[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
AN UNPRECEDENTED INVESTMENT FOR
HISTORIC RESULTS: HOW FEDERAL
SUPPORT FOR MDIS AND CDFIS
HAS LAUNCHED A NEW ERA FOR
DISADVANTAGED COMMUNITIES
=======================================================================
VIRTUAL HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 16, 2022
__________
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Serial No. 117-69
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-128 PDF WASHINGTON : 2022
-----------------------------------------------------------------------------------
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 ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
February 16, 2022............................................ 1
Appendix:
February 16, 2022............................................ 59
WITNESSES
Wednesday, February 16, 2022
Bynum, William J., CEO, Hope (Hope Credit Union/Hope Enterprise
Corporation/Hope Policy Institute)............................. 4
Elam, Nicole, President and CEO, National Bankers Association
(NBA).......................................................... 5
Faulkender, Michael, Dean's Professor of Finance, Smith School of
Business, University of Maryland............................... 11
Sands, Everett K., CEO, Lendistry................................ 7
Urrutia, Luz, CEO, Accion Opportunity Fund....................... 9
APPENDIX
Prepared statements:
Bynum, William J............................................. 60
Elam, Nicole................................................. 77
Faulkender, Michael.......................................... 87
Sands, Everett K............................................. 89
Urrutia, Luz................................................. 97
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of the Bank Policy Institute............... 106
Written statement of BMO Harris Bank......................... 124
Written statement of Circle.................................. 126
Written statement of Creative Investment Research............ 127
Written statement of the Financial Technology Association.... 141
Written statement of the Independent Community Bankers of
America.................................................... 144
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 148
Written statement of Regions Financial Corporation........... 154
Written statement of U.S. Bank............................... 156
Written statement of various undersigned organizations....... 158
Torres, Hon. Ritchie:
Written responses to questions for the record submitted to
Michael Faulkender......................................... 160
AN UNPRECEDENTED INVESTMENT FOR
HISTORIC RESULTS: HOW FEDERAL
SUPPORT FOR MDIS AND CDFIS
HAS LAUNCHED A NEW ERA FOR
DISADVANTAGED COMMUNITIES
----------
Wednesday, February 16, 2022
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 12:03 p.m., via
Webex, Hon. Maxine Waters [chairwoman of the committee]
presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Meeks, Scott, Green, Cleaver, Perlmutter, Himes,
Beatty, Vargas, Gottheimer, Gonzalez of Texas, Lawson, Axne,
Casten, Pressley, Lynch, Adams, Tlaib, Dean, Garcia of
Illinois, Garcia of Texas, Williams of Georgia, Auchincloss;
McHenry, Huizenga, Wagner, Williams of Texas, Hill, Zeldin,
Loudermilk, Mooney, Davidson, Budd, Kustoff, Rose, Steil, and
Timmons.
Chairwoman Waters. The Financial Services Committee will
come to order. Without objection, the Chair is authorized to
declare a recess of the committee at any time.
Today's hearing is entitled, ``An Unprecedented Investment
for Historic Results: How Federal Support for MDIs and CDFIs
Has Launched a New Era for Disadvantaged Communities.'' I will
now recognize myself for 5 minutes to give an opening
statement.
Minority Depository Institutions (MDIs) and Community
Development Financial Institutions (CDFIs) are lifelines to our
community. According to the latest data, there are 146 MDI
banks, 518 MDI credit unions, and 1,333 CDFIs, including nearly
600 non-depository loan funds. At a time when the pandemic
placed many businesses owned by people of color at the brink of
closing or being permanently closed down, MDIs and CDFIs jumped
into action and provided much-needed support and relief.
When millions of Black and Latino Americans found
themselves shut out of traditional financial institutions,
CDFIs and MDIs provided fundamental support to the long-term
financial well-being of many. For that reason, I worked with
Representative Velazquez, who is also the Chair of the House
Small Business Committee, to secure $60 billion in Paycheck
Protection Program (PPP) funding for community financial
institutions, including MDIs and CDFIs, to ensure that relief
reached underserved and minority-owned businesses after the
largest banks ignored them.
Several committee colleagues, including Representatives
Meeks, Beatty, and Green, drafted legislation to support MDIs
and CDFIs, and I worked with Ranking Member McHenry and our
Senate counterparts, as well as Senator Warner, to include key
provisions of my comprehensive bill, the Promoting and
Advancing Communities of Color through Inclusive Lending Act,
in the COVID-19 Relief Package that was passed in December
2020. Specifically, the bill included an unprecedented $12
billion in capital investments and grants to strengthen MDIs
and CDFIs, and help them reach underserved communities.
Additionally, the private sector, including megabanks, had
made a lot of promises to address racial inequality and to
support MDIs and CDFIs in the last few years, so we have
invited megabank CEOs to testify. And we will continue to
monitor their efforts to fulfill their commitments.
The impact of our support with CDFIs and MDIs has reached
communities all across this country. For example, in 2020,
CDFIs provided loans and investments to more than 162,000
businesses, and nearly 4 million consumers. They financed
50,000 affordable housing units and hundreds of grocery stores,
markets, and fresh-food projects.
While our work has provided some success, we should bear in
mind that the number of MDIs has declined by about a third in
the decade following the 2008 financial crisis. With the number
of Black banks declining by half, MDIs and CDFIs also face
barriers to adapting to changes in the financial services
marketplace, and accessing opportunities to meet the
unprecedented needs of communities in this pandemic. What's
more, the $9 billion Emergency Capital Investment Program was
oversubscribed by $4 billion in funding requests that will go
unmet, suggesting that Congress should provide more support.
I look forward to hearing from our witnesses on these
issues and learning what additional steps we can take to
further support CDFIs and MDIs, and in doing so, strengthening
our Black and Latinx communities.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 5 minutes.
Mr. McHenry. Thank you, Madam Chairwoman. More than a year
ago, Congress created the Emergency Capital Investment Program
(ECIP) to support our nation's CDFIs and MDIs. This program was
designed to provide specific funding in capital to help
communities recover from the economic downturn caused by the
pandemic. Funds have been allocated but have not yet been
delivered. I look forward to seeing the impact that this type
of program could have.
Unfortunately, since this bipartisan moment, we have
witnessed Democrat partisan actions slow our economic recovery.
This has disproportionately harmed the very people this program
was meant to serve. We may never have a good understanding of
what this program's effect is now. But let's take a step back
and look at the bigger picture here.
Last month, the Bureau of Economic Analysis reported that
the economy grew at an annualized rate of 6.9 percent for the
4th quarter of 2021. Yet, initial estimates from Congress show
only a .7 percent annualized rate of growth for the 1st quarter
of this year. Consumer prices are up everywhere. Just last
week, we saw a .6 percent rise in prices over the last year.
Prices have gone up 7\1/2\ percent, which is the largest yearly
increase in the last 40 years. So if your wages have not
increased by more than 7\1/2\ percent over the last year, and I
venture to say that most Americans haven't experienced that,
then inflation has wiped away any wage gains they have made.
For example, the Social Security Administration increased
the cost-of-living adjustment to 5.9 percent over 2022. For the
70 million Americans receiving benefits, this is a monthly net
loss. What do all these stats mean? It means that American
families and workers are hurting and Democrat policies are to
blame. If you don't believe me, let's look at a few more
examples.
Until last Monday, the labor force participation rate
remained stagnant under this Administration. Consumer sentiment
fell through January, sinking to its lowest level since
November of 2011. Overall competency in the government's
economic policies is at its lowest level since 2014. Oh, and
the national data surpassed $30 trillion on top of that. And we
don't have a government funding deal either. We can't spend our
way out of this mess, though. We are also seeing the impacts of
anti-competition regulatory policies, where Democrat policies
seek to control consumer choices rather than fostering a
competitive environment.
Take fintech firms and nonbank lenders, for them, banked
and underbanked consumers, and small businesses in underserved
communities, innovative financial products can be a lifeline.
We should be doing everything we can to promote regulatory
clarity for financial institutions in fintech partnerships to
create a more inclusive financial system.
Last week, the Federal District Court of Northern
California affirmed the OCC's Valid When Made doctrine, further
providing important regulatory clarity. This is positive, but
much more needs to be done.
As we discuss the impact of CDFIs and MDIs, we cannot lose
sight of the bigger picture here and the work that remains for
the return of our economy to the record growth experienced
before the pandemic.
And with that, I yield back.
Chairwoman Waters. Thank you very much, Ranking Member
McHenry.
I want to welcome our distinguished witnesses: Mr. William
Bynum, the CEO of the Hope Credit Union, the Hope Enterprise
Corporation, and the Hope Policy Institute; Ms. Nicole Elam,
the president and CEO of the National Bankers Association; Mr.
Everett Sands, the CEO of Lendistry; Ms. Luz Urrutia, the CEO
of the Accion Opportunity Fund; and Mr. Michael Faulkender, the
Dean's Professor of Finance at the University of Maryland Smith
School of Business.
You each have 5 minutes to summarize your testimony. You
should be able to see a timer that will indicate how much time
you have left.
And without objection, your written statements will be made
a part of the record.
Mr. Bynum, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF WILLIAM J. BYNUM, CEO, HOPE (HOPE CREDIT UNION/
HOPE ENTERPRISE CORPORATION/HOPE POLICY INSTITUTE)
Mr. Bynum. Thank you, Chairwoman Waters. Good afternoon,
Ranking Member McHenry, and members of the committee. Madam
Chairwoman, I would be negligent if I didn't begin by thanking
you, your fellow Members of Congress, and members of the
Administration, for acknowledging the vital role that mission-
driven CDFIs and MDIs play in the nation's economic health, and
for making what had been truly historic investments in CDFIs
and MDIs that have already dramatically increased our impact in
financially-underserved places.
As the CEO of an organization that works in a region where
I cannot go for an hour without hearing echoes of social and
economic justice icons--known ones like Emmett Till, Fannie Lou
Hamer, the four girls in the Birmingham 16th Street Baptist
Church, Dr. King, John Lewis, Medgar Wiley Evers, as well as
scores of unknown warriors who fought battles that we are still
waging today. If the committee takes nothing else from my
comments today on behalf of millions of people of color, and
persistent poverty in rural and urban communities, I implore
you, I call on all of us that it is time to finish the job.
Hope has established a bill on this legacy to ensure that
race, gender, and whose one parent may be or where they are
born, don't determine their ability to support their families
and realize the American Dream. Over nearly 3 decades, we have
generated over $3.5 billion in financing for underbanked and
unbanked homeowners, small businesses, and other vital
community infrastructure such as healthcare, education, rental
housing, and healthy food that are all necessary for a stable,
vibrant economy.
I want to share a bit about our experience as a Black- and
woman-owned financial institution and how the resources
provided by Congress added rocket fuel to our ability to
support financially-fragile people in communities during the
health, economic, and social justice crisis.
During the Paycheck Protection Program (PPP), we made over
5,200 PPP loans, totaling $140 million. In a normal year, we
made roughly 50 business loans, totaling $40- to $50 million,
of which 89 percent went to borrowers of color, and half to
women. The average loan amount was over $26,000, compared to
$40,000, which was the national program average.
In the process, we heard story after story from
entrepreneurs who were turned down by institutions that they
had entrusted to hold their money for many years. But we do
more than just loan money. Many CARES Act programs managed by
the States require local governments to expend funds up front
for PPPs, firefighters and other lifesaving needs, and to later
be reimbursed. This was impossible for many municipalities in
places like the Delta and other persistent-poverty counties.
These places were dirt poor before the pandemic, and even more
devastated by the crisis. We structured it with the Black Belt
Community Foundation, a program that advanced these towns up to
$50,000, that was later repaid. In one town, the $24,000 was
roughly half of the town's annual budget. It would have been
impossible for them to expend that up front without
reimbursement.
We could not have done this without the funds provided by
Congress. The Rapid Response Program, the Emergency Capital
Investment Program, and the minority lending programs are all
critically important. Using these over the next 6 years, we
will double our community consumer mortgage and small business
lending, and drive more resources into these communities.
All CDFIs, however, do not perform alike. We see
significant gaps in terms of who reaches the hardest-hit
communities. And so, I encourage Congress to continue to
increase funding for CDFIs in ways that are flexible, and to
ensure accountability and transparency in how these funds are
used.
Given the outside impact of MDIs in reaching communities of
color, Congress should drive resources to these communities and
prioritize CDFIs and MDIs as partners in deploying Federal
funds to financially-fragile communities.
Members of Congress, the winter of 2020 represented an
important first step to actually level the balance, the playing
field in terms of closing the racial wealth gap. These actions
have already saved lives and stabilized communities, and they
need to be sustained.
I urge you to continue to make bold investments in
organizations that do it best, mission-driven CDFIs and MDIs.
And we will bring other banks and credit unions into the flow
along the way.
In an increasingly-diverse nation, we cannot leave the
majority of Americans on the outside of the economy withering
away in opportunity deserts. Let's finish the job. Thank you so
much for allowing me to share this with you today.
[The prepared statement of Mr. Bynum can be found on page
60 of the appendix.]
Chairwoman Waters. Thank you, Mr. Bynum.
Ms. Elam, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF NICOLE ELAM, PRESIDENT AND CEO, NATIONAL BANKERS
ASSOCIATION (NBA)
Ms. Elam. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, good afternoon, and thank you for
this opportunity to testify on how Federal support for MDIs and
CDFIs has launched a new era for disadvantaged communities. My
name is Nicole Elam, and I am president and CEO of the National
Bankers Association, the leading trade association for the
country's MDIs. A critical part of our mission is to advocate
for MDIs and the communities they serve.
MDIs are on the front lines of addressing the economic
hardships faced by minority communities, serving consumers and
businesses who are underserved by traditional banks. Decades of
unequal access to capital, income disparity, and residential
segregation have made communities of color the most vulnerable
during a crisis. Yet, MDIs have been and continue to be best-
positioned to help our communities recover and to overcome
systemic inequity. The House Financial Services Committee and
Chairwoman Waters have been instrumental in including several
provisions in relief packages which have ensured that MDIs in
the communities we serve are not forgotten.
The Emergency Capital Investment Program (ECIP) and the $3-
billion increase in funding to the CDFI Fund, will allow our
institutions to scale up, and provide more access to credit to
individuals and small businesses. The bipartisan infrastructure
bill also provides billions of dollars that can be instrumental
in addressing our community's needs. The legislation included
as part of today's hearing aligns with the committee's goal of
preserving and protecting MDIs and CDFIs. These measures
provide transformational opportunities for these institutions
to not only survive, but to thrive.
We support each measure and look forward to working with
the committee to ensure their passage into law, as well as
continuing to work with you on additional legislation that
would allow MDIs to continue to augment their capital bases,
include our banks in communities and opportunities that flow
from the infrastructure bill, and address a regulatory process
that can hamper our bank's ability to bring the underserved
into the financial mainstream.
MDIs have served as engines of economic development in
minority and low- to moderate-income (LMI) communities, and
have been significant providers of mortgages and small business
loans, often saying yes, when others say no. Their
concentration in underserved communities and established
relationships have made them a trusted financial partner. Our
banks provide banking services to communities and racial
minorities, especially Black and Hispanic, who are more likely
to be unbanked and underbanked. Unfortunately, MDI's smaller
size and historic lack of access to capital markets, especially
among Black MDIs has not allowed us to respond as quickly or
with as much as scale as the situations demand.
MDIs only make up 3 percent of all banks, and Black-owned
MDIs, only .4 percent. Since 2001, we have lost nearly 60
percent of Black MDIs, and Black-owned banks only control
27,000 of 1 percent of total bank assets in the United States.
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 banks to grow in scale. Without sufficient Tier 1
capital, not only are banks limited in the number of deposits
they can take in, but they are also hampering their ability to
withstand loan losses.
Access to capital allows MDIs to not only respond better
during times of crisis, but it allows us to reverse the
economic conditions in our communities that exacerbated during
a crisis. The ease of capital is an historic step in the right
direction. But while 57 MDIs will receive $3.1 billion, many of
our banks were not able to access ECIP due to prior regulatory
challenges. This is largely based on examination standards that
do not consider the unique business models many mission-driven
banks need to employ to provide banking services in markets
that would otherwise be ignored by traditional banks.
We need regulators to be intentional and modernize the
examination process for mission-driven banks. We also need to
find additional ways to drive capital to ECIP and eligible
banks and the communities they serve. For MDIs that were unable
to access ECIP, we believe the remaining $300 million held in
reserve for appeals should be prioritized for distribution to
these institutions.
In addition, we ask you to consider utilizing some of the
remaining $1.75 billion in the CDFI Fund. By prioritizing these
institutions, we believe that Treasury and the regulators can
balance their obligations to protect Treasury funds, and at the
same time, insist that these institutions operate in a safe and
sound manner.
We must act now to preserve and promote MDIs, and direct
much-needed capital to banks that have a strong track record of
serving the communities that Congress intended to target for
the ECIP investment. The bipartisan infrastructure law, and the
$29-billion provision in the proposed Build Back bill, present
a generational opportunity to not only repair our nation's
roads and bridges, and to direct investments toward climate
resilience, but to be inclusive. MDIs must be included in the
financing opportunities that arise, giving our banks an
opportunity, but more importantly, allowing us to connect
minority businesses to these communities. Intentionally
including MDIs in our customers will strengthen small
businesses, create more jobs, and make our communities more
resilient.
The NBA, again, applauds this committee for holding this
important hearing and for its ongoing efforts. While we commend
Congress on its leadership to responding to various crises, we
certainly believe much work remains to be done. The NBA looks
forward to working with the committee on workable solutions,
and thank you for the opportunity to testify. I will be pleased
to answer any questions.
[The prepared statement of Ms. Elam can be found on page 77
of the appendix.]
Chairwoman Waters. Thank you, Ms. Elam.
Mr. Sands, you are now recognized for 5 minutes to present
your testimony.
STATEMENT OF EVERETT K. SANDS, CEO, LENDISTRY
Mr. Sands. Thank you for calling this hearing on the role
that CDFIs and MDIs play in providing access to capital to
undercapitalized communities. I appreciate the opportunity to
explore with you additional steps that should be considered so
that CDFIs and MDIs can maximize their potential for delivering
positive economic impact. My name is Everett Sands, and I have
more than 20 years of experience in lending at MDIs, one of the
largest national banks, and the only fintech CDFI, Lendistry.
For the past 6 years as founder and CEO, my focus has been
on providing capital for responsible terms to underserved small
businesses, and particularly those owned by minorities, women,
veterans, and people in rural areas. Lendistry is a minority-
led fintech CDFI, a community development entity, a member of
the Federal Home Loan Bank of San Francisco, and a proud
signatory of the Small Business Borrowers' Bill of Rights. We
are one of the nation's top Small Business Administration (SBA)
loan lenders in the $50,000 to $250,000 range. And more than 70
percent of our outstanding principal loan balance is with
underserved borrowers. We also have a nonprofit technical
assistance affiliate.
Lendistry has been able to make an impact due to our focus
on small, underserved businesses, our partnership with local
and specialized organizations, and our proprietary technology
and online application portal. Over the last 22 months,
Lendistry has deployed approximately $8.4 billion in grants and
loans to more than 570,000 small businesses, 94 percent of
which employ less than 10 employees. And we expect that figure
to grow to $10 billion by years-end.
In addition to providing PPP loans in all 50 States,
Lendistry has served as the administrator for relief grant
programs in California, New York, and Pennsylvania, all of
which were designed to ensure that funds are distributed
equitably across rural and urban regions alike.
I commend this committee for acting upon the COVID-era
lessons. The small and underserved businesses are, far and
away, more successful in accessing capital from CDFIs and MDIs.
In response, Congress, with leadership from this committee,
took decisive action to allocate significantly more capital to
CDFIs and MDIs. Your work has provisioned the freight train of
economic opportunity with capital. The urgent work that now
remains with Congress is to enact a set of surgical repairs to
the gaps in the track network that prevent the allocated
capital from reaching communities more quickly, from having the
maximum possible multiplier effect, and to flow into more
distribution points.
My written testimony outlines seven common bottlenecks in
access to capital today. In the remaining time, I will discuss
three of those recommendations and briefly summarize the
others.
My first two recommendations are aimed at enabling CDFIs to
make a much larger impact with the same amount of capital by
bringing Federal Home Loan Banks' (FHLB's) collateral policies
for CDFIs in line with banks. FHLBs should be required to
accept any federally-funded guarantees for small businesses,
whether it is SBA, SSBCI, or others as collateral from CDFIs.
This change would have an enormous positive impact, because
when capital is funded by guarantees, capital can be
multiplied, mostly on a 5-to-1 basis, so, $1 million of capital
ballot can support $5 million in guaranteed loans. This goes
even further when you assume repayment.
Another way FHLB's policies prevent CDFIs from maximizing
the impact of their capital is by assigning CDFIs a lower
credit rating than banks, even though FHLBs have never
experienced defaults from any member institutions. The lower
credit rating has the effect of increasing CDFIs' collateral
requirements from borrowing from FHLBs, and reducing CDFI's
advance rates. FHLB and FHFA should be required to assign CDFIs
the same credit rating as banks, or create a loan credit
enhancement fund to support the borrower.
The final bottleneck and recommendation I will elaborate on
is the outdated State-by-State licensing requirement for CDFIs.
A CDFI licensing exemption will bring about three clear
benefits. First, CDFIs can move much faster to deploy capital
where it is needed. Second, CDFIs can easily attain risk
management benefits of geographic diversification. And third,
many more lenders will be motivated to attain a CDFI
designation. The effect of this would significantly increase
the supply of capital provided on responsible terms, which, in
turn, would crowd up predatory lenders and make those
businesses less economically-viable.
To very briefly summarize the other four recommendations
that are discussed in my testimony, they are: to lower the
minimum CDFI bond guarantee from $100 million to $25 million;
to allow CDFIs access to the Federal Reserve discount window;
to develop an accountability reporting system for Treasury
capital deployment programs; and to create a Federal office
dedicated to supporting the efforts of MLIs.
Thank you, again, to this committee and the staff for the
opportunity to present my perspectives and recommendations. I
look forward to engaging you further.
[The prepared statement of Mr. Sands can be found on page
89 of the appendix.]
Chairwoman Waters. Thank you, Mr. Sands.
Ms. Urrutia, you are now recognized for 5 minutes to
present your testimony.
STATEMENT OF LUZ URRUTIA, CEO, ACCION OPPORTUNITY FUND
Ms. Urrutia. Good afternoon, Chairwoman Waters, Ranking
Member McHenry, and members of the committee. Thank you for
this opportunity. My name is Luz Lopez Urrutia, and I am the
CEO of Accion Opportunity Fund, the leading CDFI providing
access to responsible loans, coaching and support networks to
underserved resourced entrepreneurs.
After spending my career in both for-profit and nonprofit
financial services, I have seen how small businesses make up
the fabric of neighborhoods across the country and provide
critical jobs, services, and support for their communities.
Unfortunately, I have also seen that our financial system has
left behind so many entrepreneurs, people of color, women, and
immigrants, in rural and urban communities.
To meet this need, Accion Opportunity Fund has deployed
over $1 billion in small business loans and new market tax
credit investments to underinvested communities since our
inception.
When COVID hit, we became economic first responders,
providing PPP loans to many thousands of small businesses, 60
percent of whom were people of color. We used the $1.8 million
from the Rapid Response Program to deploy $10 million in loan
capital, as a result of increasing our loan loss reserves and
further reducing our already-low interest rates to provide
entrepreneurs with critical resources.
Accion Opportunity Fund did not just rely on government
funding to support these entrepreneurs; we used this funding to
leverage private-sector capital, including a partnership with
American Express, which committed $40 million in capital, which
will be leveraged to deploy $125 million in loans to Black-
owned businesses. This partnership with American Express was
critical for business owners like Latrice, a Navy veteran,
wife, and mother of three who runs the Digital Solutions Team,
a tech support and system solutions company in Austin, Texas.
She came to us after working with multiple lenders that did not
offer her flexibility, or the terms that would make her
business successful. She used our $25,000 loan to hire a full-
time operations manager and to scale up her business.
As we transition to life beyond the pandemic, and the
necessary crisis-level response from the government, the
questions for CDFIs like us are, how can we translate the
energy, the resources, and the awareness of the past 2 years
into long-term systemic and sustainable growth? How can we
invest in the CDFIs and MDIs in non-crisis times, so they are
equipped for the next crisis? Our answer is that we must
collaborate and decide on industry-wide, bipartisan, market-
based solutions that use the vast resources of the Federal
Government to attract private capital so that we can scale up
with integrity, and invest in CDFIs and MDIs to enable them to
continue investing in our nation's small businesses.
Examples of these collaborations are evident in 4 public-
private partnerships that launched in the past 2 years, enabled
by the State Small Business Credit Initiative (SSBCI). These
new community lending funds were created to provide lower-cost
loans in 18 States, and have the ability to transform the
lending landscape for under-restored small businesses across
the country, bringing together government, banks,
philanthropists, and CDFIs to deliver capital at scale. These
funds have raised $350 million in private capital, and have
disbursed $204 million to 3,400 small businesses to a network
of 25 participating CDFIs, and 66 percent of the loans have
gone to businesses owned by people of color and women.
Entrepreneurs like Ethea in Houston benefited from these
loan funds as she went from being laid off from her job, to
starting to source and sell Ghanaian waist beads, which are
draped around the waist, and connect Black women to their
African Diaspora roots. Ethea used these loan funds to finance
inventory, and to pay rent and payroll, as she opened a second
location.
I will conclude by sharing my deep gratitude for the many
ideas we have seen from this committee, including your bill,
Chairwoman Waters, to provide support for MDIs and CDFIs.
The pandemic demolished small businesses across the country
in a manner that fully unearthed our nation's racial wealth
gap. And while CDFIs and MDIs were able to help provide for
small businesses during this time, it is critical that the
progress and momentum generated in the last 2 years continue
onward. From maximizing the potential of the Federal
Government's investment, to leveraging these funds to attract
corporate and private capital, and building public private
partnerships, our organizations have moved full force in
providing capital and support for under-resourced
entrepreneurs. Much more needs to be done in the form of
increasing CDFI and MDI lending capacity, encouraging creative
partnerships in financial innovation, and clearing the way for
full transparency in the marketplace.
I thank the members of this committee in advance for
working together to invest in the support and resources to get
this done.
[The prepared statement of Ms. Urrutia can be found on page
97 of the appendix.]
Chairwoman Waters. Thank you very much, Ms. Urrutia.
Dr. Faulkender, you are now recognized for 5 minutes to
present your testimony.
STATEMENT OF MICHAEL FAULKENDER, DEAN'S PROFESSOR OF FINANCE,
SMITH SCHOOL OF BUSINESS, UNIVERSITY OF MARYLAND
Mr. Faulkender. Chairwoman Waters, Ranking Member McHenry,
and members of the committee, thank you for the opportunity to
speak with you today on the importance of capital to our
nation's businesses, as well as the broader topic of the
current performance of the United States economy.
I had the privilege of serving as the Assistant Secretary
for Economic Policy at the Department of the Treasury during
the previous Administration. In that role, I worked closely
with the Small Business Administration to quickly implement the
Paycheck Protection Program and ensure that the economic
devastation that might have resulted from the pandemic was not
realized. Part of my team's work was to engage with a vast
array of lenders across our nation to ensure that eligible
small businesses were able to obtain their PPP funds. I worked
closely with CDFIs and MDIs to better understand the issues
they were confronting and to prioritize resolution of
challenges they and their borrowers were facing.
Treasury also worked quickly to bring fintech into the
program. Recent academic work by Sabrina Howell and co-authors
finds that fintechs disproportionately lent to minority
communities with smaller-dollar loans. Their smaller physical
footprint and investments in underserved communities meant that
they could more economically serve these populations and
improve PPP access.
In December 2020, Treasury worked closely with Congress on
legislative updates with PPP, an extension of a second round of
loans for the hardest-hit small businesses, and an enactment of
ECIP to provide additional capital funding for CDFIs and MDIs.
The results of our efforts are apparent in the data. When
the nation began shutting down, we were looking at weekly
first-time unemployment claims of approximately six million per
week. Quick passage and implementation of the CARES Act caused
the unemployment rate to peak in April 2020 at just 14.7
percent, well below the 20 percent many feared at the
pandemic's onset. Instead of losing 8 million jobs in May 2020
as many predicted, we saw more than 2\1/2\ million Americans
return to their jobs.
My coauthors and I estimate that as many as 17.7 million
fewer Americans were unemployed during the pandemic as a result
of PPP, with merely 13 million of those workers at companies
with fewer than 100 employees. The pandemic recession has been
declared the shortest in U.S. history, and we have been
expanding since May 2020.
While the funds deployed at the beginning of the pandemic
proved vital in keeping us out of a depression and resulted in
the V-shaped recovery once our economy reopened, challenges
remain. All of us on the panel recognize that it is important
for our nation's businesses to have access to the capital they
need to operate and expand. ECIP provided the capital positions
of CDFIs and MDIs, which will likely result in greater capital
availability for their customers.
However, while capital availability was a critical issue
during the crisis, it is not now the primary issue confronting
our nation's businesses. According to the most recent NFIB
survey, just 3 percent of small businesses surveyed reported
that their borrowing needs over the last 3 months were not
satisfied. Instead, the National Federation of Independent
Business (NFIB) survey reports that the main issues confronting
our nation's small businesses are inflation and employment.
Quoting their report, ``22 percent of owners reported that
inflation was their single-most important problem, and 47
percent of owners reported job openings that could not be
filled.''
Most of these problem are largely the result of poor policy
decisions. Recent fiscal stimulus has proved greatly excessive,
leading the household's liquid funds rising from $11 trillion
at the end of 2019, to $14.4 trillion at the end of the third
quarter of 2021, which is a 31 percent increase.
Simultaneously, paying people to not work, taking energy
resources out of our economy, mandates that remove people from
the workforce, and excessive regulations have greatly reduced
our capacity to meet the current level of demand.
The number of Americans working is still more than 2
million fewer than were employed prior to the pandemic. As a
result of these factors, the Consumer Price Index was reported
last week to have increased 7\1/2\ percent over the last 12
months, the highest increase we have seen in the last 40 years.
Even taking into account wage increases over the last year,
this translates to an $800 reduction in annual purchasing power
for the average worker.
While we have seen a slight uptick in hiring over the last
few months, arguably, this is the result of the expiration of
some of the pandemic-era policies that should not have been
expanded as long as they were. Since the expiration of enhanced
unemployment benefits, job creation is approximately 50,000
jobs per month higher than prior to the expiration.
The recent expiration of the Child Tax Credit that lacked
work requirements will also likely increase the number of
Americans participating in the labor force. Such an expansion
would be welcomed by our nation's employers, whom, according to
the latest Job Openings and Labor Turnover Survey (JOLTS) data,
reported 10.9 job openings at the end of December.
While this committee's work to improve access to capital
for American businesses is important, the most important thing
we can do for our economy right now is to declare an end to the
pandemic, and to reopen our economy. I look forward to
participating in this important conversation.
[The prepared statement of Dr. Faulkender can be found on
page 87 of the appendix.]
Chairwoman Waters. Thank you very much, Dr. Faulkender.
I now recognize myself for 5 minutes for questions.
Ms. Elam, when the Paycheck Protection Program launched, at
the onset of the pandemic, we saw megabanks prioritize their
wealthy customers, while smaller and minority-owned banks
struggled to access relief. That is why I work to ensure MDIs
and CDFIs could have deployed that aid to underserved small
businesses. They later worked in a bipartisan way to secure $12
billion for MDIs and CDFIs.
Since then, Senator Mark Warner and I organized an advisory
group with leaders in the community, developing finance capture
to ensure Treasury disburses these funds in the most effective
way. To date, the Treasury CDFI Fund has distributed $1.25
billion in rapid response. And another 863 CDFIs have been
helped. And we are now working on deploying $1.7 billion in a
second CDFI grant program. And, of course, Treasury is also in
the process of finalizing up to $8.75 billion in capital
investments for CDFIs and MDIs, although Treasury received
almost, I guess, more requests than they were able to deal
with.
An additional $4 billion is absolutely needed, because of
the request that has been received for capital investments, and
they will go unmet unless we are able to supply more money.
Ms. Elam, how are these programs helping Black banks and
other MDIs and CDFIs serve their communities? As the funding
flows to CDFIs and MDIs, do you believe the legislative reforms
we are considering today, including a proposal to provide more
capital investments and grants to address technology
challenges, would be helpful?
Ms. Elam. Yes. A resounding yes. I think capital is
certainly the number-one issue with which our MDIs have
struggled. They have declined in size because of lack of access
to capital. So, ECIP, the funds that have gone to the CDFI Fund
are certainly things that are priorities.
I think the thing we have been talking a lot about within
our membership is that not all MDIs were able to access ECIP.
And so, having a round two of ECIP would allow those banks that
at the time of application were ineligible, to now be able to
take advantage of those funds. We do not want to have a growing
distinction between those that were able to access ECIP in
those dollars, and those that were not, because what happens is
that it impacts those communities.
On the second point around technology, that is one of the
biggest issues that our member banks are wrestling with today.
Technology costs money. They oftentimes don't have the
personnel to vet those technologies. So, having grant dollars
in capital that focuses on technology is certainly going to be
helpful as these banks modernize and serve their communities.
Chairwoman Waters. Do you have any other recommendations
that you would like to offer?
Ms. Elam. Yes. I think one of the recommendations that I
would like to offer is allowing some of those CDFI funds and
allowing the second round of ECIP to be included for the ECIP
noneligible banks. Also, I think another recommendation has to
do with the Bank Holding Company Act. The 25,000, or 25 percent
change-of-control provision really limits the number of
investments that our small banks are able to get. Those would
be two big things that I would prioritize, along with the
examination process. We really need to do more to change the
examination process. The examiners don't understand our banks,
and as a result, they are negatively impacted during the
examination process.
Chairwoman Waters. Thank you very much.
The gentleman from North Carolina, Mr. McHenry, the ranking
member of the committee, is now recognized for 5 minutes.
Mr. McHenry. Thank you, Madam Chairwoman. Dr. Faulkender,
the Emergency Capital Investment Program, which is the focus of
today's hearing, is but one tool that can be utilized to help
spread economic growth. And in addition to that program, the
Democrats later reauthorized the State Small Business Credit
Initiative, the government-sponsored investment initiative, in
their massive spending bill enacted last year about this time.
How effective are programs like those in creating long-term
sustainable economic growth? Is direct government investment
effective in narrowing wealth gaps, or do we need a broader
approach?
Mr. Faulkender. Generally, sir, we need a broader approach
because it is not just capital availability, as I mentioned
earlier, that is confronting businesses.
Mr. McHenry. You mentioned that in your statement, and I
mentioned that in my opening statement, about inflation. Tell
us why the Democrats' spending bill, like the one they passed
last year at this time, is responsible for higher inflation?
Mr. Faulkender. Essentially, the outcome we see in our
economy is the result of the desire of consumers and businesses
to purchase things relative to their supply. And what the bill
does is it greatly increases the availability of funds for
people looking to purchase things. So, demand increase is
significant, while simultaneously taking supply off the table.
Whether it is reducing workforce participation due to making
more money on unemployment claims than by working, or whether
it is taking energy resources off the table, those things are
going to expand demand, contract supply, and the outcome we
necessarily receive from that is much larger inflation than we
have witness for the last 4 years.
Mr. McHenry. More fiscal spending can't lower consumer
prices. And a bill like Build Back Better would be the opposite
approach of what we need for lowering inflation. Would you
agree?
Mr. Faulkender. I would agree. We need to focus on the
supply constraints that we are confronting in our economy, not
further buoy demand.
Mr. McHenry. Okay. The labor force participation rate is a
critical measure of our labor market health. Up until 2 weeks
ago, the percentage was at a near decade-low of 61.2 percent.
Now, talk us through what this percentage means. Why is the
labor force participation rate important? What do we need to
know about this?
Mr. Faulkender. The labor force participation is the
percentage of adults who are actually either employed or
looking for work. And if you think about what it takes to
produce things, you need capital, and you need employment. So,
when a much smaller percentage of the American citizens are
participating in the labor force, you are generating that much
lower output that is then sold into the economy.
We took a lot of steps in the previous Administration to
see what we could do to raise labor force participation. We
were at a multi-year high. We were at the highest level since
2013, just prior to the pandemic. And as you mentioned, we are
still 1.2 percent below where we were. There is still work to
be done to get people back in the workforce.
Mr. McHenry. With this Administration, when the Democrat
Congress is enacted, isn't helping the labor force
participation rate or helping wages outpace inflation?
Mr. Faulkender. Right. When people are paid more to not
take employment than to take employment, that is going to tend
to reduce participation in the labor force, even if it is not
directly through unemployment benefits. But if there are not
work requirements associated with generous social benefits,
that will tend to depress labor force participation. And so, if
we were to extend those things and make them more generous, you
would likely see continued reduction in the participation in
the labor force, and that would be bad for the country.
Mr. McHenry. What are the right policies, then? What are
the right policies to get people back participating in the
labor force?
Mr. Faulkender. The policies that we followed prior to the
pandemic were lower tax rates, less regulation, benefits that
were tied to work requirements, and then, expansion to domestic
energy production, for instance.
Mr. McHenry. So, that energy tax is significant for working
Americans?
Mr. Faulkender. Energy tax is permeated throughout the
entire economy because transportation of goods and services are
required in all sectors. And so, it tends to multiply
throughout all sectors.
Mr. McHenry. Thank you for your testimony. And I think this
leads to the case that Committee Republicans are making, that
we need a broader approach in these conversations.
With that, I yield back.
Chairwoman Waters. Thank you very much.
The gentlewoman from New York, Mrs. Maloney, who is also
the Chair of the House Committee on Oversight and Reform, is
now recognized for 5 minutes.
Mrs. Maloney. Thank you so much, Chairlady Waters, for
holding this hearing. And thank you to the witnesses for
sharing your expertise with us. I have been an advocate and a
fan of the work of CDFIs and MDIs. These institutions are able
to effectively serve low- and moderate-income communities and
communities of color at higher rates than their financial
institution counterparts. Each year, on a bipartisan basis, I
lead approximately 100 of our colleagues in requesting
additional support for the CDFI Fund's annual appropriations.
And this past year, we were successful in securing an increase
of $60 million over the previous fiscal year in the House-
passed bill.
The CDFI Fund provides resources for a range of innovative
and effective programs through this appropriation that enables
CDFIs to address the needs of their targeted markets. This
committee knows MDIs and CDFIs are an integral part of ensuring
equitable access to financial services. That is why we fought
to ensure dedicated funds and boosted support for them in the
various COVID recovery packages.
I would like to ask, Mr. Bynum, can you speak to the unique
role CDFIs were able to play in our COVID response?
Mr. Bynum. Thank you, Congresswoman Maloney. CDFIs played
an outside role in driving resources into the most
economically-distressed communities, as you know. With the
Paycheck Protection Program, initially, CDFIs were excluded
from that program. When Congress and the Administration opened
it up, we were able to drive funds to the mom-and-pop
businesses that are so vital to creating jobs for individuals
who may not have the high level of skills or education that are
vital to stabilize the communities in supporting families.
As I mentioned in my testimony, the average loan size of
CDFIs that provided PPP loans was, for us, roughly $26,000,
compared to $40,000 for the program overall, driving it to
those mom-and-pop businesses that are so vital. Initially, sole
proprietors were not eligible for the program. We were able to
broaden that and make that possible, which was critical.
In addition, with the Rapid Response Program, that was a
part of the appropriations that you passed, the program was
able to reach loan funds which were not a part of the emergency
ECIP program, but which reached small institutions, small loan
funds that are critical in rural persistent-poverty areas, and
inner cities, where there are not larger CDFIs and there are
not banks.
We saw how with ECIP, we were going to be able to more than
double our lending to these programs. Some of the smallest
businesses, nonprofits that provide critical support services
were excluded from--were not able to get in with very many
banks through the PPP program, and CDFIs opened doors to those
institutions. So, filling in the gaps, that's what CDFIs do
well, particularly in rural, persistent-poverty communities and
communities of color, and for women-owned businesses, and
families. Thank you.
Mrs. Maloney. Thank you. And as a quick follow-up, do you
believe boosting annual funding for the CDFIs would help ensure
more equitable recovery long-term?
Mr. Bynum. Absolutely. It is very clear that in a normal
year, in a normal environment, the programs are oversubscribed.
The need is even greater now, even though some believe the
pandemic is over. In the most hard-hit communities, that is
certainly not the case. Families are still struggling.
Businesses are still struggling to get open, and they need
investment that, unfortunately, in our region, with the SBA
program, banks in Arkansas make 1\1/2\ percent of their--1.2
percent of the loans go to Black residents. In a State where
the business population is 90 percent Black, and the overall
population is 14 percent Black, banks are the primary users and
drivers of those SBA programs.
Relying on banks, unfortunately, has not gotten the job
done. It is critical that CDFIs have the resources to step into
the breach and fill the gaps.
Mrs. Maloney. Thank you.
Ms. Elam, as you described in your testimony, MDIs do a
great job of reaching minority communities at higher rates than
traditional banks. Are there other ways Congress and government
agencies can be promoting or raising awareness about MDIs and
building on the work done so far today?
Chairwoman Waters. The gentlelady's time has expired.
Mrs. Maloney. Okay. I yield back.
Chairwoman Waters. Thank you. The gentlewoman from
Missouri, Mrs. Wagner, is now recognized for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman. Inflation is a
tax on all Americans, and is at its highest rate in over 40
years. The rising price on everyday items continues to erode
the household spending power from my constituents here in
Missouri's Second Congressional District, and consumer
confidence in our economic policies is at its lowest level
since 2014.
Dr. Faulkender, could you detail the fiscal or regulatory
policy actions that helped to create these price pressures on
our economy?
Mr. Faulkender. Certainly, Congresswoman. There are two
major factors that are impacting the inflation that we are
observing. The first is that we have an unprecedented level of
money that flowed to households. As I mentioned, household
balance sheets went from about $11 trillion in checking and
savings account balances up to more than $14 trillion.
Mrs. Wagner. And this was from the government spending that
was doled out, is that correct?
Mr. Faulkender. That is right. We have very liquid
households, while simultaneously taking supply off of the
market. We have reductions in oil. In energy production here in
the United States, the workforce is a couple million lower than
it was prior to the pandemic. You have this phenomenon where
there is an enormous amount of demand that is built up during
the pandemic with lots of money to go spend, and there is just
not enough quantity out there to meet all of that demand, and
the inevitable outcome to clear markets is much higher prices.
Mrs. Wagner. We are seeing that because demand has also
been affected by the supply side, and the fact that our shelves
are empty, and our supply chain is also in a very difficult
situation on top of the trillions and trillions and trillions
of dollars in government spending. Can you explain the long-
term effects of this kind of inflation and price increases on
Americans, especially the low-income Americans we are focused
on here today?
Mr. Faulkender. The thing about the price increases that we
have seen is that wages have not kept up. So, we have seen 7\1/
2\ percent increases in prices, but only 5.7 wage growth, which
means that the average worker's purchasing power has gone down
by nearly 2 percent.
For those Americans who get almost all of their income from
labor, from working, they are hit hardest by it. They consume a
much larger portion of their income, and their only source of
income. They are not seeing some of the gains that others saw
in financial wealth with the run-up in the stock market. It
tends to exacerbate some of the inequities that we had prior to
the pandemic.
Mrs. Wagner. And Dr. Faulkender, during the pandemic, we
witnessed successes of public-private partnerships,
particularly with the private sector financial institutions and
their participation in the Paycheck Protection Program, which
you spoke about in your testimony. Could you explain why these
partnerships worked so well?
Mr. Faulkender. Absolutely. I had the privilege of being
one of the Treasury leads on the implementation of PPP. And to
understand the success is to recognize that there are certain
advantages that the private sector has. They have the
technologies, they have the resources, they have the know-how,
and they have the relationships that the government does not
have. So, what we did is, we leveraged their advantages. We did
the things that the government needed to do. We provided them
the resources. We provided them the rules, the structure, the
forms, and then we let the private sector use its technology
and its relationships to go out and serve the American people.
And you saw that we able to deploy the first $350 billion of
PPP money in only 2 weeks as a result of that public-private
partnership.
Mrs. Wagner. Right. Absolutely. And I think our economy
would be in a much worse position, and, certainly, the economic
engine of our economy, which is our small businesses, would be
in a much worse position had we not had the private-public
partnership and the work that Treasury did to really work with
this committee and others.
Dr. Faulkender, can CDFIs and MDIs solely fill the needs of
the millions of unbanked and underbanked, particularly in
minority communities in rural areas?
Mr. Faulkender. They can't. We have an enormous diversity
in our nation, and the best way to service that diversity is to
likewise have a diversity of institutions. And as we saw during
PPP, CDFIs and MDIs stepped in to fill some of the gaps, but so
did the fintechs. They likewise played an unprecedented role in
serving historically-underbanked communities. And there has
been some academic work which shows the important contribution
that fintechs had during PPP.
Mrs. Wagner. I agree. And I am out of time, but I would say
that fintech firms really gave access outside of the
traditional sources, especially to those who were unbanked and
underbanked. I thank you for your testimony. And, Madam
Chairwoman, I thank you for this hearing. And I will yield back
the remainder of my time.
Chairwoman Waters. Thank you very much.
Next, the gentlewoman from New York, Ms. Velazquez, who is
also the Chair of the House Committee on Small Business, and
who was instrumental in helping us to provide the $60 billion
for small businesses after the big banks had ignored them.
Ms. Velazquez. Thank you, Madam Chairwoman, and Ranking
Member McHenry, for this important hearing. The data showed us
that minority and underserved communities were left behind no
matter how hard they tried to access PPP. And that is when we
worked together, Chairwoman Maxine Waters and I, to change
that.
Ms. Urrutia, CDFIs are a critical component of our nation's
lending system, particularly for our smallest businesses in LMI
and communities of color, which are often left behind by the
biggest banks. As the Chair of the House Small Business
Committee, I directed additional PPP and other rescue resources
to CDFIs and MDIs. How were you able to use the resources
specifically directed to CDFIs and MDIs to support small
businesses, and minorities, as well as rural communities
throughout the pandemic?
Chairwoman Waters. To whom did you direct the question?
Ms. Velazquez. To Ms. Urrutia.
Mr. Sands. Congresswoman, she is not on. I can take that
question for you, if you would like.
Ms. Velazquez. Sure.
Mr. Sands. I think as CDFIs and MDIs, we recognized that
small businesses were in a precarious position coming into the
pandemic. And all of us tried to make our best decisions in
order to react accordingly.
I would also like to just let you know--to say that when
you look at where we are at today, a pandemic doesn't always
have to be a health emergency. A study of economics at the
University of Pennsylvania recognized that catastrophes can
come in many forms.
For example, in Congressman McHenry's questions, he talked
about the labor force, and we do have somewhat of a pandemic,
epidemic coming. But there is a beacon of light. Four million
small businesses have been created during the pandemic. It
actually eradicated the labor shortages that were mentioned by
Dr. Faulkender. We can look at these businesses, and we can
help them and support them with capital. There is actually a
unique opportunity here, very similar to the pandemic, where
CDFIs and MDIs and fintechs, of which I find Lendistry is a
part of both, could supply capital and could be very
instrumental not only in what we did in PPP, but we can repeat
that today as we look at things like infrastructure bills and
other opportunities. Thank you.
Ms. Velazquez. Thank you, Mr. Sands. And can you please
explain how small businesses, particularly those that are
women- or minority-owned often face an uphill battle in
accessing credit on responsible terms? And why are our CDFIs
and MDIs in a better position to serve those businesses?
Mr. Sands. Sure. Whether we like it or not, when you
haven't had access to mainstream financing, it is very hard to
build your business. It is very hard to be able to have the
sophistication needed to get to the next level and to grow that
business and, therefore, employ more people.
CDFIs and MDIs represent a couple of things, number one, a
cultural competency which allows that small business owner to
feel comfortable, and opportunities to build rapport and an
understanding of not only the historical plight of possibly
that small business owner, but also the current plight.
So if a woman executive from a CDFI looks at a program for
women entrepreneurs, she is going to have more insight on how
to make that woman not only receive the proper business-advisor
technical assistance, but the correct credit products, as she
thinks about growing her business and ways that she can be
successful.
I believe that all of the CDFIs that are witnesses here
have been very instrumental in trying to make that come to the
forefront.
Ms. Velazquez. Thank you. Thank you, Mr. Sands.
Mr. Sands, Senator Bob Menendez and I have introduced the
Small Business Lending Disclosure Act, which will expand the
disclosure requirements for small business financing options
under the Truth in Lending Act (TILA). Do you believe
disclosures like the one we are advocating for would enhance
protections for small businesses and allow them to accurately
provide some support among lenders for their financing needs?
Mr. Sands. Absolutely, Congresswoman Velazquez.
I think we all know that even though sometimes, there might
be a language barrier, even though there might be a reading
barrier, what people have a tendency to understand is numbers.
We have seen this in other access classes, personal loans,
mortgage loans, et cetera.
When you introduce the numbers into the equation, what TILA
does, and we are supportive of your bill, it then gives the bar
at least the option to make a decision, a credit decision, a
financial decision, and the option to plan accordingly, which
could be inclusive of maybe adding an extra dollar to the cost
of pizza so that they can afford their loan, thinking about how
they leverage their hours, thinking about how they renegotiate
their rental contracts. There is a variety of different things
that, once you know the numbers, you are able to act more
proactively.
Ms. Velazquez. Thank you. I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Michigan, Mr. Huizenga, is now
recognized for 5 minutes.
Mr. Huizenga. Thank you, Madam Chairwoman.
CDFIs and MDIs clearly play an important role in serving
those in our communities who are both unbanked and underbanked.
Republicans on the committee have routinely highlighted the
importance of harnessing private sector investment in these
communities, while allowing for regulatory flexibility that
does not stifle responsible innovation. Ultimately, this will
provide greater access to credit, build financial security,
and, most importantly, create a more-inclusive financial
system, something I think we all agree on.
Unfortunately, this has not been the current posture of
this Biden Administration. In fact, this past December, the
Director of the Consumer Financial Protection Bureau (CFPB)
stated that, ``Our largest banks have become bigger and even
more powerful, while rural communities have become banking
deserts, putting family farmers and businesses at risk.'' I
can't disagree with that.
And having literally the second-poorest county in the State
of Michigan, in the Second Congressional District, which is a
very rural district and rural county with a very heavy African-
American component to it as a percentage of the population, we
have seen this happening. And I would argue that it was
overregulation under the Dodd-Frank Act that forced these
small, often rural community banks to consolidate and merge
before many eventually, oftentimes, went out of business. And
the Fed's own data supports this, noting in 2020 that there
were 13,000 fewer banks in the United States than in the 1980s,
with many of those closures occurring in rural areas.
I will note that my Democrat colleagues would argue and do
argue that we have never seen an economy like this. It has
never been better. And we have to celebrate this great economy.
And their answer to that is, but we have to spend more money.
We have to throw more money into the economy to keep this
going.
There is an old saying that, when you are a hammer,
everything looks like a nail. I would maybe convert that to say
that, when you are an uber-Keynesian economist, or maybe when
you are a modern monetary theorist, everything looks like a
spending opportunity. And that is exactly what we are seeing
here today. In fact, despite well-recognized and agreed-upon
disparities, we don't have to look far in the past to see the
benefits of full employment, which should be our goal here.
And in 2017 and in 2019--I want to make sure I have these
numbers right, Madam Chairwoman--policies that supported the
free market helped raise the socioeconomic barriers for all
Americans. There is no better example than this period, 2017 to
2019, when the unemployment rate for African Americans was 5.5
percent. Hispanic employment reached 3.9 percent, and Asian-
American unemployment dropped to 2\1/2\ percent, collectively
the lowest levels on record in the modern era, literally.
We know what we can do to really, truly narrow that
socioeconomic gap, which is to make sure people have the
opportunity and the ability to be successful.
What we also know is that inflation hits everyone, but it
disproportionately affects lower-income and minority
communities. And that ought to be our goal, to make sure that
inflation is tamed. And I know my Democrat colleagues are
frustrated that this side of the aisle often talks about what
is happening but we [inaudible] Percent inflation, folks. Wages
have not kept up. The situation is dire for these on the lower
rungs of the socioeconomic ladder, and it is our duty to help
them.
Dr. Faulkender, we have talked quite a bit about this
inflation situation. And when I am at home, constituents talk
to me about it. And they certainly don't think it is
transitory, as is often claimed. The National Federation of
Independent Business (NFIB), who surveyed their members, says
that the main issues confronting our nation's small businesses
are inflation and job openings that cannot be filled.
In my closing moments here, can you detail the fiscal or
regulatory policy actions creating those price pressures?
Mr. Faulkender. Certainly. Labor force participation, as
you said, is still rather low. We are a couple million jobs
fewer than where we were prior to the pandemic. So, when we
provide trillions of dollars in fiscal stimulus, that
discourages people from participating in the labor force,
particularly when there are no work requirements attached to
them. When we take energy resources out of our economy, when we
impose massive increases in regulation and constantly talk
about tax increases, that is going to delay and deter
businesses from expanding and hiring.
Mr. Huizenga. Madam Chairwoman, my time has expired.
Chairwoman Waters. Thank you very much.
Mr. Huizenga. I yield back.
Chairwoman Waters. The gentleman's time has expired.
The gentleman from Georgia, Mr. Scott, who is also the
Chair of the House Agriculture Committee, is now recognized for
5 minutes.
Mr. Scott. Thank you, Chairlady Waters.
And, once again, you are doing an extraordinary job,
because I can't think of a hearing that is more timely, for, as
you know, many of our CDFIs and minority communities are going
to be receiving millions of Federal dollars very soon.
I want to address my question to Ms. Urrutia. Here is the
situation. I want to talk for a moment. I think one of the
keys--and you use these--they are called microloans. Are you
familiar with those?
Ms. Urrutia. [Nonverbal response.]
Mr. Scott. Okay. I think they are very, very helpful with
getting capitalization there. And they are pretty much
manageable.
First of all, I want you to expand on the importance of
accessing microloans for the first-time entrepreneur. And
microloans, as I understand it, are those loans that can be
accessed, but they must be below $50,000. Am I right?
Ms. Urrutia. That is generally what microloans are
described as, yes, sir.
Mr. Scott. Okay. How do you feel about those? Do you agree
with me that they are key?
Ms. Urrutia. Yes. Absolutely. Microloans make a significant
impact on the lives of a lot of small business owners who may
need only a very small amount of capital.
What we have seen over the years is that, unfortunately,
small business loans of this size are not really attractive to
financial institutions for a variety of reasons: the loan is
too small; the credit of the business is perceived to be risky;
or there is not enough profitability to make money because of
that small amount of money. But that does not mean that small
businesses, particularly in this situation that we are in right
now where you have startups and businesses that really have
lost a lot of their revenue, need a small amount of capital to
sustain.
Mr. Scott. Yes.
Ms. Urrutia. A $10,000 or $20,000 loan for a small business
is equivalent to $1 million for any bigger business.
Mr. Scott. And that leads to my other question. Why are
these traditional banks trying to downplay these microloans,
when they have been so effective for beginning farmers? They
can get the access that they need. Many of them failed to help
young beginners and African Americans because they say the loan
is too much. They don't have the capitalization. But here we
come with $50,000 and a small, beginning businessperson can
handle that. I just wanted to kind of get clarification on
that.
And I think you need to push for more advocacy, and explain
how beneficial it is, because if we are going to ship out
millions of dollars in Federal spending, and very shortly, we
are going to do that, we need to make sure that the primary
vehicle, which is microloans, to get beginners started, that
they can get the loan, they can pay that, and then, they can go
and get another one.
I just want to raise that issue and concern and hope that
you will--and by the way, your story needs to be exposed even
greater, because from reading your story, you were an
immigrant. You came over. You tried to get help. But then, you
went on and started your own business. And here you are, trying
to help the people who were in your situation.
Let me commend you for that, but speak out and keep pushing
these microloans. They are very beneficial.
Thank you.
Ms. Urrutia. Thank you.
Chairwoman Waters. The gentleman from Arkansas, Mr. Hill,
is now recognized for 5 minutes.
Mr. Hill?
Mr. Hill does not appear to be on the platform.
The gentleman from Texas, Mr. Williams, is now recognized
for 5 minutes.
Mr. Williams of Texas. Thank you, Madam Chairwoman.
And full disclosure to our panel, I am a small business
owner in rural America. And I can fix this whole thing. We cut
taxes, we put more money in the hands of the banks, the people,
et cetera, more and more startups, and we will begin to see.
So, I think a lot of it is cutting taxes.
But right now, I want to talk about inflation. Inflation is
having a devastating effect on people all throughout our
country. And people are seeing these prices increases at the
gas pump, in grocery stores, and on their utility bills to heat
their homes this winter. A recent report by Moody's Analytics
put a dollar figure on the massive inflation increase, and the
average American is paying $276 more each month to simply live
their lives. This is disproportionately harming low-income
earners and people on fixed incomes who are having the most
trouble absorbing these higher costs.
This is a drastically different reality than what we saw
after we passed the Tax Cuts and Jobs Act in 2017. We saw wages
outpacing inflation, the labor participation rate was rising,
and more investments being made from small businesses. And it
will not be an easy job to get inflation under control, but it
is something that must be done if we are serious about helping
our rural and underserved communities.
Dr. Faulkender, can you discuss what you think needs to be
done at the Federal Reserve and here in Congress to get us back
to a high growth rate and a low inflationary environment?
Mr. Faulkender. Sure. On the fiscal side, I would suggest
prioritizing incentives to brings supply back into the
marketplace.
We have 10.9 million job openings right now. And yet, we
are a few million jobs shy of where we were prior to the
pandemic. There are a lot of American workers who are on the
sidelines, who can come back into the workforce to serve in
some of those job openings.
The second thing is that we need to make sure that we have
a tax environment that encourages both the businesses and the
workers to participate in the labor force.
Third, we need to bring our domestic energy supply back
online.
The fourth thing that we could do from a Federal Reserve
standpoint is that we need to stop the accommodative monetary
policy. We probably should have started pulling back on asset
purchases a number of months ago, and started to raise rates.
Now, it looks like the Fed is behind the curve. But Chairman
Powell, of course, has indicated that there is some catch-up to
do. The problem is that that many rate increases in a single
year is going to be a shock.
Mr. Williams of Texas. Thank you.
Secondly, something that helped propel the economy under
former President Trump was the regulatory clarity that he gave
the business community. I can tell you firsthand, that was
huge. There wasn't any uncertainty surrounding unexpected
increased costs coming down the pipeline.
Unfortunately, this is not the case under President Biden.
The American Action Forum conducted a study which showed that
in his first year in office, President Biden has already
implemented over $200 billion--I repeat, $200 billion--in new
regulatory compliance costs on American businesses and small
businesses mainstream. These costs are amassed by an estimated
increase of 131 million hours in new paperwork that must be
conducted in order to be in compliance with all of the new
regulations coming from the Federal bureaucracy. It is a
disaster, to put it mildly.
Banks feel the major part of this new regulatory burden.
Instead of getting more money into their communities to finance
job-creating entrepreneurs like we are talking about, they are
forced to spend more money on compliance officers. These are
costs on the books and a drag on the American innovators.
Quickly, Dr. Faulkender, can you discuss some of the pro-
growth policies we should be focusing on so we can allow banks
to get more money into the hands of Main Street America? And I
have touched on one--you have, too--and that is cutting taxes.
Mr. Faulkender. The other one you mentioned is regulatory
clarity. The problem with regulation is that there is what an
economist would consider a large, fixed-cost component of it.
So whether you have 5 workers or you have 50 workers or you
have 500 workers, just bringing yourself into compliance
requires updating your activities and your processes. The
larger businesses have a larger scale to spread that across, so
a higher regulatory environment is generally more advantageous
to larger entities, whether that is larger banks, larger
businesses, or larger enterprises.
And to the extent we want to spur small business
entrepreneurship and we want to create an environment where
small community banks can flourish, providing a less-regulated
environment that reduces their cost structure, particularly on
a per worker or per customer basis, is important as well.
Mr. Williams of Texas. Yes, lower taxes, less regulation.
At the end of the day, it works for everybody, doesn't it?
Mr. Faulkender. It has wide-ranging benefits, yes,
Congressman.
Mr. Williams of Texas. Thank you, Madam Chairwoman.
I yield back.
Chairwoman Waters. The gentleman from New York, Mr. Meeks,
who is also the Chair of the House Committee on Foreign
Affairs, is now recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman.
MDIs and CDFIs, although smaller than many of their
competitors, play an outside role in communities with a great
demand for banking services. These institutions provide crucial
help in areas that would otherwise be banking deserts, and they
provide more affordable products than alternative financial
service providers.
And that is why I am so proud to reintroduce the Ensuring
Diversity in Community Banking Act, which passed out of this
committee last Congress with a bipartisan vote of 52-0, and
passed in the House as well on suspension. This bill
strengthens many programs that provide capital to minority
banks, creates new impact-bank designations for banks that
predominantly serve low-income communities, and provides for a
streamlined CDFI application process.
Ms. Elam, can you speak to why these programs are so
crucial to ensuring that MDIs and community banks remain an
integral part of serving underbanked communities?
Ms. Elam. Thank you. First, I way to say thank you for your
support of MDIs, and for the reintroduction of this important
bill. I think what this bill does is it continues to preserve
and promote MDIs, which is something that we are not seeing
oftentimes from our regulators. So, not only does it focus on
capital, but it focuses on making sure that they have the
technology that they need to best serve communities.
Technology continues to be one of the biggest issues that
our member banks have, whether it is cost, it is not having the
capacity to vet those, or it is the challenges with their core
providers. And this allows them to grow and scale in a way so
that they begin to serve more in their communities. So, this is
certainly a hugely important piece of legislation. And we,
again, thank you for that.
Mr. Meeks. Thank you.
And technology is changing the landscape of banking, as we
know.
Ms. Elam. Absolutely.
Mr. Meeks. Whether financial institutions, including MDIs
and CDFIs, are able to access and successfully leverage new
technology can make or break their business model. I think that
is right.
Mr. Sands, let me ask you. As the largest minority-led
deployer of capital in COVID relief funding, Lendistry has
proven that technology can enable institutions to better
penetrate harder-to-serve communities. Specifically, in my
State of New York, Lendistry served more small businesses by
being the sole designated entity to administer the Small
Business Recovery Grant Program. I understand that you have a
partnership also, I believe, with OneUnited Bank, an MDI.
My question to you is, what are some of the challenges
CDFIs and MDIs face when partnering with fintech companies, and
how can Congress best ensure that such partnerships are
successful and best serve consumers?
Mr. Sands. Thank you, Congressman Meeks.
I think the first thing we want to look at is the
narrative. And the narrative should be that we support these
partnerships, and the narrative should be that we encourage
these partnerships, as you are already displaying.
At Lendistry, we looked at helping underserved communities
in a scaleable way by thinking about two things. First, meet
the people where they are, and make the process seamless,
efficient, user-friendly, and accessible.
Second, help our community-based partners level up and
scale up their technology resources, leveraging our technology.
As you mentioned, with partners like OneUnited Bank and others,
what we have been able to do is help them in terms of their
scaling.
Now, we do still have to get big processes like vendor
management and other things like that, but I think the answer
to your question is helping change the narrative so that these
partnerships are encouraged both at a congressional level and
at a regulatory level and supporting these partnerships. As you
know, there will be so some highs and lows as we go through
this. But I think the end goal will see some scaleable
deployment of capital, as we have in the State of New York.
Mr. Meeks. What would you recommend? Is there anything in
addition to--I talked about the bill that we had. Is there
anything in addition there that you think we should be doing in
the United States Congress to make sure that we push that
forward, so that the technology is there, and anything that we
can do to be of further aid to create these partnerships and
make sure they are secure?
Mr. Sands. You mentioned Congress and this committee have
recommended things like technology grants and different things
like that. While I understand that there is a bit of
apprehension in terms of deploying more capital into our
economy, I do think we can take some surgical methods like
focusing on technology, and focusing on skills that are going
have long-term benefits. When we think about other things like
cybersecurity and other obstacles that are going to come in the
long term, I think there can be some laser-sharp focus on where
those grants go.
So, the specific uses of funds will be extremely important
as we think about how we lay out these different programs.
Thank you.
Mr. Meeks. Thank you very much.
My time has expired.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you.
The gentleman from Tennessee, Mr. Kustoff, is now
recognized for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman, and thank you to
the witnesses for appearing today.
Dr. Faulkender, you talked about the Paycheck Protection
Program, and I think that Congress can pat itself on the back
because that is an example of a bipartisan program that no
doubt saved many small and medium-sized businesses across the
country. And it really is a true benefit to say that it is a
successful public-private partnership, and I appreciate the
role that you had from Treasury in setting that up and making
sure it was a success.
In your written testimony, you talked about fintech firms
and how fintech firms went a long way to helping serve
underserved or maybe underbanked communities. Can you discuss
why that is? Why were fintechs so successful in helping those
underserved communities?
Mr. Faulkender. Sure. The major advantage that fintechs
have, and I think a number of analysts have mentioned this, is
that traditional banks have high technology costs, coupled with
the physical infrastructure that you normally have with
providing branches. Fintechs are able to devote almost all of
their capital resources, their capital investments towards the
technology piece and scale that to serve communities that a
geographic footprint often doesn't support.
Particularly in rural communities, there is just not enough
of a population close by to support a full-blown branch,
whereas if you can still serve the depository and lending needs
of that community almost entirely through an online platform,
you are able to achieve reductions in costs that can then be
passed along to the borrower.
Mr. Kustoff. Thank you very much.
I would like to take you back to an article or a column
that you wrote in The Hill last year, I think in August of
2021, and you were critical of the Biden Administration and the
legislative agenda in terms of the spending. And you predicted,
and I think correctly, that that added to or exasperated the
inflation that we are experiencing today.
We are in a position now where the Fed is going to have to
use the tools in its toolbox to try to combat inflation,
hopefully without triggering a recession. Can you forecast what
the Fed should do and what they can do and in a way that it
triggers, if you will, a soft landing?
Mr. Faulkender. The Fed has a very delicate dance that it
has to do because on the one hand with, as was mentioned
earlier, $30 trillion in debt outstanding, raising interest
rates is going to pass that along in higher debt service costs
to our nation, which is problematic. But at the same time, they
can use monetary policy to curb some of the excess demand that
fiscal policy has generated.
So, they have to try to find a balance where they bring
down demand in order to reduce the increase in prices without
putting us into a recession and without causing debt service
costs for the nation to skyrocket to an unsustainable level.
Part of that is going to be taking some of their
accommodation in the asset purchases off the table. Some of
that is going to be in the form of more guidance. They are
going to be probably more tolerant of inflation than they were
a number of years ago. But they are ultimately going to have to
raise rates and reduce the asset purchases and do it very
delicately because we are in kind of a tenuous position.
Mr. Kustoff. I used the term, ``soft landing.'' Can they do
those things? Can the Fed do those things without necessarily
triggering or forcing us into a recession?
Mr. Faulkender. Yes, it is possible. If they raise rates
too quickly, it will force us into a recession, but if they
don't raise rates quickly enough, we are going see this
inflation continue. So, they are going to thread that needle.
It is possible, but it is going to be difficult for them to do.
Mr. Kustoff. Thank you very much.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Texas, Mr. Green, who is also the Chair
of our Subcommittee on Oversight and Investigations, is now
recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. I am also very
grateful to serve under your leadership, and I am especially
proud of the Small Business Credit Initiative, the State
program, because this is a 1,000 1 million-dollar program,
1,000 $1 million for small businesses. And the program will
generate $100 billion.
What I would like to do is have Ms. Elam, Mr. Sands, and
Mr. Bynum, in that order, explain to us the importance of this
program that I was honored to have the opportunity to work on
with the chairwoman, and it became part of the American Rescue
Plan Act of 2021.
Let's start with you, Ms. Elam. Explain the importance of
this program?
Ms. Elam. I think the importance of SSBCI cannot be
understated. Pushing capital into the hands of small businesses
is vitally important. We know many of the businesses that are
going to receive this or be the beneficiaries of this capital
are small businesses that maybe were already struggling, and
the pandemic exacerbated those struggles.
What I am most excited about when I think about SSBCI 2.0
versus 1.0, is the focus on Socially and Economically
Disadvantaged Businesses (SEDB). I think the focus on those
businesses is vitally important, and I think the push that you
are seeing from Treasury to focus on utilizing MDIs and SSBCI
2.0 is vitally important.
Mr. Green. Thank you very much.
Mr. Sands, if you would, please?
Mr. Sands. Yes. I will piggyback on Ms. Elam's comments. I
think that it is really, really vital, when we look at SSBCI
2.0, there is a huge opportunity not only for credit
enhancements and loan participations but also for venture
capital.
As we look at the 4 million businesses that have been
started, as we think about inflation and some of the other
tools and conversations that we have had here today, bringing
these 4 million businesses into the forefront, letting them
take their place in the workforce, letting them grow, letting
them hire people, letting them raise wages--there is
significant opportunity. SSBCI will give lenders that moment or
that tool that they can leverage in order to make some credit
decisions that they might not make in a post-pandemic
environment or in a normal credit market environment.
So, we are very excited to see that, as well as to see the
equity go out in an equitable fashion, as Ms. Elam mentioned,
related to the SEDB requirements and also 10 employees or less.
And I should also say there is a huge technical assistance
requirement. So, having technical assistance and business
advising could be that momentum that we need to really take the
businesses to the next level.
Thank you, sir.
Mr. Green. Thank you.
But before I leave you and go to Mr. Bynum, let me ask you
to elaborate on something else.
Mr. Sands. Yes, sir.
Mr. Green. Let's talk for just a moment about the venture
capital aspect of this in a bit more detail, because people
hear that term, and I don't think they understand what it
really means in terms of the difficulty in acquiring venture
capital. Can you say a few words about the difficulty?
Mr. Sands. I think if we look at African Americans as a
unit, roughly $16 trillion in GDP kind of flow, roughly $4.2
million in VC capital, those numbers are misaligned clearly.
And so, when we look at this opportunity, there is an
opportunity for us to do 10 times leverage off the money, the
venture capital money that is flowing through the SSBCI
program.
If we could have the forces of equitable capital deployment
mixed with the right deployers of capital, mixed with it
getting into the right hands, then when we look at things like,
how do we encourage businesses in rural areas, how do we think
about bringing products back or manufacturing back to the U.S.,
or how we just think about overall expansion, it represents a
very unique and significant opportunity for all of us.
Mr. Green. Thank you very much.
Mr. Bynum, you have 1 minute left. Please explain to us how
important this SSBCI program is.
Mr. Bynum. No, absolutely. I think Ms. Elam and Mr. Sands
hit the high points.
I will underscore how critical CDFIs are to driving
resources to where they are needed most. In the first round of
SSBCI, CDFIs outperformed other distributors of SSBCI, driving
almost half of their funds to low- and moderate-income areas,
compared to 32 percent for non-CDFI lenders. And that just
underscores their importance. I think in the Deep South, it is
important that CDFIs are engaged with States on the front end
of the design. CDFIs were not involved previously, and we are
seeing some positive momentum in Tennessee and Arkansas that
leads us in that direction.
Mr. Green. I thank all three of you.
And I especially thank you again, Madam Chairwoman. This
program has really saved a lot of small businesses, especially
with what I am calling the set-aside that is in the program.
I yield back the balance of my time.
Chairwoman Waters. Thank you so much, Mr. Green.
The gentleman from Arkansas, Mr. Hill, is now recognized
for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman. And thanks for
holding this hearing.
Let me begin by saying hello to my old friend, Bill Bynum.
It is so good to have your wisdom and support here. We are so
grateful for your leadership.
Bill and I got to spend 3 years together on the CDFI
advisory board at the Treasury during the mid-2000s, and Bill
was a great teacher and educator as we collaborated there.
And thank you, too, Bill, for coming to Arkansas and
serving West Memphis and Little Rock with your locations and
beautiful College Station. So, thanks for helping our citizens
here.
Mr. Bynum. Thank you.
Mr. Hill. The first question, Bill, is, thinking about all
the new banks, existing banks that have been certified as
CDFIs, it boosts the numbers of people who are certified as
CDFIs. But does it dilute the mission, given sort of your
intensity of effort and that of our mutual friend, Darrin
Williams, the CEO at Southern Bancorp, probably the largest
CDFI in the region and the largest in our State? Does that
dilute the mission when we certify all of these other banks?
Mr. Bynum. Congressman, thank you.
I think it is important to note that, just like in any
industry, all CDFIs are not created equal. Darrin, Liberty
Bank, some others, are doing great work in driving resources in
a way that is consistent with the purpose and intent of CDFIs.
However, we saw as the follow opened up, a lot of banks were
able to become CDFIs just because of their geography, not
because they were driving funds into the most-needed places
like the Arkansas and Mississippi Delta.
And we have seen that in Mississippi, CDFIs banks, when you
look at the HMDA data, only lend at 13 percent to Black
borrowers, compared to 17 percent. Hope lends at 80 percent.
So, there are disparities, and I think there is some
accountability that should be incorporated into the program.
Mr. Hill. Yes, because I do like the fact that we spread
the resources and the networking of the resources out. But
there is also a real specialty that comes with this niche and
commitment and vocational commitment to it.
Mr. Sands, congratulations on your great PPP performance in
the fintech industry. Thanks for that leadership. We had a lot
of challenges with the SBA in that program, standing it up. But
I think they, with some changes, delivered pretty well. But now
I am concerned about them suddenly displacing the banks and
trying to replace the 7(a) program with a direct lending
Program.
Do you support the SBA cutting the banks out of
underwriting in the 7(a) program?
Mr. Sands. Congressman Hill, it's good to see you. I know,
as a fellow community banker, we probably have some similar
thoughts.
I think there is definitely a fine line here. I think what
we are seeing is that there are some smaller loans that are
being underserved, and some small businesses that are being
undercapitalized. We do have to take that into consideration,
and if SBA could help with that, I think there is an
opportunity there. I also think SBA could help by bringing in
additional lenders and focusing on other programs as well.
Mr. Hill. Let's talk about that and collaborate because the
Economic Injury Disaster Loan (EIDL) program has been helpful,
but sort of a black box and a bit of a disaster in the
pandemic. It is not really designed for an ongoing emergency.
It is designed for a very short-term weather or tornadic or
hurricane-type emergency. I think there is a lot of need for
reform there. I would be eager to hear your views on that as
well as to make the 7(a) Program more effective.
Let's talk about reporting small business loans. I noted
that there are 38 percent fewer CDFIs, despite my comment of
the additional certifications. Instead, the numbers are
dropping just like the numbers of small banks are dropping. Are
you concerned that this 1071 small business data collection
will actually cause more people to leave the small business
lending business, as it just adds too much cost?
Mr. Sands. No, I think one of the things we actually
recognize with PPP is that if we could have a streamlined, what
I will call formatting process, and maybe leverage API's
technology, et cetera, that we can get that information. I
think it is critical. If I were sitting in your chair or in
anyone on this committee's chair, to really understand the data
that is coming in, because if you are sitting there and you are
in Arkansas and you are saying, look, I would like to allocate
resources or money to a certain place, it helps to just have
the data to know where it should be at indicated, whether it is
race, location, et cetera. And I think we have an opportunity
with 1071 to get some of that information.
Mr. Hill. I hope we can streamline it to make it a lot less
costly for smaller institutions. The overhead to run a small
institution is already overwhelming. I thank you for your
advice, and I look forward to following up with you.
Madam Chairwoman, I yield back.
Mr. Sands. Thank you.
Chairwoman Waters. Thank you very much.
The gentleman from Missouri, Mr. Cleaver, who is also the
Chair of our Subcommittee on Housing, Community Development,
and Insurance, is now recognized for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman.
This is, in some ways, related to the questions that were
raised by Mr. Hill, but a little different case.
Ms. Urrutia, I have adopted a plan to introduce the CDFI
Bond Guarantee Program Improvement Act of 2022, which has been
attached to today's hearing. The bill would make the bond
program permanent, reduce the minimum bond size from $100
million to $25 million, and would make a technical change
requested by the CDFI Fund.
How would this bill help CDFIs such as yours, if they were
interested in participating in this program? And can you tell
us how you might use these funds?
Ms. Urrutia. Yes. Good afternoon.
Our CDFI, Accion Opportunity Fund, does not currently take
advantage of the bond program. We do find CDFI support to be
very instrumental in helping us continue to deploy capital to
underresourced communities. We are in full support of any type
of program that can help us access capital and equity to scale
up our lending operation.
Mr. Cleaver. Just to be clear, if we made this technical
change, this program would be of significant value to you, and
would help CDFIs?
Ms. Urrutia. Absolutely, yes. Any program that can provide
capital access to CDFIs, which is part of our challenge,
liquidity, accessing liquidity, and I want to back, because
SSBCI, I think it goes without saying, that what SSBCI can
bring to CDFIs is the ability to access liquidity and off-
balance sheet leverage and resources so that we can scale up
our lending, which is really one of the limitations that CDFIs
have today, because there is not sufficient capital. And
because of the way that we are structured, where we have to
raise equity via grants mostly, it becomes very difficult to
continue to deliver the mission without having the access to
these programs that are leveraging private sector capital.
Mr. Cleaver. Historically, the limit on bond guarantees
provided in the annual appropriations bill far exceeds what has
been issued each year. The program has been authorized for $500
million annually since Fiscal Year 2017, but CDFIs have
successfully accessed only a fraction of the potential of the
program.
It is particularly unfortunate that I am receiving reports
that smaller CDFIs and CDFIs in rural communities--I represent
Kansas City, Missouri, and probably 30 little towns all around
it, and I am also adding communities of color and indigenous
communities--who would really love to benefit from long-term,
low-cost capital but they are unable to participate.
Do you or any of the panelists object to making the bond
guarantee program more accessible to CDFIs?
Ms. Urrutia. I think one of the things that you find is
that CDFIs sometimes are like small businesses. We don't
necessarily know all of the programs that are available to us
to access. So, I think a recommendation from this would be for
marketing and information provided by the CDFI Fund for all of
the different programs that are available, the purpose of each,
and how can those funds be accessed.
Mr. Bynum. And, Congressman, if I could add, I think the
reduction to $25 million is critically important in getting the
resources to those smaller communities. They need projects, but
they may not be $100 million or $200 million. And making more
available CDFIs to drive funds into those communities is
critically important and it allows them to leverage some of the
other infracture dollars that are being made available by
Congress as well.
Mr. Cleaver. I think this has nothing to do with Democratic
or Republican ideology. This is a common-sense kind of thing
that would help communities both large and small.
I think my time has run out, Madam Chairwoman. Thank you
very kindly.
Chairwoman Waters. Thank you so very much.
The gentleman from Tennessee, Mr. Rose, is now recognized
for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters and Ranking Member
McHenry, for holding this hearing, and thanks to our witnesses
for their testimony.
I want to also express concern regarding the forthcoming
cost of servicing our national debt. I will note that JPMorgan
expects 5 rate hikes this year, Goldman Sachs and Bank of
America are predicting 7 rates hikes, and HSBC is predicting a
50-basis point hike next month, followed by 4 additional 25
basis-point increases.
Obviously, as has been noted, we have just surpassed $30
trillion in debt and we need to get our fiscal spending on
track and in order in this country if we are going to be able
to support many of the programs that we need to have in place
to assist historically-disadvantaged groups, and to make sure
that every American has a chance to realize the American Dream.
As my time is limited, I also want to touch on some other
topics. But before I get to that, Mr. Bynum, I appreciated the
conversation between you and my colleague, Mr. Hill from
Arkansas. And as I sit here at my home today in Cookeville,
Tennessee, I know that we have a number of functioning CDFIs
here in Tennessee, including one right here in my hometown of
Cookeville, the Tennessee Rural Development Fund, and, of
course, Pathway Lending in Nashville, and The Housing Fund in
Nashville.
And I wonder, Mr. Bynum, are these CDFIs in my home State
and in my home community--do you feel like they are getting the
job done? And what could I do as a Member of Congress, what can
our committee do, what can the Congress do to help them do the
job that we intend for them to do, if they are not already
getting it done?
Mr. Bynum. Thank you, Congressman.
I am really glad that we have housing partnerships, The
Housing Fund and Pathway and CDFIs in Tennessee that are
driving funds into rural parts of the State, as well as in the
inner cities, in Memphis and in Nashville and Chattanooga.
There are gaps that unfortunately small businesses, lower-
wealth families, and entrepreneurs don't have access to.
You have some strong CDFIs, and the work that this
committee, and this Congress has done to make sure that CDFIs
have capital, flexible capital, that allows them to do what
they do well, really tailor resources to meet the needs of
their communities, not have a one-size-fits-all solution but
sit down with businesses, with families and make sure they are
their financial bankers, they are their financial problem
solvers, which is what CDFIs do better than any other financial
institutions.
Thank you for supporting CDFIs and for making sure that
they have the kind of capital they need.
Mr. Rose. Thank you for that insight. And I hope we get the
chance in the future to talk in greater detail.
During the pandemic, regulators took important steps to
provide temporary relief for community banking organizations
who experienced unexpected and sharp increases in assets due to
their participation in many of our Federal coronavirus response
programs such as the Paycheck Protection Program.
Unfortunately, in my view, that relief expired on January 1,
2022. Regulatory compliance continues to be burdensome,
particularly for these organizations.
Dr. Faulkender, I think this brings up a broader question.
Should we be looking into permanently raising these regulatory
thresholds to allow for greater flexibility with these
community banking organizations?
Mr. Faulkender. Generally, the capital requirements and
regulations we place on community banks are probably excessive,
given the types of activities they engage in. We should not be
thinking that they are megabanks and holding them to the same
standards. At the same time, of course, we don't want to invite
regulatory arbitrage.
But, yes, we should differentiate the environment we impose
upon them from a regulatory standpoint based on the activities
in which they engage and how systemically important they are.
We should not treat all of them uniformly. We should recognize
the differential business models they have.
Mr. Rose. Thank you. I appreciate that perspective, and I
share that. And having served on the board of a community-based
national bank, I can tell you firsthand that unfortunately,
many of those regulations and that regulatory burden are what
cause these small, for-profit financial institutions to
oftentimes not be able to meet the needs of emerging businesses
and smaller organizations. I share the view that we need to
relax that standard and recognize the difference between big
banks and our small community banks.
Thank you, Chairwoman Waters. And I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Ohio, Mrs. Beatty, who is also the
Chair of our Subcommittee on Diversity and Inclusion, is now
recognized for 5 minutes.
Mrs. Beatty. Thank you, Madam Chairwoman, for holding this
hearing. And to all of our witnesses, thank you very much.
First, let me just say I would like to thank our
distinguished panel of witnesses for being here today and for
their testimony.
My first question is for Ms. Elam, and you, Mr. Bynum. In
your testimony, you cite the fact that Black-owned banks
control 27,000ths of 1 percent of total bank assets in the
United States.
In 2020, in the aftermath of the murder of George Floyd,
dozens of companies, as have you witnessed, made public
commitments to racial justice within the outside of their
workforces. Netflix, for example--we all know that they were
going to place $100 million of their assets in Black-owned
financial institutions. And they followed through.
Ms. Elam, what kind of impact would this have if more
companies made similar commitments?
Ms. Elam. Thank you for that question. It is a phenomenal
question if you had more than a few companies doing that, but
if you had 10, 20, 30, 40, 50, or hundreds of companies doing
that, you could certainly change the trajectory of these
organizations, of these banks.
There have been a lot of conversations around deposits and
capital. But I think one thing that doesn't get enough
conversation is, how are these companies integrating Black
banks into the way that they do business? Are they integrating
them into their financial services supply chain? When customers
are swiping their credit cards, are they using our banks for
merchant processing?
Those are the things that we need to be focused on and
talking about. Not only do we need more of them, but we need
diversity in what they are doing. Everybody can't just do
deposits. Everybody can't do equity investments. You need some
of these long-term, systemic revenue-generating business
opportunities in order to really change the dial.
Mrs. Beatty. Thank you.
Mr. Bynum, the Hope Credit Union received $10 million as
part of this commitment. Can you briefly tell us the impact?
Because I have one more question I am going to try to get to.
Mr. Bynum. Certainly. When you think of the region that we
serve in a place like Itta Bena, Mississippi, where Mississippi
Valley State, an HBCU, is located, if we had all of the
deposits, we would only have 1\1/2\, 1\1/4\ million dollars.
So, the $10 million from Netflix imports capital into these
capital-starved communities and allows us to make more
mortgages loans, more business loans, to help make payday
alternative loans that get people out of debt traps.
Unfortunately, communities where you have such a dire
wealth gap don't have the deposits to fuel their growth, so
deposits are important, as is equity. It all goes together, and
also contracts where they can buy from the businesses is
something that we should also emphasize as well.
Mrs. Beatty. Thank you.
Here is my last question, and I will open it up to anyone
whot wants to talk about this. I would, however, like to start
with Ms. Elam.
Here is the thing. This may sound a little self-serving. As
you all probably know, I am the Chair of the Subcommittee on
Diversity and Inclusion, and this is something that is in the
forefront of Chairwoman Waters' and my leadership.
Here in the Midwest, we unfortunately don't have MDIs--
currently, there are very few in the Midwest and none in my
great State of Ohio. In my district, there is a group that has
recently submitted an application for a banking charter that
would now give Ohio its first MDI, right in the heart of my
district.
What resources are out there for persons or groups who want
to form an MDI? What incentives are available for them? As a
Member of Congress, I have this unique opportunity to go talk
to my community and say, here is what I fought for, and here is
what the experts told me to do.
Ms. Elam. Starting a new bank is certainly challenging. Not
only is it capital that prevents folks from starting new banks,
but it is also the regulatory requirements that can be onerous
for starting a new bank.
At the NBA, what we try to do is we work--we have actually
talked to that bank that is going to be starting in Ohio, to
learn best practices. This is what you need to know. This is
what you need to be focused on, when you are thinking about who
is going to be doing deposits, because you want to have support
from corporations, you want to have support from the State and
local government. Who is going to be doing business with you?
And those are some of the things that at the NBA--
Mrs. Beatty. And I hate to cut you off, but I have about 15
seconds.
Is there anybody in particular? Should they call your
organization?
Ms. Elam. Yes, call our organization.
Mrs. Beatty. Should they--
Ms. Elam. Call the National Bankers Association, and we
have already had a call with them, but they can certainly feel
free to call our organization.
Mr. Bynum. And inclusive is the National Association of
Community Development Credit Unions.
Mrs. Beatty. Thank you so much. I will follow up with both
of you.
Chairwoman Waters. Thank you very much.
The gentleman from Ohio, Mr. Davidson, is now recognized
for 5 minutes.
Mr. Davidson. Thank you, Madam Chairwoman. I appreciate
this hearing, and it is timely that we talk about the
consequences of all of this spending that has gone on.
We want a Federal Government to exist. Our Founders created
one on purpose. It is defined by our Constitution. But we have
a limited government. Right now, we are only talking about how
much more government we should have. And, unfortunately, there
is not a way to pay for all the government that we already
have.
We have seen the Federal Government's balance sheet grow to
the point where we have $30 trillion in debt. And that is not
even debt that people lent us. The Federal Reserve's balance
sheet has grown to over $9 trillion. So, in a way, we have
monetized it. How did all this inflation happen? We monetized
the debt. And I think that is really one of the big problems.
And not only have we spent the money--and we spent it for
things that were needed. We spend money when there is a time of
war. But you have to pay for it. The country realized that, and
other countries realized that at the end of World War II. In
fact, the last time that the planet had as much debt as the
planet has right now was World War II, total debt in relation
to GDP. And at that time, the monetary system was reset.
I wonder, Mr. Faulkender, if you could talk about the
consequences for debt and deficits, the importance of paying
that off, and whether you believe that this concept of modern
monetary theory or quantitative easing, where we don't even
need a lender, we can just keep creating money, is that fact or
fiction and how will it turn out for people? And, frankly, any
implications for the wealth gap if we keep doing this?
Mr. Faulkender. Yes, thank you, Congressman, for that
question.
We have seen other nations historically have debt-to-GDP
ratios in excess of 100 percent. That tends to be where you see
the financial crises take place. When firms have fiscal
policies that are sustainable relative to their overall
economy, they are largely able to avoid panics and inflationary
bouts, whereas when you see the kinds of debt that we were
incurring recently and the urge to monetize it, then that is
where you start to worry about inflation coming.
So, I think it is important to recognize that inflation is
a combination of both the fiscal and a monetary policy outcome.
As I was saying before, the Fed has its work cut out for
it, if it is going to curb some of the inflation we have seen
recently. What we need is for fiscal policies not to exacerbate
those challenges.
Mr. Davidson. Yes, thanks for highlighting that. And we
spent $6 trillion just COVID-related, not of any of the other
spending, which we spend more than we can really fund in a
normal process. But that $6 trillion didn't all go to GDP. What
did it go to? It inflated assets. And I would hazard to guess
that, as members of the committee, we have more assets than
most of our constituents. And the wealth gap continues to grow.
And, unfortunately, the solution that I hear from many--
most of my colleagues, frankly, is more government. And even
when there is talk of taxes that would pay for some of the
spending, the taxes don't even pay for all the new spending
that they are talking about. There is no real cohesive plan to
do this.
I will say that it is a bipartisan problem. When Donald
Trump was first President, he proposed a budget that balanced
in 15 years, which was hardly aggressive, but at least it
balanced. As we stare down a clock of funding that expires
Friday, the 18th, there is only a plan to kick the can down the
road until March 11th on the table right now. And my Democrat
colleagues are just biding time to try to spend far, far more
money than we have right now. It will burn inflation.
And I think the last thing I would just focus on is that
benefit cliffs are dividing people in another way, because when
you do have inflation, the government policies don't catch up
as much. And that is another barrier to people participating in
the workforce.
As my time expires, I just want to highlight a little bit
of good news. Mr. Sands, throughout the pandemic, fintech
companies have really focused in minority and disadvantaged
communities in my own area and in rural areas. Fintech has
really provided a lot of access to capital. Could you highlight
how important fintech has been in the response to this current
crisis?
Mr. Sands. Thank you for opportunity, Congressman Davidson.
I think fintech has been able to show that we can go into
places that maybe others can't. And when we look at places like
the rural United States, there is a huge opportunity for
fintech to play a role. Thank you.
Mr. Davidson. Thank you. My time has expired, and I yield
back.
Chairwoman Waters. Thank you very much. The gentleman from
Connecticut, Mr. Himes, who is also the Chair of our
Subcommittee on National Security, International Development
and Monetary Policy is now recognized for 5 minutes.
Mr. Himes. Thank you, Madam Chairwoman. And a big thank you
to the panel for your testimony today, and for all of you who
are operating in challenged areas, thank you for the work you
do. For many years, I worked in affordable housing, and it was
the CDFIs and MDIs that were serving the need and serving the
need in some really challenged communities. So, I really have
an appreciation for the work you do in Bridgeport, Connecticut,
which I represent, and surrounding areas like New York City.
I just have one question that I would like to direct to Ms.
Urrutia, first, and then to Mr. Sands, and that question is,
you have made a good case today for additional resources for
some things that we could do to ease your passage in the work
that you do. I recall from my own days in and around this
sector really being impressed by the extent to which
particularly extending credit, but also even just getting
people banked was an incredibly labor-intensive process. It
involved a lot of close-in underwriting. It involved a lot more
technical assistance often to borrowers. Often, you have first-
time borrowers who require technical assistance that a more
sophisticated borrower may not. That always struck me as just a
nearly insurmountable barrier to extending credit at the rates
that would we like to do it.
My question is, setting aside everything that we have heard
about the need for additional resources and other things today,
what progress is being made in terms of upping the scalability?
And Mrs. Urrutia, I would love to start with you. I have huge
respect for Accion. My sister actually worked there for a long
time. And I know you are at the forefront of doing a lot of
really interesting lending. Let me ask you, for a minute-and-a-
half, and then I am going to turn to Mr. Sands. What data
science, technical innovation, what is out there that would
allow us to do this very good work but on a larger scale?
Ms. Urrutia. Absolutely. That is a very good question.
Thank you for asking. The city of my industry, if we are going
to scale, we have to employ a combination of technology and
data analytics. I think the pandemic catapulted many of us to
accelerate a roadmap for online and remote servicing to replace
the face-to-face interaction. Almost overnight, as an example,
most customer interactions across the country went to digital
platforms, texts, emails, phones, instead of the branch and
community-based locations that have traditionally categorized
or represented that CDFI.
We believe that as much as possible, there should be
technology involved for reaching businesses for different
channels. Some people are ready to come to you online, others
want help that you can provide for them via phone or text or
chat. That is one piece, how do you engage with the customer?
The other piece is, how do you improve and get to a quicker
response to a loan request? And that is very important because
accessing alternative data sources via APIs has gone up
significantly.
Looking at creditworthiness that extends beyond credit,
there are a lot of immigrants who don't have credit and can
file, they have bill payments and they have cash flows from
their business, that is very important for us. And I do believe
that CDFIs are starting to move in that direction. But it is a
challenge because technology and investment and infrastructure
and systems and people cost money, and that is why we are
looking forward to the bill that the chairwoman has introduced
to provide some grant funding for CDFIs to be able to invest in
this capacity, to accelerate their lending, and to improve
getting much more capital to underresourced communities.
Mr. Himes. Thank you, Ms. Urrutia. Let me give my last 50
seconds to Mr. Sands. Again, what can we to increase
scalability here.
Mr. Sands. Thank you, Congressman Himes. I think there is
an opportunity to leverage kind of the tailwinds of social
media and smartphones, et cetera, and kind of meet the
applicant where they are at. Roughly, a couple of decades ago,
we would always talk about that younger user in the household
who was translating or helping out or going on the computer and
filling out--well, that younger user is now our borrower, so we
have some opportunity there. I think the other thing is to look
at innovative products.
One of the things we are leveraging is leveraging bank
statements as an ability to repay, versus kind of traditional
products where you say, okay, it is only a credit profile. Bank
statements actually show an ability to repay, actually, I would
say equally or better than the traditional credit model.
The other thing I think we have an opportunity with,
Congressman Himes, is to really take some of these technology
partners and bring them into the fold, bring them into
responsible lending. And that is one of the things, I think,
that is out there, that could be a licensing exemption.
Mr. Himes. Thank you. My time has expired.
Mr. Sands. Thank you.
Chairwoman Waters. Thank you so very much. And let me just
say, I am surprised no one has talked about incubators and what
they could do to respond to what Mr. Himes is talking about.
The gentleman from Wisconsin, Mr. Steil, is now recognized
for 5 minutes.
Mr. Steil. Thank you very much, Madam Chairwoman. Thanks
for calling today's hearing. It is a really important topic
that we are covering. Let me tell you, though, we have been
staring at the screen for 2 hours, and personally, I cannot
wait until we get back to work in person. People in Wisconsin
are back to work. They are off Zoom. They are getting it done
in person. So, knock on wood that we are able to do that soon.
But either way, this is a big topic here. And I want to
piggyback on what my colleague from Ohio, Mr. Warren Davidson,
was commenting on with you, Mr. Faulkender, if I can, in
particular, the inflation environment that we are in. You wrote
a great op-ed in The Baltimore Sun, back when inflation was at
5 percent. We are now at 7.5 percent, when Chairman Powell was
recently at the committee, I think about 18 months ago. I say
that recently. I talked a lot about my concern about the
monetary policy that we were doing, the implications that would
have as it relates to inflation. We also have a fiscal policy
going on in Washington where Washington continues to spend
money like drunken sailors.
And now, we are in an inflationary environment. And I think
one of the big things with inflation is it doesn't hit everyone
equally. If you are a homeowner, if you own assets, inflation
isn't good for you, but your assets inflate along with
everybody else. But if you are not a homeowner, if you are a
renter, if you are somebody who doesn't have significant
assets, inflation is really clobbering you.
And let me tell you, in southeast Wisconsin, I hear it time
and again, when I speak with our lower-income workers, and when
I speak to seniors on fixed incomes--and so, we are here
having, actually, I think, a good conversation about the
importance of some of our Minority Depository Institutions,
about community development work. Could you shine some light as
to with this really high inflationary environment we are having
due to monitory and fiscal policies that are running amok, the
unique impact that that is having at some of our MDIs and
CDFIs?
Mr. Faulkender. Congressman, you raised a very important
point that I should have distinguished earlier about how
inflation is different this time than it has been
traditionally. We are operating in a 7\1/2\ percent inflation
environment, while the fund's rate is at 25 basis points. So,
think about that differential that is going on. You have
anybody who is in any kind of fixed income assets, anybody who
is taking kind of a safer approach for their investment profile
and is only realizing less than 1 percent rates of return on
their assets--
Mr. Steil. That is our seniors on fixed incomes. That is a
huge issue. But let's also talk about people who are struggling
to get by. I think of a single mom with two kids who doesn't
own her home currently; she is renting. She is paying $800 to
$900 a month, and rent is going up, and her wages aren't
keeping up. How does that impact that type of a person that a
lot of our MDIs are directly interacting with on a regular
daily basis, low-income workers, in particular?
Mr. Faulkender. It is low-income workers who are hit in
particular, because they generally have less of a savings bump,
or the difference between the 7\1/2\ price increases they are
incurring, and the less than that increase in wages. And it is
very much putting pressure on their budgets. They are having to
cut back. When they can even find products that they are
working for, they are having to reduce their quantities of
them. And so, yes, there is then reliance upon local
institutions, generally, for some kind of assistance. And yes,
it is important that we have a diversity of financial
institutions that conserve these needs. And let me also just
stress the role that CDFIs and MDIs play in financial literacy.
Mr. Steil. Being cognizant of time, this could be a great
5-hour conversation we are having, but I think it is really
important. I think Congress needs to get our fiscal house in
order. And I would like to see the Fed get some more monitory
policy in order.
But let's jump because I had a great conversation--I served
as the ranking member with Chairman Himes on the Select
Committee on Economic Disparity & Fairness in Growth, and we
held a hearing about banking the unbanked. And I think one of
the most interesting things for me that came out of that was
the percentage of Americans who now have a smartphone. And, in
particular, it doesn't deviate as much with race, according to
pure research, as it does with age. That study showed that
while 85 percent of Americans have a smartphone, it was 83
percent for Blacks, and 85 percent for Hispanics. So a
difference, but not a massive difference, if you will. And I am
wondering if you could comment on how fintech could really help
us bridge the gap to the unbanked?
Mr. Faulkender. Right. Fintech can bring down the cost of
providing those services. The best experience of fintech
arguably is overseas, where there is a much larger percentage
of unbanked and underbanked, and similar cell phone
penetration. You are seeing this shift in a number of
developing countries to adopt cell phone-based technology to
serve traditionally-underbanked communities that we can call
upon if we--
Mr. Steil. Mr. Faulkender, cognizant of the time, and I
appreciate the dialogue, but, Madam Chairwoman, I will yield
back.
Chairwoman Waters. Thank you.
The gentleman from Colorado, Mr. Perlmutter, who is also
the Chair of our Subcommittee on Consumer Protection and
Financial Institutions, is now recognized for 5 minutes.
Mr. Perlmutter. Thanks, Madam Chairwoman. I would like to
get into a debate with Mr. Steil and Mr. Davidson, but I will
start with a question that is on topic for you, Ms. Urrutia.
In many cases, Community Development Financial Institutions
are meeting the demand or small micro business lending demand
where traditional financial institutions are not. This is a
quote as reported by The Colorado Sun, from a small business
borrower in Colorado who worked with a local CDFI after being
turned away from traditional lenders: ``The traditional lenders
didn't really want to take the risk. There just wasn't
collateral in it for them to take that risk. I tried to pull
every card I could--I am a female, I am a minority, I am a
veteran--but traditional banks did not want to look at us.''
And then speaking of a positive experience, she said, ``It
wasn't just money. The Colorado Enterprise Fund, the CDFI
offered to help with marketing, offered to help with QuickBooks
for accounting, and offered to help with getting our business
plan together to make it stronger. They just gave us more
support.''
Ms. Urrutia, what makes CDFIs more able to make loans where
other lenders take a pass? Uh-oh. She is frozen on my screen.
Would anybody else like to take a shot at that?
Mr. Sands. Sure, I could talk about it. I think the
opportunities that CDFIs have or what CDFIs are leveraging is
both the intentionality of working with those who might not be
able to be in the mainstream credit. I think the other thing
that we have talked about here is programs like SSBCI, which
gives us an opportunity to take some of that risk and also
leverage the opportunity to participate in credit enhancement
and others to have some innovative credit products.
Mr. Perlmutter. Let's talk about that for a second, Mr.
Sands. So, you or other organizations, can you come in and help
a particular business or organization with their accounting--
can you give additional assistance beyond what would be
traditional banking?
Mr. Sands. Absolutely. And that is--
Mr. Perlmutter. Do you?
Mr. Sands. We do. We have a nonprofit affiliate called The
Center, and we give one-on-one classes. Today, they are via
Zoom. They used to be face-to-face and Zoom and also seminars.
We teach everything from procurement, which is obviously a hot
topic right now with the infrastructure bill, et cetera, to
more specialization, which could be things like restaurant
funding and different things like that.
Mr. Perlmutter. Let's talk about restaurant financing for a
second.
Mr. Sands. Sure.
Mr. Perlmutter. Because Mr. Hill said earlier that we we
don't need the SBA anymore. We are really out of the emergency.
In Colorado, we have a big hospitality industry. And Omicron
hit the restaurant business again. Now, we are coming out of
it. It was a quick, sharp spike, but it basically shut down the
restaurants from Christmas until a week ago. We are expecting
half of our restaurants to fail. It is the one area where we
are really seeing some trouble. How can CDFIs and MDIs help the
restaurant industry? And are you all doing that? This is to the
whole panel. I will start with you, Mr. Sands.
Mr. Sands. During COVID, what we talked to the restaurant
industry about was insurance, how to handle their team members,
how to look at their leases, other things that will be
important that aren't exactly QuickBooks and how you borrow
money, right? So, we gave them that fortification and the
understanding of how they want to move forward.
Today, what we are talking to them about is, again, not
only QuickBooks and financials, but we are talking to them
about how they bring in the PPP, how they think about
diversifying their business. It could be something like working
with some of the DoorDashes, and the Uber Eats, and the
different things to kind of modify their business, like getting
a liquor license.
We are teaching them other things in addition to just the
traditional financial principles. And they are very supportive
of us helping them to grow their business. And we are also
connecting them with other businesses. So, if you think about
the manufacturing within a restaurant, where they can get their
goods and services and other things, that has also been very
helpful for the restaurateurs' tours that we have been
advising.
Mr. Perlmutter. Okay. Thank you. And Madam Chairwoman, I
would like us to have a hearing on inflation and the economy
because we have a great economy. GDP is up more than it has
been in 40 years, and unemployment is down, with 6 million
people added to the job rolls.
Mr. Faulkender, I can tell you that Peloton failed to
produce--they have a glut of stuff, with prices dropping.
Purell has a glut of stuff, and prices are dropping. So, we are
not in a typical scenario. And we have troubled industries,
like the restaurant industry. This isn't an ordinary
inflationary cycle. I have been through a lot of these. I am a
bankruptcy lawyer. I will yield back.
Chairwoman Waters. Thank you so very much. The gentleman
from South Carolina, Mr. Timmons, is now recognized for 5
minutes.
Mr. Timmons. Thank you, Madam Chairwoman, and thank you for
holding this hearing today.
Dr. Faulkender, I am going to begin with you. What type of
financial institutions were most effective in helping minority-
owned businesses obtain PPP loans? Were there any noteworthy
patterns that we, as policymakers, should take note of?
Mr. Faulkender. In addition to CDFIs and MDIs that serve
minority and underserved communities, the fintechs really
stepped up. There is some academic research that has come out
demonstrating that where some of the traditional banks may have
underserved those communities, fintech has really filled that
gap in order to help traditional unbanked borrowers gain
access.
Mr. Timmons. Sure. Thank you for that. Were there any
trends in MDIs and CDFIs providing PPP loans for existing
customers, new customers, unbanked, to underbanked? Again, I
think it is important for us to examine what worked and what
did not work, especially given that a significant portion of
PPP loans were set aside for these institutions.
Mr. Faulkender. Yes, my recollection is that the fintechs
and the CDFIs did serve disproportionately minority borrowers.
At the same time, as I recall from the data, the very largest
banks served their clients pretty proportionately by the end of
the program. It was really some of the smaller community--it
was some of the smaller banks that saw some of the shift from
them towards the fintechs during the PPP program.
Mr. Timmons. Sure. Thank you. I think how PPP played out
within the eyes of the CDFIs should inform how Treasury
administers the Emergency Capital Investment Program. But
moving on to a different topic, staying with you, Dr.
Faulkender, the White House seems to think that some of the
economic data coming out recently has proved that their
policies are working. Yet, consumer confidence has not been so
low since 2011. And GDP growth forecasts for the first quarter
of this year estimates less than 1 percent growth. The
President claims he created millions of new jobs last year. But
who in their right mind thinks people finally going back to the
jobs they were forced to leave because the government posted
lockdowns as job creation? These jobs, which are still a few
million short of pre-pandemic levels, came back despite what
the Biden Administration and Democrats in Congress have done,
not because of anything they have done. And now, because of the
extremely dovish acts taken by the Fed over the last year,
coupled with the reckless spending we have seen in this past
Congress, we are facing the highest levels of inflation we have
seen in literally 40 years.
I did a little digging recently on how the Fed has
responded to similar rises in inflation. I could not find an
example in modern history where they successfully achieve a so-
called soft landing and avoided a recession, while
simultaneously avoiding--we have problems. I don't want to keep
going on and on, but consumers and business owners have seen
the warning signs in the last several months, but it seems my
colleagues across the aisle are just waking up to the
seriousness of the situation. Hopefully, it is not too late.
Mr. Faulkender, is inflation the primary culprit for the
lack of confidence in the economy, or is it something else?
Mr. Faulkender. The Consumer Sentiment Survey that came in
from the University of Michigan really pointed to two things:
number one was the Omicron variant; and number two was
inflation.
Mr. Timmons. And what are your thoughts on supply chain
challenges? I can't help but think of the fact that people in
California were getting paid $900-plus a week up until December
16th, and they are just now getting back to work. We have lines
of cargo ships in the Pacific. We have people who are being
paid more to stay home. And it is no wonder that shelves in
South Carolina are--we are having trouble keeping them stocked.
What role do you think supply-chain challenges play in the
inflation that we are seeing today?
Mr. Faulkender. They play a significant role. The pandemic
itself is going to challenge the supply chain, but when we have
policies that then exacerbate those problems, then you get a
delay in the realization of a return to normal. So, when you
shock one particular manufacturing location due to, say, the
pandemic, that is going to already create a delay. But then,
when you have reductions in workforce participation, when you
have truckers sidelined whether because they are making less
working than they were paid on unemployment, or because you
impose vaccine mandates, or some kind of other burden on them,
that reduces participation, which is going to further elongate
the delay in quantity. What happens in the interim? Prices go
up on the products that you can find.
Mr. Timmons. Sure. Thank you for that. Madam Chairwoman, I
yield back.
Chairwoman Waters. Thank you. The gentleman from Florida,
Mr. Lawson, is now recognized for 5 minutes.
Mr. Lawson. Thank you, Madam Chairwoman, for calling this
hearing today. It is a very informative hearing. And because of
the way things have gone, one of the things I would like to say
is I have heard many of my colleagues make reference to some of
the spending that we did in this past year with inflation. But
one of the things I hope they realize is that if we hadn't
spent a lot of this money, many of our businesses would be lost
forever. It was necessary that we reinvest in the economy to
make sure that the economy could respond to this pandemic.
My question to the panel is--and anyone on the panel can
comment on it--the ability to place small business loans with
the Federal Home Loan Banks enables the lenders to make mobile
loans with the funds prior from the Federal Home Loan Bank
(FHLB). Under the Federal Home Loan Bank Act, only a small
community bank under $1.2 billion can pledge small business
loans to FHA Bank. Does this make sense to allow small banks'
ability to use these loans to borrow it from the FHLB? Anybody
on the panel can respond.
Mr. Sands. Congressman Lawson, I brought this up in both my
oral and my written testimony. I think we have a unique
opportunity here for small banks, CDFIs, et cetera, to be able
to pledge business assets. That is number one.
Number two, I think there is another opportunity here to be
able to leverage guarantees, SSBCI and others.
And number three, I think there is a third opportunity here
as we look at the credit rating within FHFA that flows down to
FHLB in which CDFIs could be considered similar to banks, and/
or we could create some type of credit enhancement to make them
feel more secure. We know that the FHLBs have never lost money.
And we are not looking for them to lose money. What we are
looking for is an opportunity to be able to leverage FHLBs to
provide lower interest rates and also more capital to
undercapitalized communities. Thank you.
Mr. Lawson. Any other comments?
Mr. Bynum. If I can piggyback on that. I think CDFIs and
MDIs, particularly mission-driven CDFIs, should have full
access to the toolkit of resources that are available to any
bank. We play an outside role in driving capital, providing
tools that help people climb the economic ladder. And we should
not leave these critical frontline financial first responders
with one hand tied behind their backs. And so, whether it is
the Fed window, the Federal Home Loan Bank, or the SBA, CDFIs
should be a priority consideration as these programs are
designed and have full access to them.
Ms. Elam. And just to double down on that point, I think
PPP is the perfect example of, when you don't utilize small
lenders, or when they don't have set-asides or access in a way
that would be helpful to communities, those communities aren't
served. And so, what happened with PPP was that small
businesses weren't able to participate in the program because
those lenders that serve them had challenges as well. So, any
way that you can make it easier for these small lenders to
participate in programs is helpful.
Mr. Lawson. And, Dr. Faulkender, in your analysis about
inflation and where we stand now in investments that the
Federal Government made in order to stimulate this economy, do
you think from an academic standpoint, that we went in the
wrong direction, or did it really help the economy from where
we are today?
Mr. Faulkender. Thanks for that question, Congressman. I
would differentiate between some of what we did early on in the
pandemic versus what we had done more recently. I think that
you would have pretty uniform agreement that the $3 trillion
that we spent on the CARES Act was absolutely essential.
Whether it was the various grounds of PPP funding, whether it
was enhanced unemployment claims, we were looking at a 32-
percent drop in annualized GDP in the quarter in which we had
the depth of the pandemic recession.
We have been expanding since May of 2020. We have an
unemployment rate that has been in the 4-percent range for a
while. We have largely gotten our economy back open. And so, we
don't need yet another round of fiscal stimulus when we already
have an accessible amount of liquidity out there. What we need
is for people to return to the workforce.
Mr. Lawson. Your analysis, do you have any--I know what
people are saying--why do you think people are not returning to
the workforce?
Mr. Faulkender. I think part of it is that when they have
as much liquidity as they have, there is less reason to be in
the workforce. When they are paid more on unemployment than
they make working, they have also delayed being in the
workforce.
Mr. Lawson. Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much.
The gentlewoman from North Carolina, Ms. Adams, is now
recognized for 5 minutes.
Ms. Adams. Thank you, Madam Chairwoman. And let me say what
a pleasure it is to be with you again. And I thank the ranking
member as well for holding this hearing. And to our witnesses,
thank you for your testimony. I want to briefly talk about the
work that our committee and the Biden Administration is doing
to uplift minority communities.
As part of our second COVID relief bill, Congress included
$9 billion--billion, with a ``b,''--for the Emergency Capital
Investment Program (ECIP.) ECIP is historic, and it will be
transformative for millions of Americans for whom access to
capital is dependent on their MDI or CDFI, so, I would like to
address some of you about ECIP.
Mr. Bynum, your organization is a CDFI and a credit union.
Can you tell me what kind of impact the ECIP dollars will have
on the communities that Hope serves, and what does that mean in
terms of support for your organization?
Mr. Bynum. Thank you, Congresswoman. ECIP is a game
changer, we are hoping for other CDFIs. It took us nearly 14
years to grow to roughly $88 million. And in one injection, we
are getting $88 million in capital that we can then leverage to
grow to $900 million in deposits to drive into communities that
have a much lower homeownership rate, where the businesses
close at 40 percent compared to 20 percent for non-Black and
Brown businesses. We are working to use these resources to work
with Historically Black Colleges and Universities (HBCUs), with
small towns led by people of color, and with inner cities to
help them leverage some of the infrastructure dollars and drive
them into those well-starved communities that need more
infrastructure, need affordable housing, need healthy food
stores, but don't have bank branches. And CDFIs are the only
way that these dollars are going to get in. And then, we can
bring Federal dollars and private capital from the Netflixs,
and the Nikes, that are providing deposits that we are
leveraging with the ECIP to help to improve conditions and
close these capital gaps that have existed for centuries in
these underserved communities.
Ms. Adams. Thank you. As a proud, two-time HBCU graduate, I
certainly appreciate that. But let me ask you in terms of
follow-up, do you believe that CDFIs that aren't banks or
credit unions should be eligible for support from Federal
programs like ECIP? Why or why not?
Mr. Bynum. Absolutely. There are many, many more non-
depository CDFIs. And so, we are relieving these vital assets
on the sideline by not providing them with the similar type of
equity capital that has fueled the depositories. These loan
funds, these venture funds, these micro funds also need small
balance sheets so that they can go to the banks, the Bank of
Americas, the Citis, the Wells Fargos, and the Chases, and
accept their debt. They don't give you grants at the level that
we are talking about with ECIP. They will give you debt. And
you can't take debt without the balance sheet support.
So, it is critical that we inject capital into loan funds
and into these small credit unions as well that were not able
to get ECIP. They need more ability to leverage these funds as
well.
Ms. Adams. Thank you. Let me get another question in. Ms.
Urrutia, your organization is a CDFI loan fund which was not
eligible to participate in the ECIP program. If Congress were
to fund a similar program, do you believe that CDFIs that
aren't depositories should be eligible?
Ms. Urrutia. Absolutely. The borrowers that we serve
deserve the same opportunities as those of depository
institutions. And these small business borrowers really face
the same challenges, no matter who they are going to get their
financial services from. ECIP or a similar program would allow
us to offer extensive relief to small business owners,
particularly, those who had been most impacted by COVID-19, and
further allow us to continue investing in low-income
communities. I mentioned earlier that we got part of the $3
billion. We got $1.8 million, and we were able to leverage that
to $10 million in capital to help 650 new businesses.
So, this is very important, and we are pleased to be here
today as a CDFI, having a seat at the table, and being able to
share the importance and the impact of our work that we do with
underserved communities.
Ms. Adams. Thank you so much, Madam Chairwoman. I am out of
time, and I yield back. Thank you.
Chairwoman Waters. Thank you very much.
The gentleman from Illinois, Mr. Casten, who is also the
Vice Chair of our Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets, is now recognized for 5
minutes.
Mr. Casten. Thank you, Madam Chairwoman, and I really
appreciate all of our witnesses taking the time to testify
today. And I hope this isn't overly intellectual, but I have
this sort of trouble in my head in thinking about MDIs and
CDFIs in the sense that we created these institutions to
address the lower levels of wealth and lower rates of wealth
creation in minority and disadvantaged communities, which is
good. But we also created the circumstances that created those
lower levels of wealth from racially-preferenced subsidized
loans, blockbusting red line, and, of course, the whole parts
of our ugly original sin that predated that.
And I don't share all that to go into a history lesson, but
I find myself wondering when the issue that we have is that we
preferentially subsidized equity, not racial equity, cash
equity, and the accumulation of equity among non-marginalized
communities in our country is the best tool always to provide
debt to the marginalized communities. That is a big, meaty
question. I get it.
But what I am wondering, and, Mr. Bynum, I will start with
you, is, have you ever seen any good data, relative to total
wealth? How indebted are the communities you serve? And are
there tools that we could provide to help get those communities
equity that you don't currently have? And I realize that is
kind of open-ended, but it is intentional. I would love to hear
your thoughts.
Mr. Bynum. No, no, Congressman, I appreciate you driving
there. I think you have to really acknowledge--and I appreciate
your acknowledging the history that had created these
conditions. And it goes back generations. If you look at a map
of where you had the highest concentration of slaveholding, and
where you have the lowest housing conditions, the worst
education outcomes, or the fewest banks and the most payday
lenders, they are largely the same areas. And these are in
places where you have the highest wealth gaps--100 to one for a
Black family with children, compared to a White family with
children. So, layering debt onto them is not the solution. They
need to be able to build equity in homeownership, and business
ownership are the primary ways to accomplish that. Nothing
closes those gaps more.
And CDFIs play a critical role in that. But right now, in
this still weak economy--and I would love to have a
conversation about the state of the economy, but it is still
very fragile in many communities. And so, making sure that we
don't just layer debt, but we layer flexible capital along with
equity, and make sure people have the ability to support their
families and their children, it is a combination of tools. It
is not just debt. It is what it is putting them on a path
toward ownership and building assets.
Mr. Casten. I guess what I am wondering is, at the end of
the day, you are a bank. You are going to make money by loaning
to people. I would love to see a world where we have a set of
rules where you have a greater incentive to give somebody a
scholarship than you do to give them a student loan, right?
Because one of those creates equity, and one of them creates
debt. I would love to see a situation where you have a greater
incentive to help someone get out from under private mortgage
insurance (PMI) rather than give them a mortgage. And maybe
that is a Community Reinvestment Act (CRA) reform question, I
don't know. But where within your business model could we
provide you with tools to give people more accumulation of
equity in the first instance, given that a lot of what I just
described may feel more like charity than a business model?
Mr. Bynum. No, and I acknowledge that our tool kit is
limited as a regulated depository. Loan funds have more
flexibility, but we are one piece of the ecosystem that is
necessary to help these families and communities strengthen and
climb the economic ladder. I also think it is really important
to not vilify people for making smart decisions with some of
these resources that have been made available to support their
families. Full employment is our main goal, but we have 70
percent of Black Mississippians who don't earn enough to cover
basic expenses, or they lose their jobs for 3 months. So full
employment, if you don't earn a living wage, is not adequate.
We need to help people earn more, and build wealth. And, again,
we are a piece of the puzzle, but making sure that people have
opportunities to build wealth is critically important.
Mr. Casten. Good. And, Ms. Elam, I was hoping to ask the
same questions of you, but this clock is counting down, so
maybe we can follow up with you off the record, so I don't eat
into my colleague's time. But thank you all for your time, and
I yield back.
Chairwoman Waters. Thank you, Mr. Casten.
The gentlewoman from Massachusetts, Ms. Pressley, who is
also the Vice Chair of our Subcommittee on Consumer Protection
and Financial Institutions, is now recognized for 5 minutes.
Ms. Pressley. Thank you, Chairwoman Waters. Thank you for
convening this hearing. And thank you to our witnesses for
joining us today. Our small businesses are what is in our
neighborhoods, their character, and our families, their jobs.
While it is not easy to run a small business, the sacrifice
creates opportunity, freedom, and tradition as well.
Chairwoman Waters and Chairwoman Velazquez have been
delivering for small businesses for decades. When I was on the
Boston City Council, I fought to lift a cap on liquor licenses
so that for the first time in decades, new, small, locally-
owned restaurants could open in neighborhoods like Roxbury,
Mattapan, and Dorchester. Unfortunately, decades of hard-won
progress like this can be unraveled in an instant.
As a result of the COVID-19 virus, those same small
restaurants that nourished my neighborhood have struggled. I
once again found myself fighting for their very existence. With
the rise of power and prevalence in multi-billion-dollar
corporate companies, well-connected financial institutions and
products, Congress must be precise and intentional about
investing in small businesses, and Black-owned small businesses
specifically, or else their doors will be the first to close
and remain permanently shuttered. And yet, during the pandemic,
many businesses applied for and waited on PPP funding that
never came. Instead, billions of dollars went to large
corporations and chains. And overwhelmingly, the majority of
Massachusetts PPP recipients were White.
Mr. Bynum, following advocacy from your organization and
many others, certain changes were made to the PPP program to
better engage CDFIs and MDIs. Can you describe those specific
changes and how they benefited Black-owned small businesses in
your network?
Mr. Bynum. Yes, Congresswoman, thank you. First, it was
opening up the PPP program to participation by CDFIs. We were
not on the first round, and the resources went to larger
businesses, businesses that had long-term relationships with
the banks, and ignored smaller businesses, smaller--and sole
proprietors were not eligible to participate in the first
round. That was changed, which opened it up, and CDFIs
outperformed banks, quite honestly, in driving capital into the
small, underserved communities and to minority businesses, and
rural businesses. That was critically important.
I think the lessons from that also fueled the other
recovery programs, the rapid response and the ECIP, which are
driving resources more to mission-driven CDFIs. And I am glad
that those lessons are being applied. All CDFIs aren't created
equal, and so, making sure that you get the frontline
institutions like minority depositories, community-developed
credit unions, loan funds that are small but powerful in
driving these resources has been critically important. And I
hope we continue that going forward.
Ms. Pressley. Thank you, Mr. Bynum. Again, I am grateful
for your advocacy and that you raised your voice, and even more
grateful that our Chairwoman Maxine Waters listened and heeded
those calls and fought for those changes to be made. Certainly,
CDFIs and MDIs are powerful opportunity-builders. One barrier
to receiving financial and technical support for our Black-
owned businesses that I have noticed is the lack of awareness
of the resources that are available in the first place. It is
not true that if you build it, they will come, if they don't
know about it, specifically, those made available by our CDFIs
and our MDIs.
Mr. Bynum, if the CDFI Fund is made easier for individuals,
small businesses, and communities to locate CDFIs and MDIs, do
you think that that would help Black-owned small businesses?
Mr. Bynum. Absolutely. One of the things that we have seen
is that Black banks and Black credit unions have shrunk
dramatically over the past decade from the financial crisis.
And so, it is essential that we stem that tide. The CDFI's
programs are critical in making sure that happens. And it is
not going to happen if those resources are not targeted in a
way that benefits the communities that are hardest-hit, that
are most financially-fragile. Again, small loan funds, small
credit unions, and minority depositories, I think should be
considered as priorities in investing CDFIs and Federal
resources as we continue to climb out of this economic crisis.
Ms. Pressley. Thank you, Mr. Bynum. And to the point that I
raised a moment ago in terms of getting the word out, to any of
the witnesses who would like to expound upon that, are there
ways that Congress and government agencies can better raise
awareness about CDFIs and MDIs and the capital and technical
assistance that they provide?
Chairwoman Waters. The gentlewoman's time has expired. But
we would like you to get back to her directly with some
responses on how to get the word out. Thank you.
The gentlewoman from Pennsylvania, Ms. Dean, is now
recognized for 5 minutes.
Ms. Dean. Thank you, Chairwoman Waters, for this hearing.
And thank you to all of the experts who are here with us today.
This has been really enlightening. In the CDFI space, what I
wanted to talk about is an area that I think does not get
enough attention, which is the important role that CDFIs play
in providing financial and technical assistance to people with
disabilities. People with disabilities face a range of
financial challenges, often encountering barriers in securing
traditional financial services. According to the National
Disability Institute, the percentage of unbanked households is
more than 3 times higher for households with an individual with
a disability. When you also consider race, the numbers are even
more staggering: 17.8 percent of Black households include
someone with a disability, and a full 28.5 percent of those
households are unbanked. Moreover, according to the National
Disability Institute, over 20 percent of households with a
disability have an unmet need for basic credit.
Given the financial challenges faced by households with a
disability, CDFIs have a vital role to play, given the
importance of CDFIs for ensuring that people with disabilities
have access to credit. I have fought for targeted CDFI funding
for financial and technical assistance for people with
disabilities through something we have here in Pennsylvania,
the Pennsylvania Assistive Technology Foundation.
Mr. Bynum, Mr. Sands, Ms. Urrutia, do your organizations
have experience lending to people with disabilities? Can you
speak to the importance of CDFIs in this space? How can we do
better? And who is being left behind?
Mr. Bynum. Yes, we do. And it also speaks to the point of
CDFIs as part of an ecosystem. We partner closely with other
organizations that provide appropriate assistance that is
culture-appropriate, that targets the needs of those
communities that we are trying to serve, including the
disabled. And the access to flexible capital is critically
important, because you cannot--again, as we were talking about
earlier--layer unaffordable debt that these families cannot
sustain given their particularly fragile financial position.
You have to make it stretch out. You have to make it work for
them, and a combination of debt and equity and grants are
necessary. Flexible capital allows us to put the tools that
CDFIs have to best use.
Ms. Dean. Mr. Sands, did you want to add anything, or Ms.
Urrutia?
Mr. Sands. Yes, I would say we are doing similar to what
Mr. Bynum said, and I will just add a couple of extra things.
We also adjusted all of our online applications so they would
have accessibility. As you know, that is a big tool whenever
you are trying to go online and you are trying to leverage or
be able to make the--a wet tool or technical application a
little bit more accessible.
Now, the second thing we are doing is we are monitoring the
data in which those who mark themselves disabled where they
might be struggling with an application so that we can make our
system more fluid for them.
And then the final thing I will say is that we also
introduced some online education tools, which we believe are
going to be pretty expansive in terms of getting the education
out. Again, leveraging cell phones, which we recognize that
these individuals do have for a variety of tools that they are
obviously using as basic services in their own lives. Thank
you.
Ms. Dean. And Ms. Urrutia?
Ms. Urrutia. Yes, some of the same. We have launched a call
center that is available 7 days a week, 15 hours a day, cross
times with bilingual customer care and ability to offer support
in other multiple languages. And then, one-on-one coaching
directly through partnerships that work with the community. For
us, it is continuing to evolve, I believe, technology and
flexible capital which Bill spoke about are going to be key
drivers in better supporting the community.
Ms. Dean. Thank you. And maybe one of you would like to
answer this. As the COVID-19 pandemic continues to evolve, many
small businesses have yet to recover. In your work, how has
small business lending changed during COVID-19, and again, who
has been left behind? And I say this knowing that I am proud
that my district has the largest number of small business
employees in all of the Commonwealth of Pennsylvania. Would
somebody like to give 10 seconds to that?
Ms. Urrutia. Sure. I will start. Underwriting has evolved
significantly. Credit scores are no longer what they used to
be. They don't give us the view of the future; they only tell
us about the past. And we know the past is very different. And
we see how additional data sources and technology-driven
solutions have become significantly more important for small
businesses and access to flexible capital.
Ms. Dean. Thank you. I yield back.
Chairwoman Waters. The gentlelady's time has expired. Thank
you very much.
The gentleman from Massachusetts, Mr. Auchincloss, who is
also the Vice Chair of the committee, is now recognized for 5
minutes.
Mr. Auchincloss. Thank you, Madam Chairwoman. I wanted to
ask about incubators for small businesses, which are designed
to help businesses in their earlier planning stages. And
Congress, as I am sure our witnesses know, has a growing
interest in small business incubators, including a billion
dollars in funding to establish and uplift incubators to help
entrepreneurs in underserved markets. That is included in the
Build Back Better Act.
Lendistry and Accion Opportunity, you participate in
lending to small businesses, including using SBA financing.
Have your companies, either of you, had the opportunity to work
with incubators or entrepreneurs in underserved communities
that are members of incubators?
Mr. Sands. I will go first on this one. I think we both
have--we absolutely have. And the way we tend to look at this,
Congressman, is we look at this is there is a continuum of
capital that we must make sure that the small business has.
Accion Opportunity Fund is more focused on kind of
microlending, and we are looking at that next stage of capital.
And the game plan is not only technical assistance and business
abidance with the accelerator's offer, but also thinking about
that capital path so that they could be job creators as well.
Ms. Urrutia. I would just add that when you look at a lot
of startups, they do not have revenue to demonstrate their
ability to pay loans. And so, we always say that a loan is not
a replacement for revenue. And many of these smaller businesses
that we work with need equity, but there is really not a fully-
developed equity market for the type of businesses that we are
talking about here. In these situations, we try to work with
them to find grants, and those are hard to find, but there
needs to be a better-developed market for equity capital for
these small businesses that have a longer-term view, as opposed
to a view to get liquidity events.
Mr. Auchincloss. That must be challenging, because unlike
in the venture software industry, for example, there is the
potential for uncapped upside. And so, equity is an attractive
investment. For a small business incubator, that has to be a
more challenging market to set up. Do you have any advice for
Congress as we look at these uplift incubators for how we can
attract equity, knowing that this is for small businesses?
Mr. Sands. My suggestion would be some of the things that
you have already put into place as you think about procurement,
Build Back Better, and you think about the infrastructure bill.
Naturally, we know that minorities have a tendency to focus on
service-oriented businesses. However, I think there are also
opportunities for them to expand beyond leveraging either
technology resources that you somewhat described, but also,
opportunities for larger contracts where they can get bonding,
insurance, et cetera, that these accelerators are also helping
them with. I think the ability to grow revenue overall will
lead to more venture capital money. And so, if we can find ways
to get them into components which drive revenue or opportunity
for revenue, there are some huge opportunities there for the
capital to flow accordingly.
Mr. Auchincloss. Yes, and to be clear, the goal for a lot
of these businesses is not necessarily venture capital
investment. That is a very specific niche type of business. And
we want a whole flourish, an ecosystem of small businesses,
some of which are service-oriented and aren't going to have
either venture scale chances to fail frankly, but also, venture
upside, and that is perfectly appropriate.
Both of you have emphasized that customer acquisition is
really the key. Loans and grants are great, but they are not
revenue. Procurement help with the government as a customer
makes a lot of sense to me. Are there other important ways that
small-business entrepreneurs in underserved communities can get
help in accessing those first couple of key customers that you
have seen really work?
Mr. Sands. I think if you double down on the strategy of
having government contracts be accessible, speedier pay or
faster pay, when a government contractor is available. I would
also encourage you to look at the Small Business Investment
Compnay (SBIC) program. There has been some conversation about
making that a better entry process for CDFIs, mission-aligned
venture capitalists, et cetera. And I know I am using the
venture capitalist, but just generally, investors. And I will
pause there in case Ms. Urrutia has anything to add.
Ms. Urrutia. Yes, the SBIC program at the SBA, I believe,
already does that.
Mr. Auchincloss. In a previous hearing, we discussed, and I
had raised the accounts receivable payback time from the
Federal Government. Do you ever hear any of your businesses
complain about the amount of time it takes for Feds to pay
their bills?
Mr. Sands. In a simple word, yes. But I do believe that
there has been some great progress lately in that.
Mr. Auchincloss. Madam Chairwoman, I yield back. Thank you.
Chairwoman Waters. Thank you very much. The gentleman from
Illinois, Mr. Garcia, is now recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman, for
this important hearing today, and thanks to all of the
witnesses. You know, 26th Street in the neighborhood of Little
Village in Chicago is one of the most vibrant commercial areas
in the country. Small businesses--restaurants, beauty salons,
grocery stores, bars--primarily owned by immigrants, sustain a
rich economy. But when the COVID-19 pandemic hit, even strong
businesses that have been around for decades were worried. Many
didn't have relationships with existing banks or the Small
Business Administration. And that is where CDFIs like The
Resurrection Project and Allies for Community Business stepped
in.
CDFIs and MDIs have proven their value. They strengthen and
promote economic opportunity for underserved working-class
communities like the ones I represent in Chicago and Cook
County. They were a lifeline to immigrant small businesses when
disaster struck in 2020. But it is imperative that we make the
necessary investment to support these institutions that are
vital to helping families recover and prosper in our economy.
Ms. Urrutia, during the COVID-19 pandemic, Latino small
businesses were hit particularly hard, and we know they could
not access PPP funding at the same rate that other business
owners did. What needs to be done to reach the Latino
community? I heard it every day in my neighborhood. Do you
think traditional lenders did a good job in providing Spanish-
language access to businesses during the COVID-19 pandemic?
Ms. Urrutia. I think that every financial institution,
large financial institutions, many of them announced that they
have servicing in Spanish, but it is really very basic. I think
we need the recognition that the Latino community is rapidly
growing, and it is one of the fastest-growing populations in
the U.S., and Spanish-speaking populations in general are one
of the most underbanked communities in this country.
In our roots, we are headquartered in California, so our
expertise lending to Latino-owned businesses goes back several
decades. And what we have found is that the service in what
Spanish-speaking customers need, spans all the way the spectrum
of lending products, technical assistance, and how to. As a
result, we have launched--I mentioned a call center, and it is
open 7 days a week, in Spanish, to help customers through the
entire application process, to provide the support of coaching,
webinars, and technical assistance in their language because
that is how they feel comfortable interacting. And that is how
you get to build trust with the community. I think that is a
very important component for anybody who is going to address
this community to engage and have culturally-competent
engagement actions with the community.
Mr. Garcia of Illinois. Thank you for that. Mr. Sands, how
can the Small Business Administration be more responsive to
businesses that don't have a traditional banking relationship?
And do you think that changes that Congress made to broaden
access to PPP loans will have permanent benefits?
Mr. Sands. Yes, absolutely. Thanks for the question,
Congressman Garcia. I think that, essentially, Congress has
always had this army, the mission-based lenders. And the
mission-based lenders, as you heard Mr. Bynum say, have kind of
fought with one arm behind their backs. PPP was one of the
first times there were changes made in policy to allow for them
to have forward deployment, whether it be the PPPLF facility,
some changes in SBA, or the ability for us to lend nationally.
These are things that I think we have an opportunity to not
wait for the next pandemic and to keep moving forward on, in
addition to Congressman Cleaver's bill in terms of lowering the
CDFI bond guaranteed entry level. I think there are many, many
opportunities here for Congress to say, let's look at what was
successful, and let's continue going regardless of whether or
not there is a pandemic.
Mr. Garcia of Illinois. Thank you. And Dr. Faulkender,
there is no question that inflation is a challenge to our small
businesses, but raising the interest rate can have unintended
consequences. If we slow down our economy, and my neighbors
have less money, small businesses will suffer too.
Dr. Faulkender, when the Fed raised interest rates in the
past, what impact has this had on small businesses in working-
class communities like mine, and has it hurt their ability to
borrow? You are going to run out of time. I have about 15
seconds.
Mr. Faulkender. There is a tradeoff to raising interest
rates in that you are going to benefit savers, but anybody who
is in a credit position is going to pay a higher cost for it.
But to the extent the price stability is an important mandate
of the Fed, it is important that they use their tools to keep
prices in check.
Mr. Garcia of Illinois. Thank you.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. The gentlewoman from Texas,
Ms. Garcia, who is also the Vice Chair of our Subcommittee on
Diversity and Inclusion, is now recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank
you to all of the witnesses. I know it has been a long hearing,
but the end is in sight. We are near the end of the
questioning, and it is always really great to see people who
are so willing to be here, interested in providing so much
information, because I have really learned a lot today.
Madam Chairwoman, it is important to make note that low-
income Latinos are disproportionately impacted by an
inequitable financial system. The FDIC estimates that 30
percent of Latinos, many of whom are Spanish speakers, don't
have a bank account or use alternative financial services. Lots
of community banks have already adopted practices that make it
easier for Spanish-speaking populations to use bank products.
For example, many of them do employ bilingual staff or they
translate materials in Spanish.
However, adopting this program is not enough. It is a great
first step, but we need to make sure that they also get into
planning and give some careful thought to how they do this for
our Spanish-speaking community and, frankly, other communities
who have language barriers.
The technical assistance program with the CDFI Fund is the
perfect tool to ensure that grant recipients have the resources
they need to thoughtfully set up language barrier services.
Bolstering the technical assistance program to include training
and resources could build upon CDFIs' existing capacity to
serve Spanish-speaking populations.
Ms. Urrutia and Ms. Elam, my question to you is, you heard
my compadre, Mr. Garcia of Chicago, talk about some of these
barriers. It is not enough to just go to Google Translate and
translate materials, if people go home and don't really
understand them. Or some banks and some companies provide the
loans, but there is somebody else who services the loans, who
then starts sending them everything in English.
What could we do more in terms of the technical assistance,
in terms of funding? And can you be specific of what else
people should be doing other than just providing materials in
Spanish?
Ms. Urrutia. Sure. Just to comment on the technical
assistance program offered by the CDFI Fund, we do not apply
for it. It is a very small program. We applied for the
financial assistance program award, and you cannot apply for
both. The technical assistance, I believe, is $125,000.
But I think that the most important thing here is that
these awards need to be allocated more proportionately,
according to the organization size and the impact and the value
that they bring to the communities, and lending and technical
assistance. For example, CDFIs that have drastically different
portfolio slices generally are awarded the same amount as CDFIs
in the financial assistance program and the technical
assistance program.
It would be prudent and really more impactful to allow for
more funding to organizations that really wish to scale their
lending and/or their technical assistance and can provide
projections and prove portfolio and customer growth.
To your second question about what can be done, the trust
needs to be built by getting to know the customer. Not every
Latino customer is created equal. They all have different
situations and circumstances and needs. And I think it is
incumbent for any lender or provider of financial technical
assistance to really meet the customer where they are and to be
able to design specific solutions, products, and coaching that
meet the needs of that business owner at that moment in time.
Ms. Garcia of Texas. Ms. Elam, would you care to add
anything?
Ms. Elam. Yes, I think Ms. Urrutia hit the nail on the head
in terms of knowing your customer. I think you have to really
know your customer in order to provide products and services
that are responsive to their needs, as well as materials that
are responsive to their needs.
One of the things that I can say is when I think about my
Hispanic banks is they are very intentional about working with
their partners to ensure that their partners understand that.
Whenever they are creating a new partnership with a fintech or
a government agency, they are very intentional in making sure
that their partners understand the uniqueness of the
demographics that they are serving.
Ms. Garcia of Texas. Right. And what about the contractors
that you may use? I belong to a credit union, but I have always
had problems with the folks who service the mortgage. I don't
want to get into war stories, but they don't provide everything
in Spanish, and that is where the problems begin, because that
may lead to misunderstandings, delinquencies, and maybe even
repossessions, depending on what they want.
Chairwoman Waters. Thank you very much. The gentlelady's
time has expired.
Ms. Garcia of Texas. I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you.
The gentlewoman from Georgia, Ms. Williams, who is also the
Vice Chair of our Subcommittee on Oversight and Investigations,
is now recognized for 5 minutes.
Ms. Williams of Georgia. Thank you, Madam Chairwoman, and
thank to you all of our witnesses who have waited until the
very end today.
When marginalized communities can access capital, we can
help secure the promise of the American Dream for all of us.
And today, I would like to focus on the impact that lending
from mission-driven financial institutions can have on solving
the affordable housing crisis in this country. In metro
Atlanta, we only have 29 affordable and available housing units
per 100 extremely low-income households. The national average
of 37 isn't much better. And we can't afford to not make big
investments in building and updating our nation's affordable
housing including by empowering mission-driven financial
institutions focused on housing.
As a CDFI in my district, the Atlanta Neighborhood
Development Partnership Loan Fund has financed thousands of
affordable housing units through the years.
Mr. Bynum, how can we encourage more existing mission-
driven financial institutions to make affordable housing
production the focus of their lending?
Mr. Bynum. Thank you, Congresswoman.
This is so important. As I mentioned earlier, nothing
closes the wealth gap more than housing and ownership, business
ownership, home ownership. Home ownership perpetuates business
ownership. It yields equity and you can do things and you can
invest in entrepreneurship.
I think I also appreciate your distinction of mission-
driven CDFIs, ones that are actually going to drive capital
into the communities that have not been able to get a mortgage
loan from traditional financial institutions or developers that
need financing to build affordable, quality, rental housing.
And that is where CDFIs come into play.
I think, again, building on the work that you have done,
let's finish the job. Let's continue and sustain programs like
ECIP and drive them to not just banks and credit unions but
loan funds as well, and let's bring HUD into the picture. Down
payment assistance is critically important. You cannot--we have
100 percent down payment products. That is something that we
choose to do because it helps us to drive 80, 90 percent of our
loans to first-time home buyers, to minority and women
borrowers. But down payment assistance will be critically
important as well as making sure that CDFIs have the capital to
provide the financing that these homeowners and developers need
to provide the services that you described and that are so
important.
Ms. Williams of Georgia. And, Mr. Bynum, no place is this
more evident on the need to close the racial wealth gap than
Atlanta, which unfortunately leads the nation with the largest
racial wealth gap. So, we clearly have our work cut out for us.
In 2020 alone, CDFI dollars financed 50,000 new affordable
housing units. However, when we are looking at a deficit of
nearly 7 million affordable housing units across the country,
we know that we still have a lot of work to do.
Mr. Bynum, what kinds of changes or resources would it take
to expand the number of mission-driven financial institutions,
funding the development of affordable housing in a way that
better meets existing need?
Mr. Bynum. I think, again, more capital. You have members
of Ms. Elam's association that are banks, that are ready to
grow if they have the capital. It's the same thing with credit
unions. NeighborWorks America--the organization you mentioned
is a part of NeighborWorks America, which drives grants to help
them build their capacity. I think Mr. Sands is a great
example, as well as Ms. Urrutia's organization, of how fintech,
properly targeted, can help expand the deployment capacity of
CDFIs.
I think also making sure that we use the tools that exist
to hold banks accountable, as well as CDFIs. The Community
Reinvestment Act, and the Fair Housing Act, have been under
attack. And we need to make sure that those are shored up and
that we ensure accountability in the deployment of capital that
is supported by the Federal Government. We can't have CDFIs
that widen the capital gap or banks that widen the capital gap.
They have to be held accountable to deploy capital in a way
that ensures access to everybody, regardless of their race,
gender, or place of birth.
Ms. Williams of Georgia. Mr. Bynum, when mission-driven
financial institutions are best-positioned to invest in
community assets like affordable housing and extend mortgage
credit to borrowers of color, they can address longstanding
economic inequities that impact people who look like me.
You made several recommendations about how to best position
mission-driven financial institutions to close the racial
wealth gap. And if these are implemented, how would you
characterize the impact that these financial institutions could
have on closing the racial wealth gap?
Mr. Bynum. It would be transformative. I also would
encourage us to use Fannie Mae and Freddie Mac to drive them
even more in this direction. They play a critical role, but it
will transform this economy and make us the more perfect union
that we say we want to be.
Ms. Williams of Georgia. Thank you, Mr. Bynum.
And, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much.
Do we have any more Members on the platform? If so, now is
the time to identify them. We are about to close out this
hearing.
If not, I would like to take a moment to thank our
witnesses for their testimony today. Your testimony here today
will help me and the members of my committee keep our MDIs and
CDFIs from being overlooked. And we will not only, not overlook
them, we are here to make sure that we understand the capital
needs, to make sure that there is cooperation with fintech, and
to deal with all of those issues you have identified, whether
it is CRA, or other kinds of issues. We are now focused. And we
now have the opportunity to correct some of the ills that have
been present for so long, dealing with financial institutions
such as our MDIs and our CDFIs.
The Chair notes that some Members may have additional
questions for these witnesses, 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.
I thank you all so very much, and this hearing is
adjourned.
[Whereupon, at 3:17 p.m., the hearing was adjourned.]
A P P E N D I X
February 16, 2022
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]