Statement of the Hon. Greg Landsman on The End of Relationship Banking? Examining the CFPB's Lending Rule
Washington, March 28, 2023
Thank you, Mr. Chairman, for holding this important hearing examining CFPB’s small business lending rule and examining ways to create a more equitable lending ecosystem.
For far too long, women- and minority-owned small businesses have experienced obstacles in 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 white-owned firms.
And during hard economic times the barriers to accessing 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 steeper hurdles in accessing credit.
The Paycheck Protection Program highlighted the disparities between white-owned businesses and businesses of color. The Federal Reserve Bank of New York found that PPP loans only reached 20% of 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 in 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 collect and report on the demographics of small business owners applying for financing. Doing so facilitates 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 Trump Administration from intentionally delaying this rule.
The CFPB has conducted considerable outreach to small firms, which included convening a SBREFA panel in October 2020 to hear suggestions and recommendations from small entity representatives.
This is 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 will suggest 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 did not negatively impact the mortgage lending industry – this rule will not be detrimental to the small business lending market.
It is my greatest hope that this rule will actually help 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 a Multiple Research Program,” which concludes that the data collected is essential to combat institutional and systemic discrimination and the costs associated with the rule are far outweighed by the need to create more transparency in the small business lending marketplace.