr. Vargas. Thank you. With respect to that then, what can
Freddie, Fannie, and FHA do? What can they do to help to make
sure that this does not happen?
Ms. Harrington. Sorry. Still to me, right, sir?
Mr. Vargas. Yes. So, what can we do to make sure that this
does not happen? We are the Federal Government. What can we do
to make sure we don't have all these defaults? When we had them
before, obviously it was devastating for people of color,
especially the African-American community and the Latino
community. What can we do? How are we going to do things
differently this time so we don't get it wrong like we did last
time?
Ms. Harrington. So, absolutely making sure that, one, we
are doing the outreach and we are giving borrowers all of the
options. We were really glad to see in the American Rescue Plan
that is about to be signed, the $10 billion homeowner
assistance fund. That is also going to be very helpful in
keeping homeowners in their homes. We would love to see more of
that type of support because that is going to be pivotal when
so many folks are reporting that they are behind, that they are
worried about how they are going to pay their next mortgage
payment and all of these other things. Especially when we know
that the low-income, low-wealth folks who do have homes are the
ones who are disproportionately impacted by the job losses.
And there are many jobs that are not going to come back,
and small businesses that are not going to come back. So, we
need more, more, more relief and more support programs like
that, and we need to make sure that the homeowner assistance
fund is distributed equitably, and that will fall to Treasury.
We need to be watching to make sure that happens.
Mr. Vargas. Thank you. Lastly, if I could just sneak it in,
I would like to ask Mr. James, I am very concerned about
potential default risk for people of color and the small loans
that they have needed to survive this pandemic. What can we do?
What should we be doing more than what we are doing already?
Mr. James. Very quickly, Congressman Vargas, thank you for
the question. I think we should explore the creation of credit
enhancements and opportunities for consumers to have some room
for credit and to partner with the banks so that we can
continue to extend credit to consumers who really desperately
need to purchase groceries or pay rent. I think we can explore
some ideas like that with your subcommittee. Thank you.
Mr. Vargas. Thank you.
Chairman Perlmutter. The gentleman's time has expired.
The gentleman from Tennessee, Mr. Rose, is recognized for 5
minutes.
Mr. Rose. Thank you, Chairman Perlmutter and Ranking Member
Luetkemeyer for holding this hearing, and thanks to our
witnesses for being with us today. And, Mr. Perlmutter, I will
join everyone else in congratulating you on your chairmanship
and I look forward to working with you on all that we do with
this subcommittee.
Throughout the pandemic, we have seen financial
institutions make unprecedented accommodations for their
consumers. Several weeks ago, I was meeting with a group of
bankers back home in the sixth district of Tennessee and they
were detailing all of the ways that their institutions are
helping their customers during the pandemic. And I think that
this serves as yet another reminder that Federal intervention
should not be the automatic answer, even in times of crisis.
I believe we need to be focused on economic recovery, and
it is my concern that some of my colleagues on the other side
of the aisle could be using the pandemic as an opportunity to
restructure parts of our financial system by implementing long-
time, progressive policies that they have advocated.
The HEROES Act put forward by House Democrats, which this
committee discussed at length, went beyond provisions put
forward in the CARES Act by suspending negative credit
reporting during COVID-19, as well as any other future major
disaster. I believe this has the potential to create barriers
to accurate credit reporting.
Mr. Griffith, in your testimony and during your exchange
with Mr. Lucas, you pointed out that during the pandemic,
credit scores have actually been increasing, and that overall,
the financial situation of most consumers is far less
precarious now than during the financial crisis of 2008. Mr.
Griffith, would you discuss how barriers to accurate and
complete reporting would actually decrease the predictive power
of credit files, as well as jeopardize the availability of low-
cost credit for some consumers?
Mr. Griffith. Thank you, Congressman, for your question.
Without a doubt, if you impede the ability of lenders to
actually have an accurate snapshot of the people to whom they
are intending to lend, there are going to be a few consequences
from that. Either they are going to have to deny individuals
credit that they otherwise would lend to because those that may
have been deemed a moderate credit risk, now they don't have a
way of making that determination; or, they will have to
increase interest rates on those that they are making a loan
to, and in some cases, across-the-board to compensate
themselves for that additional risk. You are forcing them to
fly blind.
When you have a lender or any institution that is loaning
out money, that is their capital that they are lending out and
they need to have a reasonable assurance they can actually be
repaid. When you blind them to the reality of whom they are
lending to, you might be trying to help the borrower, but in
effect you are hurting both the lender and the borrower.
And I think we need to be very careful, as well, when it
comes to suspending these reporting requirements during this
emergency or others. There are proposals now to suspend
reporting on adverse sub-credit issues during national
emergencies. Well, there are hundreds of active national
emergencies in any given year and suspending reporting during
any of those crises just by being able to say, I was impacted
by this, that is going to have severe consequences for credit
markets long term.
And, we really need to keep in mind that even those who are
restarting their credit or are emerging from bankruptcy, have
options, as well. We have a robust credit market. Those who are
looking to get a vehicle or a home, even a year or two out of
bankruptcy, have the option to do so.
So, we need to keep the focus on transparency and
disclosure so that these lending companies can actually make
risk-based, risk-informed decisions. It is a benefit to all of
us.
Mr. Rose. Thank you. I want to shift gears a little.
Another provision put forward in the HEROES Act was a
government takeover of the student loan industry. H.R. 6800
would direct the Treasury to make payments of up to 10,000 per
student for private student loan borrowers.
I am a big proponent of career and technical education
programs. And, back home, many of the students in my district
make the decision to go into the trades, whether it be farming,
welding, plumbing, or other necessary services. It concerns me
that these taxpayers who did not avail themselves of a college
education, but in fact got trade training, who choose not to go
into debt for a 4-year degree, would be subsidizing, in effect,
the education of others, when all of the data seems to show
that college-educated employees earn more over a lifetime.
Mr. Griffith, in your view, in the little limited time I
have left, is canceling student debt a good policy choice?
Mr. Griffith. Canceling student loan debt is regressive, it
is inequitable and it is ill-perceived. The progressive
[inaudible] you are forcing them to pay for the education
incurred by others. Really, this is a giveaway to the many
levels of higher education administrators.
Mr. Rose. Thank you. I yield back. Thank you, Mr. Chairman.
Chairman Perlmutter. Thank you, Mr. Rose.
I thought I saw Mr. Timmons. I was going to recognize him,
but he seems to have gone to vote. Oh, Mr. Timmons, if you are
ready, I will recognize you, and then I will close. It is up to
you.
Mr. Timmons. Yes, sir, Mr. Chairman. Thank you. I really
appreciate the opportunity to ask questions. Thank you for
holding this hearing.
Chairman Perlmutter. The gentleman from South Carolina, Mr.
Timmons, is recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman.
Mr. Griffith, the Consumer Financial Protection Bureau
(CFPB) worked on debt collection rules for nearly 7 years under
the leadership of both Richard Cordray and Kathy Kraninger. The
rules were finalized under Director Kraninger and have
significant consumer protections, such as new call limits and
strict compliance requirements around sending texts and emails.
Would consumers and industries benefit from consistency
moving forward now that there are clear rules of the road?
Mr. Griffith. Thank you, Representative Timmons. You raise
a very important question. Under those provisions, if a banking
institution wants to reach out to a customer, let's say during
a time like we have seen this past year or two, and offer them
alternatives to their existing loans, they actually cannot do
so. It is a violation of law. They cannot reach out with those
offers through the text messaging system.
And, really, this is one of the ways in which we want to
help consumers. We can do this just by rolling back that
regulation in and of itself. Banks, lending institutions, they
want to help people avoid going into default and going into
bankruptcy. This is a great way to make it easier for these
institutions to reach out to those with whom they already have
a pre-existing client relationship.
Mr. Timmons. Thank you. My wife gets so many texts and
calls from people asking for campaign contributions. We
probably need some call limits for that area of the law, as
well.
On a more serious note, Mr. Griffith, how would you say the
average consumer has fared during the pandemic?
Mr. Griffith. Thank you again. That really varies, both by
geographic area and the sector. Those who are in professions
such as myself, a former lawyer, those who have those white
collar types of jobs, overwhelmingly, they have been able to
work from home even if their communities are shut down. But, if
you are in the service sector, let's say if you worked at a
theater or a restaurant or a bar, your life in many parts of
the country has been severely, severely impacted, to the point
of you not being able to go out and even earn a living. But,
that also varies from State to State.
You have a number of cities and States that have reopened,
where unemployment is now under 3 percent. In South Florida, if
you visit there for a weekend, you will see the bars and the
restaurants are absolutely packed. People who are in the
service sector there are earning a solid living. And that
stands in stark contrast to those in New York City or Chicago
where, if you are in that service industry, you have been laid
off in most cases for a very long time, and a lot of them are
having to consider leaving and pursuing opportunities
elsewhere. So, it really varies by sector and the State in
which you are located. Reopened States are doing far, far
better, and a number of them are actually in an economic boom.
Mr. Timmons. I have been saying ever since COVID first
started that if the government is going to shut you down and
not let you work, the government has an obligation to make you
whole. And I just wish that we were targeting our economic
relief to only people who have been adversely impacted by
COVID, who have been put out of work. In many instances,
hundreds of millions of dollars have been sent to people who
have had no adverse economic impact, and I think that is a
lesson that I hope we will learn going forward.
One more question, what are some of the patterns in
consumer spending that have emerged during the pandemic?
Mr. Griffith. Thank you. We have seen a lot of consumers
focusing their spending on their homes themselves, because in
parts of the country where people have not been able to go out
and participate in the typical entertainment that they would
have, going out to eat, going to a movie theater, or taking a
vacation, they still have those resources. And consumers have
chosen to really bolster their at-home spending and those
possessions, or, in many cases, are actually paying down their
debt or saving the money.
So, it is going to be very interesting to see, as more of
the nation opens up over the next several months, where that
burst of spending might be. And it really might be a lot of
people making up for lost time, going out to eat more often and
taking more vacations because they have been denied in many
parts of the country that opportunity for a year now.
Mr. Timmons. Like most Americans, my wife and I experienced
the cost savings of cooking at home. It really was incredible
the amount of money we saved. And I am just happy that South
Carolina is reopening and we are able to get back out and
support the local economy. We need to open as quickly and as
safely as possible. We have to get our kids back in school.
That is the only way that we are going to overcome this
pandemic. So, I appreciate you taking the time.
And Mr. Chairman, I appreciate you holding this hearing,
and I look forward to working with you for many months to come.
Thank you. I yield back.
Chairman Perlmutter. Mr. Timmons yields back.
Mr. Kustoff, if you are ready, I will recognize you for 5
minutes.
Mr. Kustoff. Thank you, Mr. Chairman. Thank you for
convening today's hearing, and thank you for your leadership
today. And I do want to thank all of the witnesses for
appearing today, as well, virtually. Hopefully, we can get back
to the time where we can do this live.
Mr. Griffith, I know you touched on this in your written
testimony, but can you compare, if you could, the consumer
circa 2008-2009 to the consumer now during the pandemic? Does
one fare better than the other?
Mr. Griffith. Sure. Thank you, Congressman. It is night and
day, looking at the typical consumer now versus during the
Great Recession, and this really shows up when you look at the
delinquency rates.
When it comes to mortgage delinquencies, that is where it
really shows up. We saw mortgage delinquencies just go up about
.4 percent during this pandemic. It was a modest increase of
still around 2.8 percent. During the Great Recession, during
that financial crisis, we saw the default rate quadruple, and
it was actually at a rate that is about 6 times the default
rate that we see now.
And we have seen repeating patterns of that. If you look at
just standard credit card default rates is low, the default
rate during the Great Recession soared from about 4.6 percent
to 6.8 percent on overall credit lines. And we are actually
near a record low in delinquencies during this crisis.
And, the other big difference, too, is just the rapid pace
of recovery. It took years to recover from the Great Recession
nationally, and within 1 year, we see eight States that are
actually bigger now economically than they were a year ago. So,
it is very varied based on the reopening process. But
definitely, night and day between now and 10 years ago for the
typical consumer.
Mr. Kustoff. Thank you very much. And touching on some
themes from today's hearing, as it relates to debt collection
and debt collection services, if they are further restricted,
can you talk about the impact, Mr. Griffith, as to small
businesses, those that need those debt collection services?
What is the impact to those small businesses?
Mr. Griffith. Thank you. Many small businesses actually
rely on debt collection agencies to collect bad debts, and
often these are servicing those that do not have access or do
not have access to competitive rates to traditional credit.
Think about auto repair centers, for instance, a number of
retailers, financial services, doctors' offices, landlords. All
of these folks have the option to actually extend credit to
their clientele, and they do that with the knowledge, with the
comfort, that if that customer ends up not repaying, they can
at least get some of those debts back by selling to a debt
collector.
If you handicap the ability for debt collection in general,
you might be trying to help those who are in dire financial
situations, but what you are actually doing is you are
impacting those small businesses. You are going to make it
harder for them to extend that credit in the future. And, long
term, it is going to make those who need credit the most even
less likely to be able to obtain it from their local
businessperson.
Mr. Kustoff. Thank you. Thank you very much. If I could,
Mr. Griffith, also, as it relates to the landlord-tenant
relationship with rental assistance and rent being deferred,
talk about the impact--I am not talking about large apartment
corporations. I am talking about these mom-and-pop apartment
owners who have X number of units. What does it do to them in
terms of their debt service and maybe property taxes?
Mr. Griffith. Sure. Yes, that is a very important question
for those who have just a few rental units. A lot of folks in
retirement, they have saved up, and they have bought a duplex,
maybe two duplexes, and the mortgage is mostly paid off, and
they rely on that to supplement their Social Security. Over the
past year, many of these individuals have not been able to
collect any rent at all. And, like we referenced earlier, that
is not necessarily because the people in the units cannot pay;
it is that now there is an assurance that they cannot be
evicted if those payments are not made. And that is a very real
threat to them.
And for those smaller investors that look to investing in
small pieces of real estate in order to have a secure
retirement, this is going to give a lot of them pause for
concern. Because now we have this precedent set where from
Washington, D.C., even, there can be Executive Orders put in
place, or even legislation, to suspend these moratoriums.
Evictions serve an important purpose. No one wants to be
evicted. You do not want to see that happen to people, but it
ensures that we have an adequate supply of affordable housing
for millions of people because landlords know that if somebody
does not hold up their end of the bargain, that they are going
to have to move out. That is just the [inaudible] to the rule
of law.
Mr. Kustoff. Thank you very much. I yield back my time.
Thank you, Mr. Chairman.
Chairman Perlmutter. Thank you, Mr. Kustoff.
I don't see anybody else, so I guess I will recognize
myself for 5 minutes to close, and maybe we will be done by
noon.
So, I would like to start with a question for you, Ms.
Sanchez-Adams. In your testimony, you stated that during this
health and economic crisis, debt collection default judgments
have risen and post-judgment collection activity has also
intensified. You also noted that some debt collectors are
seeing record profits during this period.
Is the court system more difficult to navigate for
consumers at this time? And are debt collectors taking
advantage of this situation?
Ms. Sanchez-Adams. Absolutely, and I will tell you a story.
I had a client who was sued on a debt at the very height of the
pandemic, at the end of March. She was not served until May.
And, then, when she was served, she didn't know what to do, so
she called the court and she told the court, ``Hey, I have a
lawsuit, a debt collection lawsuit. It looks like it is for a
bank account and I don't owe any money to a bank.''
They said, ``Oh, you called the wrong court. You must be
wanting the Justice of the Peace court,'' and they gave her
that number.
She called them, and they said, ``We have nothing here for
you. I think you are mistaken. Call the other court.''
She called the other court. They said, ``Well, there is no
hearing date. Why don't you call the attorney for the plaintiff
and talk to the bank and talk to them?''
So, she called the attorney for the bank and said, ``This
is not my debt, I don't owe this.'' And they said, ``Well, you
are still going to have to pay, so I don't know what to tell
you.''
All this time, she didn't know she was supposed to file an
answer, but she keeps calling the court and asking them if
there is a hearing date. Now, if the courts were not closed,
she would have been able to go to the court and ask, and they
would have been able to write down an answer for her, which is
generally the case with our clients, or even refer her to us or
someone else.
But, 6 months later, she got the referral to us. By that
time, there had already been a default judgment, a motion for
the default judgment entered, and they got a default judgment
against her. Luckily, she was fortunate enough to have us to
reopen that case. But, that is not the case for most consumers.
And, I also just wanted to comment, if I may, on the credit
reporting aspect, because there were so many things that were
said that were not truly accurate.
The first thing that I wanted to say is that everyone is
saying if this information isn't on the report, then it is not
accurate, it doesn't affect somebody's credit risk or
creditworthiness, and that just simply is not true. Things like
medical debt are not accurate indicators of credit risk. That
is something that is unplanned. It is something that usually is
catastrophic. It is the same for events like this.
And, so, if you do put a moratorium on these kinds of debts
that don't really reflect on someone's creditworthiness, you
still have all of the past history there. If you do that for
the pandemic, you still have the last 7 years' worth of credit
data to determine whether someone is a creditworthy risk or
not.
And, I will just say, for example, when I was getting
married, I lived in my apartment complex on my own. I qualified
on my own. When my husband was going to move in, he made more
money than I did, but he had no credit, so they forced us to
get a cosigner. But there is no credit risk there because I was
already there on my own, and adding a new person who had more
income is not indicative of credit risk.
The other thing is that the industry is rife with
inaccuracies as it is. As you know, the CFPB's top complaint
time and time again from consumers is credit report
inaccuracies. And, you also see that there are no mandatory
requirements for reporting, so actually, there is a lot of data
that does exist but is not on there and is not truly reflective
of the consumer.
So, I will just say that everything that was said on
credit--taking this off and that showing, being detrimental, is
absolutely untrue.
Chairman Perlmutter. Thank you for that testimony. I would
like to turn to Ms. Shultz-Wilson and Mr. James, asking a
question about small businesses.
The pandemic has been devastating to small businesses
around the country, and particularly harmful to businesses led
by people of color. What challenges are small businesses and
nonprofits faced with during this crisis, especially for those
in minority communities? And I will start with you, Ms. Shultz-
Wilson.
Ms. Shultz-Wilson. Thank you so much for that question. I
would say that the biggest challenge, not only for nonprofits
and small businesses, is occupancy cost, and they are really
struggling, trying to make ends meet. And many nonprofits,
particularly the grass roots nonprofits, did not apply for PPP,
primarily because they thought it was a loan and that it was
not going to be forgiven.
And so, it is the case with a lot of minority small
business owners, particularly those who are located in the
minority communities. They were not clear that PPP was for
them. They thought it was going to be a loan that was going to
have to be repaid. And many of them still did not have access
to banks that were willing to give them loans, and so they
struggled. And nonprofits are continuing to struggle. Many of
them have gone out of business. They have closed their doors
because revenue is down, donations are down, and they don't
have the necessary resources.
Chairman Perlmutter. Thank you. My time has expired. I have
about a thousand questions and a few responses for you, Mr.
Griffith, but I will yield now to the gentleman from New York,
the former chairman of this subcommittee, and now the chairman
of the House Foreign Affairs Committee, Mr. Meeks.
Mr. Meeks. Thank you, Mr. Chairman. It is good to be with
you in this very, very important hearing. I don't know if this
is your first or second one, but I am proud to be on your
subcommittee, for sure.
My first question goes to Robert James. Research has shown
that minority banks and community development financial
institutions play a significant role in extending financial
services to underbanked communities. And because of their
effectiveness in hard-to-serve communities, we must not lose
sight of the hurdles that MDIs and CDFIs face.
Unfortunately, a recent study from August showed that there
was a 41 percent drop in active Black-owned small businesses,
compared to a 22 percent decline overall. And, on top of that,
with the uncertainty that the pandemic brings, the number of
MDIs is already declining, and the average assets are
significantly less than traditional banks, so advancements and
grant programs are crucial to saving MDIs and CDFIs.
Can you explain how additional capital investments into
MDIs can ensure that hard-hit communities are not only
protected through this pandemic, but also enjoy the benefits of
our eventual economic recovery in an equitable way?
Mr. James. Congressman Meeks, thank you for that question,
and thank you for your continued leadership on these issues
around MDIs and CDFIs and making sure that we have access to
capital so that we can serve these communities where they have
been underserved due to systemic inequity for decades.
As I mentioned in my earlier remarks, as you suggest, Tier
1 capital is really the lifeblood of any bank, any institution
that makes loans and makes credit available to consumers or
small businesses.
And, so, additional access to Tier 1 capital in MDIs and
CDFIs is critical to us being able to scale up, to be able to
extend our services to even more communities in need. Our
institutions are at the very, very front line. And many
institutions have been there for over a century, providing
access to capital and credit, especially in the Black
community.
And, so, additional funding for the CDFI fund, the
Emergency Capital Investment Program that has just been rolled
out from the Treasury Department, as well as continuing to
encourage large financial institutions to make investments and
provide grants to MDIs and CDFIs, we think will enable us to
exponentially increase our impact in the communities and
hopefully eliminate the racial wealth gap.
Because, as you know, eliminating the racial wealth gap
would add $5 trillion to the economy in the next 5 years, if we
could close that racial wealth gap. And, so, our institutions
are laser-focused. The NBA is laser-focused on trying to
eliminate the racial wealth gap. And we welcome the partnership
with your office, as well as the subcommittee and the committee
on solutions to get more Tier 1 capital to our banks so that we
can work hard on eliminating this racial wealth gap for the
benefit of not just these communities, but all Americans.
Mr. Meeks. Thank you so very much.
Let me ask Ms. Harrington a quick question. The pandemic
has had a monumental effect as far as a desperate impact on
Black businesses in minority communities, and many of them have
to make decisions on whether or not they are going to pay off
their debt or pay to keep a roof over their heads. And the debt
collectors continue to crack down on them, so it is imperative
that we give them some help.
So, what would be the top three specific policy proposals
the Federal regulators in the Biden-Harris Administration
should prioritize to eradicate unfair debt collection
practices?
Ms. Harrington. Absolutely. Thank you for that question.
And I think it is important to remember that, unlike some of
the things we heard today, small business owners are the ones
who are being dragged into court by debt collectors. The debt-
collecting industry is actually booming right now when other
industries are failing; it is booming and bringing in record
profits.
So, what we can do is, one, we need to have a moratorium
for the crisis to prevent these debt collections, prevent
repossessions so that people can maintain and make it through.
We need to strengthen debt collection rules, strengthen the
recent debt collection--the CFPB was definitely not strong
enough. We could have stronger consumer protections for folks
facing debt collectors. They should not be able to be harassed.
Earlier, there was this conversation about whether they should
be able to text folks.
Mr. Meeks. Thank you very much. I yield back to the
gentleman from Colorado.
Chairman Perlmutter. Thank you, Mr. Meeks.
Mr. Meeks is the last Member on our side to want to ask
questions. Do you have anybody else on your side, Mr.
Luetkemeyer?
Mr. Luetkemeyer. Mr. Chairman, I think we are finished, as
well. Thank you for a great hearing. And, again,
congratulations. I look forward to working with you. All the
best.
Chairman Perlmutter. Thank you.
So, thank you all, to the panel. You have been very
professional witnesses, and we appreciate the testimony of
everybody.
Your testimony today will help advance the important work
of this subcommittee and of the United States Congress in
protecting consumers during this pandemic.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
Again, thank you to the witnesses. It went pretty smoothly,
even with all of the votes that were being taken. And, so,
thank you very much for your testimony today. This hearing is
adjourned.
[Whereupon, the hearing was adjourned at 12:06 p.m.]
A P P E N D I X
March 11, 2021
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