[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESSES, BIG IMPACT: ENSURING
SMALL AND MINORITY-OWNED BUSINESSES
SHARE IN THE ECONOMIC RECOVERY
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VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION
AND FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 17, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-71
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-130 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri 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
Subcommittee on Consumer Protection and Financial Institutions
ED PERLMUTTER, Colorado, Chairman
GREGORY W. MEEKS, New York BLAINE LUETKEMEYER, Missouri,
DAVID SCOTT, Georgia Ranking Member
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California BILL POSEY, Florida
AL GREEN, Texas ANDY BARR, Kentucky
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JUAN VARGAS, California BARRY LOUDERMILK, Georgia
AL LAWSON, Florida TED BUDD, North Carolina
MICHAEL SAN NICOLAS, Guam DAVID KUSTOFF, Tennessee, Vice
SEAN CASTEN, Illinois Ranking Member
AYANNA PRESSLEY, Massachusetts, JOHN ROSE, Tennessee
Vice Chair WILLIAM TIMMONS, South Carolina
RITCHIE TORRES, New York
C O N T E N T S
----------
Page
Hearing held on:
February 17, 2022............................................ 1
Appendix:
February 17, 2022............................................ 37
WITNESSES
Thursday, February 17, 2022
Bilonick, Marla, President and CEO, National Association for
Latino Community Asset Builders (NALCAB)....................... 4
DeVane, Stephanie, Vice President, Entrepreneurship & Business
Development, National Urban League (NUL)....................... 6
Littlejohn, Amber, Executive Director, Minority Cannabis Business
Association (MCBA)............................................. 8
Robb, Alicia, Founder and CEO, Next Wave Impact.................. 10
Stangler, Dane, Director, Strategic Initiatives, Bipartisan
Policy Center (BPC)............................................ 12
APPENDIX
Prepared statements:
Bilonick, Marla.............................................. 38
DeVane, Stephanie............................................ 44
Littlejohn, Amber............................................ 50
Robb, Alicia................................................. 64
Stangler, Dane............................................... 66
Additional Material Submitted for the Record
Perlmutter, Hon. Ed:
Written statement of the American Financial Services
Association................................................ 71
Joint written statement of the Center for Responsible
Lending, the National Coalition for Asian Pacific American
Community Development (National CAPACD), and the National
Association for Latino Community Asset Builders (NALCAB)... 73
Written statement of Gusto................................... 82
Written statement of the National Association of Federally-
Insured Credit Unions (NAFCU).............................. 87
Luetkemeyer, Hon. Blaine:
Opening statement............................................ 90
McHenry, Hon. Patrick:
Written statement of the Innovative Lending Platform
Association................................................ 95
SMALL BUSINESSES, BIG IMPACT:
ENSURING SMALL AND
MINORITY-OWNED BUSINESSES
SHARE IN THE ECONOMIC RECOVERY
----------
Thursday, February 17, 2022
U.S. House of Representatives,
Subcommittee on Consumer Protection
and Financial Institutions,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 3:08 p.m., via
Webex, Hon. Ed Perlmutter [chairman of the subcommittee]
presiding.
Members present: Representatives Perlmutter, Scott, Foster,
Vargas, Lawson, Casten, Pressley; Luetkemeyer, Posey, Williams
of Texas, Loudermilk, Budd, Kustoff, and Rose.
Ex officio present: Representative Waters.
Chairman Perlmutter. The Subcommittee on Consumer
Protection and Financial Institutions will come to order.
Without objection, the Chair is authorized to declare a recess
of the subcommittee at any time. Also, without objection,
members of the full Financial Services Committee who are not
members of this subcommittee are authorized to participate in
today's hearing.
Today's hearing is entitled, ``Small Businesses, Big
Impact: Ensuring Small and Minority-Owned Businesses Share in
the Economic Recovery.''
Legislation noticed with today's hearing includes: H.R.
2540, the Small Business Lending Fairness Act, by
Representative Velazquez; H.R. 6054, the Small Business Lending
Disclosure Act, by Representative Velazquez; a discussion draft
entitled, ``the Small Business Fair Debt Collection Protection
Act,'' by Representative Lawson; a discussion draft entitled,
``the Promoting Fair Lending to Small Businesses Act''; and a
discussion draft entitled, ``the Small Business Lender
Registry.''
I now recognize myself 4 minutes to give an opening
statement.
As the pandemic and economic recovery continue to evolve,
so do the challenges facing small, minority- and women-owned
businesses.
First, let's remember how far we have come. In April of
2020, there was a panic in the stock market, businesses were
laying off millions of employees, and Congress, Treasury, and
the Small Business Administration (SBA) were working tirelessly
to get money out the door to stabilize the economy and save
jobs.
In the initial wave of support through the CARES Act,
businesses who had the best relationships with financial
institutions were the first to receive assistance like the
Paycheck Protection Program (PPP), while in many cases, the
smallest businesses, including many minority- and women-owned
businesses, were the last to receive support, and some were
left out entirely.
In subsequent aid, Congress targeted harder-to-reach
communities through policies like set-asides for Minority
Depository Institutions (MDIs) and Community Development
Financial Institutions (CDFIs). The American Rescue Plan
replenished funding for targeted economic injury disaster loan
advancement payments, and reauthorized the State Small Business
Credit Initiative (SSBCI), which is still in its early stages
and will enable State Governments to support lending and
investments to small businesses as the recovery continues.
While the CARES Act kept many businesses alive, the
American Rescue Plan is helping businesses and communities
recover and grow. The unemployment rate fell from a high of
14.7 percent in April 2020, to 4 percent in January 2022. Gross
domestic product (GDP) grew 6.9 percent last quarter, and new
business formation hit a new record of 5.4 million in 2021. At
the same time, businesses face ongoing challenges due to supply
chain disruptions, workforce shortages, inflation, and new
COVID mutations.
One group of small businesses that continues to be left
behind in Federal support is State legal cannabis businesses.
States and Territories continue to legalize medical and adult-
use cannabis. Mississippi just passed legislation establishing
a medical cannabis program this month.
Yet, we will not have even resolved the conflict between
Federal and State banking laws. Not only must these businesses
contend with the ongoing pandemic and other economic
uncertainties without being eligible for any Federal small
business aid, but they must do so while being shut out of the
banking system.
The public safety threat of forcing this industry to do
business in all cash is turning into a public safety nightmare.
The recent rash of robberies and attacks in California, Oregon,
and Washington are evidence of the dire need to enact
legislation regarding this public safety issue.
Access to capital and other financial services is critical
for all small businesses to share in the continued economic
recovery. Whether it is getting a loan to start a new business,
accessing credit to cover expenses while supply chains catch
up, or just having basic business bank accounts, access to
fair, transparent, and affordable financial services is
important to ensuring an equitable and far-reaching recovery.
Today's hearing will examine the availability of credit and
financial services as well as potential gaps in legal
protections for small business owners. Additionally, the
hearing will review market transparency, including demographic
data reporting and financial challenges that small businesses
face as the pandemic persists.
With that, I would normally yield to the ranking member of
the subcommittee, Mr. Luetkemeyer, for his opening statement,
but he is not on yet.
So, Madam Chairwoman, I would like for you to speak if you
are prepared to give your 1-minute opening statement.
The Chair now yields 1 minute to the Chair of the full
Financial Services Committee, the gentlewoman from California,
Chairwoman Waters.
Chairwoman Waters. Thank you very much, Chairman
Perlmutter, for holding this important hearing on small
businesses and the challenges they face when applying for
loans. I think you know, and everybody knows by now that our
committee has it as a high priority to see to it that we
correct some of the wrongs and the discriminatory practices
that have been employed by the banks.
But in addition to that, we saw, when we responded to the
pandemic, how the big banks who were handling the PPP program
took care of their concierge clients and left our small
businesses and our minority businesses basically hanging. And
we had to come up with $60 billion more--I worked with Ms.
Velazquez to do that--so that we could put money into our MDIs,
our CDFIs, our credit unions, and our community banks. And they
got that money out to our small businesses very quickly.
In addition to that, we have $12 billion that we have put
together. I worked with Mr. Warner to do that, and of that $12
billion, $1.25 billion has been given out already, and the rest
will go through the Treasury Department.
So, Mr. Perlmutter and most of our members on this
committee are poised at working to do everything that they can
to support our small businesses.
I thank you so very much, Mr. Perlmutter, for this hearing,
and I yield back.
Chairman Perlmutter. Thank you, Madam Chairwoman.
We still don't have Mr. Luetkemeyer. So, I would ask Mr.
Williams, Mr. Posey, or any of the Republicans if they would
like to do an opening statement.
We will allow Mr. Luetkemeyer, when he gets onto the
platform, to do his 5 minutes when he arrives. I am not exactly
sure what the technical difficulty is. Unless we have a
volunteer, why don't we go forward. Let me introduce our
witnesses, and maybe he will be on by then.
I am pleased to welcome each of our witnesses, and I want
to introduce our panel.
Marla Bilonick is the president and CEO of the National
Association for Latino Community Asset Builders, the hub of a
national network of more than 130 mission-driven organizations.
Prior to her current role, she served as the executive director
of the Latino Economic Development Center, leading regional
efforts on the economic and social advancement of low- to
moderate-income Latinos in the Washington, D.C., and Baltimore
areas.
Stephanie DeVane is the vice president for entrepreneurship
and business development at the National Urban League. Ms.
DeVane oversees management, oversight, and advocacy on behalf
of 12 entrepreneurship centers, which provide capacity-building
and programming subgrants and technical assistance.
Amber Littlejohn is the executive director of the Minority
Cannabis Business Association (MCBA). Ms. Littlejohn is an
attorney and an advocate with more than 15 years of experience
in embattled industries. Prior to her current role, she
developed and implemented MCBA's Federal Advocacy Program as
the organization's senior adviser.
Dr. Alicia Robb is the founder and CEO of Next Wave Impact.
Dr. Robb manages an investment portfolio that funds women- and
minority-owned businesses. She is also the research director
and a research fellow at the University of Colorado Boulder.
Dane Stangler is the director of strategic initiatives at
the Bipartisan Policy Center. Prior to his current position,
Mr. Stangler was president and chief policy officer at Startup
Genome, the Visiting Vorzimer Professor at the Long Island
University, and vice president of research & policy at the
Kauffman Foundation.
Witnesses are reminded that your oral testimony will be
limited to 5 minutes. You should be able to see a timer on your
screen that will indicate how much time you have left. I would
ask that you be mindful of the timer, and quickly wrap up your
testimony when your time has expired, so that we can be
respectful of both the witnesses' and the subcommittee members'
time.
When Mr. Luetkemeyer arrives, we will not interrupt a
particular person's testimony, but we will insert his opening
statement between the panelists' testimony.
And without objection, your written statements will be made
a part of the record.
Ms. Bilonick, you are now recognized for 5 minutes for your
testimony. You will see the timer on the screen. We ordinarily
would have a chime when your 5 minutes is up. We don't have
that, so I will have to kind of enforce the time today with my
hammer, and we will let you know when your 5 minutes is up.
So, Ms. Bilonick, you are now recognized for 5 minutes for
an oral presentation of your testimony.
STATEMENT OF MARLA BILONICK, PRESIDENT AND CEO, NATIONAL
ASSOCIATION FOR LATINO COMMUNITY ASSET BUILDERS (NALCAB)
Ms. Bilonick. Thank you very much.
Good afternoon, Chairman Perlmutter, Ranking Member
Luetkemeyer, and members of the subcommittee. It is my honor to
be addressing you today for this discussion on ensuring that
small and minority-owned businesses have an equal share in our
nation's economic recovery.
I am speaking as a former practitioner and current
president and CEO of the National Association for Latino
Community Asset Builders (NALCAB), whereby I represent our
member network of over 150 nonprofits nationwide that support
small Latino-owned and other underserved businesses that
continue to weather the adverse economic effects of the COVID-
19 pandemic.
NALCAB's mission is to dramatically scale the flow of
public and private-sector capital through community-based
organizations to advance economic mobility of Latinos in the
United States. As a grant maker and CDFI lender, NALCAB
strengthens and coordinates the capacity of our network to
deploy capital. This year, we will launch our National Alliance
of Hispanic CDFI Executives, NAHCE, convening the largest group
of Latino-led and Latino-serving CDFIs in the United States.
Since 2008, NALCAB has provided our network members with
over $25 million in grants, and, with NALCAB's support, member
organizations have secured more than $450 million for
affordable housing, small business, and financial capability
programs.
We know that the strength of the U.S. economy relies on the
fast-growing Latino community's hard work, entrepreneurial
spirit, spending power, and leadership. While the Latino
community is heralded for starting small businesses at rates
higher than other ethnic groups, the adverse economic effects
of the pandemic have disproportionately impacted Latino
business owners.
Due to time constraints, I will ask that you refer to my
written remarks for data on these impacts that are cited
therein.
We commend the Federal Government for its swift and
responsive funding and programming to offset the economic
impact of the COVID-19 pandemic. As we begin another year of
living with the pandemic, we wanted to provide some
constructive feedback on select recovery programs.
PPP has been one of the most important sources of recovery
support for businesses and their employees as they have
struggled to stay afloat during the pandemic. However, the
exclusion of CDFIs in the first round of PPP lending delayed
relief to countless small and minority-owned businesses that
looked to CDFIs as their lenders of first resort and that were
turned away by commercial banks.
In the current phase of PPP forgiveness, our network
reports that the majority, over 90 percent of our CDFI-member
PPP loans made have been forgiven for their clients. For
clients who were denied forgiveness, they cited a lack of
proper documentation, language barriers, a misunderstanding of
compliance with program rules, and technology barriers as some
of the reasons for PPP loans not being forgiven.
These observations provide useful guidance as we move into
this next stage of the small business recovery and are the
basis of our recommendations.
The SBA's restaurant revitalization fund, which was cut
from $60 billion to less than half of that, $28 billion,
provided much-needed pandemic recovery support to the
restaurant industry. These funds were expended within one month
of the program's launch. It is urgent that this funding be
replenished, and it is very relevant to the Latino community in
terms of high Latino business ownership and employment.
The Department of the Treasury's State Small Business
Credit Initiative (SSBCI), part of the American Rescue Plan
Act, allocated $10 billion to fund State, Territory, and Tribal
Governments' small business credit support and investment
programs. The program's success will hinge on its ability to
involve mission-based investors working with and for
communities.
And I will go into our recommendations.
Of the small businesses surveyed by the Small Business
Administration, 37 percent of respondents stated that they
didn't apply for PPP because they did not feel they qualified
for the loan or for forgiveness. Another 23 percent said they
didn't apply because the program process was too confusing, and
13 percent responded that they could not find a PPP lender.
In developing future recovery programs in legislation, the
barriers to access from the point of view of ease or lack of
ease in applying should be considered seriously. In addition,
efforts must be made to provide equal access to information on
programs as well as clear direction on what entities are
offering the program within communities.
The new SBA Community Navigator Model provides promise
insofar as it aims to better connect small businesses to SBA
programming through a hub and spoke model that is firmly rooted
in communities. We gladly report that several NALCAB members
are partners in the community navigator programs that are
currently being launched nationwide. We also commend the SBA
for proactively pursuing community-based organizations' input.
We are currently in bi-weekly discussions with the SBA's
Office of Capital Access to provide feedback on and input into
current and upcoming SBA products. The CDFI-funded Community
Development Advisory Board, which I chair, is also a proactive
channel for gaining input on program development from a diverse
set of community-grounded stakeholders.
Small business lending activity and practices have gone
without meaningful monitoring for far too long. Section 1071 of
the Dodd-Frank Act mandates the collection of and dissemination
of small business lending data to facilitate enforcement of
fair lending laws and enable communities, governmental
entities, and creditors to identify business and community
development needs and opportunities of women-owned, minority-
owned, and small businesses.
NALCAB has been a leader in advocacy for Section 1071 of
the Dodd-Frank Act to be implemented. Once implemented, Section
1071 will prove what community-based small business lenders
have only been able to rely on anecdotal and self-reported
evidence to justify, which is the fact that ethnic, racial, and
gender biases negatively impact the ability for minority-owned
small businesses to access capital.
Chairman Perlmutter. Ms. Bilonick?
Ms. Bilonick. Yes?
Chairman Perlmutter. Your 5 minutes has expired, and I
would ask that--the rest of your testimony is written, I
believe, and--
Ms. Bilonick. Yes.
Chairman Perlmutter. --you will get plenty of questions.
Ms. Bilonick. Okay.
[The prepared statement of Ms. Bilonick can be found on
page 38 of the appendix.]
Chairman Perlmutter. Thank you for your testimony.
I now will turn to Ms. DeVane for 5 minutes for an oral
presentation of her testimony.
STATEMENT OF STEPHANIE DEVANE, VICE PRESIDENT, ENTREPRENEURSHIP
& BUSINESS DEVELOPMENT, NATIONAL URBAN LEAGUE (NUL)
Ms. DeVane. Chairman Perlmutter, Ranking Member
Luetkemeyer, and members of the subcommittee, thank you for the
opportunity to testify. I am Stephanie DeVane, vice president
of entrepreneurship & business development at the National
Urban League (NUL). I bring you greetings on behalf of Marc
Morial, our president and CEO.
NUL is an historic, civil rights, community-based
organization dedicated to economic empowerment and a guarantee
of civil rights for African Americans and other underserved
communities in America. As a national nonprofit intermediary,
we provide direct comprehensive services for nearly 2 million
people yearly through our network of 91 affiliates in 36 States
and Washington, D.C.
In my role, I manage and advocate on behalf of 12 Urban
League entrepreneurship centers, which provide management
counseling, mentoring, and training services for entrepreneurs
looking to start, grow, or scale their business.
Our centers served as the first line of defense for clients
during the pandemic. In 2020 and 2021, with support from a
Minority Business Development Agency CARES Act award, our
center served 11,250 small minority businesses, helping them to
secure $138 million in financing and contracting opportunities
and save or create 1,200 full- and part-time jobs.
Last year, with the PepsiCo Foundation, we launched the
Black Restaurant Accelerator Program (BRAP), a $10 million, 5-
year program comprised of cash grants, coaching, and technical
assistance to 500 businesses. The grants have been a lifeline
for many Black food service businesses unable to obtain or
qualify for PPP loans or meet the stringent requirements of
certain grants.
I will share the story of De'Lish Cafe, a cajun-creole
comfort food restaurant based in Dayton, Ohio. In 2018, De'Lish
closed its doors after 8 years. In January 2020, owner Jasmine
Brown began selling food again and opened a food truck. Because
Jasmine had no business in 2019, she couldn't prove a loss, and
although local and State grants were available, the business
didn't qualify for them.
Jasmine said that when the BRAP grant came along, it was
just a feeling like, ``Okay, well, there is something out
there. It is hard when you have a business. In terms of most
food trucks, we have less than five employees, and for some of
us, it may be only us.''
She was thankful the BRAP didn't have the eliminating
criteria that other grants had, and expressed hope that more
such grants would be available for extra small businesses.
Jasmine represents many of our Black entrepreneurs
disproportionately affected by COVID. But, unlike Jasmine, most
were not as lucky. According to data on small businesses from
the Federal Reserve Bank of New York, nearly half of Black-
owned businesses closed between February and April 2020,
compared to just 17 percent of White-owned businesses.
The COVID-19 pandemic added to the impact of systemic
racism and the racial wealth gap in these communities. These
businesses were already financially disadvantaged with weak
capitalization, limited banking relationships, and little to no
cash reserves to cushion the impact of the pandemic.
Access to capital can help bridge the gap for Black small
business owners; however, they are more likely to be denied
capital compared to White counterparts with similar
creditworthiness.
McKinsey & Company reported that Black-owned businesses are
20 percent less likely to get a loan than businesses with White
owners. While the PPP program was intended as a lifeline, it
left most minority businesses behind, reaching just 20 percent
of eligible firms in States with the highest density of Black-
owned firms.
NUL called on Congress to enact stringent protections on
PPP funds to ensure that funds would be directed to businesses
with the greatest need. We advocated for dedicated PPP funding
and rapid authorities to minority development institutions and
community development financial institutions, which ultimately
outperformed other PPP lenders by reaching financially-
underserved businesses with a high proportion of their loans.
Research also showed that Black borrowers able to obtain
PPP loans disproportionately received them from fintech
companies. While fintech automated systems and algorithm
methods tend to reduce racial disparities in lending, the
popularity can be problematic. Unregulated products often lack
transparency and come with unfair terms. Full disclosure of
pricing and terms, reasonable underwriting, fair treatment from
brokers, and fair collection practices are critical.
NUL has worked closely with the Responsible Business
Lending Coalition to address the rise of irresponsible lending.
This phase of the economic recovery is an opportunity to get it
right. For communities of color, access to fair, stable,
transparent, and flexible long-term capital is virtually the
only way entrepreneurs in these communities can sustainably
grow their businesses.
We offer these recommendations: Support passage of the
Small Business Lending Disclosure Act of 2021; implement
Section 1071 of the Dodd-Frank Act for small business
disclosures; ensure strong supervisory enforcement of the Equal
Credit Opportunity Act of 1974; promote and invest in supply
diversity programs; and invest in community-based small
business incubators.
This concludes my testimony. I look forward to your
questions.
[The prepared statement of Ms. DeVane can be found on page
44 of the appendix.]
Chairman Perlmutter. Thank you. You hit it right on 5
minutes. Thank you very much. I appreciate your testimony, Ms.
DeVane.
The Chair now recognizes Ms. Amber Littlejohn for 5 minutes
for an oral presentation of her testimony.
STATEMENT OF AMBER LITTLEJOHN, EXECUTIVE DIRECTOR, MINORITY
CANNABIS BUSINESS ASSOCIATION (MCBA)
Ms. Littlejohn. Chairman Perlmutter, Ranking Member
Luetkemeyer, and members of the subcommittee, thank you for the
opportunity to testify at today's hearing.
My name is Amber Littlejohn. I am the executive director of
the Minority Cannabis Business Association (MCBA). The MCBA is
the largest national trade association dedicated to serving the
needs of minority cannabis businesses and our communities. We
represent minority and allied cannabis businesses, aspiring
entrepreneurs, and advocates who share a vision of an
equitable, just, and responsible cannabis industry.
I am pleased to appear before you on behalf of MCBA to
discuss the challenges shared by small businesses as we
continue to grapple with the global pandemic. For many minority
businesses, including minority cannabis businesses, the outlook
is dire. As the nascent cannabis industry takes shape, we see a
common tale of small businesses seeking to shake the economic
consequences of systemic inequities only to suffer at the hands
of predatory investors and partners who seek to profit from
injustice.
In my verbal testimony, I will touch on four issues, how
the pandemic has exacerbated them, and some of the potential
solutions. I offer myself and the MCBA as an ongoing resource
on these issues.
First, the pandemic has been particularly difficult for
small businesses, but especially for minority cannabis
businesses that were shut out of Federal relief. Despite many
States deeming cannabis businesses essential during the early
stages of the pandemic, all cannabis businesses were deprived
of access to these lifelines.
Second, the financial challenges minority cannabis
businesses face have been exacerbated by the pandemic, but they
were not created by it. Despite accounting for 12.4 percent of
the U.S. population, African Americans constitute just 2
percent of the owners of the nation's 30,000 plant-touching
businesses. This low representation is due to the staggering
cost to enter and operate, where an application process alone
can exceed $1 million.
Third, State social equity programs intended to promote
ownership among the individuals most impacted by cannabis
prohibition are critical to the success of minority cannabis
businesses. However, these programs, to date, are failing to
adequately support minority businesses. Currently, only 15 of
the 37 States where cannabis is legal have implemented social
equity programs. And of that 15, only 6 provide direct funding
to social equity applicants and operators.
For a glimpse into the financial barriers to entry,
consider Connecticut, where cultivation applicants must pay $3
million or try their luck at securing one of 56 licenses
available in the lottery, only half of which are reserved for
social equity. Applicants seeking a cultivation or processing
license in Pennsylvania's medical market must prove they have
$2 million in capital and pay a $210,000 application fee. By
and large, these programs provide too little, too late, to
minority entrepreneurs to participate.
Fourth, small and minority-owned cannabis businesses cannot
access the traditional financial services they need to survive,
let alone thrive. Many small minority cannabis businesses
cannot access core banking services such as deposit accounts,
loans, and electronic payments simply because they are in the
cannabis industry.
As of June 2021, only 700 of the approximately 10,000
federally-insured banks and credit unions in the U.S. actively
provide some type of banking service to the cannabis industry.
Until small and minority-owned cannabis businesses can access
financial services on a fair and competitive basis, they will
continue to be left behind as other sectors of our economy
recover.
To address these issues, I encourage Congress to consider a
wide range of options including: enacting the SAFE Banking Act
this session; collecting demographic data about the
availability of financial services to small and minority-owned
businesses; ensuring protections for CDFIs and other
institutions more likely to lend to small cannabis businesses;
calling for updated guidance for financial institutions doing
business with cannabis firms; and conducting a disparity study
to ensure that any comprehensive legislation efforts address
the disparate impact of Federal cannabis laws.
Supporting small minority cannabis businesses is not just a
moral imperative; it makes good economic sense. Despite their
struggles, cannabis social equity businesses contribute $1.20
in social good for every $1 invested in social equity programs.
But without relief from Congress, minority businesses will not
make it to the end of Federal prohibition. Some did not make it
to the end of this week.
Thank you.
[The prepared statement of Ms. Littlejohn can be found on
page 50 of the appendix.]
Chairman Perlmutter. Thank you, Ms. Littlejohn.
My colleagues have been hearing me talk about this issue
for several years, so I appreciate your testimony.
Dr. Alicia Robb, you are now recognized for 5 minutes for
an oral presentation of your testimony.
STATEMENT OF ALICIA ROBB, FOUNDER AND CEO, NEXT WAVE IMPACT
Ms. Robb. Thank you, Chairman Perlmutter, Ranking Member
Luetkemeyer, and members of the subcommittee. I appreciate the
opportunity to provide testimony.
My comments are going to focus on the small business
financing data gaps and the implementation of Section 1071 of
the Dodd-Frank Act. I would first like to highlight, however,
our government's own conclusions about the state of small
business financing with a few quotes.
A White Paper from the Consumer Financial Protection Bureau
(CFPB) states: ``With current data, it is now possible to
confidently answer basic questions regarding the state of small
business lending.''
And a report to Congress by the Federal Reserve Board of
Governors notes the following: ``One, fully comprehensive data
that directly measures the financing activities of small
businesses do not exist. And, two, up-to-date and comprehensive
information about the universe of small businesses is sparse,
and most evidence about financing needs and sources is derived
from surveys, many of which have limited coverage or rely on
nonrepresentative samples.''
This last quote is particularly frustrating for me, because
the Federal Reserve Board of Governors had been a source of
small business financing data with their survey of small
business finances conducted every 5 years. I was employed with
the Federal Reserve and worked directly on the 1998 survey.
However, they decided that after 2 decades of surveys, they had
learned enough, and canceled the program after the fourth and
final 2003 survey. Then, in 2008, when the economic crisis hit,
there was no survey in place to collect data during and after
the economic downturn.
In their most current report to Congress on the
availability of credit to small businesses, from 2017, which I
just quoted and which is due to Congress every 5 years, the
Federal Reserve relied heavily on the annual survey of
entrepreneurs from 2015, which was a new survey conducted by
the Census Bureau with funding support from the Kauffman
Foundation.
At the time, I was a senior fellow with the Kauffman
Foundation, and I jointly proposed and advocated for this
survey because of the need for more comprehensive and timely
data on small business financing, especially data that included
business owner demographics.
I have continually pushed for more timely and comprehensive
data on small business financing, because we know there
continues to be gender, racial, and ethnic gaps in small
business financing and credit market experiences, and we do not
have sufficiently robust data to perform the kinds of rigorous
analyses that would provide us a better understanding of the
barriers and challenges faced by small businesses in general,
and those underserved groups in particular. A better
understanding would allow policymakers to design a more
efficient and impactful program to address existing gaps and
level the playing field.
Congress mandated data collection by Section 1071 of the
Dodd-Frank Act in 2010 for similar reasons. As noted in the
2017 report from the Consumer Financial Protection Bureau,
these data can provide a broad range of stakeholders across the
United States with an understanding of the small business
credit flowing into their local communities and allow them to
identify credit deserts or sectors where credit flows may be
restricted. This, in turn, may support localized efforts to
increase access to credit in various communities around the
United States to address unmet credit needs, thereby spurring
economic development.
In September 2021, more than 10 years after Congress first
mandated the data collection, the CFPB released a notice of
proposed rulemaking to finally implement Section 1071 of the
Dodd-Frank Act, and here we are in 2022, still with no
implementation of the data collection effort that was mandated
by Congress.
We have spent hundreds of billions of dollars through
various programs, such as the Paycheck Protection Program and
the economic injury disaster loans, and yet we don't have a
process in place for the collection of data that would allow us
to evaluate the small business credit market landscape, let
alone the effectiveness of such programs. We need to implement
Section 1071 of Dodd-Frank now, not in another 10 years.
We should also ensure that the Federal Reserve System
collects annual data in its small business credit survey from a
representative sample of small businesses, and not from a
convenience sample. These sources would provide a much richer
picture of the small business credit market from both the
supply and demand sides of the market. This would allow us to
better identify credit market gaps and inform better
policymaking.
Thank you, and I look forward to your questions.
[The prepared statement of Dr. Robb can be found on page 64
of the appendix.]
Chairman Perlmutter. Thank you, Dr. Robb.
And I have been told that we have Mr. Luetkemeyer joining
us by phone, so I would ask for unanimous consent that he be
allowed to join us by phone.
Without seeing any objections, Mr. Luetkemeyer, you can
join us by phone. Can you hear us? Let's see if we can hear
you.
I think he is down in the tile called, ``anonymous.''
Well, we will keep going with our next witness, Mr.
Stangler, and then, Mr. Luetkemeyer, if you can hear me, you
are welcome to do your 5-minute opening after we conclude the
panel's testimony.
So, Mr. Stangler, you are now recognized for 5 minutes for
an oral presentation of your testimony.
STATEMENT OF DANE STANGLER, DIRECTOR OF STRATEGIC INITIATIVES,
BIPARTISAN POLICY CENTER (BPC)
Mr. Stangler. Thank you.
Chairman Perlmutter, Ranking Member Luetkemeyer,
distinguished members of the subcommittee, I am delighted to
participate in today's discussion about small businesses and
economic recovery. I commend you for convening this important
hearing and thank you for inviting the Bipartisan Policy Center
(BPC) to participate.
I am the director of strategic initiatives at the BPC. We
are a nonprofit organization dedicated to combining the best
ideas of both parties to promote health, security, and
opportunity for all Americans. We have had the pleasure of
working with many of you. Thank you for your commitment to
finding bipartisan public policies that help America's small
businesses and entrepreneurs.
As part of our work at BPC, we collaborate with a variety
of partners to help ensure that more businesses are started by
more Americans, in more parts of the country, in more sectors
of the economy. This is the key to recovery, a recovery not
only shared by small businesses and entrepreneurs, but also
driven by them.
There are three points I would like to highlight for you
today.
First, the present landscape of small business and
entrepreneurship can be broadly characterized by two trends. On
one hand, many small businesses continue to struggle with the
negative effects of the pandemic. In the most recent reading of
the Census Bureau's Small Business Pulse Survey at the end of
January, nearly 40 percent of small businesses say they don't
expect full recovery of their business for at least 6 months.
Many are struggling with rising costs and difficulties in
hiring and retaining workers.
At the same time, new business formation is at record high
levels and has been that way since the summer of 2020. The
number of business applications filed by those deemed to be
likely employers was 37-percent higher in 2021 than in 2019.
There are some indications that entrepreneurship has been
high among women and people of color. Millions of Americans see
small business ownership and entrepreneurship as their road to
opportunity.
These trends tell us that small and young companies are
ready for recovery. They are looking to grow. They need the
support of a public policy framework.
Second, there is little question that government relief
efforts, such as PPP and COVID EIDL, helped many small
businesses stay afloat. Many of the small business owners we
speak to praise those programs as the difference between
closing and continuing their businesses. In particular,
modifications that were made to those programs along the way,
such as inclusion of online lenders and community development
financial institutions, were essential in helping get relief to
those, such as business owners of color, who otherwise confront
financing disparities. This is an important lesson for future
policymaking.
Third, public policy must encourage and support private-
sector financing innovations with our expanding access to
capital for small and young companies. There has been
considerable innovation in small business financing over the
last several years, including new business models, new
technologies applied to underwriting, new capital structures,
and many more.
Banks remain the main source of external credit for small
businesses and entrepreneurs, and many banks have been
investing heavily in technology. Many small and community banks
have also formed productive partnerships with fintech
companies. Much of this innovation is directed at closing gaps
for traditionally underserved groups like women entrepreneurs
and business owners of color. We encourage you to help promote
these innovations, including by continuing to find ways that
they can support public programs.
Additionally, we encourage policymakers to improve
coordination across existing Federal programs. There are
already scores of efforts across multiple Federal agencies
devoted to helping small businesses and entrepreneurs. Many of
them and their partners across the country do exemplary work,
but there are undoubtedly areas where performance can be
improved and coordination can lead to greater effectiveness and
resource efficiency.
Lastly, we encourage you to continue to explore ways to
balance the regulatory burden across lenders and reduce the
regulatory costs, especially regarding partnerships between
banks and fintechs, that in some cases can get passed along to
small businesses.
Chairman Perlmutter, Ranking Member Luetkemeyer, and
members of the subcommittee, thank you again for your
leadership on small-business issues. I am happy to elaborate on
any points, and I look forward to your questions.
[The prepared statement of Mr. Stangler can be found on
page 66 of the appendix.]
Chairman Perlmutter. Mr. Stangler, thank you for your
testimony.
I would like to reach out again to the ranking member, Mr.
Luetkemeyer, otherwise known as, ``anonymous,'' and see if he
can hear us?
Mr. Luetkemeyer. Yes, I can. I apologize for all of the
technical problems. I am in the middle of a snowstorm, ice
storm, sleet storm here, and I have technical difficulties, and
I am technically challenged, so we have a mess. But I apologize
for the delay in getting on, and for being on a phone instead
of the computer.
Thank you, Mr. Chairman.
Chairman Perlmutter. I am glad you joined us. If you would
like to do your opening statement now, we would welcome it, or
I can begin the questions, and then, you will ask questions
after me, and you can do your opening. I want you to do it at
your leisure.
Mr. Luetkemeyer. Why don't we just skip my opening, and I
will try and ask some questions, and if you give me a little
leeway with some of the questions, a little more time, maybe I
can insert some of the narrative from my opening comments, if
that would be fine.
Chairman Perlmutter. Yes, sir. I think the subcommittee
would welcome that.
I will begin with my questions, and I will begin with Ms.
Littlejohn.
In your testimony, you touch on four issues facing minority
cannabis entrepreneurs: the pandemic; high barriers to market
entry; a failure of State social equity programs; and the
inability to access the traditional banking system.
In many cases, it seems these issues can create a feedback
loop and amplify obstacles for people of color seeking to start
or operate a cannabis business.
Can you describe how, without access to traditional credit
or investors, minority cannabis business owners are being
pushed into predatory loans and business arrangements?
Ms. Littlejohn. Yes. Thank you, Mr. Chairman.
So, with Federal law limiting access to traditional
funding, many cannabis businesses are initially funded through
friends and family and personal wealth. And given the wealth
disparities, especially among those most-impacted by cannabis
prohibition and the war on drugs, this is not an option.
Large operators have no issue accessing capital. In fact,
for many of them, the pandemic has been a boom. This
unfortunately has not happened to small cannabis businesses
that regularly see rates as high as 20, 25, and even 40
percent, if they can obtain a loan at all.
For those who can't secure loans, we commonly see
significant undervaluation, and frequently, operators have to
turn to equity partnerships, and these partnerships
unfortunately are often extraordinarily predatory. We have
inequitable distribution of profits where the social equity
partner is living in poverty while the investor is taking 3 or
4 times as much. We have operators who are giving up a 49-
percent stake, but then being forced to rent property at 4 to 7
times the going rate for real estate.
And unfortunately, again, these are really common. We see
contracts that will force the social equity partner to sell--
even for a minor breach of contract, to sell their license to
the investor for pennies on the dollar.
And, because oftentimes the process of getting to the point
of application in itself can be thousands, if not millions of
dollars--one of my board members paid over $400,000 before she
was awarded a license, because she was required to hold
commercial property just to apply. That doesn't mean she was
guaranteed, but just to apply.
So, we have people who are selling art, selling plasma,
mortgaging family homes, and sleeping in cars, all trying to
stay above ground and keep themselves above water and to try
and participate in an industry where we sold the promise of
inclusion and participation, and we are leaving people out in
the cold.
Chairman Perlmutter. Thank you for your answer.
Dr. Robb, I have a question for you.
I want to ask you about the CFPB's 1071 proposal, which
would require financial institutions to collect demographic
data in small business lending. And, as you said, you worked at
the Fed and for the Kauffman Foundation. Isn't somebody already
collecting small business lending data, and wouldn't this be a
duplication?
Ms. Robb. Thank you, Mr. Chairman.
No, it would not be a duplication. There are very little
data available on small business financing. The Small Business
Credit Survey, which is now being done every year by the
Federal Reserve System, is done on a convenience sample, and it
is not nationally-representative, so it is limited in that way.
That is also from the demand side, which was also the case for
the survey of small business finances.
The Annual Survey of Economics, which is done annually by
the Census Bureau, is nationally-representative. But the focus
of the survey is not on financing, and so there is limited
information about small business financing, sources, costs, et
cetera. It is also from the demand side.
The CFPB is actually looking to create microdata on loan
applications from the supply side, and that does not exist. The
closest thing to that are the call data reports, and then the
CRA has data. But, in both of those cases, they proxy small
business lending by the size of the loan, not the size of the
firm. This proxy has been shown by researchers to be
inaccurate, so you have lots of large businesses getting small
loans and small businesses getting large loans. It is a not a
one-to-one match. So, the CFPB, in Section 1071, is really
collecting unique data.
Chairman Perlmutter. Thank you very much for your
testimony. My time has expired.
I would now like to yield to the ranking member of the
subcommittee, the gentleman from Missouri--who is going through
a storm--Mr. Luetkemeyer, for such time as he may use in
connection with opening comments as well as questions.
Mr. Luetkemeyer, you are now recognized.
Mr. Luetkemeyer. Thank you, Mr. Chairman. Again, I
apologize for the situation here.
But, Mr. Stangler, I would like to start with you.
Would you share your concerns that you have with the CFPB
small business data collection rule implementing Section 1071
of Dodd-Frank? This is, to me, a really, really big problem. I
have a lot of problems with it. My question initially here is:
Would creating additional compliance and resource burdens on
financial institutions, particularly smaller institutions,
promote or stifle small business lending?
Mr. Stangler. Thank you, Ranking Member Luetkemeyer. I am
located in eastern Kansas, and I think I am in the same snow
and ice storm as you, but we have been spared the technical
challenges. I feel sorry for you.
Thank you for your question. As Chairman Perlmutter noted,
I used to work at the Kauffman Foundation. I worked with Dr.
Robb at Kauffman and helped create that annual survey of
entrepreneurs to which she referred. So, I don't think anyone
would ever accuse me of advocating for less data on small
businesses or on entrepreneurship.
I think what is concerning about the CFPB action and the
rulemaking is that this has not gotten bipartisan political
support, and it has not gotten support from a lot of the folks
in the industry and the lenders. BPC had a Main Street Finance
Task Force effort a few years ago, and that task force was
unanimous on every single issue except for this one.
There were concerns raised by lenders, by former agency
folks, and by others in that effort about some of the
suppressive effects this might create, that you referred to,
some of the compliance costs, some of the burdens. There is no
question that we need better data on small businesses, on small
business financing. Some of the challenges that Dr. Robb
alluded to are significant and real and need to be addressed.
I think what concerns us is that there are other
bureaucratic barriers that can and should be addressed first.
With a lot of the data that is collected already by the Census
Bureau, by the IRS, and by others, there are barriers to using
and sharing that data that we might get insights from without
creating additional burdens or additional layers.
And I do worry, and we worry, and the folks we talk to in
the industry among small businesses worry about some of the
incentives or the disincentives created by some of this
rulemaking.
But, again, I think the broader issue is, how can we get
better data, and how can we do it in the least-burdensome way
possible?
Mr. Luetkemeyer. As the ranking member on the House Small
Business Committee, I can tell you there are a lot of different
entities that are collecting data right now, not the least of
which is the National Federation of Independent Businesses,
which is comprised of small business groups. But there are
other entities. In fact, tomorrow, I have a Zoom call with the
Job Fairs Network, which is kind of like the U.S. Chamber of
Commerce, although it is not a radar group that does a lot of
surveying, and they survey small businesses, and I get a report
from them every month or every other month.
And so, there is a lot of data out there that I think, if
you need some more--in fact, whenever you want a survey, let me
know. I can ask the Job Fairs to put it on their next survey.
I think the opportunity for more data is there. The kind of
data that you are trying to get or they are trying to get, is
what is concerning to me. Dodd-Frank specifically provides the
borrowers the right to not give race and gender and ethnicity
information to financial institutions, but the bank loan
officer has to be very careful because they can't ask that
question; if they do, they get in trouble, and if they don't,
then they have to guess. And if they guess, they leave
themselves open, in my mind--I have seen the way the CFPB
operates. And during the incorporate years, holy cow, they went
out and intentionally intimidated individuals and extorted
money from the different businesses based on their guidance
that they put out there, which is not something they can even
enforce.
And so, when you are now going out here and basically
trolling these businesses to see once--if you can get them
hooked on some kind of a problem here by putting things out
there that they have to guess at what the answers may be, holy
cow, this is opening up Pandora's box for these folks. To me,
this gets them in some really murky waters, and I would just
like your opinion on that situation.
Mr. Stangler. Thank you, Congressman.
You are right that there is a lot of data out there on
small businesses, on entrepreneurs. This is where I think there
are other ways to go about filling some of these data gaps
before launching new processes.
We worked a lot with some of these Federal agencies, and
some of the folks I have talked to point to significant
barriers in just sharing some of that information between
agencies. So, I think there are other ways to use some of the
information we have and get new information before we start a
whole rash of new concerns, as you raised, with this effort.
Mr. Luetkemeyer. If the Chair would allow me one more
question here--I don't know what my time is, but the privacy of
information that the CFPB wants is a very, very real concern to
me, also from the standpoint that we have seen the different
cyber attacks, cyber hacks that have gone on within our own
government. I know that the CFPB is not immune to those attacks
either.
And, here, we are going to accumulate more information.
Some of it is guesswork. So, if you guess wrong, what happens
to those people if they are hacked?
The privacy of all this additional information, for
whatever intentions they may have, doesn't seem to outweigh the
risk that is there for the consumer.
What do you think about that, sir?
Mr. Stangler. Thank you, Congressman.
Yes, privacy is always a significant concern, especially
with the rising number of cyber attacks we have seen. I know,
if we are going to improve the state of small business data, if
we are going to use those other sources that you refer to and
that you see constantly, and if we are going to have public
agencies hold some of this data, I know there are other
agencies that have significant and strong confidentiality and
privacy protocols in place.
There are also private sector partners who work with
government and hold government data who excel at this as well,
so--who have found a way to protect the privacy, but this is
obviously an overriding concern here.
Mr. Luetkemeyer. Thank you, Mr. Stangler.
Mr. Chairman, I want to thank you for going along with a
little extra time here. I want to work with you. To me, this
privacy situation is extremely important. This is something we
have to work on together to make sure that the CFPB does not
allow that additional information they are collecting to be
able to have access to other folks.
So, with that, I thank you, and I yield back.
Chairman Perlmutter. I thank you, Mr. Luetkemeyer. Thanks
for going the extra mile and getting on by phone, even while
you're in a snowstorm. In Colorado, we got about 8 to 10
inches. We handle it a lot better than you folks in the
Midwest. That is all I can tell you.
Mr. Luetkemeyer. We handle it. Right now, anyway.
Chairman Perlmutter. Okay. I now recognize the gentleman
from Georgia, Mr. Scott, who is also the Chair of the House
Agriculture Committee, for 5 minutes.
Mr. Scott. Thank you, Chairman Perlmutter.
And I would like to begin my questioning with Ms.
Littlejohn. As the chairman mentioned, I am the new chairman of
the House Agriculture Committee. Cannabis has become our
fastest-growing product, but there are some mixed problems
here.
I worked very closely with the chairman. He spent a lot of
time working on this issue because of the criminality, and he
has done a magnificent job in attempting to legitimatize the
financial arrangements so that it is not cash only, a situation
which created so much criminal activity.
But here we are, the fastest-growing agriculture product,
and between hemp and cannabis, we have such a variation of
State laws. It is reminiscent of the Prohibition, which gave
birth to our friends in the Mafia.
Now, we are also going into our Farm Bill. We have to
address this issue. We can no longer hide it.
You raised several good points, but I want you to tell us
what the state of their art is, where the problems are, and
what we need to do to make sure our farmers are doing what they
need to do. There are different applications between hemp and
marijuana. Where does all of this fit?
And in this confusion, with a lack of proper information,
that is what the criminal element preys on. Your statement was,
if I have it correct--you reference a social equity partner,
and I think you meant that in that regard, African Americans
are having difficulty in even getting the license or access to
capital.
I just want you to share with us and share with me where we
are so that as we get into this issue next month in the Farm
Bill, I want to be certain that we can help our farmers.
Already, they are growing it.
Can you get with us and, first of all, tell me what you
meant by that statement relative to--you said it impacts a
social equity partner relative to licensing, I think?
Ms. Littlejohn. Yes, Congressman.
What that means is certain States set up programs intended
to ensure that the individuals who have been most harmed by
cannabis prohibition, including primarily African Americans,
have a chance to actually participate in this burgeoning
industry. But unfortunately, only 15 of the now 37 States have
these programs, and unfortunately only--
Mr. Scott. I want to get that right. You said 15 of the--
Ms. Littlejohn. Only 15 of the 37 States have programs.
Mr. Scott. Why didn't you say 15 of the 50 States? Is
there--
Ms. Littlejohn. Yes. 15 of the 37 States that have legal
cannabis programs.
Mr. Scott. Oh, I see.
Ms. Littlejohn. I assume we will get to 50 soon, but 15 of
the 37 that are legal now. Unfortunately, in your home State,
Congressman, we saw this in real time, where there was an
extraordinarily high cost for the application, and that alone
led to only four Black applicants.
Mr. Scott. And what was that cost?
Ms. Littlejohn. I believe it was well over $150,000.
Mr. Scott. Wow.
Ms. Littlejohn. It was actually $250,000. So, at that
point, only--for the larger applications. So, only four African
Americans applied for licenses, and all of the licenses ended
up going to larger, nonminority firms. This is something--
Mr. Scott. Do you think this was done intentionally to
discriminate against those at the lower end of the economic
ladder?
Ms. Littlejohn. It was $200,000. It has been clarified.
This is about discriminating against all small businesses,
because companies are going in and trying to capture markets.
For instance, in Virginia, there are currently only three large
companies that control the entire medical cannabis market in
Virginia, and I actually just got permission to run ahead of
everybody else.
Mr. Scott. My, my, my.
Now, what is--
Chairman Perlmutter. Mr. Scott, I'm sorry, but your time
has expired.
Mr. Scott. Okay. Let me just say this.
Ms. Littlejohn, I would like for you, if you don't mind, to
get in touch with my office, because we are putting together
witnesses in which--and you have a wealth of valuable
information that will be very helpful to our farmers who are
engaged in this and our agriculture industry.
Thank you, Mr. Chairman.
Ms. Littlejohn. It would be my pleasure.
Mr. Scott. Thank you.
Chairman Perlmutter. Thank you, Mr. Scott.
I now recognize the gentleman from Florida, Mr. Posey, for
5 minutes.
Mr. Posey. Thank you, Chairman Perlmutter. I appreciate it.
Mr. Stangler, based on the title of this hearing that we
are in today, to help ensure that small and minority-owned
businesses share in the economic recovery, the usual stock and
trade of this committee is subsidizing small and minority
businesses in credit markets and providing what some of us
believe is needed additional regulation.
The economy right now is characterized by fairly strong
recovery numbers, but crippling inflation and tight job market
conditions. We also have the uncertainty of public health
regulations, and those impacts on small businesses are
profound, especially for the hospitality and travel sectors.
Would you help us put the priorities in context? In terms
of helping small businesses participate in the recovery, how
does access to credit and more credit regulations for small
businesses through the CFPB stack up against crippling
inflation, finding workers, predicting that your business will
be able to stay open, and easing some of the heavy-handed
burdens of existing regulations? Where should Congress put its
priorities?
Mr. Stangler. Thank you, Congressman.
I think the best place to look for guidance in
prioritization is from the small businesses themselves, and
right now one of the best sources of direct input from small
businesses is the Census Bureau's Small Business Pulse Survey.
This reaches about a million small businesses, and it has been
through seven or eight phases. The latest phase just concluded
at the end of January. It is very good.
A year ago--and I can double check these statistics after
the hearing, but I think a year ago, when the Census Bureau
asked small businesses what their top future need was, what was
their biggest need as they tried to recover, it was financial
assistance. We were in the midst of a surge, and consumer
demand had shifted. Lockdowns and restrictions were still in
place, and a lot of small businesses said they just needed
financial assistance.
Fast forward to this year, to January. Financial assistance
is now fourth, fifth, or sixth, I think, on the list. The
number-one need that small businesses say they have is to
identify and recruit employees, and that has been in the top
spot for, I think, 2 or 3 months.
The number-two need is marketing and sales. They want to
grow. They are ready to grow.
And so, I think those are the priorities.
We know from other surveys, including a survey that was
released last month by the Goldman Sachs 10,000 Small
Businesses Program, that inflation is a major, major burden for
small businesses in that survey. We know from these latest
surveys, these large-scale surveys, that finding workers,
keeping workers, and dealing with rising costs are major
challenges right now for small businesses.
Mr. Posey. I was going to ask you next regarding the
inflation being a big threat, what small businesses are telling
you about the impact, and I guess you have pretty much told us
it is the top priority.
Am I correct in that assumption?
Mr. Stangler. Inflation was definitely a concern in some of
these latest surveys, for sure, among small businesses, yes.
Mr. Posey. Now, innovation is the hallmark in the history
of our U.S. financial system. Could you identify the most-
promising financial innovations on the horizon for small
businesses today and what the biggest threats are to those
promising ideas?
Mr. Stangler. Thank you, Congressman.
As I mentioned in my oral remarks, and as you can find in
my written testimony, the last several years pre-pandemic were
characterized by lots of private-sector innovation in the space
of small business financing. Fintechs obviously have gathered a
lot of attention, online lenders. But traditional banks also
have invested quite heavily in technology. Many of them have
become almost fintech lenders themselves, and many of them have
formed partnerships with fintechs, and those partnerships have
really helped small and community banks as well.
There have been a number of other innovations in the space.
There are folks trying to pioneer new types of hybrid capital
structures, especially directed toward helping those small
businesses owned by women, and owned by people of color, who
maybe can't access capital through traditional channels. And
for some of those new business models, those partnerships, I
think there are two regulatory concerns.
One is, in the bank and fintech partnership, to help level
that regulatory playing field and to help reduce some of the
burdens on those partnerships. For some of the new business
models, I think there can be greater regulatory clarity on what
is and isn't permitted so that innovation can proceed for small
business financing.
Mr. Posey. I appreciate it very much.
Mr. Chairman, I see my time has expired, and I am happy to
yield back. Thank you.
Chairman Perlmutter. Thank you, Mr. Posey.
The Chair now recognizes the gentleman from Illinois, Mr.
Foster, who is also the Chair of our Artificial Intelligence
Task Force, for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
Many lenders, including fintechs, use business credit
scores to address creditworthiness. And, similar to consumer
credit scores, business credit scores are a metric for risk
that are based on payment history, credit utilization, length
of credit history, and outstanding debt. But according to a
recent report, 45 percent of small business owners did not even
know that they had a business credit score, 72 percent did not
know where to find it, and 82 percent did not know how to
interpret it.
Now, there are various opinions among consumer interest
groups and credit bureaus about the accuracy of personal credit
reports and whether report inaccuracies negatively affect the
consumers' overall credit score, and these phenomena have been
the subject of considerable discussion within our committee.
But in regards to business scores, Ms. Bilonick and Ms.
DeVane, are these business scores prone to the same
inaccuracies or mistakes that personal credit reports sometimes
experience?
Ms. Bilonick. Thank you, Congressman Foster. I will just
start, and hopefully Ms. DeVane will chime in after I am done.
I do believe they are subject to the same potential
inaccuracies. I think this is actually a growing and emerging
area in supporting small businesses, which is basically
providing financial capability services that are targeted to
small business financial management.
We have seen in our membership that there has been a shift
in the focus of financial capability support from working with
consumers, potentially with the aim of building an asset like
the purchase of a home, to shifting to more financial
capability support for small business owners.
There has been sort of a lack of support to small business
owners in this area, and I do think just anecdotally, from my
own experience as a practitioner, that most small business
owners do not know that they have a business credit score.
Most small business owners are using, and are impacted by
their personal credit scores, therefore, I think there is a
real lack of opportunity to support small business owners in
terms of educating them about how to start small business
credit, how to build and repair small business credit, and how
to monitor their small business credit.
Ms. DeVane. I would add to that--and I want to thank you
for the question--that business credit scores are clearly an
important indicator for many, many lenders as to how a borrower
is going to manage their debt. And it is based on historical
performance or behavior and whether you are more or less likely
to be delinquent on your payments.
So, low scores would deem you to be a higher credit risk.
And that may even necessitate a small business having to put up
collateral or to provide a personal guarantee, which the
business may not be in a position to do.
And I also think, anecdotally again, that these
calculations can certainly vary by institution and may not
necessarily be disclosed to the borrower, which means the score
is somewhat subjective, and as a result, not necessarily an
equitable measurement of risk.
And also, the loan pricing, the term, and the amount
depends on that business credit score. So, it has the ability
to lead to less favorable pricing and terms for a minority-
owned business or women-owned business that just doesn't meet
those requirements.
So, I think it may not always be an accurate reflection of
the risk, and we need to be very careful in terms of how we use
those business credit scores. And those borrowers--those small
businesses need to be aware of how those scores are being used,
how to determine how those are calculated, and to make sure
that they look at that as potential revenue.
Mr. Foster. Are there organizations or businesses that are
set up to counsel businesses on how to improve their business
credit score, or are the same entities that are generating the
business credit scores also making money by offering advice on
how to improve it, which I always thought would be an
outrageous conflict of interest?
Ms. DeVane. I will jump in here really quickly and just say
that our Urban League entrepreneurship mentors provide that
kind of technical assistance and counselling, and we do spend a
lot of time working with our business owners to educate them on
these types of credit scores. So, I think that is one of the
things that we want to be able to do, is to make sure that we
have those technical assistance providers available.
Mr. Foster. Yes. I remember, when we started--I started my
company when I was 19, with my little brother, and it is doing
fine now, but in the early days, we used to have regularly
scheduled meetings where we decided which one of our vendors we
were going to stiff that week. And we didn't have business
credit scores to worry about in that discussion.
But it is a new world, and I think it is important that
businesses understand who is looking at them and how they are
being judged.
I guess my time is up, so I yield back.
Chairman Perlmutter. The gentleman's time has expired. We
don't want to know who those vendors were.
We will now turn to the gentleman from Texas, Mr. Williams,
for 5 minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman. I hope you
will not use that hammer on me anytime soon.
For the panelists, I want disclosure, as I am a small
business owner myself in Texas and have been for over 50 years.
Now, the Biden Administration is hammering Main Street America
with so many regulations that it is hindering the economic
recovery and preventing capital from flowing to rural and
underserved communities.
I mentioned this statistic in a hearing yesterday, but it
was so astounding, it deserves repeating: A study by the
American Action Forum showed that President Biden has already
implemented over $200 billion in new regulatory compliance
costs on American businesses during his first year in office.
These costs are amassed by an estimated 131 million manhours in
new paperwork that must be conducted in order to be in
compliance with all of the new regulations coming from
Washington, D.C.
One of these regulations that we have heard about today is
the CFPB's 1071 rulemaking on small business data collection.
There are many problematic aspects of this rule, and I, along
with Ranking Member Luetkemeyer and Congressman Hill, have
introduced a package of bills to help mitigate some of the
worst parts of this proposed rule.
The bill I am introducing in this package would prevent
loan officers from guessing the ethnicity of a loan applicant
based on their appearance and last name if they do not
voluntarily disclose this information. This racial profiling
requirement is currently in a proposed rule, and we have spoken
with numerous bankers and trade associations about how this
will put loan officers in an extremely awkward situation and
give inclusive, unusable data to the CFPB. There should not be
any Federal requirement where someone must guess the ethnicity
of another American based on their appearance.
Mr. Stangler, how would you recommend training loan
officers to fulfill this racial profiling requirement on how to
properly guess a loan applicant's ethnicity using only their
last name and appearance?
Mr. Stangler. Thank you, Congressman.
Forgive me for not being as familiar with the details of
your legislation as I should be, but after this, I will
certainly review the bill, and I would be happy to talk to you
and your staff.
I am not sure I have a good answer for that. I am not sure
I would know how to train or what to tell the loan officers
subject to these requirements.
Mr. Williams of Texas. Well, that is actually a good
answer, because you can't. And I want to tell you--let me go
back in history a little bit. I am one of the oldest on this
committee. I was actually working jobs in 1968, 1969, and 1970,
and a lot of those were in financial institutions, banks and
lenders: GMAC; Ford Motor Credit; interstate securities. And
back then, there were boxes of ethnicity that had to be checked
when somebody was applying for a loan. And it was very
uncomfortable, very insensitive, very racial.
And now, I think about those days. We have gotten out of
that, and here we are back in those days again, and it really
is something that totally takes me back and surprises me that
we are talking about this very thing that was not satisfactory
back when I was working in the early 1970s. That is just a
statement I want to say. I would love to hear the argument for
that.
Second, if we want to help small businesses, we need to
allow them to keep more of their hard-earned money. We saw the
benefits that cutting taxes had on the economy before the
pandemic, when we saw wage growth that outpaced inflation, the
lowest unemployment numbers in decades, and there were more
investment in durable goods that businesses could cash flow.
Unfortunately, under this current Administration, the
constant fear of new taxes on the horizon has forced our
businesses to go on the defense. They are not as willing to
invest their money in fears that they will need the money later
to pay future tax liabilities.
Mr. Stangler, at a time when small businesses are already
feeling the harmful effects of inflation, how do you think
small businesses will deal with additional tax increases if
this Administration gets their way?
Mr. Stangler. Thank you, Congressman.
You are exactly correct that inflation, as I mentioned to
Congressman Posey, is a top, if not the top concern for small
businesses right now. At the same time, many of them haven't
seen their revenues rebound. And as you know, as a small
business owner, many of our small businesses are in a tight
squeeze with revenues still not back to pre-pandemic levels,
with inflation and rising costs in their supply chain, and
having to pass some of those along to their consumers.
So, I would hope that any changes on the horizon would take
those into account, that our small businesses are in a really
tight spot right now as they look to recover and grow and are
really struggling with inflation and trying to get their
revenues back up.
Mr. Williams of Texas. Thank you. And finally, I would just
like to say that this 1071 rulemaking actually takes us back;
it does not take us forward. And I am saddened by that.
Thank you very much, Mr. Chairman, and I yield back.
Chairman Perlmutter. Thank you, Mr. Williams. The gentleman
yields back.
The Chair now recognizes Mr. Casten of Illinois for 5
minutes.
Mr. Casten. Thank you, Mr. Chairman.
Ms. DeVane, I have a couple of just open-ended questions
for you, and it is a little hard because we are writing history
at the same time that we are sitting here, but you are so close
to what is happening on the street with the entrepreneurs out
there, and we all get caught up in our stories, but you are
hearing the stories firsthand.
We are almost 2 years to the day from the first COVID case
in the United States. If you remember, it was February of 2020
when there were those first stories about people in nursing
homes in Seattle. We saw this huge collapse in GDP, this huge
growth and boost in unemployment.
And we had all sorts of folks saying, well, we have no
playbook for dealing with this deep aid downturn that doesn't
leave a lot of people behind, because we know, in 2008, the
people who were banked came back well. A lot of people lost a
lot of housing value. People who were outside the banking
system didn't come back.
And so, we did a lot of unconventional things. Yes, we
expanded monetary policy, but we had a lot of fiscal policy
touching people's pocket--the PPP, money to States--and we are
now sitting here looking at, at least on a macro level, a
fairly remarkable moment. We have this V-shaped recovery that
was not on anybody's bingo card for what we thought was
possible.
From your perspective in the communities you serve, what
did we get wrong? Who is still left out in this recovery?
Ms. DeVane. Thank you for the question.
Our minority businesses have been left out. I recognize
that there have been relief programs. But, speaking
specifically about the pandemic, we look at PPP, and we see
that that was expected to provide relief to business owners who
were struggling at the time. Many of those businesses were
front-facing businesses. They were impacted by social distance
guidelines, and so they were struggling to keep their
employees, to pay their utility bills, to meet their payroll,
and they couldn't do it.
And that PPP program was intended to be a lifeline for
those businesses, but it just, frankly, didn't work. And,
anecdotally, I can tell you that, speaking with our business
owners on the ground, they faced challenges. They didn't have
the lending relationships with the SBA lenders. They didn't
have the back office and the technical and financial know-how
to fill out a lot of paperwork, and they were really
struggling.
And so, a lot of times they missed the boat and the
opportunity. We were very pleased in the following iteration
where our business owners actually were able to get some of
that financing from CDFIs and from MDIs in the community that
knew them and understood the challenges they were facing. But I
will tell you that they feel very much left out of the recovery
and the equation.
There have definitely been some improvements. I will
absolutely say that. But on the whole, our businesses continue
to struggle. They need capital, and they need capital
desperately. Loans are difficult. Grants are welcome, and some
of the programs that we have put in place, like the Black
Restaurant Accelerator Program that I mentioned in my oral
remarks, would really go a long way toward helping those
businesses.
They need the coaching and the training to undergird the
capital that they are getting. And capital needs to be
affordable, and it needs to be appropriate for those business
owners.
Mr. Casten. I think I am hearing you echo Mr. Stangler, and
I don't want to put too many words in your mouth, Mr. Stangler,
but I think you said that in those surveys you saw that labor
and marketing needs were sort of the top needs of small
businesses, and some concerns about rising prices.
We are having a real-time debate in Washington right now.
On the one hand, should we invest in those communities, figure
out how to get people to work, do the job training, make the
investment, get the kind of grants that you are talking about,
Ms. DeVane? On the other hand, we are hearing people say, no,
we should not invest, because that might create inflation in
the economy.
And, Ms. DeVane, you are talking with people who are
feeling all of the same pains that Mr. Stangler described. Do
you agree that those are the top issues that Mr. Stangler
described?
And, put yourself in our shoes. What would you like to see
us do in this moment? Do you think we should prioritize getting
resources to those businesses who need them, or should we say,
let's take the brakes off, let's not do any investment in the
economy right now because we are concerned about inflationary
pressure?
Ms. DeVane. I do agree with Mr. Stangler that inflation
certainly is a concern. I think he also mentioned hiring and
keeping staff. Those are absolutely concerns of our business
owners. But the top concern is capital, which allows you to
market your business, which allows you to hire employees and
pay those employees. And so, I would say that is the priority.
And, yes, I absolutely think, as the pot boils down, that
we would need you to assist those businesses more. And I know
we are over time, but the Community Navigator Pilot Program
(CNPP) that the SBA has is one way that we are going to be
helping our business owners recover from the pandemic, after
the pandemic.
Mr. Casten. Thank you. Five minutes is never enough time,
but I appreciate your time. And, if you have more thoughts,
please follow up with our staff. Thank you. I yield back.
Ms. DeVane. Thank you.
Chairman Perlmutter. The gentleman yields back.
The gentleman from Georgia, Mr. Loudermilk--we have a lot
of Illinoisans and a lot of Georgians today--is now recognized
for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman, and that is what
makes this subcommittee great, is the number of Georgians that
we have on here. I appreciate this hearing, and I appreciate
that the Majority is talking about helping small and minority-
owned businesses. I have been talking about this since I have
been in Congress, and especially during the pandemic.
But recent history indicates that unfortunately, the
Majority has been opposed to one of the most important tools
that can help those businesses, which is is fintech. The list
of lenders eligible to participate in the State Small Business
Credit Initiative (SSBCI) was established 12 years ago, and it
does not include fintech companies, which are now a critically
important part of small business lending.
In fact, fintechs were the number-one type of PPP lender
for Black- and Hispanic-owned businesses. GAO reported that
when Congress added fintechs as eligible PPP lenders, lending
to minority-owned businesses increased. Last year, when this
committee marked up the American Rescue Plan Act, I offered an
amendment to update the list of eligible lenders for the SSBCI
Program to include fintechs. Unfortunately, the Majority
rejected it.
This inexplicable opposition to fintech is depriving
minority-owned businesses of the source of credit that they
rely on most. Even the SBA administrators have said that we
should embrace the role of fintech in small business lending,
putting House Democrats at odds with the Biden Administration.
Mr. Stangler, would including fintechs in the SSBCI help
get funds distributed to minority-owned businesses?
Mr. Stangler. Thank you, Congressman.
I think you correctly characterized the research findings
on PPP that fintechs, online lenders, when their participation
was included in the subsequent modifications, we saw those
disparities close.
And research has found--I believe there was some new
research out this week or last week confirming those findings
that fintechs helped distribute PPP, the government relief, to
business owners of color who didn't get the benefit, especially
in the first and second rounds.
Applying those lessons forward, as you suggest, would, I
think, help continue to enhance those channels. Full
disclosure, we do work with fintechs. We also work with banks.
We work with advocates and philanthropies. Our advocacy arm has
endorsed some bipartisan bills that would expand fintech
participation in government programs, such as the 7a program,
and we do believe that continued expansion of those channels
would help the borrowers that you are trying to help.
Mr. Loudermilk. Thank you. In my opinion--and to many,
there is no question that bank/fintech partnerships have
enhanced the ability of small businesses to access credit, but
unfortunately my colleagues on the other side of the aisle
eliminated the OCC's True Lender rule, which needlessly added
legal uncertainty to these partnerships.
Another question, Mr. Stangler. In your testimony, you said
that small businesses benefit from a variety of private sector
financing options. When the government takes away sources of
small business lending, does that help or harm those
businesses?
Mr. Stangler. Thank you, Congressman.
As I mentioned in my comments, I believe with Congressman
Posey a few minutes ago, we have seen an explosion of financing
innovations in the private sector within the last decade, pre-
pandemic, and during the pandemic. Many of those are in
response to these financing disparities that the country has
struggled with for many years.
I think our position is that the government, in partnership
with the private sector, needs to continue to do all we can to
expand those channels and provide clarity on what is
permissible, obviously punish bad actors when misbehavior does
occur, but broader channels, wider channels are going to help
our small businesses versus narrower channels.
Mr. Loudermilk. Okay. And final question, Mr. Stangler,
what should we as policymakers be doing to expand options for
private-sector small business lending?
Mr. Stangler. Thank you, Congressman.
I would highlight two things. One, in the bank and fintech
partnerships that you allude to, there are regulatory burdens
in those partnerships, and we know a lot of small and community
banks benefit from greater technology from those fintech
partnerships, because the costs of adopting those technologies
in-house for the smaller banks can be prohibitive. But there
are regulatory burdens and regulatory reviews. There is
regulatory unevenness there that I think the government can and
should resolve.
Two, with a lot of these new models coming on board--for
example, I mentioned hybrid capital structures. From what I
hear from folks who are working on these, trying to get capital
to those underserved groups, there is a lack of regulatory
clarity from the government, from the IRS, as to how those
capital structures are going to be treated. So, I think
regulatory clarity on those would be helpful.
Mr. Loudermilk. Okay. Thank you.
Unfortunately, Mr. Chairman, my time has expired, so I will
yield back.
Chairman Perlmutter. I thank the gentleman from Georgia for
his questions and for yielding back.
We now turn to the gentleman from Florida, Mr. Lawson, who
has--one of his bills has been noticed as part of today's
hearing, the Small Business Fair Debt Collection Protection
Act.
Mr. Lawson, you are recognized for 5 minutes.
Mr. Lawson. Thank you, Chairman Perlmutter.
And, to the ranking member, I am sorry he is out there in
all this snow. And I was wondering how you were going to make
it when I looked on TV to see what was going on in Denver, but
I know you know how to do that. The last time I was out there,
they knew how to handle it.
Currently, small business loans--and I, like Mr. Williams,
have been a small business owner for about 34 years. I think I
still am, but I am not able to make any money from it anymore.
Currently, small business loan borrowers do not have the
same protection that individual consumers have under Federal
law. Small business owners oftentimes place their personal
finances and capital to starting and expanding their business.
Small business owners often apply for credit using their
personal credit cards, yet they do not receive the same
protection as individual consumers, which is why, as the Chair
said earlier, I reintroduced the Small Business Fair Debt
Collection Protection Act, which protects small businesses from
harassment from third-party debt collecting.
Would you agree that, by expanding the protection that
currently exists for consumers to small business owners, that
these businesses will be more likely to succeed? How do you
suggest we better protect entrepreneurs and provide more access
to capital without potentially hurting their personal credit?
And I can remember when I first went into business. They
hardly had any credit cards when I first went into the
insurance and financial business. You had to get something from
the bank in order to get started. So, this will be for
everybody on the panel, and maybe we can start with Ms. DeVane.
Ms. DeVane. Thank you for the question.
Yes. I think that we know that many Black-owned businesses
do use their personal credit. We know that a lot of these
business owners looking for PPP money did go to fintech
companies. That was an alternative source of capital.
They are not all bad. They tend to be race-blind in terms
of the ability for some of those businesses to get capital. But
we do need to be mindful that the practices are fair, because
these business owners are often desperate for funding, and they
really don't know what they don't know. And, in many cases,
they are just ill-informed about the pricing, the credit, and
the terms.
So, what we really want to make sure of is that our
business owners at all of our Urban League centers are not
being subjected to any predatory or abusive products and that
they really understand and have transparency around all of the
terms that they need in order to get this desperately-needed
capital.
As a former banker, I understand the need to make sure that
these businesses have access. But, like consumers, small
businesses need to be protected from the bad actors.
And I will stop there, because some of my colleagues may
want to add to that.
Mr. Lawson. Okay. Thank you.
Ms. Bilonick. I would just like to hop in and say that I
would be remiss if I didn't elevate what I believe to be one of
the greater focuses of this conversation, which is elevating
the rights of business borrowers to be equal to the rights of
consumer borrowers.
This is something that I think, if it were more widely
known in the public, would be an outrage. Small business owners
are targeted by predatory lenders and now, more than ever, are
extremely vulnerable to predatory lenders.
And I really am hopeful that, through this conversation, we
can also discuss the importance, regardless of regulatory
burdens on the banking industry, of really elevating the rights
of small business borrowers and making them equal and on par to
consumer borrowers.
Mr. Lawson. Would anyone else care to comment?
Many people don't realize that some credit card issuers
report business credit card accounts to the consumer credit
bureaus, which means that the way you use your business credit
card could raise or lower your personal credit score.
To what extent do business credit scores impair small
business owners, especially minority owned- and women-owned
businesses, from getting loans? And are these scores always
accurate and reflective of risk?
Ms. Bilonick. I will start with the second question.
Much like personal credit scores, these business credit
scores are also equally susceptible to error or misreporting,
and so it really requires monitoring just like we do for our
personal credit scores.
The other piece that I think is really important is that,
for small business owners, personal and business credit is
always inextricably linked, because of the business structure
that they select, which does not necessarily count their
business as a separate entity, and they typically are starting
off as sole proprietors, not necessarily incorporating their
businesses, and therefore, there is an intermingling of their
personal and business credit.
So, I think the fact that the business credit can be
reported to personal bureaus is absolutely something that could
undermine the personal credit and the personal ability to rise
out of poverty for small business owners.
Chairman Perlmutter. Thank you, Ms. Bilonick.
And thank you, Mr. Lawson. Your time has expired.
Mr. Lawson. Chairman Perlmutter, before you leave, it was
80 degrees here in Tallahassee today, and I would like to see
if I can send something over there to you.
Chairman Perlmutter. It was 7 degrees here this morning.
So, thank you. I appreciate you sharing that information.
Mr. Lawson. With that, I yield back.
Chairman Perlmutter. The gentleman yields back.
The gentleman from North Carolina, Mr. Budd--I am sure the
weather is nice in North Carolina, too--is recognized for 5
minutes..
Mr. Budd. Mr. Chairman, thanks for recognizing me. And I
thank the panel. And it is not 7 degrees here, but add a zero;
it is 70 degrees today in North Carolina.
We talked about access to capital and how important that
was, particularly over the last few years, when businesses had
been grappling with the effects of the pandemic. And, Mr.
Stangler, again, thank you for being here.
What role did financial technology companies, or fintechs--
what role did they play during the pandemic in helping to
provide access to capital and to small businesses?
Mr. Stangler. Thank you, Congressman.
As I think more and more research has found over the last
couple of years, fintechs, online lenders, were crucial in two
ways. One, through the disbursement of government relief,
especially through PPP. As we have heard from fellow panelists,
as we have seen in research, and as we have heard from some of
your fellow committee members, the fintechs, online lenders,
helped close some of those disparities that existed pre-
pandemic, existed in the first round of PPP, and continue to
exist, but fintechs helped to close those gaps.
Then, second, for a lot of small business owners who either
were unsuccessful in receiving PPP, or maybe have received PPP
and EIDL, but still needed additional capital, or maybe didn't
want to apply or couldn't apply at traditional financial
institutions, I think fintechs, online lenders have helped fill
those gaps as well outside of the public efforts.
Mr. Budd. Very good. We have always known that small
businesses are critical to the growth of the American economy--
it is about 43, almost 45 percent of GDP--and the creation of
about 62 percent of new jobs since 1995. So, this growth is
reliant on access to affordable credit.
The CFPB's 1071 rulemaking could unnecessarily reduce the
availability and increase the cost of credit for small
businesses.
So, again, Mr. Stangler, do you think that imposing new
regulatory requirements on lenders will be counterproductive to
increasing access to credit?
Mr. Stangler. Thank you, Congressman.
I think additional regulatory burdens on lenders, no matter
their form, can always have pass-through consequences to their
borrowers, consumer or small business. As we touched on a few
minutes ago, especially when it comes to the partnerships that
banks and fintechs have been forming, including with smaller
banks, we know there are regulatory challenges there.
When we review regulatory burdens, and the uneven
regulatory playing field between the banks and fintechs and
some of those partnerships, adding burdens in whatever way,
shape, or form can really hinder some of those innovations and
some of those kind of basic functions that, as you put it,
those small businesses rely on.
Mr. Budd. Very good. Continuing on, a recent National
Federation of Independent Business (NFIB) survey reported that
47 percent of business owners reported job openings that could
not be filled. Could you describe some actions Congress could
pursue to support small business owners in their currently very
challenging effort to hire people? And again, back to you, Mr.
Stangler.
Mr. Stangler. Thank you, Congressman.
This is a really important question, because this is a
really pressing issue for many small businesses. And I have
heard a couple of other panelists mention this as well. We know
this from anecdotal conversations, as I am sure you hear in
your district--we know those from small-scale surveys. We know
this from large-scale surveys--but hiring and retaining workers
is a major, major challenge.
In a few weeks actually, BPC has a small business policy
report coming out, and one of the major focuses there is how we
can help small businesses hire and retain workers, especially
as they seek to compete with their larger competitors.
I think some of the things that we will highlight in that
report, which I am happy to share with you and your staff when
it is available are, how do we help small businesses,
especially the smallest of the small, to help their employees
with retirement, to help their employees with emergency
savings? Government has already taken important steps there
with bipartisan support, but there are still some gaps--some
lack of regulatory clarity, some regulatory burdens facing
those small businesses when it comes to retirement plans, when
it comes to helping with training or education, or when it
comes to helping with emergency savings.
So, I think there are a number of steps there that would
really help small businesses with their workforces.
Mr. Budd. Mr. Stangler, as a small business owner, and as a
Member of Congress, I look forward to reading that report, if
you would share that with us when it is available. I thank you
for your time, and I thank the rest of the panel as well.
Stay warm, Mr. Chairman, and I yield back.
Chairman Perlmutter. The gentleman from North Carolina
yields back.
The Chair now recognizes the Vice Chair of this
subcommittee, Ms. Pressley from Massachusetts, for 5 minutes.
Ms. Pressley. Thank you, Chairman Perlmutter, for convening
this important discussion. And thank you for your long-standing
advocacy and leadership on this issue.
This is such an important discussion on ensuring that
minority- and women-owned small businesses share in the
benefits of any long-term economic recovery. Those who have
been hurt by the pandemic, related economic hurt, should be
those who receive the most help while our economy recovers.
Yet, far too many Black and Brown folks have effectively
been locked out of relief, whether by regulations or
exclusionary credit and lending practices, a lack of start-up
capital, or by laws that favor businesses that have already
obtained success. This is even more true for cannabis
businesses, which were explicitly excluded from pandemic PPP
and EIDL programs within the SBA.
For many Black and Brown folks working tirelessly to gain a
foothold into this industry, this exclusion has added insult to
injury. Ensuring Black and Brown folks can start and sustain
cannabis businesses is a matter of economic and racial justice,
and restoring communities that have been ravaged by the failed
war on drugs.
There are many attempts to keep those who were
disproportionately locked up because of this failed war on
drugs, and to keep them locked out from this multibillion
dollar industry. This need has become even more evident when
compounded by the disparate impact COVID has had on communities
of color and minority-owned businesses. Although Black
Americans were most heavily-impacted by the war on drugs, only
2 percent of marijuana businesses nationwide are Black-owned.
My home State, the Commonwealth of Massachusetts, is no
stranger to this inequity. However, we were the first State in
the country to mandate equity and inclusion within its legal
cannabis industry. And we were the first to launch programs
designed to assist folks disproportionately harmed by the war
on drugs. And yet, the industry remains predominantly White and
male still.
Ms. Littlejohn, how has the pandemic exacerbated current
racial inequities within the cannabis industry?
Ms. Littlejohn. Like all minority-owned businesses,
cannabis businesses are feeling a crunch, because the resources
needed to sustain during the economic downturn, the resources
needed to secure businesses and make the infrastructure and
technological upgrades, are just not there. There is no access
to loans. When folks are going out to try and get more
resources to upgrade their businesses, their companies are
being grossly undervalued.
And this is also leading to safety concerns, because as
their resources decline, there is also, again, the inability to
make safety upgrades.
So, while during the pandemic, we have seen an exponential
growth in some of the large companies, there was a point during
the pandemic at which some of these companies were almost
actually over 300 percent of their pre-pandemic value. And,
meanwhile, the rest of the industry, and small businesses and
minority businesses are folding at a pretty regular rate,
especially in States like Massachusetts and California.
In Massachusetts, what we have seen is they are rolling out
these equity programs, but the funding is not there, and there
is a clock ticking on the amount of time that people have to
get their businesses up and running in Massachusetts. I
regularly get calls from businesses in Massachusetts. They are
struggling.
The pandemic has hit all minority businesses hard, but it
has been especially hard on minority cannabis businesses that
really don't have anywhere to turn for resources.
Ms. Pressley. And is that exactly why we need to be
intentional in ensuring that minority- and women-owned cannabis
businesses are not left behind in our recovery efforts, that
there will be a more intentional and deliberate amount?
Ms. Littlejohn. Absolutely. And I think that many people
agree that ensuring that the people who have been most harmed
by cannabis prohibition are participating is an important part
of legalization, but the way the State laws are created right
now, they are dealing with almost insurmountable barriers to
entry and the challenge of competing when markets are captured
by a handful of individuals.
So, it is really a dire situation. And if we don't get the
resources now, many minority businesses are just not going to
make it to legalization. They won't make it to the end of the
year. And, as I mentioned earlier, there are some unfortunately
that did not make it to the end of this week.
Ms. Pressley. It is really clear that cannabis business
owners need more support. And, again, I do want to commend our
Chair, Mr. Perlmutter there, for his courageous leadership and
his work to ensure that cannabis businesses are able to safely
access financial and banking services in the face of what
remains still great stigmatization of the industry.
But we also need comprehensive and systemic reforms to
ensure that our communities are not left behind, like the
Marijuana Opportunity Reinvestment and Expungement (MORE) Act,
to finally reverse these failed Federal policies criminalizing
cannabis, provide expungement and resentencing for those with
prior marijuana-related offenses, and invest in the very
communities ravaged by the racist war on drugs. It's long
overdue.
So, while we have the House, the Senate, and the White
House, we must act.
Chairman Perlmutter. The gentlelady's time has expired. I
thank the Vice Chair for her comments and her questions.
It looks like we will now finish with two Tennesseeans. I
am not sure how that happened, but we will turn to Mr. Kustoff
for 5 minutes for his questions.
Mr. Kustoff. Thank you, Mr. Chairman. Thank you for calling
today's hearing. And there's nothing wrong with two
Tennesseeans.
Mr. Stangler, I thank you, and I also thank the other
witnesses for testifying today.
We have talked a lot about fintechs. Can you talk about the
partnerships, if you will, between fintechs and community
banks, how they interact with each other, the benefits that
fintechs can provide to community banks, especially as it
relates to the competitive and the source of the particular
nature of banking? What benefits can fintechs offer community
banks, and maybe vice versa?
Mr. Stangler. Thank you, Congressman.
My 9-year-old has become a Memphis Grizzlies fan, so I am
obliged on his behalf to say, ``Go Grizzlies.''
Congressman, I think you are right that these
partnerships--not only have they increased in frequency and
scale. And in the decade prior to the pandemic, partnerships
between banks and fintechs really proliferated.
The banks get technology. The fintechs get access to more
traditional forms of financing. In some cases, fintechs work
with banks to participate in programs like the SBA's 7(a) loan
program.
This is especially important for the small and community
banks. The cost of investing in some of these technologies is
just too high. It is prohibitive for them to do it on their
own. The Federal Reserve put out a paper, I believe in
September--I will have to double check--highlighting the
importance of technology, of fintech partnerships for community
banks specifically, and offering guidance on how community
banks can do this most effectively.
So, even the Federal Reserve has kind of put its stamp of
approval on this and pointed to the benefits. The fintechs
obviously benefit, too. Not all fintechs are created equal. But
for many of them, working with the banks brings them
credibility, brings them growth, brings them new customers, and
also access to those in the communities that community banks
serve who might not have access to traditional forms of
financing.
We believe these are highly important, and we see that
evidence in their growth.
Mr. Kustoff. Thank you, Mr. Stangler.
I think we can all agree that innovation and emerging
technologies really do offer great potential to access
financial services, especially in underserved communities and
in rural communities. I say that because a large part of my
district is rural.
Part of that is the peer-to-peer payment systems, like
PayPal, Venmo, and Cash App, and we understand the benefits of
that.
In President Biden's American Rescue Plan, which was passed
last year, last March, there was a provision in the plan that
required businesses to report to the IRS transactions over $600
when using these third-party payment platforms.
I think that we can all agree that there are some strong
potential privacy implications as it relates to individuals
with this provision, that may also at some point be used or be
seen as a disincentive to use these platforms.
Do you have concerns about how they, in fact, could be
disincentivized to use these platforms based on that provision
in the American Rescue Plan?
Mr. Stangler. Thank you, Congressman.
I am familiar with this provision, although, to be candid,
it is not something I have spent a great deal of time studying.
I will say that, as you mentioned in your remarks, these
new companies, these new innovations--fintechs, online
lenders--have been very, very important for our smallest of
small businesses. They come with costs. Their interest rates
can be higher. Their loan terms can be shorter. But we know
that millions of small businesses and Americans are using them,
including those small businesses who have and who are deemed to
be higher credit risk.
I will say that, again, while I haven't studied this
provision in depth, in detail, I think we need to be wary of
steps that might overly burden some of the benefits that these
fintech innovations bring.
Mr. Kustoff. Thank you, Mr. Stangler.
Mr. Chairman, I yield back my remaining 11 seconds.
Chairman Perlmutter. Thank you, Mr. Kustoff.
I now will go to Mr. Rose, the second Tennesseean, to close
out the questions. Mr. Rose, you are recognized for 5 minutes.
Mr. Rose. Thank you, Chairman Perlmutter. And there is
absolutely nothing wrong with having two Tennesseeans to end
this hearing. But thank you for calling this hearing, and the
topic, I think, is timely. Small businesses have a big impact
on our communities, and of course many are struggling with the
current rising inflation and the cost of regulation that we
have heard about today.
In my district, the Sixth District of Tennessee, 93.8
percent of employers are small businesses. The men and women
who operate and work for these enterprises are some of the
hardest-working people that I meet. These businesses are the
heart of our economy and the engine that keeps this country
moving. And I might add that I am an operator of just such a
small business.
Now, as time is limited, I will dive right into my
questions.
The pandemic was incredibly challenging for the American
private bus and motor coach industry, as almost all major
sources of business for this industry and revenue were
restricted by the mandatory lockdowns. Congress created the
Coronavirus Economic Relief for Transportation Services
(CERTS), which provided $2 billion in grants to support this
industry. According to data from the Treasury, 93 percent of
CERTS grants went to small businesses, of which 33.4 percent
were minority-owned.
The motor coach industry is still struggling, however, and
will be one of the last industries, I fear, to recover,
especially given their reliance on live events and touring
around the country.
Mr. Stangler, could you discuss how Congress could help at
this point to ensure that segments of our economy that were hit
the hardest by COVID-19, like the motor coach industry, are
able to fully recover?
Mr. Stangler. Thank you, Congressman.
This sector of the economy is not one that I have studied
in depth, but I fully accept and agree with your comments that
it has been hit hard and will likely be one of the last to
recover, especially, as you mentioned, because of its
dependence on live entertainment and concert venues.
I know there are some proposals being floated around in
Congress to provide more assistance to small businesses,
sector-specific assistance, whether that is restaurants or gyms
or motor coaches. I think for those proposals to be effective
and to pass, we would like to see them have bipartisan support
and to be targeted, because we know that many sectors of the
economy are further along in the recovery than others.
I would also propose that, for sectors like this--and,
again, it is not a sector I have studied well--we can look to
other existing streams of Federal spending that go into the
small business economy. I will just quickly mention that we
have done a lot of work, for example, on Federal procurement. I
am unaware of what the state of Federal procurement spending is
with the motor coach industry, but some of these existing
streams of billions of dollars, I think, are really important
for small businesses, especially minority-owned businesses, as
they recover.
Mr. Rose. You speak of the report, and that actually was
going to be my next question for you, about the Bipartisan
Policy Center's report. Could you please describe some of the
barriers to entry that the report referenced and possible
solutions for those?
Mr. Stangler. Congressman, you are referring to our report
on small business procurement?
Mr. Rose. Yes. And particularly, focused on Federal
procurement.
Mr. Stangler. Yes. Thank you.
This was a report we put out last June, that will also be
the subject of the Small Business Policy Report--one of the
subjects of the report that we put out in a few weeks.
Congressman, I will give you just a couple of statistics, some
of which I am sure you are familiar with.
The Federal Government spends $560 billion, I think we are
up to, each year, that is, ``small business eligible.'' Small
businesses are supposed to get 23 percent of those contract
awards. For 8 years in a row, the government has met that goal.
However, the number of small businesses actually
participating as contractors has fallen by 40 percent in the
last decade, and the number of new entrants into small business
procurement--so small businesses not being a contractor last
year, being a contractor this year, that number has fallen by
80 percent in a decade. There are significant barriers to
entry, and this particularly harms minority- and women-owned
businesses. The women-owned business goal, which is 5 percent,
has only been met twice in 25 years.
There are significant ways that the Federal Government can
and should reduce those barriers to entry, because this is a
lot of money that flows into the small business economy every
year.
Mr. Rose. Thank you for that.
Mr. Chairman, I see my time is about to expire.
As one small business operator, I will tell you--and it
turns out to be helpful when you end up being in Congress--in
my business, we just ignored government procurement because it
seemed like such a labyrinth to try to navigate. And I consider
myself to be a reasonably intelligent person, but every time we
dug into that, we concluded that it was just too difficult.
And so, one of the solutions has to be that we have to
figure out how to make it easier for small businesses with
limited resources to go after that government procurement
business.
Thank you, Mr. Chairman, and I yield back.
Chairman Perlmutter. The gentleman yields back. Thank you,
Mr. Rose.
Without objection, statements from the following
organizations will be entered into the record: the National
Association of Federally-Insured Credit Unions; the American
Financial Services Association; Gusto; and the joint statement
of the Center for Responsible Lending, the National Coalition
for Asian Pacific American Community Development (National
CAPACD), and the National Association for Latino Community
Asset Builders (NALCAB).
And I would like to thank our witnesses for your testimony
today. We really appreciated your remarks.
I would also especially like to thank Dr. Robb for having a
Golden Buff on this from the University of Colorado. Go Buffs.
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.
Ms. Littlejohn, you had that specific request from Mr.
Scott, so I hope you will follow up on that.
Mr. Rose, thank you for your questions.
Mr. Lawson, I think we got through your draft bill.
I appreciate the witnesses, and I thank you for testifying
in front of our subcommittee.
Ms. Bilonick. Thanks very much.
Mr. Stangler. Thank you.
Chairman Perlmutter. And with that, this hearing is
adjourned. Thank you all very much. That was excellent.
[Whereupon, at 5:04 p.m., the hearing was adjourned.]
A P P E N D I X
February 17, 2022
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