Yesterday, I attended the CFPB’s field hearing in Los Angeles on small business lending. In connection with the hearing, the CFPB issued a white paper entitled “Key dimensions of the small business lending landscape,” together with a request for information (RFI) on the small business lending market.
Field Hearing. The field hearing began with introductory remarks from Los Angeles City Attorney Mike Feuer, California Department of Business Oversight Commissioner Jan Owen, and California Attorney General Xavier Becerra, all of whom expressed support for Director Cordray and opposition to ongoing efforts to rein in the CFPB. Notably, Mr. Becerra confirmed that he intends to engage in robust and aggressive consumer protection efforts, including using the investigative authority of his office “to the hilt.”
Director Cordray then delivered prepared remarks concerning the CFPB’s small business data collection efforts pursuant to Section 1071 of the Dodd-Frank Act. In addition to discussing the data collection initiative, Director Cordray opined that the line between consumer and small business lending is often “blurred,” and made a number of other statements suggesting (but not directly stating) interest in regulating small business lending. Perhaps hinting at a run for Governor of Ohio, Director Cordray spent a fair amount of time lauding an Ohio loan subsidy program he operated as Ohio State Treasurer, claiming it has been successful in facilitating lending to small businesses.
Director Cordray’s remarks were followed by a panel discussion led by Acting Deputy Director David Silberman and CFPB representatives Grady Hedgespeth and Cheryl Parker Rose. The individuals providing testimony were: Elba Schildcrout, East Los Angeles Community Corporation; Makini Howell, Main Street Alliance; Josh Silver, National Community Reinvestment Coalition; Kate Larson, U.S. Chamber of Commerce; Todd Hollander, Union Bank; and Robert Villarreal, CDC Small Business Finance. Conspicuously absent from the panel was a representative of nonbanks providing financing to small businesses.
White Paper and RFI. As it did in its annual fair lending report issued last month, the CFPB states in the white paper and RFI that it is in the early stages of its work to develop regulations implementing Section 1071, with such work currently focused on outreach and research. Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses such as the race, sex, and ethnicity of the principal owners of the business. In the white paper, the CFPB discusses the initial findings of its research into the small business lending market. In the RFI, the CFPB seeks comment on a series of questions ” to enhance [its] understanding of the small business lending market in order to prioritize and guide research and policy development work for implementation of section 1071.”
The white paper includes:
It appears that a primary objective of the white paper is to confirm that the data collection mandated by Section 1071 is needed. (The ECOA amendment would be repealed by the CHOICE Act bill recently passed by the House Financial Services Committee.) Throughout the white paper, the CFPB points out the limitations of currently available small business lending data on its ability “to assess how well the market is meeting the needs of small businesses.” According to the CFPB, Section 1071 data can support efforts to increase credit access in communities with unmet needs by providing “an understanding of the small business credit flowing into their local communities, and allow[ing] them to identify ‘credit deserts’ or sectors where credit flows may be restricted.” The CFPB also notes the role of Section 1071 in “facilitating the enforcement of fair lending laws,” by providing the data needed “to understand the nature and extent of potential disparities, and to ensure women-owned and minority-owned businesses have non-discriminatory access to capital.”
The RFI contains a series of questions divided into five categories as follows:
Comments in response to the RFI must be received on or before 60 days after the RFI is published in the Federal Register.