[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


 THE END OF RELATIONSHIP BANKING? EXAMINING THE CFPB'S `SMALL BUSINESS 
                     LENDING DATA COLLECTION' RULE

=======================================================================

                                HEARING

                               BEFORE THE

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION
                               __________

                              HEARING HELD
                             MARCH 28, 2023
                               __________

                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 118-006
             Available via the GPO Website: www.govinfo.gov
                          
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
51-443                    WASHINGTON : 2023                


                   HOUSE COMMITTEE ON SMALL BUSINESS

                    ROGER WILLIAMS, Texas, Chairman
                      BLAINE LUETKEMEYER, Missouri
                        PETE STAUBER, Minnesota
                        DAN MEUSER, Pennsylvania
                         BETH VAN DUYNE, Texas
                         MARIA SALAZAR, Florida
                          TRACEY MANN, Kansas
                           JAKE ELLZEY, Texas
                        MARC MOLINARO, New York
                         MARK ALFORD, Missouri
                           ELI CRANE, Arizona
                          AARON BEAN, Florida
                           WESLEY HUNT, Texas
                         NICK LALOTA, New York
               NYDIA VELAZQUEZ, New York, Ranking Member
                          JARED GOLDEN, Maine
                         KWEISI MFUME, Maryland
                        DEAN PHILLIPS, Minnesota
                          GREG LANDSMAN, Ohio
                       MORGAN MCGARVEY, Kentucky
                  MARIE GLUESENKAMP PEREZ, Washington
                       HILLARY SCHOLTEN, Michigan
                        SHRI THANEDAR, Michigan
                          JUDY CHU, California
                         SHARICE DAVIDS, Kansas
                      CHRIS PAPPAS, New Hampshire

                  Ben Johnson, Majority Staff Director
                 Melissa Jung, Minority Staff Director

                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Dan Meuser..................................................     1
Hon. Greg Landsman...............................................     2

                               WITNESSES

Mr. Troy Peters, President and Chief Executive Officer, JBT, 
  Jonestown, PA..................................................     6
Mr. Lucas White, President, The Fountain Trust Company, 
  Covington, IN..................................................     8
Mr. Michael Wilson, Chief Experience Officer, Members 1st FCU, 
  Enola, PA......................................................     9
Ms. Luz Urrutia, Chief Executive Officer, Accion Opportunity 
  Fund, San Jose, CA.............................................    11

                                APPENDIX

Prepared Statements:
    Mr. Troy Peters, President and Chief Executive Officer, JBT, 
      Jonestown, PA..............................................    28
    Mr. Lucas White, President, The Fountain Trust Company, 
      Covington, IN..............................................    31
    Mr. Michael Wilson, Chief Experience Officer, Members 1st 
      FCU, Enola, PA.............................................    38
    Ms. Luz Urrutia, Chief Executive Officer, Accion Opportunity 
      Fund, San Jose, CA.........................................    61
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Center for Responsible Lending (CRL), the National 
      Association for Latino Community Asset Builders (NALCAB), 
      and the National Coalition for Asian Pacific American 
      Community Development (National CAPACD)....................    65
    Colt Energy, Inc.............................................    69
    Consumer Bankers Association (CBA)...........................    70
    Consumer Financial Protection Bureau.........................    75
    Honorable Greg Landsman--CFPB Symposium Report...............   123
    Independent Community Bankers of America (ICBA)..............   131
    National Association of Federally-Insured Credit Unions 
      (NAFCU)....................................................   171
    National Community Reinvestment Coalition (NCRC).............   186
    NCRC Fact Sheet..............................................   191
    Responsible Business Lending Coalition (RBLC)................   197
    Testimony of Nick Powell, Chairman, Colt Energy..............   201

 
 THE END OF RELATIONSHIP BANKING? EXAMINING THE CFB`S `SMALL BUSINESS 
                     LENDING DATA COLLECTION' RULE

                              ----------                              


                        TUESDAY, MARCH 28, 2023

              House of Representatives,    
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                   Tax, and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:01 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Dan Meuser 
[chairman of the Subcommittee] presiding.
    Present: Representatives Meuser, Williams, Luetkemeyer, Van 
Duyne, Alford, LaLota, Landsman, Velazquez, Chu, and Davids.
    Chairman MEUSER. All right. This hearing will come to 
order. Thank you. Thank you. This is the Subcommittee on 
Economic Growth, Tax, and Capital Access. This meeting has now 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the Committee at any time.
    I will now recognize myself for my opening statements. The 
title of this hearing is ``The End of Relationship Banking: 
Examining the CFBP's Small Business Lending Data Collection 
Rule.''
    Again, good morning, and welcome to this hearing, examining 
the Biden Administration's continued regulatory overreach and 
its very harmful impact on America's small business economy.
    First, I want to thank our witnesses very much for being 
here today. We appreciate you taking the time to join us and 
sharing all of your insights.
    Today's hearing addresses a vital part of our country's 
economy, small community lending institutions and the role they 
play in assisting our small businesses. As we meet here today, 
the financial institutions across the country are actively 
engaged as we know in lending to main street America and our 
nation's entrepreneurs who are in the process of starting their 
own businesses.
    As our witnesses will discuss with the Subcommittee, the 
relationships between local lenders and the businesses in their 
communities takes years to build and refine. These community 
lenders are also the ones best suited to determine the 
structure of the loans that provide to their customers personal 
touch, knowing the customer, that it is impossible for a large 
national institution to replicate.
    Unfortunately, President Biden's Consumer Financial 
Protection Bureau (CFPB) is poised to throw another wrench into 
this vital aspect of our economy. The CFPB is proposing to 
implement a new rule, the Small Business Lending Data 
Collection Rule, that will impose burdensome new reporting 
requirements that would harm small business lending. This rule 
will alter the behavior of small financial institutions and 
make them hesitant to continue lending to small businesses 
based on their long-established relationships with main street 
America.
    This rule was born out of an obscure provision in Dodd-
Frank almost 13 years ago. Most Members of Congress were too 
busy debating too-big-to fail to even pay attention or realize 
it was in there.
    Making matters worse, this rule will add an even larger 
regulatory cost burden to these small financial institutions 
that are already struggling to keep up with the Biden 
administration's costly regulatory agenda. According to the 
SBA's Office of Advocacy, this rule, ``may be unnecessarily 
burdensome to small entities, may impact the cost of credit for 
small businesses, and may lead to a decrease in lending to 
small, minority- and women-owned businesses.'' This is from the 
Office of Advocacy. The Office of Advocacy also estimates that 
the rule will have an initial $126 million impact on small 
financial institutions, and then going forward, an annual 
impact of $153 million. Unlike mega-banks that can absorb such 
costs, these will crush smaller institutions that do not have 
the budget to absorb such new regulatory burdens. The Office of 
Advocacy also expressed concern that this rule failed to 
properly consider alternative, less burdensome alternatives to 
the rule. These alternatives should have included exempting the 
smallest lenders but were never seriously considered.
    The rule also creates racial profiling issues, privacy 
concerns, an unrealistic implementation window, and mandates 
excessive data collection of small business owners. In the 
digital age we live in, such personal information in the hands 
of so many different entities should give all of us, especially 
the CFPB, pause on such requirements.
    At a time when main street America is dealing with 
unprecedented levels of inflation, interest rates that are 
being raised at the fastest pace since the 1980s, supply chain 
disruptions, and a prolonged labor shortage, adding more 
burdens to our country's job creators, and our banks, is the 
last thing the CFPB should be doing, but that is exactly what 
the Bureau and the Biden administration seem determined to do. 
Our small businesses and local community lenders deserve so 
much better.
    Without objection, I would like to enter into the record 
letters detailing the impact this rule would have on small 
business lending from the National Association of Federal 
Credit Unions, International Community Bankers Association, the 
Consumer Bankers Association, and the American Bankers 
Association. It seems this rule has brought community banks and 
credit unions together. So I guess there is a silver lining 
here somewhere.
    With that I will yield to our Ranking Member from Ohio, Mr. 
Landsman.
    Mr. LANDSMAN. Thank you, Mr. Chairman, for holding this 
very important hearing and examining the CFPB's small business 
lending role and examining ways to create a much more fair and 
successful equitable lending system. For far too long, women- 
and minority-owned small businesses have experienced obstacles 
to accessing capital. Part of the reason is the lack of data 
and transparency related to small business lending.
    The scant data that exists continues to show that these 
businesses lack the same access to external financing when 
compared to traditionally owned firms. And during hard economic 
times, the barriers to access capital are even greater. 
According to the CFPB, minority- and women-owned small 
businesses were disproportionately hurt by the pandemic because 
they had fewer cash reserves and faced deeper hurdles to 
accessing capital.
    The Paycheck Protection Program highlighted the disparities 
between these white-owned businesses and businesses of color. 
The Federal Reserve Bank of New York found that the PPP loans 
only reached about 20 percent of the eligible firms in states 
with the highest densities of black-owned firms. The report 
confirmed what we already suspected, the presence of racial 
disparities in banking relationships and significant gap and 
credit access in underserved communities.
    Section 1071 of Dodd-Frank passed over a decade ago 
attempts to remedy this situation by requiring financial 
institutions to simply collect and report on the demographics 
of small business owners applying for financing. Doing so 
facilities the enforcement of fair lending laws and identifies 
business and community development needs for small businesses.
    I am encouraged that the CFPB will be issuing a final rule 
in the next few days. It has been a long 12 years to get to 
this point which included a lawsuit to prevent the previous 
administration from intentionally delaying this rule. The CFPB 
has conducted considerable outreach to small firms which 
included convening of the Small Business Regulatory Enforcement 
and Fairness Act panel in October 2020 to hear suggestions and 
recommendations for small entity representatives. This, in 
addition to adhering to the required APA notice and comment 
process where the agency considered thousands of comments from 
the public. There are going to be discussions today that this 
rule discourages small financial institutions from making loans 
to small firms. I for one do not agree with that conclusion. 
Just like the data requirements for HMDA do not negatively 
impact the mortgage lending industry, this rule will not be 
detrimental to small businesses' lending market. It is my hope 
that this rule will actually increase lending to small 
businesses in general.
    With that said, Mr. Chairman, I would like to request to 
enter into the record a report titled ``Addressing the gap in 
consumer protection for small business consumer through 
multiple research program,'' which includes the data collected 
is essential to combat institutional systemic discrimination 
and the costs associated with the rule far outweighed by the 
need to create a more transparent system for small business 
lending in this marketplace.
    So this is a motion to enter this into the record.
    Chairman MEUSER. Without objection.
    Mr. LANDSMAN. Thank you, Mr. Chairman, and I yield back.
    Chairman MEUSER. Thank you again.
    I now recognize Mr. Williams of Texas, the Chairman of the 
Full Committee for his remarks.
    Mr. WILLIAMS. Good morning. I want to thank all the 
witnesses for being here today. And I want to thank my 
colleague, Dan Meuser, my friend also, for holding today's 
Small Business Subcommittee on Economic Growth, Tax, Capital 
Access hearing on the CFPB's 1071 rule.
    Today's hearing is critical to examining the future of main 
street America. Banks are the lifeblood for small businesses 
looking to grow or expand their operations, and I can tell you 
as a small business owner for over 52 years, I can tell you 
there has not been a day in my life where I have not owed a 
community bank money. And I do not think there is another 
agency in Washington that brings and causes more anxiety and 
nervousness to small businesses than the CFPB. This agency is 
quick to issue fines and enforcement actions against businesses 
and financial institutions without ever telling them the rules 
of the road before they are penalized. This regulation by 
enforcement is detrimental to main street businesses that crave 
certainty.
    So this 1071 rule looks to make this problem even worse. 
Financial institutions are going to have to dedicate 
significant time and resources in order to comply with this 
overly burdensome new data reporting regime. We need more loan 
officers in our lending institutions and credit unions and not 
more compliance officers, and we are looking to get more money 
into the hands of job creators instead of needing to hire more 
compliance officers like I said that are nothing but a drain on 
our bottom lines.
    So with that, I am looking forward to today's discussion, 
and I hope we can shine a light on the most harmful aspects of 
this very harmful rule that will be finalized any day now.
    So Mr. Chairman, thank you, and I yield the time back.
    Chairman MEUSER. Thank you very much, Mr. Chair. I 
appreciate you being here with us this morning.
    So I will now introduce our witnesses.
    Our first witness today is Mr. Troy Peters. He resides in 
my district. Mr. Peters is the president and CEO of Jonestown 
Bank and Trust, which is celebrating its 150th anniversary this 
year. Headquartered in Jonestown, Pennsylvania, which is in my 
district, the bank's primary focus is on lending to small 
businesses and retail banking. Mr. Peters knows firsthand how 
vital banks like his are to the local community and being 
readily able to provide a line of credit, and by extension, a 
line of opportunity for someone to pursue their dream of 
opening small businesses. And what will be a common theme in 
today's hearing, the CFPB's Small Business Lending Data 
Collection Rule will have a major adverse effect on both Mr. 
Peters' bank and the local communities he has dedicated himself 
to serving. With a career spanning over 30 years, Mr. Peters 
has indispensable knowledge of the community banking industry 
and will provide firsthand experience of how this rule will be 
another blow to our country's small banks and main street 
America. Mr. Peters, thank you for joining the Committee today.
    It is now also my honor today to introduce our next 
witness, Mr. Lucas White. Lucas White is a fourth generation 
community banker and an active Member of his community. He has 
served as president of The Fountain Trust Company since 2016, a 
$600 million community bank with five locations in Fountain 
County, Indiana. Mr. White is also Chairman-elect of the 
Independent Community Bankers of America (ICBA), a national 
trade association focused on advocating on behalf of more than 
5,000 community banks across the United States. At ICBA, Mr. 
White is a Member of the executive committee and a board of 
directors and is Chairman of the Federal Delegate Board. He is 
also a Member of the ICBA's Policy Development Nominating 
Committee. So thanks very much for being here with us. Also, 
while graduated from Indiana University with a bachelor's 
degree in philosophy and Indiana University-Bloomington, Morris 
School of Law years later, Mr. White still actively practices 
law in the family firm of White and White Attorneys today. 
Community banks channel local deposits into main street America 
and help spur job creation, foster innovation, and assist in 
fulfilling the American dream for many entrepreneurs. Mr. 
White's extensive career knowledge in community banking makes 
him well informed about the issues facing small businesses in 
main street communities today. Mr. White, again, thank you for 
making the trip and being with us.
    It is now my honor to introduce our next witness, Mr. Mike 
Wilson, to today's hearing. Mr. Wilson is the chief experience 
officer for Members First Federal Credit Union headquartered in 
Enola, Pennsylvania, just outside my district. Members 1st over 
a half million Members, 60 branch locations across 9 counties 
in Central Pennsylvania, including in the great 9th District of 
Pennsylvania. Mr. Wilson's role is crucial as he is responsible 
for ensuring exceptional Member experience on behalf of the 
entire credit union. He does this through providing leadership 
and direction for the credit union's retail operations, 
customer service areas, we well as public relations, marketing, 
community outreach, internal and external communications, and 
financial literacy. Mr. Wilson, you sound like you are kind of 
a busy guy. Mr. Wilson graduated from Central Penn College with 
a bachelor of science in business and went on to earn his MBA 
from Eastern University. Through his passion for people and 
entrepreneurial thinking, Mr. Wilson has been recognized for 
his professional accomplishments with numerous business awards, 
including Emerging Business Leader of the Year to the 
Harrisburg Regional Chamber and Capital Region Economic 
Development Corporation. Mr. Wilson's extensive career and 
dedication to his community through local banking makes him as 
well informed as anyone about the issues facing small 
businesses and main street communities today. Mr. Wilson, we 
thank you for joining the Committee today and we are looking 
forward to your testimony very much.
    I now recognize the distinguished Ranking Member, Mr. 
Landsman of Ohio, to introduce his witness for today's hearing.
    Mr. LANDSMAN. Thank you, Mr. Chair.
    Our final witness today is Ms. Luz Urrutia, CEO of the 
Accion Opportunity Fund, which is a nonprofit CDFI located in 
California focused on national microlending strategy to meet 
the needs of small businesses. She has spent her career in 
banking and financial services, particularly in underserved 
markets. Prior to joining Accion Opportunity Fund--I think it 
is Accion. Did I get that--sorry, my fault. She worked for 
Dollar Financial Group as CEO for the Americas. In this role 
she helped transform the organization into a responsible 
consumer finance business for underserved communities. She has 
served on the CFPB's Consumer Advisory Board, the Consumer 
Advisory Council of the Federal Reserve Bank, and the Board of 
the Financial Health Network. And on the SBREFA panel that 
examined the CFPB Small Business Lending rule which is the top 
of the hearing today. Recently, she received the Latino 
Leadership Award for the Silicon Valley Business Journal. Ms. 
Urrutia received a bachelor of science in Business 
administration and finance and an MBA from Georgia State 
University. Thank you for joining us. We look forward to 
hearing your testimony.
    Chairman MEUSER. Thank you, Ranking Member Landsman. Nice 
to have you with us.
    So before I recognize our first witness, I remind the 
witnesses that oral testimony is restricted to 5 minutes in 
length. When the light in front of you turns yellow you have 1 
minute remaining. When the light turns red, you are over time 
and need to conclude your testimony as quickly as possible.
    I do now recognize Mr. Peters for his 5 minute opening 
remarks. Troy?

STATEMENTS OF TROY PETERS, PRESIDENT AND CEO, JBT; LUCAS WHITE, 
 PRESIDENT, THE FOUNTAIN TRUST COMPANY; MICHAEL WILSON, CHIEF 
    EXPERIENCE OFFICER, MEMBERS 1ST FCU; LUZ URRUTIA, CHIEF 
          EXPERIENCE OFFICER, ACCION OPPORTUNITY FUND

                    STATEMENT OF TROY PETERS

    Mr. PETERS. Chairman Meuser, Ranking Member Landsman, 
Chairman Williams, and Members of the Subcommittee, I am Troy 
Peters, President and CEO of Jonestown Bank and Trust Co. (JBT) 
headquartered in Jonestown, Pennsylvania. I testify today on 
behalf of the Pennsylvania Association of Community Bankers, 
and I also am a Member of ICBA. My bank is celebrating its 
150th anniversary this year. Our name has never changed. We 
have nearly $900 million in assets, 11 full-service branch 
locations, and 160 employees. Our focus is on small business 
and retail banking. We are also active in indirect auto 
lending, and we serve the legal cannabis related businesses 
throughout Pennsylvania and surrounding states.
    Community banks like mine provide the bulk of all small 
business loans in America. We are different than large banking 
institutions that operate under a contrasting business model 
that focuses on large companies and loan sizes. Main street 
businesses, like my customers, prefer to work with a local 
community bank because we are relationship lenders. We 
intimately know our markets and our customers.
    The CFPB's Small Business Lending Data Collection rule is 
unfortunately squarely aimed at smaller banks like mine. We are 
disproportionately disadvantaged to take on additional system 
and personnel costs associated with compliance to this rule. 
Now, although much of the costs would need to be passed on to 
the borrower, it continues to promote further bank 
consolidation, which means fewer local community banks to serve 
the small business segment.
    When my career began, this country had over 12,500 banks. 
Today there are just over 4,000. Now, due to consolidation, a 
small business's access to capital is being pushed into 
metropolitan markets where relationship banking just does not 
count for much.
    I also worry about the integrity of the data to be 
collected. In most cases, when a small business is seeking 
financing, they are looking for the best solution and talking 
to multiple lenders. Five banks could be collecting this data, 
but only one will fund the loan. Each bank would be reporting 
the data, which would make drawing any meaningful conclusion 
difficult at best.
    Small business loans are tailored to the specific 
business's needs and it would be very difficult or impossible 
to collect the exact data points to tell the entire story of 
the structure, pricing, or counteroffers. There are just too 
many variables to these loans. They are not as homogeneous as, 
say, car loans. Making application and loan data public would 
certainly be objectionable to my clients and it is quite 
concerning. Publicly displaying sensitive information, like how 
much money they applied for, what the purpose of the loan is, 
and their revenue number is not the kind of information they 
want or expect to be made public from a private transaction.
    This disclosure could also create a competitive 
disadvantage for them, such as revealing a planned business 
investment. Even worse, publishing information that a sole 
proprietor's loan request was denied in a small community like 
ours, is akin the posting a bounced check to the wall behind 
the store cash register. The public humiliation shouts, ``Do 
not do business with this person; they are a deadbeat!'' My 
customers adamantly do not want this.
    I have customers like Jay. Jay came to our country seeking 
opportunity, and after years of hard work and savings, he was 
able to open his own small business near our town of 1,900 
people where my bank is headquartered. A few years ago, when 
the qualified mortgage (QM) rule was implemented, Jay was ready 
to build his modest dream home. As a long-time customer, I 
would have loved to help him achieve this dream, but his 
mortgage request did not comply with the QM rules. And without 
access to the traditional banking system, Jay turned to an 
unregulated, hard money lender. His interest rate was higher 
the loan did not come with complete disclosure, flexible terms, 
or collection practices.
    I feel like this rule will cause similar unintended 
consequences and will not be in the best interest of my clients 
and the communities that we serve. My hope is that the CFPB 
will not go beyond the statutory requirements intended for this 
rule. They should not add additional data points. They should 
exempt smaller banks like mine, reduce the revenue thresholds, 
and not breach the privacy of my customers.
    I love the community banking industry and I love helping my 
customers, and I thank you for convening today's hearing and 
the opportunity to offer the community bank perspective. Thank 
you.
    Chairman MEUSER. Thank you, Mr. Peters.
    I now recognize Mr. White for his 5 minute opening remarks.

                    STATEMENT OF LUCAS WHITE

    Mr. WHITE. Chairman Meuser, Ranking Member Landsman, and 
Members of the Subcommittee, I am Lucas White, President of The 
Fountain Trust Company in Covington, Indiana. I testify today 
on behalf of the Independent Community Bankers of America 
(ICBA) where I am Chairman-elect. Thank you for this 
opportunity.
    Community banks are committed to meeting the credit needs 
of all small businesses in compliance with fair lending laws. 
However, we believe the CFPB's forthcoming rule under Section 
1071 of the Dodd-Frank Act will have serious, unintended 
consequences. If finalized without significant changes, the 
rule will have a chilling effect on customized lending, 
compromise borrower privacy in the rural and small-town markets 
I serve, and reduce access to credit for certain borrowers.
    As described in my written statement, ICBA is urging the 
CFPB to stay the effective date until the Supreme Court has 
ruled on the constitutionality of the agency.
    Is this rule ``the end of relationship banking,'' as the 
hearing title suggests? I absolutely believe that it puts 
relationship banking at risk and should be amended by the 
Bureau or by Congress at the earliest opportunity. Relationship 
banking is the key value proposition that community banks like 
mine offer.
    Relationship banking is our competitive advantage against 
the larger financial institutions and nonbank lenders.
    The Fountain Trust Company has served markets in West 
Central Indiana since 1903 with small business, agricultural, 
and consumer lending. Relationship banking is the foundation of 
our success. It explains our resilience through numerous 
economic and agricultural crises.
    When it comes to serving small business, we form 
partnerships that go well beyond lending. Community banks 
provide practical, real world business counseling that is 
especially important to small businesses. Customized lending is 
key to these relationships.
    Small business lending is not and should not be a 
commodity. Underwriting is based on numerous borrower 
characteristics and market variables. Loans are typically 
customized to suit borrowers' needs and preferences and give 
them the best chance of success. The data collected under 1071 
will not reflect the full scope of underwriting and may suggest 
discrimination where none exists.
    Fortunately, our examiners are best positioned to make this 
judgment and application of fair lending laws.
    Section 1071 is simply the wrong tool for the job. Lenders 
will respond by standardizing loan features to protect 
themselves from charges of discrimination. As a result, small 
business customers will not have access to credit that is 
customized to their needs. Importantly, minority and women 
borrowers whom this rule is supposed to help often benefit from 
customized lending.
    This was the outcome of the qualified mortgage rule which 
was also a provision of the Dodd-Frank Act. It effectively 
forced residential mortgages into a box.
    As I discuss in my written statement, QM effectively 
undermined our mortgage lending. Section 1071 without needed 
accommodations threatens to do the same to our small business 
lending.
    A recent loan will illustrate my point. We worked with a 
local farmer who wanted to open a butcher shop, a vertical 
integration that made good business sense. We offered him two 
customized loan options, a fixed rate and a variable rate. I 
personally walked him through the benefits and drawbacks of 
each and how future interest rates could affect his loan 
payments and cash flows. This personalized customer service is 
what community banks do best and what sets us apart from the 
competition.
    Unfortunately, Section 1071 would make customized multiple 
option lending difficult. It is impossible to compare loan data 
across customers who have chosen different options and 
demonstrate that lending is not discriminatory. Thus, Section 
1071 will limit the scope of loan choices available to small 
businesses.
    On top of that, the publication of my borrower's loan data 
under 1071 would surely compromise his financial privacy. He is 
the only butcher in town. In the small communities I serve, 
businesses are readily identifiable. Loan offers contain 
critical business information and reflect the business owner's 
personal financial position as a guarantor of the loan.
    I discuss additional objections to 1071 in my written 
statement, but the effect on customization and the compromise 
of borrower privacy are our primary concerns. The rule could be 
greatly improved by recommendations described in my written 
testimony that would exempt more banks and borrowers from the 
rule. ICBA thanks the Members of this Subcommittee and 
Committee who have introduced legislation to make the rule more 
workable.
    Thank you again for the opportunity to testify. I look 
forward to your questions.
    Chairman MEUSER. Thank you, Mr. White.
    I now recognize Mr. Wilson for his 5 minute opening 
remarks.

                  STATEMENT OF MICHAEL WILSON

    Mr. WILSON. Good morning, Chairman Meuser, Ranking Member 
Landsman, and Members of the Subcommittee. My name is Michael 
Wilson, and I am testifying today on behalf of the National 
Association of Federally Insured Credit Unions (NAFCU). I 
currently serve as Chief Experience Officer of Members 1st 
Federal Credit Union, headquartered in Enola, Pennsylvania. 
While small businesses only make up 4 percent of our total 
membership, we are very proud of our work in the community as a 
small business lender over the last 20 years in 9 counties 
across Central Pennsylvania where relationships mean 
everything.
    We appreciate the opportunity to participate in this 
discussion regarding the 1071 rulemaking process at the CFPB. 
Section 1071 requires financial institutions to report data 
about small businesses and their owners in order to facilitate 
enforcement of fair lending laws. While NAFCU lauds this goal, 
there is widespread concern about how the CFPB is proposing to 
carry out its authority in this area. We outline our concerns 
with the proposed rule in detail in our written statement but 
would like to highlight a few of our major points here.
    The definition of a covered financial institution. 
Establishing a 25 loan threshold for reporting is a lower level 
than even well-established home mortgage disclosure act or HMDA 
limits. Such a low threshold could drive smaller lenders out of 
small business lending all together due to the compliance 
costs, a fact that the Bureau acknowledges in the proposed 
rule.
    The small business definition. While the CFPB has a 
proposed $5 million threshold, NAFCU believes it should be 
consistent with the SBA's $1 million standard.
    Covered credit transactions. NAFCU recommends that the 
Bureau establish a de minimis threshold consistent with the 
NCUA's $50,000 call report threshold. Congress has excluded 
Member business loans under $50,000 from the credit union 
business loan cap and the NCUA has recognized this and excluded 
such loans from call reports. We believe the CFPB is vastly 
underestimating the number of credit unions that would be 
impacted by the new burdens of this rule because it used the 
call report data that excludes these loans in its analysis but 
the Bureau did not account for the de minimis threshold by 
proposing its own in the rule. By not recognizing this 
distinction, the CFPB threatens to compound the compliance 
burdens of this rule for credit unions.
    Protected demographic information and visual observation. 
Under the proposed rule, an employee could be forced to 
determine the ethnicity and race of a small business applicant 
via visual observation. NAFCU unequivocally opposes any 
requirement that an employee of a credit union make visual 
observations concerning the race, gender, or other sensitive 
data about a small business owner. Not only is this an 
unconscionable idea but it also threatens the integrity of any 
Section 1071 data collected.
    One-time and ongoing compliance costs. NAFCU is 
significantly concerned that the Bureau, as happened with its 
HMDA proposal, has materially underestimated the one-time and 
ongoing costs credit unions are likely to face under the rule.
    Mandatory compliance schedule. The proposed rule's 18-month 
mandatory compliance schedule will be aggressive, even for the 
largest, most tech-savvy credit unions. The vast majority of 
credit unions will be forced to rely on multiple IT vendors to 
come into compliance. Past experience with the Bureau's 
implementation of HMDA suggests that the Bureau is likely 
underestimating the time required for IT venders to adapt their 
products to comply with major rulemaking. NAFCU has encouraged 
the Bureau to adopt a phased, mandatory compliance schedule 
based on loan volumes that begins no sooner than 3 years 
following the Bureau's adoption of a final rule. We are 
supportive of efforts to address concerns about the compliance 
deadline, such as the Small Lender Act offered by 
Representative French Hill.
    In conclusion, with the final Section 1071 rule set to be 
released, NAFCU urges the CFPB to exercise its discretionary 
authority to exempt smaller institutions from this rule as the 
compliance costs outweigh any benefit. If such an exemption is 
not granted under the CFPB Section 1022 authority, we would 
hope to see significant changes to the proposed rule as 
outlined above. Even though small businesses make up a small 
percentage of our membership, the cost associated with 
complying would have a negative impact on our Members and their 
access to credit. Should the bureau not address our concerns, 
we urge Congress to step in with your oversight authority and 
to consider statutory changes such as enacting the small lender 
act. Failure to do so will threaten access to credit for many 
of our nation's main street small businesses who rely on 
community lenders like credit unions to meet their capital 
needs.
    I thank you for the opportunity to testify today and look 
forward to answering your questions. Thank you.
    Chairman MEUSER. Thank you for your compelling testimony, 
Mr. Wilson.
    I now recognize Ms. Urrutia for her 5 minute opening 
remarks.

                    STATEMENT OF LUZ URRUTIA

    Ms. URRUTIA. Good morning, Chairman Meuser, Ranking Member 
Landsman, and Members of the Committee. Thank you for the 
opportunity to testify and discuss CFPB Section 1071.
    My name is Luz Urrutia and I am the CEO of Accion 
Opportunity Fund, the leading CDFI nonprofit providing access 
to loans, business advising, and networks to underinvested 
entrepreneurs.
    I spent my entire career in for-profit financial services 
which included nearly two decades at Wachovia, then as co-
founder and CEO of a community bank and a CEO of a payday 
lending company where I helped to ensure that they provide 
responsible financial services to their customers. I joined AOF 
as its CEO because of my experience as a lifelong for-profit 
banker and my passion for providing responsible financial 
services to underinvested communities. I know for a fact that 
business and lenders can generate profit and do the right thing 
investing in all communities.
    As CEO, I am very proud of the impactful work AOF has done 
to provide capital to entrepreneurs that are often left behind 
by our financial mainstream system. Today, we have deployed 
over $700 million to more than 25,000 entrepreneurs, and 80 
percent of our borrowers are people of color, women, and 
immigrants. In fact, women make up one out of every three 
clients we serve. It is because of the entrepreneurs we serve 
that I have advocated for rules like 1071 which will allow our 
entire financial services system to fully see and better serve 
all of our entrepreneurs.
    And this transparency is not just about fairness. It is 
also about strengthening the economy. A recent study shows that 
minority- and women-owned small businesses employ nearly 20 
million people and generate over $2 trillion in economic 
activity.
    I know this to be true, personally and as the CEO of AOF, 
because I think about clients such as Reign Free from Oakland, 
who started and scaled her catering business after repeatedly 
being told that she did not qualify for a loan. We were her 
first lender to say yes. I also think about Alicia Villanueva 
from Hayward, who took $5,000, bought her first van, and now 
she has the most burgeoning tamale business nationwide.
    I am proud that we provide loans to everyone--Black, White, 
Latino, Asian, and low-income, but I am especially proud of our 
investment in Black and Latina women who are starting up more 
businesses in this country than any other group. I am proud 
that AOF supports these entrepreneurs and the businesses that 
they found, the employees they hire and train, and the economic 
activity they generate.
    However, for decades, entrepreneurs like these women have 
not been seen by our financial system. While I am on here to 
defend or promote every letter of Section 1071, I recognize 
that this rule will accomplish three important things: It will 
help small business lenders. It will help entrepreneurs that 
desperately need access to capital, and help policymakers that 
want to invest in our economy without creating new direct 
entitlement programs.
    First, this rule would help the market to better address 
both the lack of access to affordable capital, and the rise of 
irresponsible lending. For the first time, everyone in 
financial services would be able to see which business models 
are successful at reaching minority-owned, women-owned, and 
other small businesses. This transparency would attract 
investment capital and partnerships into models that really 
work. We can have a market-based model and pro-innovation 
approach to regulation, one that will actually help lenders 
expand customer acquisition, something that all community banks 
and lenders really want and need to do. But we need clarity on 
who the businesses are, who is serving them, and what capital 
are they getting, because we cannot manage what we do not 
measure.
    Second, as lenders, the better we understand these 
businesses, it will help tailor products and services to meet 
their needs. The more knowledge we gain about our markets, our 
customers, and their needs, the better equipped we are to 
building long-term profitable relationships.
    Finally, this rule helps spur additional investments in 
small businesses, which is the best way to reduce inequities 
without having to create new government programs. Instead, it 
will allow all of us to do what our organizations have 
successfully done for years--expand access to capital for 
underserved entrepreneurs by leveraging existing public and 
private sector partnerships.
    For these reasons, I am very pleased to testify on how we 
can ensure that Section 1071 accomplishes its goals of spurring 
additional investment in all our entrepreneurs.
    I will conclude by saying that access to capital for small 
businesses is a bipartisan priority. There are Mom and Pop 
stores in communities that are rural and urban; red and blue; 
Black and White, Hispanic, and Asian, and they are all powering 
our economy. But we cannot do that without Section 1071 to 
shine light on these small businesses' credit applications.
    Because as I said before, we cannot manage what we do not 
measure, and sunlight is the best disinfectant. As we implement 
this rule well, we will finally will be able to increase access 
to capital for small businesses and create a more transparent, 
bipartisan, and successful financial system.
    Thank you, and I look forward to your questions.
    Chairman MEUSER. Thank you, Ms. Urrutia, I appreciate that.
    We will now move to the Member questions under the 5-minute 
rule. And I recognize myself for 5 minutes.
    Mr. White, I will start with you. And really, to all of our 
witnesses. The CFPB's mission statement is as follows. I am 
going to summarize.
    We aim to make consumer financial markets work for 
consumers, responsible providers, and the economy as a whole. 
We protect consumers from unfair, deceptive, or abusive 
practices and take action against companies that break the law. 
We arm people with the information, steps, and tools that they 
need to make smart financial decisions.
    Mr. White, do you think that this rule will help the CFPB 
to accomplish this mission?
    Mr. WHITE. Mr. Chairman, thank you.
    I do not believe this rule will help CFPB achieve its 
mission. The first part of the mission statement was something 
along the line of having markets help consumers. And I would 
reference the QM rule that came into effect as part of Dodd-
Frank. As I said in my testimony, customized lending is 
absolutely key to small business lending. We had that type of 
lending with consumer mortgages prior to the QM rule. As a 
result of the QM rule, we now have all of our consumer 
mortgages in a matrix. We had a customer prior to QM. Her name 
is Mae. She owns a local Chinese restaurant. We had a consumer 
mortgage with her. After QM, we could not verify enough income 
and we had to turn her down when she wanted to buy a new house. 
And so that is an example of where a rule like this can 
undermine what the CFPB's mission is.
    Chairman MEUSER. Sure. So, will the CFPB's 1071 reporting 
rule in any way improve your lending practices and make them 
fair? Will you have more businesses in some way because this 
rule is in effect? And I will also ask, and I am going to ask 
Mr. Peters this and as well Mr. Wilson, is it fair to compare a 
mortgage loan to a business loan?
    Go ahead, Mr. White. You go first.
    Mr. WHITE. they are completely different. Each business is 
different. Their cash flows are different. Their needs are 
different. And that is the reason we tailor our loan products 
specifically to what that customer needs. And so you cannot 
compare consumer lending at all to small business lending in my 
eyes.
    Chairman MEUSER. Mr. Peters?
    Mr. PETERS. Yeah, I would agree. They are two different 
situations. I mean, small businesses are unique. They are at 
different stages in their lifecycle. Oftentimes you are 
counting on pro forma income or projections, whereas in 
consumer lending it is documented past. So I think it is two 
different types of lending.
    Chairman MEUSER. And continuing, Mr. Peters, will this have 
any effect in extending relationships with small businesses in 
your community? I mean, let's face it. We are talking about 
expanding lending here, not what occurred with the PPP where 
fraud came into play. Now, we all know that knowing the 
customer within the PPP reduced potentiality of fraud 
immensely; right? I mean, it did not happen with knowing the 
customer. But would this help you accentuate and enhance your 
business base in any way in your view and change your proactive 
practices to outreach to your community?
    Mr. PETERS. I do not believe so. I think we are only as 
strong as our communities as a community bank. And we want to 
build stronger communities. So, I do not think that it would 
help that or change the outlook at all.
    Chairman MEUSER. Well, it is certainly your reputation.
    Mr. Wilson, let me ask you, can you explain how your 
employees are going to feel about having to potentially guess 
the racial information of customers based upon appearance, 
surname, when it is not self-reported by the small business 
which is their right and as this rule would require?
    Mr. WILSON. I would imagine that would put our associates 
in a very uncomfortable situation. I think about the 19- or 20-
year-old teller who is in their entry-level role and being, you 
know, put in a very awkward situation like that would be very 
difficult for them. In addition to that, it could really 
compromise the data which could undermine exactly what the 
attempt is here to help.
    Chairman MEUSER. All right. Thanks.
    And I am going to go back to you, Mr. Peters. Would this 
rule require you to increase employees, increase your costs for 
compliance, add additional burdens to your ability to be a 
thriving lender in your community?
    Mr. PETERS. Yes, it would. I mean, you are talking about 
systems and when systems are put into place what a lot of 
people do not think about is there needs to be somebody to run 
that system. The care and feeding of it, in addition to 
compliance, to the checking, the double checking, the software, 
to gather and report it. I would say something like this would 
touch at least 15 different people in our bank and probably add 
in the neighborhood of $500 to $800 per loan in the startup 
year.
    Chairman MEUSER. Thank you. My time has expired. Thank you 
for your testimony.
    I now recognize the Ranking Member for 5 minutes for 
questions.
    Mr. LANDSMAN. Thank you, Chairman.
    So I appreciate everyone being here. The fact that we have 
a community bank and a credit union, a CDFI, part of this 
hearing is to better understand what is a proposed rule. Right? 
You know, the rule is still being finalized, input is being 
gathered, information from everybody is collected. And so it 
will be important for us to, I think, wait to see what this 
proposed rule is, though it does seem to me that this is a very 
straightforward thing. And Mr. Wilson touched on this which is 
although it may have been Ms. Urrutia, sorry, who said it but 
this is about collecting data and trying to better understand 
who does this best. And not an entitlement program which is I 
think a really important thing to keep in mind. And you know, 
to do it in a way that does not overburden folks obviously is 
important and clearly the testimony today suggests that, you 
know, for some of our banks it does. I will just way of 
background and then I will ask my question, I represent a 
district with a large number of smaller businesses, women-owned 
businesses, Black-owned businesses. We have a lot of childcare 
providers, most of whom are run by Black women, owned by Black 
women. And their ability to access capital has been tough. And 
you know, post-pandemic it has been even tougher because of the 
cost of capital; right? So accessing affordable capital. And so 
it does seem to me very straightforwardly that, you know, the 
more data that we are able to collect, the better it is that we 
will be able to understand what is working and what is not. And 
I think the question is how you do that in a way that is not 
overly burdensome and does not lead to this situation where 
folks are being left out or you cannot provide loans.
    So I guess my question first Ms. Urrutia, sorry, I am 
struggling with that one, is do you believe that this will 
undermine, you know, small banks, their ability to provide 
these loans?
    Ms. URRUTIA. I think it would be the opposite. I think 
that, this rule is going to lead actually to more small 
business lenders wanting to get into the market because 
everyone is going to become more aware, more knowledgeable, and 
more informed about the scope and scale of small businesses and 
the impact that they have on our economy. And frankly, how much 
they are growing and how profitable they are for institutions 
that want to serve them responsibly. You know, we saw this 
development with HMDA. It did not pull lenders away. In fact, 
as more data was reported, more competition emerged, better 
products were developed, and everybody won, the consumer and 
the lenders.
    The CFPB issued a lender survey and developed cost 
estimates that were then reviewed by lenders, and many smaller 
financial institutions were asked this question during the 
rulemaking process and responded to say that it would not force 
them out of the market. The Bureau also estimated the cost per 
application would range anywhere between $7 for the larger 
banks with more technological capabilities to $28 for the 
smaller banks. And so, you know, for the first time I think 
everyone in financial services would really have access to see 
what the market is made up of and to be able to reach 
successfully more minority-owned, women-owned, and other small 
businesses. And I think once again, the transparency is going 
to attract quality responsible business models to want to serve 
a very burgeoning, growing, and profitable market which is the 
small business lending community.
    Mr. LANDSMAN. You have been able to do a lot and this has 
helped you better understand the impact. What is your 
recommendation or suggestion, advice in terms of managing the 
data collection and pursing the intent of the rule which is to 
increase lending to folks that have struggled to get lending, 
to get the capital?
    Ms. URRUTIA. Yeah. So just, our own perspective, last year 
we did about 3,000 loans to small business entrepreneurs. That 
is an enormous amount of lending. And you know, like every 
other CDFI, we are required to collect and report data on a 
variety of data points--interest rates, fees, origination cost, 
race, gender, ethnicity. And CDFIs do that.
    Mr. LANDSMAN. I have run out of time and I apologize. I 
spoke a lot. But as the hearing continues I think just getting 
that sense as to what advice, recommendations would be great.
    Thank you, Mr. Chair.
    Chairman MEUSER. Thank you. The Ranking Member's time has 
expired.
    The Chair now recognizes Mr. Luetkemeyer from Missouri for 
5 minutes.
    Mr. LEUTKEMEYER. Thank you, Mr. Chairman.
    Mr. White, when Congress passed Dodd-Frank 12 years ago it 
included Section 1071, which requires companies to inquire 
whether customers are a small business, woman-owned business, 
or minority-owned business at the credit application stage. 
However, in the 1970s, Congress passed the Equal Credit 
Opportunity Act which prohibits race as part of lending 
criteria. If the CFPB's proposed rulemaking would make 
financial institutions essentially guess the applicant's 
ethnicity if an applicant does not want to provide such 
information it would appear to me that would be racial 
profiling if I am not mistaken.
    Mr. Wilson, does that proposed rule go against the Equal 
Credit Opportunity Act which has been in law since the 1970s? 
Mr. White, I am sorry.
    Mr. WHITE. As Mr. Wilson actually said earlier, we are 
concerned with having to guess the race of our customers. We 
have to do that under HMDA currently but through PPP we learned 
that a substantially higher number of small businesses declined 
to provide that information than homeowners. And so as a result 
of that, our employees are going to be guessing that 
information a lot more than what they do under HMDA. And that 
will eventually kind of erode the data. As we say in the 
banking industry, ``garbage in, garbage out.'' With models, it 
will be very hard to analyze the data.
    Mr. LEUTKEMEYER. Okay. The Equal Credit Opportunity Act is 
a law though, is it not?
    Mr. WHITE. Yes. We cannot discriminate, period.
    Mr. LEUTKEMEYER. This is a rule by the CFPB; right?
    Mr. WHITE. Yes.
    Mr. LEUTKEMEYER. Does a law overrule a rule?
    Mr. WHITE. No.
    Mr. LEUTKEMEYER. No?
    Mr. WHITE. The statute rules.
    Mr. LEUTKEMEYER. They are equal in substance? Equal in 
importance? One does not overrule the other?
    Mr. WHITE. Statute technically I think overrides a rule but 
we have to follow both. And as long as they do not conflict----
    Mr. LEUTKEMEYER. Well, does this not conflict here because 
you are basically racially profiling with the way the new rule 
is proposed versus the Equal Credit Opportunity Act that says 
you cannot do that?
    Mr. WHITE. It certainly opens up the risk to that.
    Mr. LEUTKEMEYER. So, okay, as an attorney, would you not be 
concerned by your officers opening yourself up to a lawsuit in 
this situation? If you comply with one rule here, are you 
against, are you doing something in contradiction to the law?
    Mr. WHITE. It certainly increases our risk of opening 
ourselves up to litigation. That is correct.
    Mr. LEUTKEMEYER. How would you advise your customers, your 
clients in this situation? If you were a bank attorney--not the 
CEO now. If you are a bank attorney for a group of banks, what 
would you advise them to do here?
    Mr. WHITE. When the rule requires our employees to guess, 
there is not much more we can do than say give it your best 
guess.
    Mr. LEUTKEMEYER. So as long as you are guessing according 
to what the rule tells you to do you are going to be okay?
    Mr. WHITE. Well, hopefully. I will say as a community bank 
we know our customers.
    Mr. LEUTKEMEYER. Is that away to do business, Mr. White?
    Mr. WHITE. No, it is not.
    Mr. LEUTKEMEYER. To guess what is going to happen?
    Mr. WHITE. We do not prefer to guess when it comes to doing 
business.
    Mr. LEUTKEMEYER. Okay. Thank you for that.
    Mr. Peters, you made a statement a minute ago that each 
bank has to collect the data and report it even if you do not 
make the loan. It would seem to me that is going to skew your 
data if you are going to have to continue to report it. 
Somebody who is not a worthwhile individual, he goes to seven 
different institutions and gets turned down, that is going to 
skew the data, is it not?
    Mr. PETERS. Yeah. I think definitely so. You know, most 
times a small business is not going to just go to the first 
lender. They are going to shop their deal and try to talk to a 
number of banks about it. The banks are also going to help them 
put together the structure of that loan. So it may look 
different in different applications in different spots and only 
one bank will fund the loan but they will all be reporting the 
data and I think it would be very difficult to find meaning in 
that kind of data.
    Mr. LEUTKEMEYER. Mr. White, CFPB wants to collect a series 
of personal and detailed data from small businesses but refuses 
to release which information they will publicize or share how 
they plan to make that determination. My bill, the Business 
Loan Privacy Act will require the CFPB to do a separate notice 
and comment rulemaking to determine what information will be 
published by the Bureau.
    Mr. White, do you believe the CFPB should have a separate 
rulemaking for this, allowing small businesses and lenders to 
be part of the conversation?
    Mr. WHITE. Absolutely. And on behalf of ICBA, I would like 
to thank you for that legislation that you have introduced. 
Small businesses and community banks should have a voice in 
what data is made public because that is where our privacy 
concerns come up for our customers.
    Mr. LEUTKEMEYER. Well, it looks to me like your clients', 
your customers' information is going to be much more public 
than what it is now if this goes through. Do you have concerns 
about that information being made public and having some 
ramifications of that to your customers?
    Mr. WHITE. We do. Small businesses prefer their information 
to remain confidential. And when our customers realize that 
their data is being made public it provides an incentive to go 
to a larger bank where their information can basically be 
hidden in the data. And if they come to our bank like that 
butcher I talked about, everybody is going to know who it is 
but if he goes to a big bank he may not.
    Mr. LEUTKEMEYER. So what you are saying is instead of being 
able to do business with your local community bank, if you 
prefer not to have everybody in the community know what you are 
doing and what your business is you may go down the road to 
some bigger bank or some other community and as a result you 
are not doing business with your own community bank any longer.
    Mr. WHITE. That is exactly right.
    Mr. LEUTKEMEYER. And so it will hurt the community banks by 
doing this.
    Mr. WHITE. Highly likely. Yes.
    Mr. LEUTKEMEYER. Okay. Thank you very much for your 
testimony today. Mr. Chairman, I yield back.
    Chairman MEUSER. The gentleman yields.
    The Chair now recognizes the Ranking Member of the Full 
Committee, Ms. Velazquez from New York for 5 minutes.
    Ms. VELAZQUEZ. Thank you very much. And thank you to all 
the panelists for your insightful information.
    Ms. Urrutia, you said, you stated that we cannot fix what 
we cannot measure. And so when we were going through the 
pandemic and we issued the first tranche of money to provide 
relief to small businesses, anecdotal data was telling us that 
the smallest of the small businesses and Black and Latino and 
Asian businesses were left behind no matter how hard they try. 
Do you know why? Because the banks did not proactively help 
anyone but their customers. So I requested when I was consulted 
by the leader in the House to sign onto another tranche of 
money I said, no, I want to see the data. I want to see if 
everyone, every small business that is in need of help has been 
provided by the banks. And the Secretary of the Treasury 
Mnuchin refused. And then when he saw that definitely we will 
not be part of providing more relief unless we saw the data, 
what the data told us was exactly what the anecdotal data was 
telling us, anecdotal stories was telling us. And so, we added 
money for nation lenders to be able to provide relief to small 
businesses.
    Ms. Urrutia, you were a Member of the CFPB and the notice 
of the proposed rulemaking provides that the applicants 
themselves do not have to provide their information. But, if 
the applicants do not provide the information, the financial 
institution must provide it based on visual observation or 
surname. In fact, those SBREFA panels were conducted by former 
Director Kraninger, who was appointed by President Trump. Is 
that not correct, Ms. Urrutia? And so it is also fair to say 
that the CFPB under both the Trump and the Biden administration 
thought that crafting and finalizing this rule was necessary to 
protect small businesses.
    Ms. Urrutia, can you explain why the data collection 
requirements being proposed by the CFPB are not overly 
burdensome on small depository and non-depository institutions?
    Ms. URRUTIA. Yeah. So as I explained earlier, you know, my 
previous experience as a banker and my current experience as 
the CEO of the largest nonprofit CDFI, I do not believe that 
the data collection being proposed under 1071 is overly 
burdensome. As I was stating earlier, we do on average 3,000 
loans, small business loans a year. And like every other CDFI, 
we are required to collect and report comparable data to 
Section 1071 on small businesses on an annual basis and report 
that data to the CDFI fund. Many of the CDFIs that report with 
us are also small, community-based organizations and the 
information reported includes transaction-level data, such as 
interest rate, origination fee, points, terms, amounts, 
payments, race, ethnicity, age, and gender.
    Ms. VELAZQUEZ. Thank you for that answer.
    Can you expand on why you believe the work done by the CFPB 
is necessary to small businesses as consumer?
    Ms. URRUTIA. Well, if you look at the small businesses, you 
know, they are often called Mom and Pop businesses. And that is 
because they are small and they are run by the same consumers 
that the CFPB is trying to protect. These businesses do not 
have CPAs or CFOs making financial decisions for the family-run 
businesses and they have the same level of sophistication as 
the average American household. And these Mom and Pop stores 
are in rural and urban communities and are powering our 
economy. And their success is our success but they need capital 
to grow. And unfortunately----
    Ms. VELAZQUEZ. But are you not concerned about the 
potential upfront or ongoing compliance costs?
    Ms. URRUTIA. I can tell you that our compliance cost up 
front was $35,000 and annually it is $10,000, regardless of 
number of loans that we are doing. And so I think that the 
costs are manageable compared to the benefits of having access 
to data that is going to help all of us better serve small 
businesses in America.
    Ms. VELAZQUEZ. Thank you. I yield back.
    Mr. LALOTA. Thank you.
    The Chair recognizes himself for 5 minutes.
    I am Nick LaLota. I represent a Long Island district, the 
1st District of New York. We are about a couple hours east of 
Manhattan. We are a suburban district with many Mom and Pop 
businesses. They are struggling under the high inflation, high 
interest rates, excessive regulations, and labor shortages just 
to name a few. Members of this Committee from both sides of the 
aisle agree that these challenges are real and persistent 
throughout the country. And with that in mind, it is troubling 
to me and other Members on the Committee that the Consumer 
Financial Protection Bureau is using resources at its disposal 
to create rules to add to these very real pressures instead of 
mitigating them. Hopefully at a future hearing we can have a 
representative from the CFPB to explain to us the timeliness of 
this rule. Thankfully, you, as today's witnesses, have beyond a 
doubt demonstrated that these new regulations would have 
duplicative measures and would cost millions per year to comply 
with and would irreparably harm our relationship banking.
    My first question is to you, Mr. White. Sir, thank you so 
much for being here.
    As you stated in your testimony, you have 130 employees 
across many locations. How difficult would it be for your 
business to create a firewall as has been described today?
    Mr. WHITE. Any time when you have a bank our size with our 
number of employees, any new regulation is hard to figure out 
how are we going to do this with the employees we have. And I 
will explain what we do on HMDA because it is fairly similar to 
what will happen with 1071. Our loan processor enters the data. 
We then have three separate people review that data before we 
file it or report it. And we still have the random mistake 
after three levels of review. And so when you consider last 
year we did approximately 770 loans that would be subject to 
1071, you are looking at HMDA on steroids basically in terms of 
the amount of manpower and time that it would take.
    Mr. LALOTA. Thank you. And following up on that, you also 
illustrated problems with the scope of the data collection. For 
example, the 25 loan threshold is far too low and the borrower 
gross annual revenue threshold is too high, meaning the data 
collection requirements would apply to a majority of community 
banks. In your opinion, what should the threshold be?
    Mr. WHITE. ICBA is advocating for a $1 billion asset 
threshold. Banks below $1 billion would be exempt. If the CFPB 
or the government stays with a number of loans we would support 
French Hill's bill which has a 500 loan limit. Twenty-five 
loans a year is so low it is honestly a little bit offensive 
that that is considered an exemption.
    Mr. LALOTA. Thank you so much.
    And Mr. Peters, in your testimony you talked about the 
decline of community banks and the resulting consolidation. And 
I share these concerns, sir. How do you think small businesses 
like the ones in my district on Long Island and throughout the 
country will fare if there are fewer choices when it comes to 
lenders?
    Mr. PETERS. Well, I think we have the best financial system 
in the world, and I think part of that is having choices as 
businesses and consumers in competition. And I think in this 
case if you are concerned about the privacy of the data you may 
want to go to a larger lender where your data could be harder 
to find by the public. If I was denied the loan, I do not want 
my community to know that so I think it does not play in favor 
of our small business clients and communities.
    Mr. LALOTA. Thank you, Mr. Peters. And following up with 
that, you discussed that making application loan data public 
will be opposed by your clients for a variety of legitimate 
reasons. Do you think that this will make your clients less 
likely to apply for those loans?
    Mr. PETERS. I think in some cases it could push them to 
other lenders that will not follow those rules such as I 
mentioned in my testimony with hard money lenders that fall 
under these thresholds and can ensure privacy of data. And that 
is something that is very important to my clients.
    Mr. LALOTA. Thank you. And thank you for all the witnesses 
being here. I yield back the balance of my time.
    I now recognize Ms. Chu from California for 5 minutes.
    Ms. CHU. Thank you.
    Ms. Urrutia, we know that women- and minority-owned small 
businesses still face significant barriers in access to 
capital. These gaps were particularly clear during the Paycheck 
Protection Program and the initial PPP application did not ask 
for demographic information. And so there were shocking 
results. In fact, because the SBA was not gathering this data, 
investigators at the LA Times in my area published a report in 
2021 and they have to use census track data in order to look at 
majority ethnic census tracks. And they determined that 
businesses in majority White neighborhoods received loans at 
twice the rate that majority Latino census tracks received the 
loans, 1.5 times the rate of businesses in majority Black 
areas, and 1.2 times the rate in Asian areas. And so we clearly 
need it, that data transparency. What happened with PPP shows 
us why we have to have this information. And as a result, we 
did this $60 billion set aside for the mission-based lenders to 
provide loans to those in minority and women-owned areas. And 
this problem was ameliorated tremendously and now the loans 
were shown to be given to those in those underserved areas.
    So Ms. Urrutia, can you speak to the lessons of the PPP and 
why the data transparency like this required by Section 1071 is 
needed to both understand and address discrimination and 
disparities in small business lending?
    Ms. URRUTIA. Sure. I can share my own personal experience 
about discrimination in the financial system. When I started 
working for a bank, I was turned down because I did not have 
credit. And so the fact that I was an immigrant and I had 
limited credit history made me invisible and unbankable. Fast 
forward 18 years, that experience led me to find a community 
bank and then I wanted to raise capital. And I kept on hearing 
no, no, no at every turn of the way until I show up with a 
couple of male board Members and then the capital to form the 
bank started flowing. Twenty-one years later things have not 
changed. Two percent of venture capital goes to women. Four 
percent of commercial loans goes to women. In the meantime, it 
is women that today are building small businesses at a higher 
rate than any other demographic in this country. So the 
problems persist, and unless we put sunshine in this problem we 
are never going to solve the problem that women and communities 
of color face accessing capital from financial institutions.
    Ms. CHU. Thank you for that.
    And Ms. Urrutia, well, for one thing we do know that the 
CFPB Home Mortgage Disclosure Act rule has been in place for 
more than 40 years and has been instrumental in giving the CFPB 
the data they need to identify and root out discriminatory 
lending practices. And even more importantly, mortgage lending 
activity has not decreased or been otherwise negatively 
impacted due to compliance costs.
    Now, there was some discussion earlier about, well, 
mortgage loans are different from business loans and so that is 
why with business loans you should not look at demographic 
data. How do you answer that?
    Ms. URRUTIA. You know, I think this can be very much 
compared to HMDA. There was anecdotal evidence that underbanked 
populations were not being served and that capital flows were 
falling short when reaching certain communities. But without 
the data there was no proof and HMDA was that data. The result 
really was real access to capital for those communities, and 
really great benefits were achieved for both the individuals 
and the institutions that were providing the capital. As a 
result, lenders got into mortgage lending because they thought 
it was profitable, it was growing, and they could really do 
great work. There is plenty of evidence following the HMDA data 
expansion between 1993 and 1999, the number of home purchases 
made. For Latino consumers, it increased over 120 percent. For 
Native Americans, 119 percent. For African Americans, by 91 
percent. And plenty of more statistics that show that increase 
in the flow of capital happened to underserved communities. 
There were certainly other factors that contributed to this but 
HMDA was a key part of that expansion. So it has been done 
before.
    Now, we do have some recommendations. Having a national 
database, and one thing I want to focus is on privacy. If you 
look at 40 years of HMDA's existence, not a single home loan 
has been identified. And the CFPB also contends that the 
publication of HMDA, which has similar data points to Section 
1071, has not resulted in any measurable increase in fraud or 
identity theft.
    Ms. CHU. Thank you.
    Mr. LALOTA. The gentlelady's time has expired.
    I now recognize the gentlelady from Texas, Ms. Van Duyne, 
for 5 minutes.
    Ms. VAN DUYNE. Thank you very much, Mr. Chairman. thank you 
for holding this important hearing on a very concerning rule 
coming from the Biden administration which once again will 
hamper growth and create additional regulatory burden in an 
already difficult environment.
    As we have already talked about in this hearing multiple 
times, the inflationary environment created by this 
administration has led to the rise of interest rates, which has 
limited the access to capital for small businesses. This rule 
is confusing to interpret, and it will be confusing to 
implement, which will lead to higher compliance costs from what 
we have understood today and will once again be passed along to 
small business owners further increasing the cost of capital. 
We have heard a couple of strange statements today.
    Mr. Peters, I am going to ask you, do you have any clients 
who you have given loans to that are women?
    Mr. PETERS. Absolutely. Quite a few.
    Ms. VAN DUYNE. Do you have any minority clients?
    Mr. PETERS. I do.
    Ms. VAN DUYNE. Mr. White, do you have female and minority 
clients that you have actually given loans to as well?
    Mr. PETERS. Yes. Absolutely.
    Ms. VAN DUYNE. I am going to ask you, Mr. Wilson?
    Mr. WILSON. Absolutely. In fact, we were the ninth largest 
provider of small dollar PPP loans in the credit union space in 
the country.
    Ms. VAN DUYNE. That included women and minorities?
    Mr. WILSON. Absolutely.
    Ms. VAN DUYNE. And then I am going to ask you as well, you 
have women and minority clients as well?
    Ms. URRUTIA. Absolutely.
    Ms. VAN DUYNE. Mr. Peters, does every small business who 
applies for a loan qualify?
    Mr. PETERS. No.
    Ms. VAN DUYNE. Why?
    Mr. PETERS. We are relationship lenders so we are not just 
looking at a scorecard or a matrix. You know, the foundation of 
relationship lending is the five Cs of credit. We are looking 
at character. We are looking at capacity, collateral, capital, 
and conditions. You need to find the story behind the applicant 
and you cannot do that with a check box.
    Ms. VAN DUYNE. Okay. I am going to ask you, Mr. White, the 
same question.
    Mr. WHITE. I agree with Mr. Peters. One thing I will add is 
that I mentioned the relationship banking and counseling our 
business customers and giving them real-world business advice 
is part of what a community bank does. When we have small 
business owners that do not qualify for one reason or another 
we work with them to show them what they need to do to qualify 
in the future, whether that is improve their cash flow, improve 
their collateral or whatever it may be, we work with our 
customers to get them to a point where they can qualify.
    Ms. VAN DUYNE. Mr. Wilson, does every single small 
business, even if they need the capital that comes to your 
bank, are they able to qualify?
    Mr. WILSON. Well, in addition to following a similar 
process to Mr. Peters and Mr. White, we also take it a step 
further and assign every small business their own personal 
concierge. So even if they cannot qualify, we would provide 
them with a continuum of services, and even individuals who may 
be able to help them down the road.
    Ms. VAN DUYNE. Are you required to do that by law?
    Mr. WILSON. Absolutely not.
    Ms. VAN DUYNE. So why do you do it?
    Mr. WILSON. Because it is the right thing to do in our 
communities that we serve.
    Ms. VAN DUYNE. Thank you.
    Mr. Peters, you had mentioned that per cost of loans if 
this regulation were to go through, it would possibly increase 
between $500 and $800 per loan. Can you define what you think 
would be adding to that increase?
    Mr. PETERS. Well, there is a number of systems costs. One, 
banks are relying on their core vendor. So there would have to 
be that integration to the core. There would have to be 
additional software to capture and report the data. There would 
be somebody that runs that system. There would be audit of that 
system. There would be compliance. There would be training the 
lenders on how to tactfully try to gather that information 
accurately. So it is going to affect at least 15 people and a 
number of systems. And as my IT group continually reminds me, 
systems do not run on their own.
    Ms. VAN DUYNE. So is your company, is your bank going to 
just go ahead and take those costs or will those be reflected 
in the costs that you charge your small businesses?
    Mr. PETERS. I think it would have to be reflected into the 
rate and fees that are charged to the small businesses.
    Ms. VAN DUYNE. And Mr. White, I am going to ask you the 
same question. Do you see that happening?
    Mr. WHITE. Yes, I do. When the examiners come in and 
examine us, one of the things they look at are our earnings. 
And so banks have to be profitable to get good ratings. If we 
do not make money at some point we will go out of existence. 
And so at some point as the regulations get added onto and 
added onto, those costs do have to be passed on to the 
customers.
    Ms. VAN DUYNE. Thank you.
    And Mr. Wilson, do you think that this additional 
regulation will make loans cheaper for your small businesses or 
do you think it is going to make it more expensive?
    Mr. WILSON. It would certainly be an adverse impact. We 
have 60 branches in the communities that we serve so think of 
that as 60 individuals that then have to be completely 
retrained. All of those systems that go into place, much like 
Mr. Peters was saying, the domino effect of all of these things 
is extensive. Just by comparison, we have been working on CECL 
for nearly 5 years so it is no small undertaking. It is not 
like simply flipping a switch and wallah, there is the data.
    Ms. VAN DUYNE. Thank you. I really appreciate all of your 
input today and I think it is pretty clear that this additional 
regulation is bad for small businesses, will increase the 
costs, and it takes the personal touch that you offer all of 
your small businesses. So thank you for your testimony here 
today and I yield back.
    Mr. LALOTA. Thank you.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Alford, for 5 minutes.
    Mr. ALFORD. Thank you, Mr. Chairman and Ranking Member for 
holding this important hearing. And thank you to our witnesses 
for being here today.
    Small businesses are supported by community banks and 
credit unions for their day-to-day business needs. And we have 
seen a lot on the news lately about our financial system. But 
what we really do not see in the news cycle and the headlines 
is how strong our community banks are and our credit unions and 
how they are still a fortress for our communities.
    Since the onset of the bank collapses earlier this month, 
my team and I have been in touch with a lot of community 
bankers and credit unions around the district and around the 
state. Since day one, it has been crystal clear to me that our 
financial institutions and Missouri stand ready to serve 
customers' needs just as they have been doing for decades. What 
they truly do is relationship banking. And I want to give you a 
personal example.
    Just today, I have several accounts, one at a very large 
national bank that you would recognize the name, and several 
community banks. And I have a mortgage with a community bank 
and I did not have enough money in my checking account to cover 
the mortgage payment due today. My banker, who I had a 
relationship with before I even thought about running for 
office texted me this morning and said, hey, Mark, we need to 
move some money over from one of your accounts to cover your 
mortgage. Large banks will not do that, folks. Large banks will 
not do this. It is this Committee's job to allow small 
businesses to thrive. To do that we have to make sure that 
community banks and credit unions that serve small businesses 
and individuals are not overburdened by needless regulation 
from the unconstitutional Consumer Protection Bureau simply to 
appease the Biden's far left agenda.
    So I want to get in with my question with you, Mr. Peters, 
Mr. White, and Mr. Wilson. Community banks and credit unions do 
not have large legal and compliance departments.
    Mr. Peters, will the 1071 rule put you at a competitive 
disadvantage compared to institutions that have larger 
departments to handle such needs?
    Mr. PETERS. Certainly, it would be a heavier lift for us. 
We do not have the robust systems or the program capabilities 
internally to build this, report this data as a much larger 
organization would have.
    Mr. ALFORD. Mr. White?
    Mr. WHITE. We do not have thousands of employees like the 
mega banks. We do not have dozens or hundreds of people in our 
compliance department. Up until just 8 or 10 years ago it was 
actually the Dodd-Frank Act that required my bank to hire a 
chief compliance officer. Prior to that, my dad and my brother, 
who are also with the bank, they were primarily responsible for 
compliance. So we do not have the people or the means to spread 
this over.
    Mr. ALFORD. Mr. Wilson, I feel you would probably say 
pretty much the same thing. You are going to have to pick up 
the slack from somewhere else. How is that going to affect your 
customers in general?
    Mr. WILSON. Sure. Similar to what I said previously, we 
would have to make this up in infrastructure, staffing costs, 
retraining. These things have to be passed along somewhere. 
That is bad for the consumer. And if it makes it too burdensome 
for small institutions that means less competition which 
ironically is bad for the consumer. So think about that for a 
minute.
    Mr. ALFORD. Mr. Wilson, my friend from Missouri, Mr. 
Luetkemeyer touched on this a little bit earlier. I want to 
delve a little bit deeper into it. The rule that calls for the 
collection of all sorts of data including race, if race is not 
evident, is it true that a teller has to assume or I guess, I 
know Mr. Peters you said that they are going to be tactfully 
gathering the information. It seems it could be rather 
sensitive. How do you go about this, Mr. Wilson?
    Mr. WILSON. I mean, the thought of putting our entry level 
folks in this situation is extremely uncomfortable. We have 
made so much progress socially, you know, and such a focus on 
diversity, equity, inclusion, belonging, programming, but to do 
something like this would quite frankly set us backwards and it 
is not something that we would want to put our entry level 
associates in that situation of having to guess whether it is 
in person or over the phone, it is just not right. In addition 
to that, it could seriously compromise the data if they are 
wrong based on assumptions.
    Mr. ALFORD. Thank you so much again for being here today. 
This is very important and, you know, we do not need more 
regulation. We need community banks to support our businesses 
and our individuals to make us successful in America.
    Thank you, and I yield back.
    Mr. LALOTA. The gentleman yields.
    The Chair now recognizes the Chairman of the Small Business 
Committee, the gentleman from Texas, Mr. Williams for 5 
minutes.
    Mr. WILLIAMS. Thank you, Chairman. And I want to, in full 
disclosure, before I get started, I am a car dealer. That is 
what I do. When I am not here I own car dealerships in Texas so 
it makes me kind of a halfway banker. And I have seen a lot of 
this through a lot of years and we seem to be going back to 
where ewe were back in the 1960s, and it is not good. And I 
want to thank all of you again, our witnesses for being here 
today. And before I ask them more specific questions about this 
rule I want to take advantage of having some experts in our 
community banking system in this room.
    So Mr. Peters, you being an expert, okay, I want to get 
your opinion on how small businesses have been adjusting to 
this high interest rate environment we now are in, something 
that did not have to happen, and the general health of small 
businesses looking to access capital.
    Mr. PETERS. Well, certainly, the cost of capital, the cost 
of loans on a variable rate basis is increasing which puts 
strain on cash flow and reduces the ability to expand and to 
hire. And I think the sentiment in many areas where I bank and 
in the market is that this could lead to recession and that we 
had better prepare for that and reduce our spending.
    Mr. WILLIAMS. Well, and small businesses, you know, 
interest, again, I am a car dealer, interest in my business 
tears everything apart from margins to so forth. And when you 
have a situation like this you are going to have businesses lay 
off people, are you not? They are going to try to cut costs and 
people are the highest expense in most businesses. And then the 
idea that they can raise prices to cover that cost is 
ridiculous because we have got inflation now so we are going to 
raise prices. So, this high interest rates we are in is causing 
just a lot of problems. I tis going to be hard for small 
businesses to recover. We know that. That is why I am a big tax 
cutter.
    I think everyone in this room shares the objective of 
making it easier for viable small businesses to get a loan and 
start working towards the American dream. I believe if we want 
to make this a reality, imposing a significant new regulatory 
cost is not the way to do it. We talked about that. Most of the 
time these people we are hiring, they add no value to our 
business as far as what they sell. They are an expense. And 
these new costs will have to be passed along to consumers. 
There is a point that you cannot do that any longer; right? You 
just cannot keep passing costs on. And small business loans 
will get more expensive. All of you have said that. They are 
already now. So instead we should be examining the regulatory 
hurdles that are disproportionately harming community banks and 
credit unions. And not by imposing an expensive new government 
mandate is going to fix it because once you get the mandate it 
is hard to back it off.
    So Mr. White, can you give this Committee some suggestions 
of things we should be examining to make it easier for your 
institutions to get money into your community? So what should 
we be doing to help you and in the end we help you, you help 
your borrower?
    Mr. WHITE. In general, I would say let us do what we do 
best, which is help our customers. Do not dictate how we have 
to do business to help our small businesses. In particular, on 
1071, I would say we talked some about the exemption for banks 
under $1 billion in assets. We would also encourage the revenue 
threshold to be reduced from $5 million to $1 million. That is 
still going to cover the vast majority of small businesses in 
the country. We would also support a mission-based exemption 
for NDIs and CDFIs as well. But fundamentally, community banks, 
we know how to help our customers. We have done it for 
generations. We are stable and successful at doing that. And we 
just need to be allowed to do it.
    Mr. WILLIAMS. Yeah. If the government would get out of your 
life it would be pretty good, would it not? And maybe we could 
insert the customer to tell you if you are doing a good job or 
not and let you compete.
    Mr. WHITE. As I said earlier in my testimony, we often, to 
small business customers and our ag customers, give them an 
option, whether it is an ag line of credit, do you want a fixed 
rate for a year, do you want a variable rate based off of 
prime? We walk them through the differences and we let them 
pick and they appreciate that.
    Mr. WILLIAMS. I have some time left. Mr. Wilson, do you 
want to add to that? What can we do to help you?
    Mr. WILSON. Well, our whole philosophy is built around 
people helping people. We started 73 years ago when nine people 
put money into a pot to lend each other money for appliances 
during the war. So we are very good at what we do. We want to 
continue to serve our Members. We want to continue to make our 
associates happy because then they serve our Members well and 
that in turn makes our communities a thriving place. I think it 
is critical to mention that it is not 1071 or nothing. There 
are already incredibly extensive rules, data collection, things 
that are being provided on a quarterly and annual basis. So at 
a minimum what NAFCU is asking for is consistency. You have 
three different definitions. You have what the NCUA has. You 
have what the SBA has. You have what the CFPB has. That makes 
it incredibly burdensome for institutions.
    Mr. WILLIAMS. My time is up, Mr. Chairman. I yield back.
    Mr. LALOTA. I would like to thank all of the witnesses for 
participating today, to the Members for their thoughtful 
questions.
    And without objection, Members have 5 legislative days to 
submit additional materials and written questions for the 
witnesses to the Chair which will be forwarded to the 
witnesses.
    If there is no further business, without objection, the 
Committee is adjourned.
    [Whereupon, at 11:26 a.m., the subcommittee was adjourned.]
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