1 00:00:00.000 --> 00:00:03.120 Chairwoman Velazquez: Hearing to order. Without objection, the 2 00:00:03.120 --> 00:00:12.210 chair is authorized to declare a recess at any time. I want to 3 00:00:12.210 --> 00:00:16.410 thank you for joining us this afternoon for this official 4 00:00:16.410 --> 00:00:20.580 remote hearing. I want to make sure to note some important 5 00:00:20.580 --> 00:00:25.260 requirements. Let me begin by saying that standing house and 6 00:00:25.260 --> 00:00:29.910 committee rules and practice will continue to apply during 7 00:00:29.910 --> 00:00:34.110 remote proceedings. All members are reminded that they are 8 00:00:34.110 --> 00:00:38.010 expected to adhere to these standing rules including 9 00:00:38.040 --> 00:00:42.690 decorum. With that said, during the coverage period as 10 00:00:42.690 --> 00:00:46.770 designated by the speaker, the Committee will operate in 11 00:00:46.770 --> 00:00:52.650 accordance with House resolution 965, and the subsequent guidance 12 00:00:52.740 --> 00:00:56.670 from the Rules Committee in a manner that respects the rights 13 00:00:56.700 --> 00:01:01.560 of all members to participate. House regulations require to be 14 00:01:01.560 --> 00:01:04.770 disabled through a video connection throughout the 15 00:01:04.770 --> 00:01:10.410 proceeding. So please keep your cameras on. Also, if you have to 16 00:01:10.410 --> 00:01:14.970 participate in another proceeding, please exit this one 17 00:01:15.180 --> 00:01:19.980 and lock back in later. In the event a member encounters 18 00:01:20.010 --> 00:01:24.330 technical issues that prevent them from being recognized for 19 00:01:24.330 --> 00:01:28.890 their questioning, I will move to the next available member of 20 00:01:28.890 --> 00:01:32.790 the same party, and we'll recognize that member at the 21 00:01:32.790 --> 00:01:36.990 next appropriate time slot provided they have returned to 22 00:01:36.990 --> 00:01:41.250 the proceeding. If a witness loses connectivity during 23 00:01:41.250 --> 00:01:46.110 testimony or questioning, I will preserve their time as staff 24 00:01:46.140 --> 00:01:50.430 addressed the technical issue. I may need to recess the 25 00:01:50.430 --> 00:01:54.810 proceedings to provide time for the witness to reconnect. And 26 00:01:54.810 --> 00:02:00.390 finally, remember to remain muted until you are recognized 27 00:02:00.450 --> 00:02:07.020 to minimize background noise. With that, let's jump in a form 28 00:02:07.020 --> 00:02:12.090 of capital fuels new new startups and helps existing 29 00:02:12.090 --> 00:02:16.500 businesses expand into new markets and grow their customer 30 00:02:16.500 --> 00:02:21.090 base. And we know that when capital is accessible on fair 31 00:02:21.090 --> 00:02:26.460 terms, small businesses can do what they do best strengthen our 32 00:02:26.460 --> 00:02:31.800 communities and fuel our economy. However, predatory 33 00:02:31.800 --> 00:02:35.970 lending practices and lack of oversight can put many small 34 00:02:35.970 --> 00:02:41.130 businesses out of business. Last summer, our committee examined 35 00:02:41.130 --> 00:02:45.540 the use of confessions of judgment by predatory online 36 00:02:45.570 --> 00:02:49.800 lenders. That hearing highlighted how merchant cash 37 00:02:49.830 --> 00:02:55.260 advance companies and online lenders have been able to skirt 38 00:02:55.290 --> 00:02:59.700 state and federal laws and include predatory loan terms on 39 00:02:59.700 --> 00:03:04.830 small business owners. That hearing crystallized my belief 40 00:03:05.130 --> 00:03:09.780 that there needs to be more transparency, accountability and 41 00:03:09.780 --> 00:03:14.640 oversight in the small business lending arena. And we all know 42 00:03:14.640 --> 00:03:19.050 that the internet and technology have changed our lives for the 43 00:03:19.050 --> 00:03:24.390 better, allowing consumers and businesses to buy virtually any 44 00:03:24.390 --> 00:03:29.730 product online access health care, and even educate our 45 00:03:29.730 --> 00:03:34.950 children. That also is true for how we manage our finances. 46 00:03:36.270 --> 00:03:41.040 I am sure that everyone participating today has recently 47 00:03:41.040 --> 00:03:46.590 gone online to pay a bill, get a home mortgage, quote, or send 48 00:03:46.620 --> 00:03:51.360 money to a friend or family member. Small businesses, many 49 00:03:51.600 --> 00:03:57.150 of whom the large traditional money center banks do not serve 50 00:03:57.330 --> 00:04:02.580 have turned to the internet for capital to start a business or 51 00:04:02.580 --> 00:04:08.340 operate an existing one. Today's discussion is also extremely 52 00:04:08.340 --> 00:04:14.370 timely, as economic uncertainty due to COVID-19 remains high. 53 00:04:14.910 --> 00:04:18.480 And access to credit for small firms may be even more 54 00:04:18.480 --> 00:04:24.990 challenging than usual. In this unique environment, online, or 55 00:04:24.990 --> 00:04:30.000 FinTech lending has continued to grow and remains an attractive 56 00:04:30.030 --> 00:04:34.200 option for small businesses seeking capital. For small 57 00:04:34.200 --> 00:04:38.520 business borrowers. The biggest advantage of FinTech is the 58 00:04:38.520 --> 00:04:43.740 ability to access capital after being denied a loan by a 59 00:04:43.740 --> 00:04:48.810 traditional lender. In many cases, FinTech lenders are able 60 00:04:48.810 --> 00:04:53.880 to meet the immediate payroll inventory or overhead needs of a 61 00:04:53.880 --> 00:04:58.680 small business and in some cases, this performance in as 62 00:04:58.680 --> 00:05:04.530 later as 40 Ah hours. FinTech lenders are also likelier to 63 00:05:04.530 --> 00:05:09.480 make small dollar loans generally considered too small 64 00:05:09.510 --> 00:05:15.150 to be profitable by most banks, but which predominantly go to 65 00:05:15.150 --> 00:05:21.000 women or minority owned small businesses. And with minority of 66 00:05:21.000 --> 00:05:25.110 firms being almost twice as likely to apply for a loan 67 00:05:25.140 --> 00:05:29.940 online versus a traditional lender, it is critical for them 68 00:05:29.970 --> 00:05:35.130 to be able to seek capital online, and be assured the terms 69 00:05:35.160 --> 00:05:40.140 are fair, transparent and affordable. However, at this 70 00:05:40.140 --> 00:05:44.280 committee has explored, there are also potential risks for 71 00:05:44.280 --> 00:05:50.160 small firms seeking capital online. Aside from confessions 72 00:05:50.190 --> 00:05:55.500 of judgment abuses, observers have noted a considerable lack 73 00:05:55.500 --> 00:05:59.340 of transparency in the underwriting process for many 74 00:05:59.340 --> 00:06:04.800 fintechs small business loans, and it remains unclear whether 75 00:06:04.800 --> 00:06:09.240 lenders or other actors in this space are using certainly 76 00:06:09.240 --> 00:06:14.880 information about applicants to discriminate. Furthermore, not 77 00:06:14.910 --> 00:06:20.520 all FinTech lenders disclose the cost of capital in a way that is 78 00:06:20.520 --> 00:06:24.930 clearly presented an easy to understand, for all small 79 00:06:24.930 --> 00:06:29.640 business borrowers. An economy where small businesses are 80 00:06:29.640 --> 00:06:35.580 sometimes paying 200 or 300% interest rates to keep their 81 00:06:35.580 --> 00:06:39.990 business running is not an economy that is working for all 82 00:06:40.470 --> 00:06:44.910 is a result of a patchwork of state laws, a lack of a federal 83 00:06:44.910 --> 00:06:50.100 regulator, and no federal law preventing exorbitant interest 84 00:06:50.100 --> 00:06:54.960 rates. It has become clear to us on this committee, through 85 00:06:54.990 --> 00:06:59.130 examples we have seen in prior hearings, and in our 86 00:06:59.130 --> 00:07:03.420 interactions with business owners in our own districts, 87 00:07:03.690 --> 00:07:08.070 that small business owners applying for loans online are 88 00:07:08.070 --> 00:07:13.860 just as vulnerable as anyone to deceptive practices and unfair 89 00:07:13.860 --> 00:07:19.110 terms, and have a right to a full and fair disclosure of all 90 00:07:19.110 --> 00:07:24.510 terms, just like consumers. Just because they do not have an army 91 00:07:24.570 --> 00:07:28.500 of financial and legal professional like big businesses 92 00:07:28.740 --> 00:07:32.820 does not mean they should be left to fend for themselves when 93 00:07:32.820 --> 00:07:38.100 seeking credit. We all know that in order to maximize competition 94 00:07:38.130 --> 00:07:43.110 in the marketplace, all actors need to have as much and as 95 00:07:43.110 --> 00:07:47.490 accurate information as possible. The same applies in 96 00:07:47.490 --> 00:07:51.600 the market for small business loans. If you are the borrower, 97 00:07:51.840 --> 00:07:56.760 you need as much and as accurate information about your loan 98 00:07:56.880 --> 00:08:01.650 options as possible in order to make the best decision for your 99 00:08:01.650 --> 00:08:06.870 business. That is why earlier this summer, I introduced the 100 00:08:06.870 --> 00:08:10.770 Small Business Lending Disclosure and Broker Regulation 101 00:08:10.800 --> 00:08:16.680 Act, which will expand the Truth in Lending Act protections and 102 00:08:16.680 --> 00:08:21.360 disclosures are Tila that currently apply for consumers to 103 00:08:21.390 --> 00:08:26.520 also apply for small business loans. My bill will bring needed 104 00:08:26.550 --> 00:08:31.380 transparency to small business credit market ensuring 105 00:08:31.440 --> 00:08:36.060 enterpreneurs understand their obligations and rights when they 106 00:08:36.060 --> 00:08:41.280 sign up for a loan. I should point out that these efforts are 107 00:08:41.280 --> 00:08:46.710 already underway at the State level with California enacting a 108 00:08:46.710 --> 00:08:51.870 similar bill into law two years ago, and another version 109 00:08:51.900 --> 00:08:56.580 recently passed the New York State Legislature and is 110 00:08:56.610 --> 00:09:01.290 awaiting approval by Governor Cuomo. It is long overdue that 111 00:09:01.290 --> 00:09:05.820 we take this fight for fairness on behalf of small businesses to 112 00:09:05.820 --> 00:09:10.410 the federal level. In this pandemic enterpreneurs has faced 113 00:09:10.440 --> 00:09:15.030 and will continue facing some of the most difficult and uncertain 114 00:09:15.270 --> 00:09:20.490 economic conditions ever, and it is vital. We ensure predatory 115 00:09:20.490 --> 00:09:25.530 lenders do not exploit this situation by enticing small 116 00:09:25.530 --> 00:09:31.230 businesses into unfair and also sustainable loans. Fortunately, 117 00:09:31.290 --> 00:09:36.270 some lenders already conduct the business of online lending in a 118 00:09:36.270 --> 00:09:41.580 responsible way and are able to do it sustainably while making a 119 00:09:41.580 --> 00:09:45.840 positive impact on their communities. We will hear from 120 00:09:45.870 --> 00:09:47.850 one of those lenders soon. 121 00:09:49.200 --> 00:09:53.760 We will also hear from legal experts and advocates who will 122 00:09:53.880 --> 00:09:58.140 illustrate the impact of applying Tila to small business 123 00:09:58.140 --> 00:10:02.760 loan will Have on minority communities since small 124 00:10:02.760 --> 00:10:08.070 businesses usually represent one of the few wealth building 125 00:10:08.250 --> 00:10:12.750 opportunities for communities of color, and in many cases can 126 00:10:12.750 --> 00:10:17.790 serve as an official Community Center for a neighborhood. I 127 00:10:17.790 --> 00:10:22.950 greatly look forward to today's discussion. Again, I want to 128 00:10:22.950 --> 00:10:27.210 thank the witnesses for joining us today and now yield to the 129 00:10:27.210 --> 00:10:32.010 ranking member, Mr. Chabot for his opening statement, and I 130 00:10:32.010 --> 00:10:36.900 will please ask the members to mute their minds. Thank you. Mr. 131 00:10:36.900 --> 00:10:38.850 Chabot, you are now recognized. 132 00:10:39.860 --> 00:10:42.350 Steve Chabot: Thank you, Madam Chairwoman for holding this 133 00:10:42.350 --> 00:10:47.330 important hearing on the impact of FinTech and online lending on 134 00:10:47.330 --> 00:10:51.050 the basis of small businesses is the current ranking member and 135 00:10:51.050 --> 00:10:55.010 former chair of this committee, I've had the pleasure to speak 136 00:10:55.010 --> 00:10:58.910 directly with small business owners for many years, both in 137 00:10:58.910 --> 00:11:02.780 my district and across the country. Whether it's talking to 138 00:11:02.780 --> 00:11:07.070 small business owners or their employees, their input is 139 00:11:07.070 --> 00:11:14.240 critical in terms of best way to support our small businesses, 140 00:11:14.450 --> 00:11:18.110 which are the backbone after all of this nation's economy. To say 141 00:11:18.140 --> 00:11:21.890 that, that America's small businesses have some of the 142 00:11:21.890 --> 00:11:26.090 hardest working people in the entire country would be an 143 00:11:26.090 --> 00:11:30.740 understatement. They rise early, they stay late to meet the 144 00:11:30.740 --> 00:11:34.670 challenges of their customers daily. They're also responsible 145 00:11:34.670 --> 00:11:38.900 for creating two out of every three new private sector jobs in 146 00:11:38.900 --> 00:11:42.770 the country, to meet the needs and expectations of their 147 00:11:42.770 --> 00:11:46.820 customers and to grow and thrive. These small businesses 148 00:11:46.820 --> 00:11:49.820 require, as you mentioned, access to capital. 149 00:11:50.210 --> 00:11:53.600 Unfortunately, main street businesses continue to report 150 00:11:53.600 --> 00:11:57.620 that capital access is one of their greatest challenges. 151 00:11:58.310 --> 00:12:02.780 Moreover, the current COVID 19 crisis has exacerbated this 152 00:12:02.780 --> 00:12:07.400 problem for our nation's job creators. And of course, access 153 00:12:07.400 --> 00:12:11.060 to capital continues to be one of the top issues that this 154 00:12:11.060 --> 00:12:14.270 committee tackles, unfortunately, under your 155 00:12:14.270 --> 00:12:16.820 leadership and previously undermined in a bipartisan 156 00:12:16.820 --> 00:12:20.600 manner, because we are, I think, the most bipartisan committee in 157 00:12:20.600 --> 00:12:25.220 Congress and that's why we get the most done. That's why 158 00:12:25.280 --> 00:12:29.600 today's hearing on FinTech and online lending is so important, 159 00:12:29.930 --> 00:12:34.100 as small businesses faced local and state shutdowns due to 160 00:12:34.160 --> 00:12:39.050 COVID-19. This Congress and President Trump unveiled the PPP 161 00:12:39.050 --> 00:12:43.520 paycheck protection program to assist small businesses and 162 00:12:43.520 --> 00:12:48.350 their workers from my state, Ohio, to your state, New York to 163 00:12:48.350 --> 00:12:51.680 Florida to Texas to California and all across the entire 164 00:12:51.680 --> 00:12:58.520 country. By utilizing private sector lenders, pp. P was able 165 00:12:58.520 --> 00:13:02.480 to deliver financing quickly and for the most part, effectively. 166 00:13:02.840 --> 00:13:06.530 While there were only a limited number of FinTech companies 167 00:13:06.530 --> 00:13:12.860 participating in the program, they delivered literally 168 00:13:12.860 --> 00:13:15.800 billions of dollars for America's small businesses. 169 00:13:15.950 --> 00:13:22.490 Given the fintechs growing popularity, it's critically 170 00:13:22.490 --> 00:13:25.910 important for this committee to examine their role moving 171 00:13:25.910 --> 00:13:29.180 forward, these companies are driving innovation within our 172 00:13:29.180 --> 00:13:33.320 financial ecosystem. They are utilizing data to make rapid 173 00:13:33.440 --> 00:13:38.990 lending decisions. Conversations on disclosure requirements are 174 00:13:39.020 --> 00:13:45.680 necessary to ensure transparency is appropriate and to protect 175 00:13:45.680 --> 00:13:48.230 America's small businesses as well. So that's obviously 176 00:13:48.230 --> 00:13:51.920 something that we need to consider as we consider this 177 00:13:51.920 --> 00:13:55.460 important issue. I'm looking forward to discussing all of 178 00:13:55.460 --> 00:13:59.870 these topics today, including how these types of lenders 179 00:14:00.020 --> 00:14:03.560 should operate within the confines of the SBA existing 180 00:14:03.560 --> 00:14:08.510 programs. Additionally, I'm hopeful our conversations today 181 00:14:08.750 --> 00:14:14.030 help determine how FinTech and online lending is regulated, if 182 00:14:14.030 --> 00:14:17.780 that's going to occur at the federal level. We know that all 183 00:14:17.780 --> 00:14:21.230 the witnesses have busy schedules, so we appreciate them 184 00:14:21.260 --> 00:14:24.770 joining with us here today virtually. And with that, 185 00:14:25.400 --> 00:14:28.070 Chairwoman Velazquez again, thank you for holding this 186 00:14:28.130 --> 00:14:29.330 hearing and I yield back. 187 00:14:29.330 --> 00:14:42.260 Chairwoman Velazquez: Thank you, Mr. Chabot. I would like to take 188 00:14:42.260 --> 00:14:46.010 a moment to explain how this hearing will proceed. Each 189 00:14:46.010 --> 00:14:50.180 witness will have five minutes to provide a statement and each 190 00:14:50.180 --> 00:14:54.380 committee member will have five minutes for questions. Please 191 00:14:54.380 --> 00:14:58.490 ensure that your microphone is on when you begin speaking and 192 00:14:58.490 --> 00:15:02.510 that you return to mute When finished with that, I would like 193 00:15:02.510 --> 00:15:05.930 to thank our witnesses for taking time out of their busy 194 00:15:05.930 --> 00:15:11.690 schedule to join us. Our first witness is Miss Liu Rutuja, CEO 195 00:15:11.720 --> 00:15:18.080 of Opportunity Fund, a CDFI. an SBA lender based in San Jose, 196 00:15:18.110 --> 00:15:22.400 California. Opportunity Fund is one of the largest nonprofit 197 00:15:22.400 --> 00:15:25.820 lenders in the country, and recently established a 198 00:15:25.820 --> 00:15:30.590 partnership with two large FinTech companies. Welcome, miss 199 00:15:30.650 --> 00:15:37.610 Rutuja our second witness is Miss Yong Ki, sharing Executive 200 00:15:37.610 --> 00:15:43.610 Director of the Business Center for New Americans is CDFI an SBA 201 00:15:43.640 --> 00:15:48.440 micro lender serve in New York City, beyond helping underserved 202 00:15:48.470 --> 00:15:52.580 intrapreneurs access affordable capital. This showing was also 203 00:15:52.580 --> 00:15:57.110 recently a key advocate in the efforts before the New York 204 00:15:57.110 --> 00:16:01.610 State Legislature to advance through lending protections for 205 00:16:01.610 --> 00:16:06.740 business across the state. So I particularly thank you Miss 206 00:16:06.740 --> 00:16:10.010 sharing for your advocacy on behalf of all New York 207 00:16:10.040 --> 00:16:15.320 enterpreneurs and welcome you before us today. Our third 208 00:16:15.320 --> 00:16:19.610 witness is Professor Erin Levitin. Professor libertine is 209 00:16:19.610 --> 00:16:24.080 a professor of law at the Georgetown University Law Center 210 00:16:24.320 --> 00:16:28.580 with a focus on Banking and Finance law, bankruptcy law and 211 00:16:28.580 --> 00:16:33.770 consumer protection as an expert in this field, he has testified 212 00:16:33.770 --> 00:16:37.730 before Congress on numerous occasions, including last 213 00:16:37.730 --> 00:16:41.630 Congress before the Financial Services Committee on these 214 00:16:41.660 --> 00:16:45.110 issues. Welcome back to the Small Business Committee, 215 00:16:45.260 --> 00:16:49.400 Professor Larry Chin and I look forward to hearing your views on 216 00:16:49.400 --> 00:16:53.270 the interplay between FinTech and small business lending. 217 00:16:53.780 --> 00:16:57.500 Finally, I would like to turn it over to the ranking member, Mr. 218 00:16:57.500 --> 00:17:00.320 Chabot to introduce our last witness. 219 00:17:01.470 --> 00:17:05.460 Steve Chabot: Thank you Madam Chair. Our final witness will be 220 00:17:05.460 --> 00:17:09.000 Michael Hiles. Mr. House is the Founder and Chief Executive 221 00:17:09.000 --> 00:17:14.880 Officer of 10x ts here in Cincinnati, Ohio. 10x. TS is a 222 00:17:14.880 --> 00:17:19.560 software startup company that's focused on blockchain technology 223 00:17:19.590 --> 00:17:23.880 and fintech. Mr. House has a long history of working within 224 00:17:23.880 --> 00:17:29.190 Cincinnati's technology sector. Prior to founding 10 XDS Mr. 225 00:17:29.190 --> 00:17:33.630 Hiles worked in software development at Sabre systems. He 226 00:17:33.630 --> 00:17:37.770 founded a web development company called soft links 227 00:17:37.920 --> 00:17:42.870 Interactive and worked at pro air. Mr. House was also 228 00:17:42.870 --> 00:17:46.200 responsible for setting up the Cincinnati chapter of founder 229 00:17:46.200 --> 00:17:50.490 Institute, which assists business through the incubator 230 00:17:50.520 --> 00:17:54.420 and accelerator models. Mr. House, I want to thank you for 231 00:17:54.450 --> 00:17:57.390 taking time out of your busy schedule to be with us today. It 232 00:17:57.390 --> 00:18:01.860 was It was my honor to speak with you recently on another 233 00:18:02.100 --> 00:18:06.090 call, and we look forward to your testimony here this 234 00:18:06.090 --> 00:18:07.410 afternoon. And I yield back. 235 00:18:08.470 --> 00:18:10.450 Chairwoman Velazquez: Thank you, Mr. Chabot. And now I would like 236 00:18:10.450 --> 00:18:14.710 to begin by recognizing Miss Urrutia for five minutes. Thank 237 00:18:14.710 --> 00:18:16.330 you, Mr. Rutuja. 238 00:18:17.620 --> 00:18:20.140 Luz Urrutia: Good afternoon, Chairwoman Velazquez, Ranking 239 00:18:20.140 --> 00:18:24.040 Member Chabot and committee members. My name is Luz Urrutia. 240 00:18:24.040 --> 00:18:27.580 And I am the CEO of ACCION Opportunity Fund and Opportunity 241 00:18:27.580 --> 00:18:31.660 Fund. Opportunity Fund is a CDFI in the nation's leading 242 00:18:31.660 --> 00:18:35.140 nonprofit Small Business lender. We believe small amounts of 243 00:18:35.140 --> 00:18:38.410 money and the right financial advice can have lasting changes 244 00:18:38.410 --> 00:18:41.680 in people's lives and drive economic mobility and build 245 00:18:41.680 --> 00:18:46.930 stronger communities. Last year, we deployed $120 million in 3200 246 00:18:46.930 --> 00:18:50.020 loans, mostly to minority immigrants and women owned 247 00:18:50.020 --> 00:18:53.800 businesses. ACCION Opportunity Fund is also a founding member 248 00:18:53.800 --> 00:18:56.620 of the responsible business lending Coalition, a group of 249 00:18:56.620 --> 00:18:59.740 nonprofit and for profits in the industry committed to 250 00:18:59.740 --> 00:19:03.370 transparency and innovation in small business lending. Before 251 00:19:03.370 --> 00:19:07.060 COVID 19 assault small businesses were already facing 252 00:19:07.060 --> 00:19:11.350 significant challenges accessing responsible capital. mainstream 253 00:19:11.350 --> 00:19:14.470 financial institutions do not generally lend directly to 254 00:19:14.470 --> 00:19:18.220 underserved small businesses for a variety of reasons, tight 255 00:19:18.220 --> 00:19:22.180 credit boxes, small dollar amounts, lack of profitability, 256 00:19:22.210 --> 00:19:25.960 risky industries. But since the Great Recession, many banks left 257 00:19:25.960 --> 00:19:29.320 communities and fintechs and online lenders stepped in to 258 00:19:29.320 --> 00:19:32.680 fill in the gap. There is no argument that these lenders have 259 00:19:32.680 --> 00:19:36.100 transformed the marketplace by speeding access to capital and 260 00:19:36.100 --> 00:19:39.700 some of them not all being transparent and responsible. 261 00:19:40.120 --> 00:19:43.600 Unfortunately, it has also created many unprincipled 262 00:19:43.600 --> 00:19:47.500 lenders that are reaping havoc across Main Street, charging 263 00:19:47.500 --> 00:19:50.800 exorbitant rates and providing products that lack proper 264 00:19:50.800 --> 00:19:54.340 disclosures and transparency. After COVID We believe the 265 00:19:54.340 --> 00:19:57.910 lending landscape will be altered even further, banks will 266 00:19:57.910 --> 00:20:01.810 tighten their credit boxes even more Many fintechs and merchant 267 00:20:01.810 --> 00:20:05.590 cash advances providers will retrench or fail due to their 268 00:20:05.590 --> 00:20:09.550 capital structures and portfolio losses. The result will be that 269 00:20:09.550 --> 00:20:12.280 underserved small businesses will have an even bigger 270 00:20:12.280 --> 00:20:16.600 challenge accessing capital. To meet this capital need ACCION 271 00:20:16.600 --> 00:20:19.870 Opportunity Fund believes that innovative partnerships with 272 00:20:19.870 --> 00:20:23.860 responsible pen fintechs will be crucial. An example is 273 00:20:23.860 --> 00:20:26.680 opportunity funds partnership with Lending Club a one of a 274 00:20:26.680 --> 00:20:31.270 kind partnership between a nonprofit CDFI and a responsible 275 00:20:31.270 --> 00:20:35.560 for profit publicly traded FinTech lender. Lending Club has 276 00:20:35.560 --> 00:20:38.440 the marketing reach and partnerships to provide an 277 00:20:38.440 --> 00:20:41.140 accessible digital experience for small businesses in need. 278 00:20:41.500 --> 00:20:45.100 Opportunity Fund combines its credit assessment tools, and a 279 00:20:45.100 --> 00:20:48.070 high touch customer service model to provide small 280 00:20:48.070 --> 00:20:51.460 businesses with responsible credit and transparent rates. 281 00:20:51.790 --> 00:20:54.850 The partnerships provides capital and technical assistance 282 00:20:54.880 --> 00:20:58.750 to businesses whose needs may not be met or might pay 283 00:20:58.750 --> 00:21:03.160 significantly more with other providers. More than 50 years 284 00:21:03.160 --> 00:21:06.130 ago, Congress enacted the federal Truth in Lending Act to 285 00:21:06.130 --> 00:21:09.790 protect Americans from scrupulous lenders making 286 00:21:09.790 --> 00:21:13.570 deceptive offers of credit. Unfortunately, we do not have 287 00:21:13.600 --> 00:21:16.540 those same protections for the nation's small businesses. 288 00:21:17.350 --> 00:21:20.560 Opportunity Fund analyze the data set of alternative loans 289 00:21:20.560 --> 00:21:23.650 held by small business owners who came to us hoping to 290 00:21:23.650 --> 00:21:26.710 refinance, we found that unregulated lenders were 291 00:21:26.710 --> 00:21:32.140 charging an average APR annual percentage rate of 94%. With an 292 00:21:32.140 --> 00:21:35.170 average monthly loan payment nearly doubled the borrower's 293 00:21:35.170 --> 00:21:40.780 net incomes. One loan was priced at an astounding 350%. These 294 00:21:40.780 --> 00:21:44.200 loans put many small business owners in a crushing cycle of 295 00:21:44.200 --> 00:21:48.430 debt. Ted Deanna Irish owner of wine tour drivers in Sacramento, 296 00:21:48.430 --> 00:21:53.230 California, Deanna took a $25,000 online loan that cost 297 00:21:53.230 --> 00:21:57.400 her $2,000 a month, she was able to refinance with Opportunity 298 00:21:57.400 --> 00:22:01.720 Fund cutting her payment to 900. Since then, she's been able to 299 00:22:01.720 --> 00:22:05.560 pay off her loan. These hybrid rates are unfair and deceptive, 300 00:22:05.830 --> 00:22:10.000 often hidden under layers of misinformation. Federal research 301 00:22:10.090 --> 00:22:14.590 also finds that small businesses are often misled by disclosure 302 00:22:14.590 --> 00:22:18.520 quoting non APR rate. The inability to compare prices on 303 00:22:18.520 --> 00:22:22.690 an apples to apples basis and lack of transparency stymies 304 00:22:22.690 --> 00:22:26.170 free market competition that could lower prices and spur 305 00:22:26.170 --> 00:22:30.100 Financial Services Innovation. I want to thank the chairwoman for 306 00:22:30.100 --> 00:22:33.100 introducing the Small Business Lending Disclosure and Broker 307 00:22:33.100 --> 00:22:36.820 Regulation Act of 2020, which will deliver much needed 308 00:22:36.820 --> 00:22:41.260 protections to small businesses. Research also shows it will 309 00:22:41.260 --> 00:22:46.120 bring over 3.8 billion in savings to nearly 800,000 Small 310 00:22:46.120 --> 00:22:49.720 Business annually, including hundreds of millions and savings 311 00:22:49.720 --> 00:22:54.040 for over 158,000 minority owned small businesses. The 312 00:22:54.040 --> 00:22:58.390 legislation could not come at a better time when many business 313 00:22:58.390 --> 00:23:02.050 owners are desperately seeking for ways to remain solvent, and 314 00:23:02.050 --> 00:23:05.680 uninformed business decision for financing choice could be the 315 00:23:05.680 --> 00:23:09.580 difference between survival and failure. We applaud California 316 00:23:09.580 --> 00:23:12.430 and New York for passing legislation mandating 317 00:23:12.430 --> 00:23:16.120 transparency and small business lending. However, a state by 318 00:23:16.120 --> 00:23:18.790 state approach hampers innovation and increases costs 319 00:23:18.790 --> 00:23:22.120 for lenders. This national approach is much needed to 320 00:23:22.120 --> 00:23:25.450 provide clear and concise national regulations that 321 00:23:25.450 --> 00:23:28.960 protect all small businesses equally and allow responsible 322 00:23:28.960 --> 00:23:32.710 lenders to innovate and create quality products. I encourage 323 00:23:32.740 --> 00:23:36.460 all of our leaders in Congress to work together to pass the 324 00:23:36.460 --> 00:23:39.580 Small Business Lending Disclosure and Broker Regulation 325 00:23:39.580 --> 00:23:41.470 Act of 2020. Thank you. 326 00:23:41.470 --> 00:23:45.770 Chairwoman Velazquez: Thank you, Miss Urrutia. Miss Yanki, you're 327 00:23:45.770 --> 00:23:47.510 recognized for five minutes. 328 00:23:47.930 --> 00:23:50.570 Yanki Sherring: Thank you. Thank you, Chairwoman Velazquez, 329 00:23:50.840 --> 00:23:53.750 Ranking Member Chabot and distinguished members of the 330 00:23:53.750 --> 00:23:56.690 committee. Thank you for inviting me to speak with you 331 00:23:56.690 --> 00:24:00.350 today about the lack of transparency in small business 332 00:24:00.350 --> 00:24:04.130 lending and the urgent need to provide entrepreneurs with the 333 00:24:04.130 --> 00:24:08.360 information they need to make informed decisions. My name is 334 00:24:08.390 --> 00:24:11.660 Yanki Sherring and I'm the Executive Director of the 335 00:24:11.660 --> 00:24:15.200 Business Center for New Americans, a Treasury certified 336 00:24:15.200 --> 00:24:19.190 community development financial institution, and Small Business 337 00:24:19.220 --> 00:24:23.840 Administration micro lender and community advantage lender based 338 00:24:23.840 --> 00:24:29.000 in New York City. In addition to my role leading bcna I have also 339 00:24:29.000 --> 00:24:33.710 served on the board of the New York State CDFI Coalition since 340 00:24:33.740 --> 00:24:38.990 2015. bcna was founded to help hardworking immigrants and 341 00:24:38.990 --> 00:24:43.280 refugees pursue the American dream. Over two decades we have 342 00:24:43.280 --> 00:24:47.120 provided financial counseling and loans to help clients to 343 00:24:47.120 --> 00:24:51.920 start or grow a business, buy a home or save for the future. 344 00:24:52.640 --> 00:24:57.680 bcna serves exceptionally diverse clients. Our micro and 345 00:24:57.680 --> 00:25:01.400 small business clients range from st Bender who comes in once 346 00:25:01.400 --> 00:25:06.110 a year to borrow $500 to fund his inventory of roses for 347 00:25:06.110 --> 00:25:10.790 Valentine's Day to the deli owner operating six grocery 348 00:25:10.790 --> 00:25:16.250 stores with 80 employees. Since we were founded, the CNA has 349 00:25:16.250 --> 00:25:21.320 made over $33 million in micro and small business loans and 350 00:25:21.320 --> 00:25:26.000 provide a training and advice to over 10,000 businesses. One of 351 00:25:26.000 --> 00:25:30.980 those businesses is what knit whose owner Vladimir Gerakan, 352 00:25:31.160 --> 00:25:36.560 produces knitted garments for New York design houses. Lab was 353 00:25:36.560 --> 00:25:41.180 initially thrilled when he was approved for a $35,000 loan from 354 00:25:41.180 --> 00:25:45.770 an alternative FinTech lender that he found online but 355 00:25:45.770 --> 00:25:50.990 gradually realized to his horror that he was paying over 61% in 356 00:25:50.990 --> 00:25:57.470 annualized interest. When Black came to bcna, three years ago to 357 00:25:57.470 --> 00:26:00.800 ask us about a loan, part of which he would use to pay off 358 00:26:00.830 --> 00:26:04.490 that high interest loan, we were shocked to learn that he was 359 00:26:04.490 --> 00:26:08.150 also required to pay the full amount of interest and fees. 360 00:26:08.330 --> 00:26:12.050 Even if he was able to prepay the loan, something he didn't 361 00:26:12.050 --> 00:26:17.480 understand when he signed off for the loan. We are happy to 362 00:26:17.480 --> 00:26:23.120 have been able to help him with financing that loan and many 363 00:26:23.120 --> 00:26:27.890 more affordable terms that are transparent and fair. 364 00:26:28.220 --> 00:26:31.340 Unfortunately, now more than ever, small businesses are 365 00:26:31.340 --> 00:26:35.210 suffering from a lack of access to responsible transparent 366 00:26:35.210 --> 00:26:40.190 credit. The Truth in Lending Act originally passed in 1968 367 00:26:40.460 --> 00:26:44.870 requires lenders to clarify disclose their pricing and terms 368 00:26:44.870 --> 00:26:48.770 for consumer loans, but does not apply to financing for 369 00:26:48.770 --> 00:26:53.270 commercial loans. This means that small business owners like 370 00:26:53.270 --> 00:26:57.680 Vladimir are left to face a wild west of unregulated and 371 00:26:57.680 --> 00:27:03.170 increasingly complex financial products without any consistency 372 00:27:03.320 --> 00:27:06.680 in how the lenders explain or present their products to 373 00:27:06.680 --> 00:27:10.640 borrowers. We regularly assist clients who have encountered 374 00:27:10.670 --> 00:27:15.290 alternative loan products, such as merchant cash advances that 375 00:27:15.290 --> 00:27:20.450 they did not understand at times with dire consequences. Larger, 376 00:27:20.450 --> 00:27:23.780 more established businesses are able to hire attorneys and 377 00:27:23.780 --> 00:27:27.860 accountants to translate confusing term sheets. But as 378 00:27:27.860 --> 00:27:31.520 members of the committee know very well, the overwhelming 379 00:27:31.520 --> 00:27:35.360 majority of small and micro businesses don't have the funds 380 00:27:35.360 --> 00:27:39.380 for that level of legal assistance. This is why we're 381 00:27:39.380 --> 00:27:42.740 very happy to be here in today in support of Chairwoman 382 00:27:42.740 --> 00:27:45.800 Velazquez was recently introduced Small Business 383 00:27:45.800 --> 00:27:49.700 Lending Disclosure and Broker Regulation Act, which will 384 00:27:49.700 --> 00:27:54.230 ensure that no small business is left behind an extend sensible 385 00:27:54.230 --> 00:27:58.460 disclosure protection to entrepreneurs nationwide. Thank 386 00:27:58.460 --> 00:27:58.760 you. 387 00:28:02.840 --> 00:28:06.320 Chairwoman Velazquez: Thank you, Miss Sherring. And now we 388 00:28:06.320 --> 00:28:09.650 recognize Professor Levitin for five minutes. 389 00:28:12.180 --> 00:28:14.700 Adam Levitin: Chairwoman Velazquez, Ranking Member Chabot 390 00:28:14.700 --> 00:28:17.370 and members of the committee Good afternoon. Thank you for 391 00:28:17.370 --> 00:28:20.760 inviting me to testify before you today. My name is Adam 392 00:28:20.760 --> 00:28:23.970 Levitin. I'm a law professor at Georgetown University where I 393 00:28:23.970 --> 00:28:28.470 teach courses in commercial law and financial regulation. for 394 00:28:28.470 --> 00:28:31.410 over 50 years, consumer credit has been governed by an 395 00:28:31.410 --> 00:28:35.370 extensive federal regulatory regime of disclosure, 396 00:28:35.400 --> 00:28:40.020 substantive term regulation, and supervision of lenders. There is 397 00:28:40.020 --> 00:28:44.400 no equivalent regulatory regime for business loans. The lack of 398 00:28:44.400 --> 00:28:47.700 regulation of business lending is in large part because 399 00:28:47.700 --> 00:28:50.910 businesses are presumed to be more sophisticated entities than 400 00:28:50.910 --> 00:28:53.970 consumers and therefore less needing of governmental 401 00:28:53.970 --> 00:28:58.530 protections. Yet there's a considerable range of financial 402 00:28:58.530 --> 00:29:02.250 and legal sophistication among businesses. And the reason that 403 00:29:02.250 --> 00:29:05.190 a borrower takes out a loan does not determine the borrower's 404 00:29:05.190 --> 00:29:10.260 ability to otherwise protect his or her interests. Small 405 00:29:10.260 --> 00:29:13.830 businesses in fact often resemble consumers in terms of 406 00:29:13.830 --> 00:29:17.910 limited information, sophistication, and market power 407 00:29:17.940 --> 00:29:21.630 in credit markets. Moreover, small business borrowing is 408 00:29:21.630 --> 00:29:27.120 often personally guaranteed by the Small Businesses own. The 409 00:29:27.120 --> 00:29:30.540 lack of regulation leaves Small Business vulnerable to abusive 410 00:29:30.540 --> 00:29:33.660 practices of the sort that were prohibited in consumer credit 411 00:29:33.660 --> 00:29:38.490 markets in the 1960s and 70s. It makes sense to recognize that 412 00:29:38.490 --> 00:29:42.120 small businesses need many of the same sorts of protections as 413 00:29:42.120 --> 00:29:45.330 consumer borrowers to ensure that they can enjoy fair 414 00:29:45.390 --> 00:29:49.290 efficient credit markets. And that is precisely what the 415 00:29:49.290 --> 00:29:52.650 chairwoman is Bill. The Small Business Lending Disclosure and 416 00:29:52.650 --> 00:29:57.660 Broker Regulation Act would do. Most importantly, the chairwoman 417 00:29:57.660 --> 00:30:00.780 is Bill would extend the centerpiece of federal consumer 418 00:30:00.780 --> 00:30:04.560 credit regulation, the Truth in Lending Act to small business 419 00:30:04.560 --> 00:30:08.460 loans. The Truth in Lending Act requires, among other things, 420 00:30:09.210 --> 00:30:13.260 the standardized disclosure of the cost of credit in the form 421 00:30:13.260 --> 00:30:17.070 of the finance charge, and the Annual Percentage Rate or APR. 422 00:30:17.250 --> 00:30:20.280 That's an annualized measure of the finance charges as a 423 00:30:20.280 --> 00:30:24.930 percentage of the principal obligation. Standardization of 424 00:30:24.930 --> 00:30:28.170 credit cost disclosure is important, because it enables 425 00:30:28.170 --> 00:30:30.930 borrowers to more readily understand and compare various 426 00:30:30.930 --> 00:30:35.010 credit offers available on an apples to apples basis so that 427 00:30:35.010 --> 00:30:37.890 the borrowers can make an informed decision about using 428 00:30:37.890 --> 00:30:42.060 credit. Informed use of credit is essential for ensuring robust 429 00:30:42.060 --> 00:30:45.480 price competition, which is the first line of consumer 430 00:30:45.480 --> 00:30:49.050 protection. Let me give you an example of what the world could 431 00:30:49.050 --> 00:30:53.610 look like without standardized credit cost disclosure. If I 432 00:30:53.610 --> 00:30:58.410 were to tell you that alone costs 10%. Without telling you 433 00:30:58.410 --> 00:31:03.030 more, you cannot tell if that meant 10% annually 10% monthly 434 00:31:03.270 --> 00:31:08.880 or 10%. Weekly, much less if if the 10 that 10% were compounded, 435 00:31:09.600 --> 00:31:14.490 and with what frequency that actually leads to very different 436 00:31:14.550 --> 00:31:18.510 effective interest rates without compounding. The 10% monthly 437 00:31:18.510 --> 00:31:22.590 figure would translate to 120% annually, and the weekly figure 438 00:31:22.590 --> 00:31:27.420 to 520% annually. So the imprecision of stating 10% 439 00:31:27.420 --> 00:31:30.270 interest allows for abuses of consumers and let me illustrate 440 00:31:30.270 --> 00:31:35.670 this is with a story of small business from Sarasota Florida, 441 00:31:35.970 --> 00:31:39.900 called homes by DeRay. Mo and it this is the story of its 442 00:31:39.900 --> 00:31:42.960 experience with a predatory Small Business lender, called 443 00:31:42.960 --> 00:31:46.140 World business lenders that operates in partnerships with 444 00:31:46.320 --> 00:31:51.510 various various banks that rent out their banking charters to 445 00:31:51.510 --> 00:31:56.310 enable the non bank lender to evade state laws. So the during 446 00:31:56.310 --> 00:31:59.700 those got a loan from world business lenders through a small 447 00:31:59.730 --> 00:32:02.910 Wisconsin bank with two branches, called bank of Lake 448 00:32:02.910 --> 00:32:06.630 mills that had no connection whatsoever with Florida. And the 449 00:32:06.630 --> 00:32:10.110 pricing of the Deray Mo's loan was never disclosed as an annual 450 00:32:10.110 --> 00:32:14.640 percentage rate. Instead, it was disclosed in terms of a daily 451 00:32:14.640 --> 00:32:19.650 percentage rate, and that appeared as a 12 digit decimal 452 00:32:19.650 --> 00:32:27.240 figure of just over 0.33% annualized, however, that 453 00:32:27.240 --> 00:32:33.660 translates into 121% APR, that 101 21% APR figure never 454 00:32:33.660 --> 00:32:35.970 appeared anywhere in the during those loan documents however, 455 00:32:36.720 --> 00:32:39.630 moreover, even the daily percentage rate was never 456 00:32:39.630 --> 00:32:43.530 prominently disclosed. It was buried in the midst of legalese, 457 00:32:43.950 --> 00:32:47.010 no interest rate whatsoever appeared on the summary term 458 00:32:47.010 --> 00:32:51.360 sheets with alone. Instead, the only percentage figure that were 459 00:32:51.360 --> 00:32:56.370 that appeared was for 15% prepayment penalty. And that is 460 00:32:56.370 --> 00:32:58.740 the figure that the Deray most believed was the interest rate 461 00:32:58.740 --> 00:33:02.520 on the loan. So the gentleman's bill would address the sort of 462 00:33:02.520 --> 00:33:07.110 abuses that occurred with the drain Mozilla, by requiring 463 00:33:07.110 --> 00:33:10.590 disclosure of credit credit costs and standardized terms. It 464 00:33:10.590 --> 00:33:14.430 would also prohibit the sort of gotchas in type of enormous 465 00:33:14.430 --> 00:33:17.880 prepayment penalties for same lender refinancings, as the 466 00:33:17.880 --> 00:33:21.900 Deray most experienced and most importantly, I think it would 467 00:33:21.900 --> 00:33:24.810 extend the scope of the Consumer Financial Protection Bureau's 468 00:33:24.810 --> 00:33:29.490 regulatory authority so that the CFPB can supervise of the larger 469 00:33:29.490 --> 00:33:32.370 participants in the small business lending and use its 470 00:33:32.370 --> 00:33:35.880 power to prohibit unfair and deceptive acts and practices as 471 00:33:35.880 --> 00:33:38.550 gap filler. I would urge the committee to take up the 472 00:33:38.550 --> 00:33:41.880 chairman, Chairwoman's bill which is an excellent points for 473 00:33:41.880 --> 00:33:44.820 bringing much needed protection to small business borrowers. 474 00:33:45.210 --> 00:33:45.600 Thank you. 475 00:33:46.560 --> 00:33:51.480 Thank you, Professor Levitin. And now, we recognize the 476 00:33:51.480 --> 00:33:54.300 gentleman Mr. Hiles for five minutes. 477 00:33:55.200 --> 00:33:57.570 Michael Hiles: Chairman, Chairwoman Velazquez, Ranking 478 00:33:57.570 --> 00:34:00.510 Member Chabot and members of the committee. Thank you for the 479 00:34:00.510 --> 00:34:02.970 invitation to testify at this hearing. My name is Michael 480 00:34:02.970 --> 00:34:06.780 Hiles, and I'm the CEO of 10x ts, a Cincinnati based FinTech 481 00:34:06.810 --> 00:34:09.270 reg tech company building blockchain solutions for 482 00:34:09.270 --> 00:34:13.020 financial records. The SBA is admirable effort to rapidly 483 00:34:13.020 --> 00:34:16.320 mobilize financial stimulus through eidl and PPP loans 484 00:34:16.320 --> 00:34:18.990 demonstrates how small business funding is clearly an essential 485 00:34:18.990 --> 00:34:22.980 lifeline to a thriving economy. When American small business is 486 00:34:22.980 --> 00:34:26.340 unable to access capital, single moms, immigrants and regular 487 00:34:26.340 --> 00:34:29.730 ordinary people suffer. The SBA has historically partner with 488 00:34:29.730 --> 00:34:32.310 banks as the origination and servicing agents for lending 489 00:34:32.310 --> 00:34:35.490 programs. While this approach is generally allowed the SBA to 490 00:34:35.490 --> 00:34:37.740 serve a wider market, the administration can only be as 491 00:34:37.770 --> 00:34:40.590 effective and delivering services and support as their 492 00:34:40.590 --> 00:34:44.370 partners therein looks the problem faced by the SBA, the 493 00:34:44.370 --> 00:34:47.100 PPP program experienced significant delays in delivering 494 00:34:47.100 --> 00:34:49.620 financial relief to small businesses due to many banks 495 00:34:49.650 --> 00:34:53.310 inability to adjust business operations in an agile fashion 496 00:34:53.340 --> 00:34:56.460 and fairly deliver funds in a diverse and inclusive way. We 497 00:34:56.460 --> 00:34:59.460 directly experienced these frustrations, Legacy banks are 498 00:34:59.460 --> 00:35:01.920 already in the throes of compressive disruption, they are 499 00:35:01.920 --> 00:35:04.410 not in a position to quickly respond to rapid disruptive 500 00:35:04.410 --> 00:35:06.840 changes in the market. The resulting permanent branch 501 00:35:06.840 --> 00:35:11.370 closures and downsizing has been an alarm bell for many. In 2018, 502 00:35:11.370 --> 00:35:14.880 Gartner published a report indicating that by 2030 80% of 503 00:35:14.880 --> 00:35:17.940 the traditional financial services firms will close become 504 00:35:17.940 --> 00:35:20.970 commoditized are exist formally but will not compete effectively 505 00:35:20.970 --> 00:35:21.450 in the market. 506 00:35:22.710 --> 00:35:25.320 With so many consolidations, banks have struggled to merge 507 00:35:25.320 --> 00:35:29.070 redundant legacy IT systems, the largest banks are hodgepodge of 508 00:35:29.070 --> 00:35:31.530 too big to fail technology strung together with little to 509 00:35:31.530 --> 00:35:34.980 no standardization. As a result, institutions are weighed down 510 00:35:34.980 --> 00:35:39.030 with inefficient fragmented processes are hypothesis 1060s 511 00:35:39.060 --> 00:35:42.390 Is that a bevy of problems are mostly based on how information 512 00:35:42.420 --> 00:35:46.260 records documents and data are stored, managed, shared within 513 00:35:46.260 --> 00:35:49.800 and between other organizations and customers. trusted 514 00:35:49.800 --> 00:35:52.170 information is still mostly another human vouching for the 515 00:35:52.170 --> 00:35:55.080 authenticity of documents and data. facing increasing 516 00:35:55.080 --> 00:35:57.630 regulatory scrutiny, banks have been reluctant to drive 517 00:35:57.660 --> 00:36:01.050 innovation due to the inherent compliance risks. The financial 518 00:36:01.050 --> 00:36:04.320 services industry already spends more than 270 billion per year 519 00:36:04.320 --> 00:36:07.650 in compliance and regulatory obligations. Legacy Systems 520 00:36:07.650 --> 00:36:10.320 limit simple automation and straight to processing from 521 00:36:10.320 --> 00:36:13.950 front end to the back office. proprietary systems complicate 522 00:36:13.950 --> 00:36:16.830 the adoption and integration of emerging tech like blockchain, 523 00:36:17.130 --> 00:36:21.570 AI robotic processing and API based micro services. In short, 524 00:36:21.570 --> 00:36:24.030 Legacy information systems reduce a bank's ability to 525 00:36:24.030 --> 00:36:26.430 innovate and improve value for their customers and partners. 526 00:36:26.700 --> 00:36:28.770 Meanwhile, there are now approximately 60 million 527 00:36:28.770 --> 00:36:31.980 Generation Z banking customers who control 45 billion in annual 528 00:36:31.980 --> 00:36:34.830 spending, with the oldest of them nearing age 24. These young 529 00:36:34.830 --> 00:36:38.040 adults literally have no recollection of life prior to 530 00:36:38.040 --> 00:36:41.250 the internet social media mobile tech, Gen Z expects highly 531 00:36:41.250 --> 00:36:44.010 transactional services placing more value upon convenience over 532 00:36:44.010 --> 00:36:47.340 traditional branch based relationship driven banking. In 533 00:36:47.340 --> 00:36:50.160 consideration of these things. And other things I offer the 534 00:36:50.160 --> 00:36:52.860 following recommendations one coordinate efforts with the US 535 00:36:52.860 --> 00:36:55.470 Treasury and Federal Reserve Bank in establishing a sandbox 536 00:36:55.470 --> 00:36:58.140 environment and a decentralized national network of financial 537 00:36:58.140 --> 00:37:00.840 records without a definitive path of its own. Relying on the 538 00:37:00.840 --> 00:37:03.720 financial services industry to provide tech solutions means the 539 00:37:03.720 --> 00:37:06.510 SBA is at risk for future disenfranchisement of the 540 00:37:06.510 --> 00:37:10.230 growing market of digital first businesses owners who rely upon 541 00:37:10.230 --> 00:37:12.810 tech solutions for fast efficient business operation. 542 00:37:13.110 --> 00:37:15.060 Similar to the early communication standards that 543 00:37:15.060 --> 00:37:17.580 became the internet and web a collaborative approach to 544 00:37:17.580 --> 00:37:19.950 building a commercial lending and financial records network by 545 00:37:19.950 --> 00:37:22.950 the SBA Treasury tech companies and banks could accelerate a 546 00:37:22.950 --> 00:37:25.500 more verdant, efficient and trustworthy financial system. 547 00:37:25.890 --> 00:37:28.830 Through collaboration the SBA is in a position to establish new 548 00:37:28.830 --> 00:37:31.470 standards for financial document and information networks data 549 00:37:31.470 --> 00:37:34.200 interoperability, robotic process automation and exchange. 550 00:37:34.650 --> 00:37:37.410 Firms that optimize customer data robotic processes and 551 00:37:37.410 --> 00:37:40.320 provide new solutions can offer timely and relevant support for 552 00:37:40.320 --> 00:37:43.560 the SBAS programs. With data driven and digital only models, 553 00:37:43.560 --> 00:37:46.290 Challenger firms are in a better position to adapt to rapid 554 00:37:46.290 --> 00:37:48.900 change and unforeseen circumstances. Number two, 555 00:37:48.930 --> 00:37:52.440 leverage and improve upon Small Business Innovation Research 556 00:37:52.470 --> 00:37:56.310 super programs to foster FinTech and REG tech innovation. The SBA 557 00:37:56.310 --> 00:37:58.140 has an opportunity to collaborate with technology 558 00:37:58.140 --> 00:38:01.230 companies to provide proof and proof of concepts for the direct 559 00:38:01.230 --> 00:38:04.740 delivery of automated services. However, federal contracting 560 00:38:04.740 --> 00:38:07.470 grant or regulatory policies can be quite prescriptive when it 561 00:38:07.470 --> 00:38:10.770 comes to defining technology and solution requirements. Instead, 562 00:38:10.770 --> 00:38:12.990 Congress should establish goals for the outcomes of innovation 563 00:38:12.990 --> 00:38:15.510 programs, and then strive to support businesses that offer 564 00:38:15.540 --> 00:38:19.050 effective affordable technology solutions. While contracting 565 00:38:19.050 --> 00:38:21.720 vehicles already exist that can be prohibitive for small 566 00:38:21.720 --> 00:38:25.530 companies to pursue due to the amount of resources required, as 567 00:38:25.530 --> 00:38:27.690 we've seen with recent Super innovations and instant 568 00:38:27.690 --> 00:38:30.390 procurements and streamline processes within the Air Force. 569 00:38:30.720 --> 00:38:33.510 Tapping into a wider national brain trust for innovation can 570 00:38:33.510 --> 00:38:36.300 be achieved through thoughtful improvements to the existing 571 00:38:36.300 --> 00:38:39.630 processes as we deliberate National Small Business Funding 572 00:38:39.630 --> 00:38:42.750 banking, technology and even monetary policies. Congress 573 00:38:42.750 --> 00:38:44.970 should invest in these opportunities, accelerate them 574 00:38:44.970 --> 00:38:47.520 where possible and ensure that financial regulatory standards 575 00:38:47.520 --> 00:38:51.330 and technology of the future continue to be led by American 576 00:38:51.330 --> 00:38:53.760 ingenuity and resolve. Thank you again for inviting me to 577 00:38:53.760 --> 00:38:55.650 testify. And I look forward to addressing each of your 578 00:38:55.650 --> 00:38:56.580 individual questions. 579 00:38:57.830 --> 00:39:00.650 Chairwoman Velazquez: Thank you, Mr. Hiles. And thank you all for 580 00:39:00.950 --> 00:39:04.250 everything that you have shared with us. I will begin by 581 00:39:04.250 --> 00:39:11.300 recognizing myself for five minutes. Mr. Urrutia, you you 582 00:39:11.330 --> 00:39:16.520 cause part of my bill to bring transparency and understanding 583 00:39:16.520 --> 00:39:21.710 of pricing terms and conditions to small business lending 584 00:39:21.770 --> 00:39:27.200 nationally. How would increased transparency have a unique 585 00:39:27.230 --> 00:39:31.850 impact on borrowers of color, immigrant intrapreneurs and 586 00:39:31.880 --> 00:39:34.610 other vulnerable communities? 587 00:39:38.000 --> 00:39:41.210 Luz Urrutia: Yes, a first I want to start by saying that 588 00:39:41.210 --> 00:39:45.470 underserved small businesses, particularly minorities, 589 00:39:47.390 --> 00:39:51.200 immigrant and women owned do not generally maintain existing 590 00:39:51.200 --> 00:39:54.890 banking relationships. I think this was recently brought to 591 00:39:54.890 --> 00:39:58.880 light after looking at the result of who received PPP loans 592 00:39:58.910 --> 00:40:02.600 unfortunately We saw that many minority immigrants and women 593 00:40:02.600 --> 00:40:05.180 owners who tried to apply with banks were left at the back of 594 00:40:05.180 --> 00:40:08.750 the line or declined altogether. There's also plenty of research 595 00:40:08.750 --> 00:40:12.350 from many sources showing that these underserved communities 596 00:40:12.380 --> 00:40:15.440 are most negatively impacted when it comes to accessing 597 00:40:15.440 --> 00:40:19.820 responsible and affordable capital. The Brookings Institute 598 00:40:19.820 --> 00:40:22.670 has research showing that minority and women headed 599 00:40:22.670 --> 00:40:26.570 households generally have lower levels of household wealth, 600 00:40:26.840 --> 00:40:30.860 making external borrowing more difficult. It also shows that 601 00:40:30.860 --> 00:40:33.410 these two segments have increasingly difficult times 602 00:40:33.410 --> 00:40:36.860 accessing responsible capital. If you looked at the US 603 00:40:36.860 --> 00:40:40.550 Department of Commerce Minority Business Development Agency that 604 00:40:40.550 --> 00:40:43.640 shows that minority and women owned businesses are less likely 605 00:40:43.820 --> 00:40:47.420 to receive loans more likely to receive lower amount and more 606 00:40:47.420 --> 00:40:50.900 likely to be denied when compared to non minority 607 00:40:50.900 --> 00:40:51.590 businesses. 608 00:40:51.660 --> 00:40:54.960 Chairwoman Velazquez: Thank you. Thank you. I just need to go on 609 00:40:54.960 --> 00:40:59.250 with other questions of thank you so very much, Miss sharing, 610 00:40:59.550 --> 00:41:03.750 you noted that nonprofit lenders are left helping small 611 00:41:03.750 --> 00:41:07.830 businesses pick up the pieces due to the lack of transparency 612 00:41:07.830 --> 00:41:11.940 and abusive lending practices in online lending. Can you 613 00:41:11.940 --> 00:41:17.730 elaborate on some of the terms, this FinTech products have that 614 00:41:17.730 --> 00:41:19.680 hurt small business borrowers. 615 00:41:20.580 --> 00:41:24.690 Yanki Sherring: So what we found and it's, you know, the CDFI, 616 00:41:24.690 --> 00:41:27.390 Business Center for New Americans, which I represent, 617 00:41:27.390 --> 00:41:31.200 but also all those, we have a coalition of CDFIs in New York 618 00:41:31.200 --> 00:41:36.900 State. And we work very closely together, what we found is the, 619 00:41:37.110 --> 00:41:40.980 you know, lack of transparency of the actual interest rate. And 620 00:41:40.980 --> 00:41:44.550 I think we had someone who just spoke the professor who 621 00:41:44.550 --> 00:41:48.840 explained in detail, you know, very often, the fact that the 622 00:41:48.840 --> 00:41:52.380 interest rate is a daily interest rate is not conveyed 623 00:41:52.380 --> 00:41:56.280 clearly to the borrower. So, when you actually, you know, you 624 00:41:56.280 --> 00:42:00.150 don't have the ability to compare apples to apples, so 625 00:42:00.150 --> 00:42:05.940 they might borrow me look at a CDFIs loan product offerings and 626 00:42:05.940 --> 00:42:10.590 see within a quarter percent and 10%. And when they see the 627 00:42:10.590 --> 00:42:15.270 interest rate that is conveyed to them, by a FinTech or an 628 00:42:15.270 --> 00:42:19.590 online or some other lender, they're very confused. So, you 629 00:42:19.590 --> 00:42:24.540 know, we really feel it, what we are, what we are asking for is 630 00:42:24.540 --> 00:42:29.280 transparency and fairness. We are not condemning the FinTech 631 00:42:29.280 --> 00:42:32.970 sector, we are condemning and bringing to light the bad 632 00:42:32.970 --> 00:42:37.350 behavior. The other thing that we were shocked to find out and 633 00:42:37.350 --> 00:42:41.610 I have to point this out, was the fact that even if we stepped 634 00:42:41.610 --> 00:42:46.290 in a CDFI stepped in and was willing to make a loan to 635 00:42:46.290 --> 00:42:50.220 refinance this loan with these exorbitant interest rates. 636 00:42:50.520 --> 00:42:53.820 Because of what the client on the borrower small business 637 00:42:53.820 --> 00:42:59.250 owner had signed on, it was still liable for the entire fees 638 00:42:59.250 --> 00:43:01.830 and interest for the term of the loan. 639 00:43:02.350 --> 00:43:05.500 Chairwoman Velazquez: Thank you, Miss Sherring, Miss Urrutia. In 640 00:43:05.560 --> 00:43:08.800 an effort to increase transparency in small business 641 00:43:08.800 --> 00:43:13.270 lending, and honest fact the degree of disagreement has a 642 00:43:13.270 --> 00:43:19.450 reason with respect to annual percentage rate or our ATR 643 00:43:19.600 --> 00:43:25.810 disclosures. Some have argued that a total cost of capital 644 00:43:25.810 --> 00:43:30.730 metric is appropriate while others have argued then an APR 645 00:43:30.730 --> 00:43:36.250 cannot be calculated for certain products. What is your response? 646 00:43:36.400 --> 00:43:43.420 And why is it so important that APR specifically be disclosed to 647 00:43:43.420 --> 00:43:48.670 borrowers? Do you believe it is more accurate or useful metric 648 00:43:48.670 --> 00:43:51.370 for borrowers in comparing loan products? 649 00:43:55.840 --> 00:43:59.140 Luz Urrutia: Sciences they're providing capital over time for 650 00:43:59.140 --> 00:44:04.060 a fee, right? Just as lenders are. For a long time, the 651 00:44:04.090 --> 00:44:06.460 merchant cash advance industry has long claimed that their 652 00:44:06.460 --> 00:44:09.490 products are different to get around regulations that are 653 00:44:09.490 --> 00:44:12.520 intended to protect their customers. This is just another 654 00:44:12.520 --> 00:44:16.090 example of that avoidance. A lot of conversation focuses on the 655 00:44:16.090 --> 00:44:19.060 nuances of the product themselves. Are they an MCI a 656 00:44:19.060 --> 00:44:21.670 daily debit, you know, what are the product features, but the 657 00:44:21.670 --> 00:44:24.820 financing is mostly very high cost and doing more harm than 658 00:44:24.820 --> 00:44:28.210 good? You know, because customers need to be educated, 659 00:44:28.420 --> 00:44:33.340 the best businesses, educate their customers, because that 660 00:44:33.340 --> 00:44:38.230 allows them to make informed decisions. APR is definitely a 661 00:44:38.230 --> 00:44:42.370 metric that helps borrowers understand how much they are 662 00:44:42.370 --> 00:44:46.240 paying, and be able to compare apples to apples, one product to 663 00:44:46.240 --> 00:44:46.720 another. 664 00:44:47.170 --> 00:44:49.960 Chairwoman Velazquez: Thank you. Thank you. My time has now 665 00:44:49.960 --> 00:44:54.100 expired. And maybe if we go to a second round of questioning, 666 00:44:54.100 --> 00:44:58.780 I'll be able to ask questions for the witnesses that I haven't 667 00:44:59.500 --> 00:45:02.770 now The Ranking Member, Mr. Chabot is now recognized for 668 00:45:02.770 --> 00:45:03.610 five minutes. 669 00:45:04.180 --> 00:45:06.850 Steve Chabot: Thank you, Madam Chairman. I'll begin with Mr. 670 00:45:06.850 --> 00:45:14.560 Hiles. Mr. Hiles, Cincinnati is a modest sized city. How is 671 00:45:14.560 --> 00:45:19.600 Cincinnati come to be such a significant driver of financial 672 00:45:19.630 --> 00:45:24.040 innovation? What advantages have you found here in this in this 673 00:45:24.040 --> 00:45:24.490 area? 674 00:45:26.980 --> 00:45:28.960 Michael Hiles: Madam Chairwoman, Ranking Member, thank you for 675 00:45:28.960 --> 00:45:32.950 the question. Cincinnati has a great legacy of financial 676 00:45:32.950 --> 00:45:40.840 technology in 1976. That was the start of the electronic trading 677 00:45:41.230 --> 00:45:43.870 with the Cincinnati Stock Exchange. And in fact, 678 00:45:43.870 --> 00:45:47.410 Cincinnati is recognized as being the first independent 679 00:45:47.410 --> 00:45:52.960 software vendor company in history SunCom systems. So you 680 00:45:52.960 --> 00:45:55.360 know, it has a wonderful technology legacy that was 681 00:45:55.360 --> 00:46:00.040 followed through in 1977. For Third Bank launched the very 682 00:46:00.040 --> 00:46:04.360 first ATM network, the genie network, which has become fairly 683 00:46:04.360 --> 00:46:07.480 ubiquitous now throughout the world, for accessing cash 684 00:46:07.480 --> 00:46:11.200 through trusted networks. Separately, I'm honored to have 685 00:46:11.200 --> 00:46:15.370 been on the team that was the first to ever connect a court 686 00:46:15.370 --> 00:46:19.990 judicial case management system to the World Wide Web and allow 687 00:46:20.020 --> 00:46:25.270 a clerk of courts case management, search, look up. And 688 00:46:25.270 --> 00:46:29.050 we want a Smithsonian Computer World Laureate Award for that. 689 00:46:29.410 --> 00:46:34.150 So we've got a tremendous history of firsts. And that's 690 00:46:34.150 --> 00:46:36.910 one of the reasons that we're now also advocating the 691 00:46:36.910 --> 00:46:43.390 establishment of a decentralized network of records as a way to 692 00:46:43.630 --> 00:46:47.860 really provide proof and efficacy of financial 693 00:46:48.460 --> 00:46:53.020 identities, entity information, assets, and ultimately 694 00:46:53.020 --> 00:46:56.440 transactions, so that they can be queried instantly by 695 00:46:56.440 --> 00:47:00.520 regulators, but then also ensure the security and the efficacy of 696 00:47:00.520 --> 00:47:04.420 documents and data as they're passed between institutions, and 697 00:47:04.450 --> 00:47:08.590 organizations and individuals. So that hopefully answers the 698 00:47:08.590 --> 00:47:10.150 question. Ranking Member. Thank you. 699 00:47:10.300 --> 00:47:14.080 Steve Chabot: Thank you very much. Ms. Urrutia, we'll go to 700 00:47:14.080 --> 00:47:18.520 you next. Could you expound upon the partnership that opportunity 701 00:47:18.520 --> 00:47:23.050 fund has with Lending Club and funding circle and how that 702 00:47:23.560 --> 00:47:27.250 those partnerships have helped reach small businesses across 703 00:47:27.250 --> 00:47:27.790 the country? 704 00:47:29.110 --> 00:47:33.970 Luz Urrutia: Sure, um, so we established a one of a kind 705 00:47:33.970 --> 00:47:39.820 partnership, where we were able to take Lending Club customers 706 00:47:39.850 --> 00:47:43.750 that applied for a loan and God denied primarily for credit 707 00:47:43.750 --> 00:47:48.460 reasons, we were able to on the background, check them in order 708 00:47:48.460 --> 00:47:52.750 to provide them a pre qualification offer. And so we 709 00:47:52.750 --> 00:47:55.810 were a second look for a FinTech lender, they brought the 710 00:47:55.810 --> 00:48:00.130 marketing, they brought their digital capabilities, and we 711 00:48:00.130 --> 00:48:03.880 broad our high touch customer service. And our ability to 712 00:48:03.880 --> 00:48:07.180 underwrite credit for these underserved consumers, giving 713 00:48:07.180 --> 00:48:10.240 access to credit to borrowers that would otherwise would have 714 00:48:10.240 --> 00:48:14.830 been turned down. And so certain borrowers that we cannot handle 715 00:48:14.830 --> 00:48:19.390 because their loan sizes are, are greater, and or they're 716 00:48:19.420 --> 00:48:23.590 their prime credit worthy customers, we would send them to 717 00:48:23.620 --> 00:48:27.640 a funding circle for them to underwrite, again, better 718 00:48:27.640 --> 00:48:32.320 expanding access, as well as providing transparent rates and 719 00:48:32.320 --> 00:48:33.310 affordable loans. 720 00:48:34.540 --> 00:48:37.180 Steve Chabot: Thank you very much. Miss Sherring. I'll go to 721 00:48:37.180 --> 00:48:41.860 you next time. As we've seen COVID-19 has acutely impacted 722 00:48:41.860 --> 00:48:45.790 small businesses across the nation. This is especially true 723 00:48:45.790 --> 00:48:49.000 for the country's smallest firms. I've introduced 724 00:48:49.150 --> 00:48:53.620 legislation that considers the smallest of small businesses 725 00:48:53.620 --> 00:48:59.080 those that have 10 or fewer employees, as Congress looks to 726 00:48:59.080 --> 00:49:04.600 assist these smallest of hard hit businesses during this 727 00:49:04.600 --> 00:49:08.920 emergency period. Do you have any suggestions as to what we 728 00:49:09.250 --> 00:49:15.400 could consider why the smallest businesses is a particularly 729 00:49:15.400 --> 00:49:15.970 hard way to get? 730 00:49:16.830 --> 00:49:20.100 Yanki Sherring: That is a great question. Thank you. So one 731 00:49:20.100 --> 00:49:23.610 thing I want to you know, thank everyone who was involved in 732 00:49:23.610 --> 00:49:27.360 passing the Cares Act. One of the provisions that's not talked 733 00:49:27.360 --> 00:49:31.260 as much about as the PPP, it's, you know, we hear so much about 734 00:49:31.260 --> 00:49:35.820 the PPP loans, because under the Cares Act, anyone who was funded 735 00:49:35.820 --> 00:49:40.950 with the loan from funds from the SBA, were able to get six 736 00:49:40.950 --> 00:49:44.580 months of loan repayment assistance under the Cares Act. 737 00:49:44.880 --> 00:49:50.160 So that was a lifeline for small businesses that had a loan 738 00:49:50.160 --> 00:49:55.650 funded by the SBA, many of the the idle loans, all those were 739 00:49:55.680 --> 00:49:59.610 really, really helpful. But when we speak to our clients and 740 00:49:59.640 --> 00:50:04.080 other clients of other CDFIs the area where most of the 741 00:50:04.080 --> 00:50:07.860 businesses seem to really need help is some form of rent 742 00:50:07.860 --> 00:50:12.330 relief. And what they've also said over and over again is, 743 00:50:12.540 --> 00:50:17.130 yes, you know, we do not need more debt. You know, we would 744 00:50:17.130 --> 00:50:21.840 love to have a program which would provide some equity, help 745 00:50:21.840 --> 00:50:27.210 us pay off the four months of rent that we owe, and some of 746 00:50:27.210 --> 00:50:30.450 the expenses so we can get back on track. 747 00:50:31.470 --> 00:50:33.360 Steve Chabot: Thank you very much. My time has expired. Madam 748 00:50:33.360 --> 00:50:34.380 Chair. I yield back. 749 00:50:39.640 --> 00:50:42.160 Chairwoman Velazquez: Thank you. The young gentleman's time has 750 00:50:42.160 --> 00:50:46.660 expired. And now we recognize the gentlelady from Kansas, Miss 751 00:50:46.660 --> 00:50:48.070 Davids for five minutes. 752 00:50:49.290 --> 00:50:51.870 Sharice Davids: Thank you, Chairwoman Velazquez and Ranking 753 00:50:51.870 --> 00:50:55.380 Member Chabot for holding this hearing today. You know, the 754 00:50:55.410 --> 00:51:00.420 COVID-19 pandemic has certainly illustrated and exacerbated many 755 00:51:00.420 --> 00:51:03.030 of the challenges that our small businesses face in their 756 00:51:03.030 --> 00:51:06.060 ordinary day to day operations, whether we're talking about 757 00:51:06.330 --> 00:51:10.890 access to capital, starting a business keeping the doors open 758 00:51:10.890 --> 00:51:16.050 in an emergency. And we're seeing just how hard those 759 00:51:16.050 --> 00:51:21.180 challenges can be. FinTech I think, presents a unique and 760 00:51:21.180 --> 00:51:24.720 exciting opportunity for lenders to better reach and serve small 761 00:51:24.720 --> 00:51:28.770 business owners who are often in search of small loans, things, 762 00:51:29.520 --> 00:51:32.790 you know, loans that are under a million dollars and fintech 763 00:51:32.790 --> 00:51:36.420 lenders are often able to speed up the typical loan turnaround 764 00:51:36.420 --> 00:51:39.600 time, which can be critical for small businesses with tight 765 00:51:39.600 --> 00:51:46.320 margins. But as we know the FinTech industry, as it grows 766 00:51:46.320 --> 00:51:49.500 and adapts, we have a responsibility to ensure that 767 00:51:49.500 --> 00:51:55.320 those opportunities for small business lending are equitable, 768 00:51:55.350 --> 00:52:01.050 and that they're fair and so miss your Radia, I would really 769 00:52:01.170 --> 00:52:05.910 love to hear from you about how we ensure that FinTech and 770 00:52:05.910 --> 00:52:09.960 online lenders offer fair and clearly understood terms and 771 00:52:10.050 --> 00:52:12.180 making sure that they're remaining accessible to small 772 00:52:12.180 --> 00:52:16.770 lenders. And you were kind of touching on this earlier, when, 773 00:52:17.070 --> 00:52:20.640 when you were talking about the transparency that the chairwoman 774 00:52:20.640 --> 00:52:26.610 was asking about, but also, just in terms of making sure that 775 00:52:26.610 --> 00:52:30.390 folks understand the terms that they're signing up for how we 776 00:52:30.390 --> 00:52:32.790 educate folks on that, can you talk a little bit about that? 777 00:52:33.210 --> 00:52:36.630 Luz Urrutia: Sure. Thank you. So you know, first, there are many 778 00:52:36.630 --> 00:52:40.830 reputable national lenders, CDFIs and fintechs alike, who 779 00:52:40.830 --> 00:52:43.320 deliver solutions online to customers throughout this 780 00:52:43.320 --> 00:52:46.650 country in both rural and urban communities. And these 781 00:52:46.650 --> 00:52:49.440 organizations and ourselves included, we meet borrowers 782 00:52:49.440 --> 00:52:53.130 where they are and when they need us. And we have been and 783 00:52:53.130 --> 00:52:56.010 will continue to be committed to transparency in our lending 784 00:52:56.010 --> 00:52:59.790 activities. Examples of many of these lenders are part of the 785 00:52:59.790 --> 00:53:03.120 responsible business lending Coalition, which is a network of 786 00:53:03.120 --> 00:53:06.630 more than 110 nonprofit and for profit lenders, investors and 787 00:53:06.900 --> 00:53:11.220 small business advocates that share a commitment to innovation 788 00:53:11.220 --> 00:53:14.130 in small business lending. And we also have concerns about the 789 00:53:14.130 --> 00:53:16.980 rise of the responsible small business lending. You know, the 790 00:53:16.980 --> 00:53:20.130 50 Plus lenders in the group currently provide borrowers in 791 00:53:20.130 --> 00:53:23.910 need of loan capital with transparent disclosures. The 792 00:53:23.910 --> 00:53:26.340 second point I'll make is that we strongly believe that an 793 00:53:26.340 --> 00:53:30.270 educated customer is our best customer. By being transparent, 794 00:53:30.270 --> 00:53:34.110 we help them to understand how to pay loans back, which means 795 00:53:34.110 --> 00:53:37.530 more people can get credit as a result for us. And for these 796 00:53:37.530 --> 00:53:39.990 borrowers. And for these lenders, Customer Success drives 797 00:53:39.990 --> 00:53:41.100 business success. 798 00:53:41.610 --> 00:53:44.850 Sharice Davids: And then just Oh, really quickly, I'd love to 799 00:53:44.850 --> 00:53:48.960 hear a little bit more about I'm really interested in making sure 800 00:53:48.960 --> 00:53:53.190 that small business owners are able to trust that they're 801 00:53:53.190 --> 00:53:57.960 interacting with a lender that is really going to either meet 802 00:53:57.960 --> 00:54:00.480 them where they're at or educate them in the way that's 803 00:54:00.480 --> 00:54:04.050 necessary. Can you talk a little bit more about that the 804 00:54:04.050 --> 00:54:07.050 Responsible Lending coalition sounds really interesting. Are 805 00:54:07.050 --> 00:54:09.990 there other groups out there that are doing similar work? 806 00:54:10.620 --> 00:54:12.870 Luz Urrutia: Yes, and I would say that under the responsible 807 00:54:12.870 --> 00:54:16.980 business lending coalition was created the Small Business 808 00:54:16.980 --> 00:54:21.090 borrower Bill of Rights, which really outlines six principles 809 00:54:21.180 --> 00:54:24.570 of what Responsible Lending would look like. It does not 810 00:54:24.570 --> 00:54:29.580 mean that other lenders that have not signed on to this bill 811 00:54:29.670 --> 00:54:32.880 are not doing responsible lending, but I think that will 812 00:54:32.880 --> 00:54:36.480 serve as a guideline for small businesses when taking out a 813 00:54:36.480 --> 00:54:41.100 loan to look and see do my does my loan meet this criteria? 814 00:54:42.140 --> 00:54:44.390 Sharice Davids: And then Miss Sherring I saw you nodding your 815 00:54:44.390 --> 00:54:46.550 head a bit. I'd love to hear from you on this. 816 00:54:47.090 --> 00:54:50.240 Yanki Sherring: Yep. Yeah. So um, you know, I want to point 817 00:54:50.240 --> 00:54:57.350 out as Lou's referred there, many who have not signed on to 818 00:54:57.350 --> 00:55:01.610 this, you know, small business lender Bill of Rights, but they 819 00:55:01.610 --> 00:55:06.200 believe in what we're asking for. And we are not, you know, 820 00:55:06.200 --> 00:55:09.470 condemning the FinTech sector. As I said before, what we are 821 00:55:09.470 --> 00:55:15.950 saying is, you want some rules in place to affect and make sure 822 00:55:15.950 --> 00:55:21.380 there is no bad behavior, which impacts very negatively on small 823 00:55:21.380 --> 00:55:22.520 business owners. 824 00:55:24.120 --> 00:55:26.850 Sharice Davids: Yeah, I appreciate that. And it, it 825 00:55:26.850 --> 00:55:30.720 sounds like there were a lot of when I was hearing about the 826 00:55:30.930 --> 00:55:36.240 partnerships with folks like lending tree and other online, 827 00:55:36.840 --> 00:55:40.410 folks, I think that it sounds as though there's again, I said 828 00:55:40.410 --> 00:55:44.010 this earlier, a lot of opportunities for access and 829 00:55:44.010 --> 00:55:48.420 growth, just making sure we're making that a fair and equitable 830 00:55:48.420 --> 00:55:52.560 process. Thank you so much for your responses, and I yield 831 00:55:52.560 --> 00:55:52.850 Chairwoman Velazquez: The gentle lady yields back and now we 832 00:55:52.850 --> 00:55:52.950 back. 833 00:55:56.170 --> 00:56:00.610 recognize the gentlelady from American Samoa Robin, Miss Amata 834 00:56:00.640 --> 00:56:02.500 Radewagon for five minutes. 835 00:56:04.100 --> 00:56:06.860 Amata Radewagon: Thank you, Chairwoman Velazquez and Ranking 836 00:56:06.860 --> 00:56:10.310 Member Chabot for holding this hearing and I too want to 837 00:56:10.310 --> 00:56:16.940 welcome the panelists for Miss Urrutia. In your testimony, you 838 00:56:16.940 --> 00:56:20.300 state that small business owners are sometimes shut out of the 839 00:56:20.300 --> 00:56:24.380 traditional financial system. Why do you believe some lenders 840 00:56:24.380 --> 00:56:27.230 do not consider them good candidates for traditional 841 00:56:27.560 --> 00:56:33.980 lending products and small businesses are? Well, as 842 00:56:33.980 --> 00:56:38.870 Congress continues to discuss PPP and the next round of COVID 843 00:56:38.870 --> 00:56:42.290 relief, what should we concentrate on? That would 844 00:56:42.290 --> 00:56:45.290 provide the most assistance to small businesses? 845 00:56:46.880 --> 00:56:51.920 Luz Urrutia: Sure, yeah. Yeah. So um, first, you know, banks 846 00:56:52.340 --> 00:56:56.600 generally have a very specific criteria under which they make 847 00:56:56.600 --> 00:57:02.360 loans. They look at FICO scores. And there are a lot of small 848 00:57:02.360 --> 00:57:05.270 business owners and individuals that don't have one primarily 849 00:57:05.390 --> 00:57:08.990 either new to credit immigrant communities. Second, they're 850 00:57:08.990 --> 00:57:11.900 looking at sizes of loans, the loans we're talking about are 851 00:57:11.900 --> 00:57:15.140 very small micro loans, it's really hard to make those loans 852 00:57:15.140 --> 00:57:19.370 profitable. Also, many of these minority owned businesses are in 853 00:57:19.370 --> 00:57:23.540 industries that to banks pose a greater risk, even though we 854 00:57:23.540 --> 00:57:26.300 would disagree with that based on our experience. So the 855 00:57:26.420 --> 00:57:29.930 overall profitability and the overall segment that we're 856 00:57:29.930 --> 00:57:33.860 talking about has needs that the banks are just not set up to 857 00:57:33.860 --> 00:57:37.730 serve. As a result, the small businesses are going to 858 00:57:37.730 --> 00:57:41.630 alternative lenders to seek the credit that they need online, 859 00:57:41.750 --> 00:57:47.150 MCA fintechs. You know, in terms of PPP, we believe that there 860 00:57:47.150 --> 00:57:49.940 are a number of things we do believe that there needs to be 861 00:57:51.230 --> 00:57:56.570 the ability for businesses to access a second PPP loan. We 862 00:57:56.570 --> 00:58:03.170 also believe that to incentivize lenders to make smaller loans. 863 00:58:03.290 --> 00:58:07.490 As an example, at Opportunity Fund, our average loan for PPP 864 00:58:07.490 --> 00:58:13.040 was $15,000. Okay. The average loan on the second round was 865 00:58:13.040 --> 00:58:16.580 73,000, for the industry as a whole and even greater in the 866 00:58:16.580 --> 00:58:22.250 first round. So to incentivize lenders to make loans, there 867 00:58:22.250 --> 00:58:27.590 should be a forgiven of any loans under 150,000, peep and 868 00:58:27.590 --> 00:58:33.020 PPP that will help you know, lenders look at these loans and 869 00:58:33.020 --> 00:58:35.480 be willing to make those loans. 870 00:58:37.730 --> 00:58:40.190 Amata Radewagon: Thank you, Chairwoman Velazquez, I yield 871 00:58:40.190 --> 00:58:42.050 back the balance of my time. 872 00:58:43.530 --> 00:58:45.690 Chairwoman Velazquez: The gentle lady yields back. And now we 873 00:58:45.690 --> 00:58:49.800 recognize the gentleman from Maryland, Mr. Mfume for five 874 00:58:49.800 --> 00:58:50.400 minutes. 875 00:58:52.890 --> 00:58:54.690 Kweisi Mfume: Well, Madam Chair, thank you very much. You're very 876 00:58:54.690 --> 00:58:57.930 gracious with your time I hopped on a little late because I've 877 00:58:57.930 --> 00:59:01.320 had conflicting meetings this day. And so in deference to the 878 00:59:01.320 --> 00:59:05.280 members on our side that may have been here earlier before 879 00:59:05.280 --> 00:59:06.870 me, I would yield until the next round. 880 00:59:12.330 --> 00:59:14.130 Chairwoman Velazquez: I recognize the gentlelady from 881 00:59:14.130 --> 00:59:16.350 California Miss Chu for five minutes. 882 00:59:20.100 --> 00:59:25.470 Judy Chu: Thank you, Madam Chair. Well, Miss sharing, I'm 883 00:59:25.470 --> 00:59:28.740 so glad you're on this panel today because your organization 884 00:59:28.740 --> 00:59:33.060 is a community advantage lender serving immigrants and minority 885 00:59:33.060 --> 00:59:37.770 business owners. What this hearing today shows is that it's 886 00:59:37.770 --> 00:59:41.610 so important for us to support the chairwoman Small Business 887 00:59:41.610 --> 00:59:47.550 Lending Disclosure Act ASAP. And I've also introduced legislation 888 00:59:47.910 --> 00:59:50.520 along with my colleague representative spinales that 889 00:59:50.520 --> 00:59:53.910 would authorize the community Advantage program for five 890 00:59:53.910 --> 00:59:58.530 years, which has been operating as a pilot program successfully 891 00:59:58.530 --> 01:00:03.720 since 2011. Haven't now we're facing long a long recovery from 892 01:00:03.720 --> 01:00:08.640 COVID 19. And we need to be bold about giving small businesses 893 01:00:08.670 --> 01:00:12.810 especially underserved small businesses, more opportunities 894 01:00:12.810 --> 01:00:19.650 to access SBA capital. So, you know, we have an interest in 895 01:00:19.680 --> 01:00:22.470 making sure that community Advantage program remains alive. 896 01:00:22.500 --> 01:00:25.410 And as a community advantage lender, can you speak to the 897 01:00:25.410 --> 01:00:28.980 potential of this program to play a part in the economic 898 01:00:28.980 --> 01:00:32.670 recovery for small businesses, especially those owned by 899 01:00:32.670 --> 01:00:36.930 immigrants and people of color, and especially when they may be 900 01:00:36.930 --> 01:00:41.130 potentially taken advantage of by unscrupulous FinTech lenders. 901 01:00:41.910 --> 01:00:45.510 Yanki Sherring: So thank you. So the community advantage product 902 01:00:45.510 --> 01:00:49.950 is a great product. We are relatively new to the product, 903 01:00:49.950 --> 01:00:53.700 we've been making these loans for two years. But what I have 904 01:00:53.700 --> 01:00:56.850 to say we were pleasantly surprised once we started 905 01:00:56.850 --> 01:01:01.380 processing them, how efficiently we got a response as to whether 906 01:01:01.380 --> 01:01:04.830 something was approved or not if a loan was approved, or if 907 01:01:04.830 --> 01:01:08.490 documents documents were missing. And I think it has a 908 01:01:08.490 --> 01:01:13.050 great role to play in recovery efforts. New York here 909 01:01:13.050 --> 01:01:17.340 businesses are reopening we're making, you know, emergencies 910 01:01:17.430 --> 01:01:23.040 micro loans funded by the SBA. We're also a very active lender 911 01:01:23.040 --> 01:01:28.170 with funds awards from the treasury, the CDFI Fund at the 912 01:01:28.170 --> 01:01:32.220 US Department of Treasury, but the CA community Advantage 913 01:01:32.220 --> 01:01:36.630 Program has a great role to play. And I think, you know, if 914 01:01:36.630 --> 01:01:40.770 more of the business owners were aware of the product, certainly 915 01:01:40.770 --> 01:01:44.340 there's some time involved in underwriting the loan. But that 916 01:01:44.340 --> 01:01:47.970 makes sense. Because you know, you really have a responsibility 917 01:01:47.970 --> 01:01:51.960 to make sure that the borrower has the ability and you know, is 918 01:01:51.990 --> 01:01:56.370 able to repay before you make the loan to the business. 919 01:01:59.060 --> 01:02:03.620 Judy Chu: Thank you for that. And Mr. Urrutia, as the only 920 01:02:03.620 --> 01:02:06.530 member from California on this committee, I'd like to ask you 921 01:02:06.530 --> 01:02:12.020 about SB 1235, which was signed into law in my home state in 922 01:02:12.890 --> 01:02:16.220 2018, and was the country's first truth and lending laws 923 01:02:16.220 --> 01:02:20.180 specifically for small business. And I know your organization was 924 01:02:20.180 --> 01:02:25.070 very instrumental in the passage of this bill in my state. Of 925 01:02:25.070 --> 01:02:27.530 course, this legislation did address the misleading 926 01:02:27.530 --> 01:02:30.500 advertising practices by requiring lenders to disclose 927 01:02:30.500 --> 01:02:33.980 the true estimated cost of their products on an annualized basis. 928 01:02:34.220 --> 01:02:38.000 And it laid the groundwork for a similar effort in in New York 929 01:02:38.000 --> 01:02:40.940 State. And of course, I commend Chairwoman Velazquez for 930 01:02:40.940 --> 01:02:44.510 spearheading this disclosure requirements here in Congress, 931 01:02:44.510 --> 01:02:47.870 because we certainly need it on a national basis. So can you 932 01:02:47.870 --> 01:02:51.560 tell us how the bill is doing and expound on the lessons 933 01:02:51.560 --> 01:02:56.720 learned from SB SB SB 1235, in California? And how we could 934 01:02:56.720 --> 01:02:59.330 apply those lessons to the federal level? Yeah. So 935 01:03:00.810 --> 01:03:04.320 Luz Urrutia: SB 1235, has not been fully implemented yet. And 936 01:03:04.320 --> 01:03:10.020 California. But, you know, transparency is, is is what we 937 01:03:10.020 --> 01:03:13.590 all were looking for. Right. And so that's why when this bill was 938 01:03:13.590 --> 01:03:17.460 passed, there was no opposition to enact in some of the 939 01:03:17.460 --> 01:03:22.200 disclosures. I think what we saw is that, you know, high cost 940 01:03:22.200 --> 01:03:28.440 lenders continue to oppose it, because they're a PRs will be 941 01:03:28.440 --> 01:03:33.780 much higher than the rates that they disclose. Now, you know, as 942 01:03:33.780 --> 01:03:38.580 I said earlier, you know, the Federal Reserve itself has found 943 01:03:38.580 --> 01:03:44.280 instances of providers claiming that a 4% fee rate or 4%, you 944 01:03:44.280 --> 01:03:49.050 know, rate when the estimated APR was 45%, or a factor of 945 01:03:49.050 --> 01:03:53.970 1.15, when the estimated APR was 70%. And these rates are 946 01:03:53.970 --> 01:03:58.050 confusing. And so when we introduced this bill, I think 947 01:03:58.050 --> 01:04:02.520 that the reason we found support is because consumers and small 948 01:04:02.520 --> 01:04:06.480 businesses deserve the right to know their options and what 949 01:04:06.480 --> 01:04:10.050 their brain so they can make informed decisions. And we're 950 01:04:10.050 --> 01:04:13.110 looking forward to, you know, successful and full 951 01:04:13.110 --> 01:04:14.940 implementation of the bill in California. 952 01:04:16.830 --> 01:04:18.480 Judy Chu: Thank you. I yield back. 953 01:04:19.650 --> 01:04:22.050 Chairwoman Velazquez: The gentle lady yields back. And now we 954 01:04:22.050 --> 01:04:25.710 recognize the gentleman from Ohio, Mr. Balderson, for five 955 01:04:25.710 --> 01:04:26.220 minutes. 956 01:04:27.840 --> 01:04:29.700 Troy Balderson: Thank you, Chairman. Chairwoman. I 957 01:04:30.720 --> 01:04:33.060 appreciate you join this committee to then look forward 958 01:04:33.510 --> 01:04:37.320 of listening. It's been good today. My first question will go 959 01:04:37.320 --> 01:04:41.190 to Mr. levington. In your testimony, you briefly discussed 960 01:04:41.190 --> 01:04:45.450 personal guarantees at the SBA personal guarantee is utilized 961 01:04:45.450 --> 01:04:49.530 within many of the government guaranteed lending products. Can 962 01:04:49.530 --> 01:04:53.340 you provide more detail about its role in traditional lending 963 01:04:53.340 --> 01:04:54.090 products? 964 01:04:57.540 --> 01:05:01.080 Adam Levitin: Sure, personal guarantees are are commonly are 965 01:05:01.110 --> 01:05:06.750 very frequently used as business lending. Because the Small Biz 966 01:05:06.750 --> 01:05:11.940 small money situation in many situations, the dividing line 967 01:05:11.940 --> 01:05:15.090 between what is a small business asset and what is a personal 968 01:05:15.090 --> 01:05:17.340 asset. And guess what it can be fuzzy. That's one reason, for 969 01:05:17.340 --> 01:05:22.770 example, a contractor who buys ford f 150, or something, might 970 01:05:22.770 --> 01:05:25.740 use it for work. But he's also been in the news, it takes kids 971 01:05:25.740 --> 01:05:30.990 to school and groceries in the like, it's both, it may be 972 01:05:30.990 --> 01:05:35.490 registered in the business's name, but the business that the 973 01:05:35.490 --> 01:05:39.570 business is really hard to separate from the person. And 974 01:05:39.570 --> 01:05:43.380 that's why that's why you often see personal guarantees for all 975 01:05:43.380 --> 01:05:45.780 businesses, where the credit of the business is just tied up 976 01:05:45.780 --> 01:05:48.810 with the with the credit of the person, I don't think a personal 977 01:05:48.840 --> 01:05:52.530 guarantee is in any way probably. I want to put about 978 01:05:52.530 --> 01:05:56.700 that. But when you start having personal guarantees, is a lot 979 01:05:56.700 --> 01:06:05.160 more like than if a large Coca Cola would go and take out a 980 01:06:05.160 --> 01:06:06.600 multi million dollar 981 01:06:12.000 --> 01:06:15.570 Troy Balderson: Thank you. All a follow up for you what small 982 01:06:15.570 --> 01:06:18.150 business provision should Congress concentrate on while 983 01:06:18.150 --> 01:06:21.570 discussing the next COVID relief package? 984 01:06:24.900 --> 01:06:28.530 Adam Levitin: I think the the key thing, maybe the most 985 01:06:28.530 --> 01:06:30.570 important Congress all businesses are facing is rent. 986 01:06:32.640 --> 01:06:36.030 And that's not a new problem. But you have small businesses 987 01:06:36.030 --> 01:06:40.260 that are no fault of their own, are facing real problems with 988 01:06:40.260 --> 01:06:42.990 their rent and you have landlords who through no fault 989 01:06:42.990 --> 01:06:47.220 of their own are finding their their own liquidity is stress 990 01:06:47.250 --> 01:06:52.860 because of the COVID problems. I don't unfortunately have a good 991 01:06:52.860 --> 01:06:56.580 solution for you on this. But that is I think where a lot of 992 01:06:56.580 --> 01:06:57.240 attention needs. 993 01:06:59.220 --> 01:07:02.340 Troy Balderson: Okay, well, thank you. My next question is 994 01:07:02.340 --> 01:07:06.390 for Mr. Hiles. Mr. Hiles, thank you for being here today. What 995 01:07:06.390 --> 01:07:08.940 do you believe are the factors that are driving change within 996 01:07:08.940 --> 01:07:11.280 the country's banking and lending system? 997 01:07:14.640 --> 01:07:17.220 Michael Hiles: Madam Chairwoman, Representative Balderson, thank 998 01:07:17.220 --> 01:07:23.370 you for the question. There is a confluence of different factors 999 01:07:23.370 --> 01:07:26.730 affecting the banking system right now. As I stated in my 1000 01:07:26.730 --> 01:07:31.200 initial testimony, one of the problems through consolidation 1001 01:07:31.200 --> 01:07:34.560 from Main Street to Wall Street has been the development of 1002 01:07:34.560 --> 01:07:39.360 these gigantic, too big to fail patchwork quilts of disparate 1003 01:07:39.390 --> 01:07:43.380 financial IT systems and the way that the documents and the data 1004 01:07:43.380 --> 01:07:48.480 are managed, become very expensive to maintain. And we've 1005 01:07:48.480 --> 01:07:52.230 seen instances where very large banks have spent upwards to a 1006 01:07:52.230 --> 01:07:56.070 billion dollars in an attempt to launch a fully automated digital 1007 01:07:56.070 --> 01:08:02.010 bank from the inside out. And we know that from the technology 1008 01:08:02.010 --> 01:08:07.170 standpoint, the technology innovation generally takes place 1009 01:08:07.200 --> 01:08:12.090 outside of large institutions and then become acquired or 1010 01:08:12.390 --> 01:08:16.590 absorbed within as we're able to innovate and pivot. There are 1011 01:08:16.590 --> 01:08:22.410 other compressive factors, the risks from a regulatory cost 1012 01:08:22.410 --> 01:08:27.870 standpoint and, you know, not clear guidance, we've struggled 1013 01:08:27.870 --> 01:08:30.960 with standards and technology, we've had a little bit of a 1014 01:08:30.960 --> 01:08:35.160 national dialogue. In particular, around blockchain, 1015 01:08:35.340 --> 01:08:40.710 there has been an attempt to bring to the floor a previous 1016 01:08:40.710 --> 01:08:44.400 legislation that defines even the taxonomy of blockchain and 1017 01:08:44.400 --> 01:08:48.300 cryptocurrency and trying to inject some definitions into the 1018 01:08:48.300 --> 01:08:51.240 mix. I'd like to also remind the committee that FinTech in and of 1019 01:08:51.240 --> 01:08:54.990 itself is not necessary. alternative lending Fintech is 1020 01:08:54.990 --> 01:08:58.620 just financial technology that powers an efficient way for even 1021 01:08:58.620 --> 01:09:01.650 traditional financial firms to continue to operate. 1022 01:09:04.649 --> 01:09:06.719 Troy Balderson: Thank you very much for your answer. Madam 1023 01:09:06.719 --> 01:09:08.819 Chair, I'll yield back my remaining time. It's pretty 1024 01:09:08.819 --> 01:09:11.339 short. So thank you very much for all of you being here today. 1025 01:09:12.179 --> 01:09:15.059 Chairwoman Velazquez: Thank you. The gentleman yields back. And 1026 01:09:15.059 --> 01:09:19.079 now we recognize the gentleman from Pennsylvania, Mr. Evans, 1027 01:09:19.139 --> 01:09:22.319 for five minutes. Thank you, 1028 01:09:22.349 --> 01:09:23.999 Dwight Evans: Madam Chairperson. And thank you for your 1029 01:09:23.999 --> 01:09:28.529 leadership on this issue. The question I will start off is 1030 01:09:28.529 --> 01:09:33.839 with the professor from Georgetown. Can you describe the 1031 01:09:33.839 --> 01:09:38.909 pros and cons of using FinTech for lending? what can business 1032 01:09:38.909 --> 01:09:42.989 owners do right to now protect themselves from predatory 1033 01:09:42.989 --> 01:09:45.779 lending? Now like to get others to respond to that too. 1034 01:09:46.620 --> 01:09:50.130 Adam Levitin: So FinTech as Mr. Hiles was saying a second ago. 1035 01:09:50.400 --> 01:09:55.530 FinTech simply is actually not a very, very useful term because 1036 01:09:55.530 --> 01:10:00.390 it's so vague, it just means the lead bringing technology GE to 1037 01:10:00.390 --> 01:10:03.660 the limited to financial services and that can mean a 1038 01:10:03.660 --> 01:10:06.810 whole range of things in the lending context. It usually 1039 01:10:06.810 --> 01:10:11.550 means used to refer to online lenders. But a website is hardly 1040 01:10:13.080 --> 01:10:16.950 you know, revolutionary technology at this point. Often 1041 01:10:16.950 --> 01:10:19.380 when we think of FinTech lenders, where to people are 1042 01:10:19.380 --> 01:10:21.930 referring to lenders that are using alternative underwriting 1043 01:10:21.930 --> 01:10:27.390 data, so that they are able to maybe underwrite loans for 1044 01:10:27.390 --> 01:10:31.170 borrowers that do not have traditional credit scores or 1045 01:10:31.170 --> 01:10:36.690 have thin credits in credit files, and also, lenders using 1046 01:10:37.770 --> 01:10:40.680 particularly automated underwriting, and these two 1047 01:10:40.680 --> 01:10:44.010 things, these two things, the automated underwriting, and the 1048 01:10:44.010 --> 01:10:48.900 use of alternative underwriting data, enables both cheaper 1049 01:10:48.900 --> 01:10:53.370 underwriting and faster underwriting and underwriting of 1050 01:10:53.400 --> 01:10:56.760 populations that might not otherwise be served by the 1051 01:10:56.760 --> 01:11:01.080 traditional lending market. Potentially, that's all really 1052 01:11:01.080 --> 01:11:04.470 good. All right, there's a lot of potential upside to fintech. 1053 01:11:05.070 --> 01:11:11.130 The problem is that FinTech it has, it can be both good and 1054 01:11:11.130 --> 01:11:14.730 bad. And you have just as in the regular banking market, you can 1055 01:11:14.730 --> 01:11:17.910 have abusive practices, you can have those too, with fintech. 1056 01:11:18.270 --> 01:11:21.840 And with FinTech lenders, often they're not. They're not 1057 01:11:21.840 --> 01:11:25.260 operating with a banking license. So the regulation will 1058 01:11:25.260 --> 01:11:28.740 vary, it's going to be on the state level primarily. And what 1059 01:11:28.740 --> 01:11:32.220 that means they're actually subject to can just there's 1060 01:11:32.220 --> 01:11:35.070 substantial variation depending on on how they do this. 1061 01:11:35.220 --> 01:11:38.670 Additionally, some FinTech lenders are not banks, but they 1062 01:11:38.670 --> 01:11:40.980 partner with a bank. The bank partnerships are sometimes 1063 01:11:40.980 --> 01:11:45.540 called rentenbank. arrangements, where the bank acts as the front 1064 01:11:45.570 --> 01:11:48.870 end, makes the loan and then immediately sells the loan and 1065 01:11:48.870 --> 01:11:52.170 the loan was made on spec for the fintech. What that allows 1066 01:11:52.170 --> 01:11:54.870 the FinTech to do and allows it to evade state regulations. So 1067 01:11:54.870 --> 01:11:58.500 the example I give my opening statement of the DeRay, Mo 1068 01:11:58.500 --> 01:12:02.460 Farah, the Doritos business Islam, the 121% interest rate, 1069 01:12:02.820 --> 01:12:07.200 well, Florida has an 18% usury cap, and actually apply unlike 1070 01:12:07.200 --> 01:12:10.800 many states, Florida's usury cap applies to business loans, as 1071 01:12:10.800 --> 01:12:16.860 well as to consumer loans. How was it a 121% APR loan made 1072 01:12:16.860 --> 01:12:20.940 there? Well, because banks are exempt from state usury laws. 1073 01:12:21.360 --> 01:12:24.630 And by having the little tiny components, Wisconsin Community 1074 01:12:24.630 --> 01:12:28.710 Bank was just two branches in Wisconsin, be the formal lender 1075 01:12:28.740 --> 01:12:33.120 and then a few days later sell the loan to the FinTech, the 1076 01:12:33.120 --> 01:12:35.910 FinTech was able to at least make an argument that it was not 1077 01:12:35.910 --> 01:12:40.650 subject to the state's usury laws. And unfortunately, in the 1078 01:12:40.680 --> 01:12:44.340 over the summer, the Office of Comptroller of the Currency, and 1079 01:12:44.340 --> 01:12:47.700 the Federal Deposit Insurance Corporation, both put finalized 1080 01:12:47.700 --> 01:12:51.600 rulemakings that pretty much bless this process, and are 1081 01:12:51.600 --> 01:12:55.350 giving a green light to bad actors in the financial services 1082 01:12:55.350 --> 01:12:59.280 space, rather than trying to squeeze out the bad actors and 1083 01:12:59.280 --> 01:13:01.710 make you have an open cell for the good actors. 1084 01:13:05.970 --> 01:13:11.520 Dwight Evans: So can maybe so I broke I got admitted, some ASCII 1085 01:13:11.520 --> 01:13:12.840 response wrong con on it. 1086 01:13:14.880 --> 01:13:16.110 Adam Levitin: Can you repeat that? Sorry, I didn't hear 1087 01:13:16.680 --> 01:13:21.030 Dwight Evans: Someone is anybody else, giving comments on the 1088 01:13:21.060 --> 01:13:24.000 wrong kind of fintechs along the panel. 1089 01:13:28.620 --> 01:13:31.830 Luz Urrutia: I would just say that, you know, fintechs have 1090 01:13:31.830 --> 01:13:36.360 done a great job of leveraging technology and data analytics to 1091 01:13:36.360 --> 01:13:40.620 scale lending to underserved communities in markets where 1092 01:13:40.620 --> 01:13:45.300 banks have left and they've become banking deserts. And so 1093 01:13:45.420 --> 01:13:49.860 they have the reach, and many are responsible. The problem 1094 01:13:49.890 --> 01:13:54.210 that we have as responsible lenders is with those online and 1095 01:13:54.210 --> 01:13:57.420 fintech providers that are not transparent in their 1096 01:13:57.420 --> 01:14:01.830 disclosures. And to those who say that, why don't just talk 1097 01:14:01.830 --> 01:14:06.300 about the cost of credit and $1 amount, recognizing that that is 1098 01:14:06.300 --> 01:14:10.560 not a good fair comparison, because a six month loan is a 1099 01:14:10.560 --> 01:14:13.710 very different than a five year term loan. And so you've got to 1100 01:14:13.710 --> 01:14:17.430 look at APR in order to be able to compare apples to apples. 1101 01:14:18.510 --> 01:14:20.070 Dwight Evans: I yield back the balance of my time. 1102 01:14:21.680 --> 01:14:23.360 Chairwoman Velazquez: The gentleman yields back. And now 1103 01:14:23.390 --> 01:14:27.650 we recognize the gentleman from Oklahoma, Mr. Hern for five 1104 01:14:27.650 --> 01:14:27.920 minutes. 1105 01:14:28.940 --> 01:14:30.800 Kevin Hern: Thank you, Madam Chairwoman. I really appreciate 1106 01:14:30.800 --> 01:14:33.680 you doing this meeting today and Ranking Member Chabot and our 1107 01:14:33.680 --> 01:14:37.850 witnesses for testifying today. As a business owner for over 35 1108 01:14:37.880 --> 01:14:40.970 years before getting into Congress two years ago. I'm 1109 01:14:40.970 --> 01:14:43.730 certainly very familiar with the complexities associated with 1110 01:14:43.730 --> 01:14:47.240 obtaining access to capital to the loan programs that are out 1111 01:14:47.240 --> 01:14:50.420 there and available. I'm also as a co founder of a small 1112 01:14:50.420 --> 01:14:53.120 community bank also understand the compliance standards and the 1113 01:14:53.120 --> 01:14:56.480 financial risks our lenders face on the other side so I've unique 1114 01:14:56.480 --> 01:15:00.200 perspective of being on both sides of this for over two 20 1115 01:15:00.230 --> 01:15:04.400 years now, these financial risks have grown significantly due to 1116 01:15:04.400 --> 01:15:07.640 small businesses utilizing online lending more frequently, 1117 01:15:07.670 --> 01:15:10.640 which often creates quicker means to obtaining loans, as 1118 01:15:10.670 --> 01:15:13.790 each of you have described is more appealing to younger 1119 01:15:13.790 --> 01:15:19.130 demographics, business owners. It's usually that easy and that 1120 01:15:19.160 --> 01:15:22.070 automated there's usually something of suspicion behind 1121 01:15:22.070 --> 01:15:24.650 it. And I think that's what's been so appetizing about these 1122 01:15:24.650 --> 01:15:28.460 types of loans. Unfortunately, online lending because of the 1123 01:15:28.460 --> 01:15:31.280 lack of transparency and increase ambiguity regarding 1124 01:15:31.310 --> 01:15:34.580 long term agreements, again, as we've been speaking to today, 1125 01:15:35.180 --> 01:15:37.430 and going forward as our society's reliance in the 1126 01:15:37.430 --> 01:15:40.880 digital marketplace continues, it is essential that we increase 1127 01:15:40.880 --> 01:15:43.700 transparency so that small businesses better understand the 1128 01:15:43.700 --> 01:15:47.540 terms of online lending agreements. compliance standards 1129 01:15:47.540 --> 01:15:50.270 are also a growing problem as our nation's banks had been over 1130 01:15:50.270 --> 01:15:53.270 regulated since the passage of Dodd Frank and they become worse 1131 01:15:53.270 --> 01:15:57.410 during the Coronavirus crisis. Other people, PPP and auto 1132 01:15:57.410 --> 01:16:00.440 programs have helped businesses remain open and former employees 1133 01:16:00.440 --> 01:16:04.340 are employed. quick turnaround in processing these loans is 1134 01:16:04.340 --> 01:16:07.910 placed even more standards on many banks cause them to work 1135 01:16:07.910 --> 01:16:12.560 extra hours and adding to the overall compliance costs. So to 1136 01:16:12.560 --> 01:16:15.260 ensure more efficiency and transparency with an SBA 1137 01:16:15.260 --> 01:16:18.440 lending, we need to reduce the burdensome regulation for banks 1138 01:16:18.440 --> 01:16:22.040 and strive to innovate. And this brings me to the first question, 1139 01:16:22.070 --> 01:16:25.580 Mr. Hiles. In your testimony you note that the need for the SBA 1140 01:16:25.580 --> 01:16:28.940 to be more innovative and work with technology companies to 1141 01:16:28.940 --> 01:16:33.350 foster FinTech and REG tech solutions. If the SBA is to 1142 01:16:33.350 --> 01:16:36.380 innovate through online platforms, how do we ensure that 1143 01:16:36.410 --> 01:16:39.290 we're not overregulating, causing more burdens for banks, 1144 01:16:39.860 --> 01:16:42.650 and also to ensure there's transparency for small 1145 01:16:42.650 --> 01:16:44.360 businesses within loan agreements? 1146 01:16:47.300 --> 01:16:50.360 Michael Hiles: Madam Chairwoman, Representative her thank you for 1147 01:16:50.360 --> 01:16:55.160 the question. We're advocates of leveraging technology that 1148 01:16:55.160 --> 01:17:00.200 exists today. That allows for the immutable mathematical proof 1149 01:17:00.290 --> 01:17:05.240 of documents and data. Think of it is the underlying technology 1150 01:17:05.240 --> 01:17:09.200 beneath cryptocurrencies but apply applied in an enterprise 1151 01:17:09.830 --> 01:17:15.740 fashion for compliance purposes. This allows a mathematical way 1152 01:17:15.740 --> 01:17:19.520 to encrypt the information and the decentralize it essentially 1153 01:17:19.520 --> 01:17:22.250 hack proof it. I don't like to say that word because it's not 1154 01:17:22.250 --> 01:17:27.620 true, but at least elevate a much higher level of security 1155 01:17:27.620 --> 01:17:32.270 around that information. This also provides for a proof of 1156 01:17:32.270 --> 01:17:35.180 information and data from a regulatory standpoint as an 1157 01:17:35.180 --> 01:17:39.860 examiner would be provided with a token key to the network to 1158 01:17:39.860 --> 01:17:44.210 access specific records on a real time basis. It seemed, from 1159 01:17:44.210 --> 01:17:47.630 a transparency standpoint, these kinds of innovations would be a 1160 01:17:47.630 --> 01:17:51.980 dream come true for both small financial institutions who 1161 01:17:51.980 --> 01:17:56.600 already struggle with technology and innovation. As a community 1162 01:17:56.600 --> 01:18:00.230 bank, they don't have the r&d budgets, and then from a 1163 01:18:00.290 --> 01:18:03.320 administrative standpoint, to help leverage some of these new 1164 01:18:03.320 --> 01:18:08.180 technologies to also work in a far more efficient fashion as an 1165 01:18:08.180 --> 01:18:12.380 administration. These are the kinds of things that we we look 1166 01:18:12.380 --> 01:18:17.510 forward to in the future with the ability to approve documents 1167 01:18:17.510 --> 01:18:17.960 and data. 1168 01:18:18.590 --> 01:18:23.450 Kevin Hern: Thank you. Mr. Levitin. My second question, 1169 01:18:23.450 --> 01:18:26.210 I'll start with you on this, and we'll see where time goes. But 1170 01:18:28.430 --> 01:18:31.970 this isn't regarding increased lending, flexibility for banks, 1171 01:18:32.120 --> 01:18:34.040 what are some of the actions that government can take to 1172 01:18:34.040 --> 01:18:36.710 reduce current regulatory burdens on banks to increase the 1173 01:18:36.710 --> 01:18:39.650 flexibility within lending leading to quicker turnaround 1174 01:18:39.650 --> 01:18:41.570 for loan processing is that seems to be one of the 1175 01:18:41.570 --> 01:18:44.690 appetizing things to the FinTech industry right now. 1176 01:18:48.590 --> 01:18:53.180 Adam Levitin: So I'm not actually aware of any particular 1177 01:18:53.180 --> 01:18:58.310 regulation that slows down the speed of underwriting. There may 1178 01:18:58.310 --> 01:19:02.240 be there may be just internal technological and operating 1179 01:19:02.240 --> 01:19:05.900 procedures to do so. But I'm unaware of anything in terms of 1180 01:19:05.900 --> 01:19:10.370 federal regulation that requires a delay between when a bank 1181 01:19:10.400 --> 01:19:13.340 decides to make a loan and when there can be a disbursement or 1182 01:19:13.340 --> 01:19:16.070 how about how fast a bank can undertake an underwriting 1183 01:19:16.070 --> 01:19:20.270 process. There are certain things that, you know, pretty 1184 01:19:20.270 --> 01:19:23.120 much any lender is going to be required to abide by such as 1185 01:19:23.450 --> 01:19:26.060 anti money laundering regulations, but those should 1186 01:19:26.060 --> 01:19:31.010 not be creating a particular delay, once the necessary 1187 01:19:31.010 --> 01:19:32.960 documents are submitted to a lender. 1188 01:19:34.400 --> 01:19:36.920 Kevin Hern: Madam Chairwoman, I yield back the balance of my 1189 01:19:36.920 --> 01:19:38.690 time. Actually, I have. 1190 01:19:40.890 --> 01:19:42.690 Chairwoman Velazquez: The gentleman yields back and now we 1191 01:19:42.690 --> 01:19:46.320 recognize the gentleman from Illinois, Mr. Schneider for five 1192 01:19:46.320 --> 01:19:46.890 minutes. 1193 01:19:47.880 --> 01:19:50.520 Brad Schneider: Thank you, Madam Chair, and thank you and the 1194 01:19:50.550 --> 01:19:54.090 ranking member for hosting this important hearing. I want to 1195 01:19:54.090 --> 01:19:58.260 thank our witnesses for joining us today. This summer I had the 1196 01:19:58.740 --> 01:20:02.700 privilege to host a A number of virtual roundtables with, in 1197 01:20:02.700 --> 01:20:06.450 particular minority business owners in my district. And in 1198 01:20:06.450 --> 01:20:10.650 these time and again, we've heard a common theme that the 1199 01:20:10.650 --> 01:20:13.410 small businesses, especially minority owned businesses had 1200 01:20:13.410 --> 01:20:16.710 nowhere to turn for financial assistance. The big businesses 1201 01:20:16.710 --> 01:20:20.100 were getting ahead of them and in lining that banks and 1202 01:20:20.100 --> 01:20:23.760 accessing PPP, at least in the first round, many submitted 1203 01:20:23.760 --> 01:20:28.050 their paperwork, only to get skipped over. And they really 1204 01:20:28.050 --> 01:20:31.080 struggled in the second round. They did a little bit better, 1205 01:20:31.080 --> 01:20:34.740 but the data supports the conclusions. Only 12% of black 1206 01:20:34.740 --> 01:20:38.280 and Latino business owners pulled between April 30. And May 1207 01:20:38.280 --> 01:20:42.600 12. Said they received the funding they requested. Well, 1208 01:20:42.600 --> 01:20:47.760 about one quarter received some funding. In contrast, half of 1209 01:20:47.760 --> 01:20:51.150 the of all small businesses reporting receiving federal 1210 01:20:51.150 --> 01:20:55.110 support through the PPP programs. So we passed PPP, we 1211 01:20:55.110 --> 01:20:57.660 had an additional help that we had hoped to offer through the 1212 01:20:57.720 --> 01:21:01.500 the heroes act, but nothing has yet to come. And one of the 1213 01:21:01.500 --> 01:21:06.900 biggest themes or concerns I heard in these conversations was 1214 01:21:06.930 --> 01:21:11.760 the fear that nothing would come and they'd be left hanging. So 1215 01:21:11.790 --> 01:21:17.910 my first question, and maybe I'll start with Ms. Arusha is 1216 01:21:18.450 --> 01:21:21.690 how successful do you think the second round of PPP funding was 1217 01:21:21.690 --> 01:21:23.700 in targeting these underserved communities? 1218 01:21:32.360 --> 01:21:35.270 Luz Urrutia: Hide at different places, look, minority owned 1219 01:21:35.270 --> 01:21:38.300 businesses, and the most vulnerable ones that we're 1220 01:21:38.300 --> 01:21:42.050 talking about do not generally have banking relationships. And 1221 01:21:42.050 --> 01:21:45.590 so the banks were only supporting initially, their 1222 01:21:45.590 --> 01:21:48.830 customers first. So that's why your comment that they stood at 1223 01:21:48.830 --> 01:21:51.260 the back of a line, they stayed in the back of the line for the 1224 01:21:51.260 --> 01:21:55.190 most part. Also, if you look at the average size of loans that 1225 01:21:55.190 --> 01:21:58.910 were made, you know, in the second round, it was $73,000, 1226 01:21:59.060 --> 01:22:03.260 our average loan size was $15,000. And we deployed about 1227 01:22:03.290 --> 01:22:09.200 1000 loans in a six week period. And so you know, we must ensure 1228 01:22:09.260 --> 01:22:12.920 that PPP funds go to the smallest, most vulnerable small 1229 01:22:12.920 --> 01:22:16.610 businesses, because they are the ones that are minority owned, 1230 01:22:16.850 --> 01:22:19.220 and they're the ones that really need it. And that's why we are 1231 01:22:19.220 --> 01:22:24.350 supporting a second PPP loan be authorized. We're also asking 1232 01:22:24.350 --> 01:22:28.280 that for PPP loans under 150,000, that they those be 1233 01:22:28.280 --> 01:22:32.300 automatically forgiven. And those businesses are the ones 1234 01:22:32.300 --> 01:22:35.210 that need the most relief in order to get back on their feet. 1235 01:22:35.570 --> 01:22:39.170 And then the other piece is an administrative fee. As you know, 1236 01:22:39.170 --> 01:22:46.640 5% was paid by SBA to loans are under $350,000. In our case, we 1237 01:22:46.640 --> 01:22:52.580 made a $15,000 loan, a 5% is $750. That does not cover the 1238 01:22:52.580 --> 01:22:55.460 costs of processing the loans and working with these borrowers 1239 01:22:55.610 --> 01:22:58.010 that needs so much help to ensure that they can get 1240 01:22:58.010 --> 01:22:58.580 approved. 1241 01:23:00.440 --> 01:23:03.530 Brad Schneider: Thank you. And me because I think my next one's 1242 01:23:03.860 --> 01:23:05.960 somewhat of an academic question, I'll turn to Professor 1243 01:23:05.960 --> 01:23:09.470 Levinson. But as we're looking forward, we're looking to the 1244 01:23:09.470 --> 01:23:13.970 next package. And the minute and a half left, you touch on the 1245 01:23:13.970 --> 01:23:18.590 needs that businesses might have in the next round, how we could 1246 01:23:18.590 --> 01:23:21.350 better structure this program to serve these underserved 1247 01:23:21.350 --> 01:23:26.090 businesses. And what we might do also to create a more efficient, 1248 01:23:26.120 --> 01:23:28.790 effective process to make sure these businesses have access to 1249 01:23:28.790 --> 01:23:29.510 the most well. 1250 01:23:31.130 --> 01:23:36.650 So the there's a bit of a MacGyver problem here, or you've 1251 01:23:36.650 --> 01:23:39.590 got to work with the tools you have in hand, we can't start 1252 01:23:39.590 --> 01:23:43.820 setting up an entire an entire new financial system from 1253 01:23:43.820 --> 01:23:48.620 scratch. Given the tools that are at hand, I think that PPP 1254 01:23:48.620 --> 01:23:53.900 made the best of what it could from a bad situation. And while 1255 01:23:53.900 --> 01:23:59.300 I'm not generally enthusiastic about using relying on private 1256 01:23:59.300 --> 01:24:04.130 financial institutions to carry out federal aid programs, I 1257 01:24:04.130 --> 01:24:06.800 think we've seen problems with that in the past, for example, 1258 01:24:06.800 --> 01:24:12.890 with mortgage servicers, and federal foreclosure relief. I 1259 01:24:12.890 --> 01:24:15.680 think that you know, the the goal for the next round has to 1260 01:24:15.680 --> 01:24:20.300 be figuring out a way to have that the banks that participate 1261 01:24:20.300 --> 01:24:26.660 in PPP or any any expansion of that will reach out not just to 1262 01:24:26.660 --> 01:24:30.920 their existing clients, but try and serve new clients. And see 1263 01:24:30.920 --> 01:24:33.680 this is an opportunity for developing new banking 1264 01:24:33.680 --> 01:24:39.350 relationships. Great, thank you. My time is expired. So I will 1265 01:24:39.350 --> 01:24:41.960 yield back. But first, let me just again, thank our witnesses 1266 01:24:41.960 --> 01:24:45.680 today. And thank the Chairwoman and the ranking member for this. 1267 01:24:47.070 --> 01:24:49.740 Chairwoman Velazquez: Time has expired. And now we recognize 1268 01:24:49.740 --> 01:24:53.910 the gentleman from Minnesota, Mr. Stauber for five minutes. 1269 01:24:54.900 --> 01:24:57.510 Pete Stauber: Thank you, Chairwoman Velazquez and Ranking 1270 01:24:57.510 --> 01:25:00.000 Member Chabot. I really appreciate your leadership 1271 01:25:00.000 --> 01:25:04.590 During this really difficult time for COVID-19 and the small 1272 01:25:04.590 --> 01:25:08.430 business owners throughout the nation, the 30 million of them. 1273 01:25:09.300 --> 01:25:14.940 Mr. Levitin, you just talked about the banking industry. You 1274 01:25:14.940 --> 01:25:19.050 know, during the, during this COVID-19, we relied on our small 1275 01:25:19.050 --> 01:25:23.550 community lending banks to, you know, help with these PP P loans 1276 01:25:23.610 --> 01:25:28.320 of with not a lot of helper, or guidance from the SBA at times, 1277 01:25:28.320 --> 01:25:30.240 and I think they did a really good job under the 1278 01:25:30.240 --> 01:25:34.230 circumstances. And I, from your comments, I hope you agree with 1279 01:25:34.230 --> 01:25:37.440 that. I think you stated, is that correct? Did I hear you 1280 01:25:37.440 --> 01:25:37.980 correctly? 1281 01:25:44.220 --> 01:25:46.500 Adam Levitin: On the implementation of the PPP to 1282 01:25:46.500 --> 01:25:52.830 take it, take a position there. So I'm gonna say, my answer be 1283 01:25:52.830 --> 01:25:53.640 no comment. 1284 01:25:53.969 --> 01:25:58.259 Pete Stauber: Okay. And that's fine. I, I because I wanted I 1285 01:25:58.259 --> 01:26:02.099 want to put forth my my congratulations, support for 1286 01:26:02.099 --> 01:26:05.399 community banks and lending institutions that helped 51 1287 01:26:05.399 --> 01:26:10.679 million people keep their jobs and helped almost 10,000,009 1288 01:26:10.739 --> 01:26:14.339 plus million businesses to stay open during this time. And I 1289 01:26:14.339 --> 01:26:18.029 would just say this, here's a question. The small business, 1290 01:26:18.419 --> 01:26:21.449 men and women across this nation, they are the engine of 1291 01:26:21.449 --> 01:26:25.769 our economy. The members of this committee understand that I 1292 01:26:25.769 --> 01:26:30.029 would ask anybody this question, do you think because small 1293 01:26:30.029 --> 01:26:33.179 businesses, men and women are the engine of our economy on 1294 01:26:33.179 --> 01:26:38.669 Main Street America? Does there anybody on the panel of experts 1295 01:26:38.669 --> 01:26:42.329 here that feel there is a need for small businesses to be 1296 01:26:42.329 --> 01:26:47.549 protected from COVID-19 related lawsuits? Anybody take this as 1297 01:26:47.549 --> 01:26:49.019 directed to any one of the witnesses? 1298 01:26:54.340 --> 01:26:57.850 Luz Urrutia: Okay, can you say more about when you say 1299 01:26:57.970 --> 01:27:00.880 protected from COVID-19 losses? What do you mean? 1300 01:27:01.349 --> 01:27:02.549 Pete Stauber: Lawsuits? 1301 01:27:03.269 --> 01:27:04.319 Luz Urrutia: Lawsuits? 1302 01:27:04.559 --> 01:27:05.639 Pete Stauber: lawsuits. 1303 01:27:06.510 --> 01:27:06.840 Luz Urrutia: Okay. 1304 01:27:08.580 --> 01:27:10.590 Pete Stauber: Anybody, anyone? Any three witnesses? 1305 01:27:15.330 --> 01:27:18.750 Yanki Sherring: Talking about lawsuits from employees or from 1306 01:27:18.750 --> 01:27:19.590 client, you know, 1307 01:27:20.880 --> 01:27:23.580 Pete Stauber: from, from the general public, somebody comes 1308 01:27:23.580 --> 01:27:26.160 in, you're a small business, you're following the CDC 1309 01:27:26.160 --> 01:27:30.930 recommended guidelines? You have you have payments to make to the 1310 01:27:30.960 --> 01:27:35.610 lending institutions that help you get through. And there's a 1311 01:27:35.610 --> 01:27:40.110 lawsuit COVID lawsuit stating your business I went into your 1312 01:27:40.110 --> 01:27:44.520 business. Tell me about your, your thoughts on that? 1313 01:27:44.790 --> 01:27:47.970 Yanki Sherring: Yeah. So what we found is when we've asked our 1314 01:27:47.970 --> 01:27:51.600 clients, you know, what sort of concerns do you have, and you're 1315 01:27:51.600 --> 01:27:54.900 operating your business business? This is the last thing 1316 01:27:54.900 --> 01:27:59.400 on their mind, you know, because they all have reopening plans. 1317 01:27:59.610 --> 01:28:03.030 They, you know, have signs about maths, they have, you know, 1318 01:28:03.150 --> 01:28:07.590 plastic barriers. That is the last concern on their mind, 1319 01:28:07.590 --> 01:28:10.920 their concern is the rent they owe. And I think we had the 1320 01:28:10.920 --> 01:28:16.590 professor also mentioned, we found that rent, you know, rent 1321 01:28:16.590 --> 01:28:20.100 for the last few months, the debt that they have, is the 1322 01:28:20.100 --> 01:28:24.390 biggest concern among our small business owners. And the other 1323 01:28:24.390 --> 01:28:27.360 concern we have is, you know, hopefully there will be more 1324 01:28:27.360 --> 01:28:32.280 relief for them. But we, you know, I manage a CDFI. And there 1325 01:28:32.280 --> 01:28:37.140 are hundreds of CDFIs throughout the US. They should there could 1326 01:28:37.140 --> 01:28:40.020 be funded. Yeah, yeah. Go ahead. 1327 01:28:40.830 --> 01:28:43.560 Pete Stauber: Let me ask me maybe the question more 1328 01:28:43.560 --> 01:28:48.060 directly. Is that something as a small business supporter like 1329 01:28:48.060 --> 01:28:51.360 you like you are, is that something you would support 1330 01:28:51.420 --> 01:28:54.660 protecting the small businesses from these types of lawsuits? 1331 01:28:54.870 --> 01:28:58.830 Because your experience where you're at in my experience from 1332 01:28:58.830 --> 01:29:02.310 talking to our chamber of commerce's are much different. 1333 01:29:02.640 --> 01:29:06.780 And so, I would say that it's it's a priority that when they 1334 01:29:06.780 --> 01:29:10.050 open when they follow the CDC guidelines, that they aren't 1335 01:29:10.050 --> 01:29:16.290 getting lawsuits. So I'll be more direct. Do you support the 1336 01:29:16.440 --> 01:29:20.760 protection, the liability for small businesses from lawsuits 1337 01:29:20.760 --> 01:29:26.010 for COVID-19? Only when they follow CDC guidelines? Anybody? 1338 01:29:29.940 --> 01:29:34.980 Yeah, so your silence is definitely here. And that's the 1339 01:29:34.980 --> 01:29:39.570 concern. That's a real concern we have across America, we talk 1340 01:29:39.570 --> 01:29:44.940 about support for small businesses tunity to protect 1341 01:29:44.940 --> 01:29:47.910 them, we have given our small businesses relief that they 1342 01:29:47.910 --> 01:29:52.500 needed, in fact that these are the three pages of PPP for those 1343 01:29:52.710 --> 01:29:55.830 small minority owned businesses that don't have a human resource 1344 01:29:55.830 --> 01:29:59.940 department to be able to be able to access this. And so Mike 1345 01:29:59.940 --> 01:30:03.690 question was, we're doing all this up front, do you know that 1346 01:30:03.720 --> 01:30:09.450 of 30 million small businesses across this nation? Probably 25 1347 01:30:09.510 --> 01:30:13.080 28 million of the small businesses could not even handle 1348 01:30:13.080 --> 01:30:18.510 one lawsuit. So we know they're the engine of our economy. And 1349 01:30:18.510 --> 01:30:22.350 it strikes me that all three of you are silent on my question. 1350 01:30:24.330 --> 01:30:27.240 Yanki Sherring: So can can we, yeah, we'd like to give a small 1351 01:30:27.240 --> 01:30:30.420 halt and get back to you. So we're very clear about what 1352 01:30:30.420 --> 01:30:34.320 exactly you mean. And you know, we appreciate your concern for 1353 01:30:34.320 --> 01:30:38.130 small businesses. So we would like to get back to you on this. 1354 01:30:38.580 --> 01:30:40.800 Pete Stauber: I appreciate that. I'm a small business owner for 1355 01:30:40.830 --> 01:30:45.900 31 years. And as Professor Levitan said, it's not easy. But 1356 01:30:45.900 --> 01:30:50.490 we need we need that stability and the certainty to be able to 1357 01:30:50.670 --> 01:30:53.460 even keep our doors open. And I think you'd all agree with that. 1358 01:30:53.520 --> 01:30:56.970 I think that's the last question I have. I don't have a little 1359 01:30:56.970 --> 01:31:01.050 bit of time here. What are there any archaic laws that you see on 1360 01:31:01.050 --> 01:31:05.550 the books that we should remove that you is from your expertise 1361 01:31:05.550 --> 01:31:08.880 that we should remove to help small businesses not only 1362 01:31:08.880 --> 01:31:13.290 succeed, but also access to capital in an easier fashion, 1363 01:31:13.440 --> 01:31:17.400 like the PPP loans, the three page loan to get that access to 1364 01:31:17.910 --> 01:31:21.180 that capital to the small businesses that needed? Anybody? 1365 01:31:25.650 --> 01:31:27.900 Adam Levitin: I'll take that one. Very quickly. I think that 1366 01:31:28.500 --> 01:31:32.010 Congress and the Securities Exchange Commission and you 1367 01:31:32.010 --> 01:31:34.980 know, the dialogue that's happening around equity funding 1368 01:31:35.010 --> 01:31:38.160 is a positive step in the right direction with the realignment 1369 01:31:38.190 --> 01:31:42.390 of what constitutes an accredited investor. I think 1370 01:31:42.390 --> 01:31:47.130 that there needs to be more of a crowdfunding focused approach to 1371 01:31:47.130 --> 01:31:50.070 some of the smaller businesses in particular. That being said, 1372 01:31:50.100 --> 01:31:55.380 even we're working with some of the title three jobs act, 1373 01:31:56.010 --> 01:31:59.910 crowdfunding portals represents a pretty significant upfront 1374 01:31:59.910 --> 01:32:03.120 front loaded expense amount of marketing campaign and get 1375 01:32:03.120 --> 01:32:06.960 through the statutory requirements in order to launch 1376 01:32:07.290 --> 01:32:10.800 a crowdfunding campaign for even a very small amount of funding. 1377 01:32:10.980 --> 01:32:13.020 Cost of capital tends to run fairly high. 1378 01:32:14.860 --> 01:32:17.620 Pete Stauber: Okay, is anybody else want to tackle that one? 1379 01:32:23.590 --> 01:32:25.570 Chairwoman Velazquez: Yeah, time has expired. 1380 01:32:26.170 --> 01:32:27.790 Unknown: Thank you. Thank you, Madam Chair. 1381 01:32:28.390 --> 01:32:31.330 Chairwoman Velazquez: Thank you. And now we recognize the 1382 01:32:31.330 --> 01:32:34.840 gentleman from Minnesota, Tennessee. I'm sorry, Mr. 1383 01:32:34.840 --> 01:32:44.110 Burchette. For five minutes. You need to unmute yourself, sir. 1384 01:32:46.920 --> 01:32:50.040 T Burchett: I think we skipped the order there. I think that 1385 01:32:50.040 --> 01:32:53.580 Democrats should be next. I cut in front of one of my 1386 01:32:53.820 --> 01:32:54.390 colleagues. 1387 01:32:55.320 --> 01:32:57.060 Chairwoman Velazquez: I have recognized everyone. 1388 01:32:57.060 --> 01:33:01.560 T Burchett: Okay. Oh, well, I should be more offended than I 1389 01:33:01.560 --> 01:33:05.430 apologize. I'll, I'll remember that offensiveness to the next 1390 01:33:05.430 --> 01:33:08.550 meeting. Now, your wonderful chair lady always enjoyed being 1391 01:33:08.550 --> 01:33:12.630 on with you, ma'am. I'm sorry. We're not in person. I guess I 1392 01:33:14.040 --> 01:33:18.030 I'm wondering about how do we increase our access? I guess 1393 01:33:18.030 --> 01:33:20.910 when I ask all the panelists there, if we could just start at 1394 01:33:20.910 --> 01:33:24.120 one and go to the other? How do we increase access to capital 1395 01:33:24.120 --> 01:33:28.440 per business and, and limit our risk for lenders? And I guess, 1396 01:33:28.920 --> 01:33:33.360 I'd be interested really in our minority community, it seems 1397 01:33:33.360 --> 01:33:37.680 like the percentage and the volume of loans go, it seems are 1398 01:33:37.680 --> 01:33:41.610 in a disproportionate amount of some of those folks. And, and 1399 01:33:41.610 --> 01:33:45.180 I'd be anxiously await your answers. 1400 01:33:45.840 --> 01:33:51.570 Luz Urrutia: Yeah, I can start, I think a number of ways. First 1401 01:33:51.570 --> 01:33:55.920 of all, you know, make sure that CDFIs have the proper funding 1402 01:33:55.920 --> 01:34:00.420 that they need. CDFIs are ensuring access to credit for 1403 01:34:00.420 --> 01:34:04.740 impacted businesses, in rural communities, underserved small 1404 01:34:04.740 --> 01:34:07.950 businesses, we are offering affordable loans, technical 1405 01:34:07.950 --> 01:34:11.670 assistance and a lot of other services that are needed. And we 1406 01:34:11.700 --> 01:34:15.510 need to be properly funded and have leverage and a balance 1407 01:34:15.510 --> 01:34:19.890 sheet capacity to do that. So in support of that a supplemental 1408 01:34:19.890 --> 01:34:23.550 appropriation of a billion dollars to the CDFI Fund will 1409 01:34:23.550 --> 01:34:27.990 allow CDFIs across the country to leverage $12 billion in 1410 01:34:27.990 --> 01:34:31.590 capital that will be deployed to communities in need. That's the 1411 01:34:31.590 --> 01:34:38.040 first thing. The second thing is make sure that section 1071 of 1412 01:34:38.040 --> 01:34:45.930 Dodd Frank is past. You know, having lenders report on the 1413 01:34:45.930 --> 01:34:50.280 amount of lending that they're doing to underserved communities 1414 01:34:50.280 --> 01:34:54.420 and women owned businesses. We need to have visibility so that 1415 01:34:54.420 --> 01:34:56.970 we can understand what the problems are and correct them. 1416 01:34:57.780 --> 01:35:00.690 We also should be looking at reauthorizing The State Small 1417 01:35:00.690 --> 01:35:04.680 Business Credit Initiative, SSP CI, you know, after the Great 1418 01:35:04.680 --> 01:35:07.020 Recession, this was a great program that provided over a 1419 01:35:07.020 --> 01:35:10.020 billion and a half to state led small businesses financing 1420 01:35:10.020 --> 01:35:13.350 programs. And it gave a lot of flexibility to lenders to 1421 01:35:13.350 --> 01:35:17.790 leverage that capital, sort of as loan loss reserves to support 1422 01:35:17.790 --> 01:35:21.960 over a billion dollars and small business loans. So I think that 1423 01:35:21.960 --> 01:35:24.840 this is a great opportunity for public and private sector 1424 01:35:24.840 --> 01:35:28.440 partnerships to come together through access to funding of 1425 01:35:28.440 --> 01:35:32.550 CDFIs and low loss reserves, so that we can feel comfortable and 1426 01:35:32.550 --> 01:35:34.860 continue to increase lending in these communities. 1427 01:35:35.160 --> 01:35:39.030 T Burchett: Okay. Thank you. Anyone else? 1428 01:35:41.100 --> 01:35:45.240 Yanki Sherring: So, you know, as a CDFI, that works with minority 1429 01:35:45.240 --> 01:35:49.050 and women owned businesses, I would like to second what Lou's 1430 01:35:49.050 --> 01:35:52.740 just recommended about supporting CDFIs. And they're 1431 01:35:52.740 --> 01:35:56.940 all several 100 of them, or maybe even more than several 100 1432 01:35:57.030 --> 01:36:02.400 spread all over the United States, rural, urban. You know, 1433 01:36:02.430 --> 01:36:06.240 they really understand the clients, they work with the 1434 01:36:06.240 --> 01:36:10.110 businesses that need some hand holding, and eventually many of 1435 01:36:10.110 --> 01:36:14.940 them are bankable and able to get larger loans from banks. So 1436 01:36:14.940 --> 01:36:16.800 I really support that suggestion. 1437 01:36:19.620 --> 01:36:21.990 Adam Levitin: I would also like to echo the the point about 1438 01:36:21.990 --> 01:36:27.840 section 1071 of Dodd Frank. And it is way past time for the 1439 01:36:27.870 --> 01:36:31.410 Consumer Financial Protection Bureau to have implemented the 1440 01:36:31.440 --> 01:36:35.250 data collection on small business lending, which is just 1441 01:36:35.280 --> 01:36:39.720 the it's the the necessary precondition for trying to 1442 01:36:39.750 --> 01:36:41.790 police the small business lending market for 1443 01:36:41.790 --> 01:36:45.150 discriminatory lending. And without that data, it's just not 1444 01:36:45.150 --> 01:36:47.700 easy to do to do any kind of meaningful fair lending 1445 01:36:47.700 --> 01:36:48.300 enforcement. 1446 01:36:51.090 --> 01:36:54.750 T Burchett: I guess, Mr. Hiles is your last question. I just I 1447 01:36:54.750 --> 01:36:57.750 don't think I got 30 seconds, but have the online lenders in 1448 01:36:57.750 --> 01:37:01.560 the FinTech industry experienced a higher demand for capital from 1449 01:37:01.560 --> 01:37:05.220 new businesses? And how's the industry managing existing 1450 01:37:05.220 --> 01:37:08.400 investments in companies have made significant operational 1451 01:37:08.400 --> 01:37:09.030 changes? 1452 01:37:10.830 --> 01:37:13.650 Michael Hiles: There has indeed been a significant growth. Thank 1453 01:37:13.650 --> 01:37:16.020 you for the question, Representative Madam Chair. 1454 01:37:17.100 --> 01:37:21.840 There has been a significant growth in usability. And as I 1455 01:37:21.840 --> 01:37:24.540 indicated in my initial testimony, we expect those 1456 01:37:24.540 --> 01:37:27.930 numbers continue to climb as the younger generation who is far 1457 01:37:27.930 --> 01:37:31.650 more transactional, less relationship focused, wish to 1458 01:37:31.650 --> 01:37:34.260 leverage the technology that's been in their hands since they 1459 01:37:34.260 --> 01:37:39.990 were literally born as children to access all manner of capital. 1460 01:37:40.020 --> 01:37:45.420 And so from that standpoint, we see there being nothing but a 1461 01:37:45.420 --> 01:37:49.080 growth path forward for everything from online 1462 01:37:49.080 --> 01:37:53.700 alternative lending, to fully automated, full digital banking 1463 01:37:53.730 --> 01:37:57.750 and even non lending banking, as seen with some of the recent 1464 01:37:57.750 --> 01:38:00.480 legislation in the state of Wyoming with special purpose 1465 01:38:00.690 --> 01:38:05.490 depository institutions, really remixed the notion of what 1466 01:38:05.490 --> 01:38:08.280 banking is from a services versus a lending risk 1467 01:38:08.280 --> 01:38:09.900 standpoint. Thank you for the question. 1468 01:38:11.790 --> 01:38:13.980 T Burchett: I yield back my time, Chair Lady. Thank you, 1469 01:38:13.980 --> 01:38:14.430 ma'am. 1470 01:38:15.630 --> 01:38:17.760 Chairwoman Velazquez: The gentleman's time has expired. 1471 01:38:17.790 --> 01:38:21.510 And now we're gonna go to a second round of questions, and I 1472 01:38:21.510 --> 01:38:26.550 will work on the members to stay on. I will recognize myself for 1473 01:38:26.550 --> 01:38:31.260 five minutes. Professor luncheon. Last Congress, you 1474 01:38:31.260 --> 01:38:36.030 testified before us on the Financial Services Committee on 1475 01:38:36.030 --> 01:38:41.010 the use of the rent a bank scheme that allows FinTech 1476 01:38:41.010 --> 01:38:45.930 lenders to get around state usury laws. Can you explain the 1477 01:38:45.930 --> 01:38:52.530 mechanics of those transaction to us and how the scheme enables 1478 01:38:52.530 --> 01:38:56.070 predatory lenders to continue operating on check? 1479 01:38:56.850 --> 01:39:00.090 Adam Levitin: Absolutely, Madam Chairwoman. So every state in 1480 01:39:00.090 --> 01:39:03.120 the country has some sort of usury law, they vary 1481 01:39:03.120 --> 01:39:06.840 substantially. Here's the basic thing you need to understand 1482 01:39:06.840 --> 01:39:12.240 about them. Banks are not subject to state usury laws I 1483 01:39:12.510 --> 01:39:14.910 put a little asterix it's a little more technically 1484 01:39:14.910 --> 01:39:18.030 complicated, but that's the basic the basic takeaway, banks 1485 01:39:18.030 --> 01:39:21.510 are not subject to state usury laws, non banks are subject to 1486 01:39:21.510 --> 01:39:26.580 state usury laws. In a rented bank arrangement, a non bank 1487 01:39:27.000 --> 01:39:29.580 will partner with a bank and here's the terms of the 1488 01:39:29.580 --> 01:39:34.140 partnership. The bank will make loans according to the 1489 01:39:34.140 --> 01:39:39.720 specifications of the non bank, it may even use an underwriting 1490 01:39:39.720 --> 01:39:43.710 platform that is licensed to it by the non bank, where basically 1491 01:39:43.710 --> 01:39:46.650 the non bank has done all the programming and has set all the 1492 01:39:46.650 --> 01:39:50.250 terms of the underwriting the non bank will do the marketing 1493 01:39:50.280 --> 01:39:55.470 it will. It will service the loans and it will also purchase 1494 01:39:55.470 --> 01:39:58.170 the loans or purchase an economic interest such as a 1495 01:39:58.170 --> 01:40:02.610 participation interest in loans from the bank. So that all the 1496 01:40:02.610 --> 01:40:05.400 bank is really doing is being an origination agent. His name is 1497 01:40:05.400 --> 01:40:08.580 on the loan documents originally, and maybe provides 1498 01:40:08.610 --> 01:40:11.730 variant of the original funding for a very short period of time. 1499 01:40:12.000 --> 01:40:17.370 Maybe it holds a 10% or 5% economic interest in the loans 1500 01:40:17.430 --> 01:40:20.970 going forward. But for all real purposes, the non bank is the 1501 01:40:20.970 --> 01:40:23.910 lender and it's using the bank as a front to make the loans and 1502 01:40:23.910 --> 01:40:27.060 the reason it does that is because then that gives it a 1503 01:40:27.060 --> 01:40:30.360 legal argument, which is a contestant one, but it gives it 1504 01:40:30.360 --> 01:40:34.860 a legal it gives the non banker a legal argument that the bank 1505 01:40:34.860 --> 01:40:39.240 is the true lender. And that therefore, the loan is not 1506 01:40:39.240 --> 01:40:42.900 subject to state usury laws to limit that and that the non bank 1507 01:40:42.900 --> 01:40:46.980 is not subject to state licensure requirements, and that 1508 01:40:46.980 --> 01:40:50.970 the loan is not subject to other state consumer protections, such 1509 01:40:50.970 --> 01:40:53.910 as limitations on rollovers in the case of payday loans. 1510 01:40:54.870 --> 01:40:58.200 Chairwoman Velazquez: So how does the lack of federal 1511 01:40:58.230 --> 01:41:01.830 regulator allow this practice to continue on check? 1512 01:41:02.190 --> 01:41:05.970 Adam Levitin: Well, historically, if you went back 1513 01:41:05.970 --> 01:41:10.260 about 17 years in 2003, the Office of Comptroller of the 1514 01:41:10.260 --> 01:41:12.960 Currency cracked down on these kinds of arrangements which are 1515 01:41:12.960 --> 01:41:16.650 being used by online payday lenders. And the office of 1516 01:41:16.650 --> 01:41:20.010 Comptroller of the Currency stopped every national bank that 1517 01:41:20.010 --> 01:41:23.160 was involved in doing this kind of rent to bank from doing this. 1518 01:41:23.250 --> 01:41:27.660 A few years later, the FDIC stopped all the state chartered 1519 01:41:27.690 --> 01:41:31.050 insured banks from doing this, I was actually an expert witness 1520 01:41:31.050 --> 01:41:34.980 for the FDIC and some litigation about this. We've since had a 1521 01:41:34.980 --> 01:41:39.450 change management at the OCC and FDIC and the change in the view 1522 01:41:39.450 --> 01:41:46.620 about the dangers of predatory lending. And the OCC and FDIC 1523 01:41:46.620 --> 01:41:52.170 have intervened in, in use pre litigation to try and protect 1524 01:41:52.170 --> 01:41:56.160 rentenbank schemes. And this last summer, they both finalized 1525 01:41:56.490 --> 01:42:01.200 regulations that emphasize these regulations have already been 1526 01:42:01.200 --> 01:42:04.260 challenged by a coalition state attorneys general. But these 1527 01:42:04.260 --> 01:42:09.090 regulations if upheld, will basically bless this kind of 1528 01:42:09.090 --> 01:42:12.180 rental bank arrangement. And they say if the bank's name is 1529 01:42:12.180 --> 01:42:15.420 on the loan, it doesn't matter what the real facts are, it 1530 01:42:15.420 --> 01:42:18.540 doesn't matter that the bank did absolutely nothing with the 1531 01:42:18.540 --> 01:42:22.680 loan, we're going to treat it as a bank loan. And that allows the 1532 01:42:22.680 --> 01:42:27.030 banks to rent out their federal regulatory privileges, which is 1533 01:42:27.090 --> 01:42:28.710 how the system should work. 1534 01:42:29.260 --> 01:42:31.960 Chairwoman Velazquez: Thank you. Thank you very much Miss 1535 01:42:31.960 --> 01:42:37.930 Sherring, as someone who play a key role in in the push for New 1536 01:42:37.930 --> 01:42:42.190 York's Tila for small business that awaits Governor Cuomo 1537 01:42:42.190 --> 01:42:46.060 signature, I just want to ask you, what are some of the 1538 01:42:46.060 --> 01:42:51.400 hallmarks of the New York labor legislation that you think must 1539 01:42:51.400 --> 01:42:54.160 remain in any federal legislation? 1540 01:42:55.770 --> 01:42:59.220 Yanki Sherring: One thing for sure, something we've been, you 1541 01:42:59.220 --> 01:43:04.230 know, each witness has said over and over again, you know, very 1542 01:43:04.230 --> 01:43:07.560 important that we are able, you know, a borrower is able to 1543 01:43:07.560 --> 01:43:12.960 compare apples to apples. So key is the APR, so they're able to 1544 01:43:12.960 --> 01:43:18.450 see what the loan is going to cost. The second is, you know, 1545 01:43:18.450 --> 01:43:22.920 no prepayment penalties. What we're asking for is 1546 01:43:22.920 --> 01:43:31.410 transparency. And as you and earlier, Ranking Member Chabot 1547 01:43:31.410 --> 01:43:35.400 referred to, you know, we're talking about business owners, 1548 01:43:35.550 --> 01:43:39.450 this is an opportunity for them to build assets and wealth. But 1549 01:43:39.450 --> 01:43:43.680 what happens is when they take on these loans, which are not 1550 01:43:43.680 --> 01:43:47.790 very clear about what the costs are involved, then they really 1551 01:43:47.790 --> 01:43:51.930 stripped off their assets to what we're asking for is very 1552 01:43:51.930 --> 01:43:55.260 simple. We're asking for transparency and clarity. 1553 01:43:56.010 --> 01:43:58.710 Chairwoman Velazquez: Thank you. Thank you. My time has expired. 1554 01:43:58.710 --> 01:44:01.740 And now I recognize the Ranking Member. Mr. Chabot. 1555 01:44:02.490 --> 01:44:06.120 Steve Chabot: Thank you. Thank you, and I'll go to Mr. Hiles. 1556 01:44:06.630 --> 01:44:10.800 Mr. House, is you know, a number of FinTech companies did 1557 01:44:10.800 --> 01:44:16.710 participate in the PPP program, the paycheck Protection Program, 1558 01:44:17.400 --> 01:44:20.820 moving forward with respect to the SBA, and there are other 1559 01:44:20.850 --> 01:44:25.680 existing programs like the seven a loan program, the 504 loan 1560 01:44:25.680 --> 01:44:29.400 program and micro loan program, those types of things. How do 1561 01:44:29.400 --> 01:44:34.170 you see FinTech now fitting into those programs in the in the 1562 01:44:34.170 --> 01:44:37.530 future? And how would you like to see? You know that 1563 01:44:37.530 --> 01:44:41.640 relationships, progress FinTech and the SBA 1564 01:44:43.980 --> 01:44:46.410 Michael Hiles: Chairwoman, Ranking Member Chabot, thank you 1565 01:44:46.410 --> 01:44:51.000 for the question. And that is a good question. A couple of 1566 01:44:51.000 --> 01:44:57.630 things. One is that as I stated in my initial testimony, the SBA 1567 01:44:57.630 --> 01:45:01.590 is going to continue to be subject To the column 1568 01:45:01.620 --> 01:45:06.210 idiosyncrasies and the the disruption that's taking place 1569 01:45:06.240 --> 01:45:10.560 in the financial institution and the financial services market 1570 01:45:10.560 --> 01:45:16.350 right now, for those myriads of market forces and technology 1571 01:45:16.350 --> 01:45:21.630 reasons, the opportunity to define standards first, as 1572 01:45:21.630 --> 01:45:24.510 opposed to being necessarily highly prescriptive about the 1573 01:45:24.510 --> 01:45:30.510 technology, but then working with the not only the financial 1574 01:45:30.510 --> 01:45:33.240 institutions, but the technology providers and the folks that 1575 01:45:33.240 --> 01:45:38.220 build technology, to innovate and come up with new solutions 1576 01:45:38.220 --> 01:45:41.520 that would optimize the management of the documents and 1577 01:45:41.520 --> 01:45:44.640 the data and all of the loan applications, the borrowing 1578 01:45:44.700 --> 01:45:48.750 applications, you know, all of the trade compliance, everything 1579 01:45:48.750 --> 01:45:52.530 that goes along with these loans from a documentation standpoint, 1580 01:45:52.860 --> 01:45:57.240 but then optimize and bring a high degree of efficiency and 1581 01:45:57.240 --> 01:46:00.600 optimization as an administration, and then be a 1582 01:46:00.600 --> 01:46:04.200 leader that sets the standard for about those programs, 1583 01:46:04.710 --> 01:46:07.770 beneath which the FinTech industry, and then ultimately, 1584 01:46:07.770 --> 01:46:10.470 the traditional financial services industry can follow 1585 01:46:10.470 --> 01:46:13.530 suit and operate if you're looking for the private sector 1586 01:46:13.530 --> 01:46:17.850 to establish these kinds of standards, and then adopt them. 1587 01:46:18.840 --> 01:46:23.130 I think that we've leaped pretty far in terms of technology, 1588 01:46:23.130 --> 01:46:25.500 innovation, and where we're at, and we're scrambling to figure 1589 01:46:25.500 --> 01:46:30.900 out how to incorporate that into traditional organizations. And 1590 01:46:30.930 --> 01:46:34.170 now is a time for leadership. And much like the federal 1591 01:46:34.170 --> 01:46:37.830 government established the standards that ultimately became 1592 01:46:37.830 --> 01:46:40.980 the internet and the World Wide Web. We're in the throes of 1593 01:46:41.520 --> 01:46:45.420 potentially doing the same with finance and financial records. 1594 01:46:45.720 --> 01:46:50.670 And so I would highly admonish the stakeholders across the 1595 01:46:50.670 --> 01:46:54.690 board to consider this type of opportunity right now with the 1596 01:46:54.690 --> 01:46:55.110 industry. 1597 01:46:56.190 --> 01:47:00.180 Steve Chabot: Thank you. And finally, is Congress continues 1598 01:47:00.180 --> 01:47:04.470 to examine the role of your industry FinTech companies, do 1599 01:47:04.470 --> 01:47:10.320 you have any recommendations for us? And and, you know, 1600 01:47:10.320 --> 01:47:13.440 especially relative to regulations, you know, more 1601 01:47:13.440 --> 01:47:18.210 regulations versus the trend that we've tried to establish, 1602 01:47:18.210 --> 01:47:21.390 and government in recent years is to reduce unnecessary 1603 01:47:21.660 --> 01:47:25.800 regulations or duplicative things? You know, so we don't 1604 01:47:25.800 --> 01:47:28.680 kill the goose that lays the golden egg here for the economy 1605 01:47:28.680 --> 01:47:31.560 and otherwise, so do you want to weigh in to that with the 1606 01:47:31.590 --> 01:47:33.840 additional time I have available to you here? 1607 01:47:35.520 --> 01:47:37.980 Michael Hiles: Certainly, thank you, there would be a couple of 1608 01:47:37.980 --> 01:47:40.920 key areas, one of the things that we like to do is we'd like 1609 01:47:40.920 --> 01:47:43.770 to start with the regulation first, and then work our way 1610 01:47:43.770 --> 01:47:47.190 backwards into the technology itself. And I think that there's 1611 01:47:47.370 --> 01:47:51.510 this resistance to technology in general, it's frightening, it's 1612 01:47:51.510 --> 01:47:55.350 hard to understand, and the idea that people are using technology 1613 01:47:55.680 --> 01:48:00.300 to necessarily skirt the regulations isn't necessarily 1614 01:48:00.420 --> 01:48:05.250 true. Once again, it goes back to those standards. I've seen 1615 01:48:05.250 --> 01:48:09.180 some interesting things coming out of OCC and interim director 1616 01:48:09.180 --> 01:48:12.180 Brooks, talking about how payment providers would 1617 01:48:12.210 --> 01:48:16.080 ultimately end up with some form of de facto charter. I know that 1618 01:48:16.080 --> 01:48:19.350 that's raised a lot of red flags with banking, you know, the 1619 01:48:19.380 --> 01:48:23.670 division of bankings with the states already. So it's going to 1620 01:48:23.670 --> 01:48:28.110 be an interesting dynamic to see how we get there in terms of 1621 01:48:28.110 --> 01:48:31.740 getting past the logjam that exists with banking and tech 1622 01:48:31.770 --> 01:48:36.420 now, do we leapfrog forward with technology companies that become 1623 01:48:36.420 --> 01:48:40.500 financial institutions? Not real sure, at this point, but 1624 01:48:40.500 --> 01:48:43.470 Congress does absolutely have an opportunity to lead the 1625 01:48:43.470 --> 01:48:48.600 discussion, as opposed to being responsive and waiting for the 1626 01:48:49.440 --> 01:48:52.680 hopefully, at some point, there would be a solution. But 1627 01:48:52.800 --> 01:48:56.310 historically, that's tended to be not necessarily the case when 1628 01:48:56.310 --> 01:48:59.040 it comes to standard setting. And that's where I believe the 1629 01:48:59.040 --> 01:49:02.280 Small Business Administration has the opportunity to really 1630 01:49:02.280 --> 01:49:03.690 drive this conversation forward. 1631 01:49:04.500 --> 01:49:06.630 Steve Chabot: Thank you very much, Madam Chair. I think my 1632 01:49:06.630 --> 01:49:10.020 time has expired and I I do have a three o'clock commitment. So 1633 01:49:10.020 --> 01:49:12.120 I'll be dropping off shortly. But I thought this was an 1634 01:49:12.120 --> 01:49:14.730 excellent way to thank all the witnesses for their five 1635 01:49:14.730 --> 01:49:15.810 testimony. I yield back. 1636 01:49:16.290 --> 01:49:23.067 Chairwoman Velazquez: Thank you. The gentleman yields back now we 1637 01:49:23.224 --> 01:49:32.839 recognize the gentleman from Pennsylvania, Mr. Evans for five 1638 01:49:32.996 --> 01:49:37.410 minutes. You need to unmute. 1639 01:49:37.410 --> 01:49:38.850 Dwight Evans: Okay, can you hear me now? 1640 01:49:38.850 --> 01:49:40.200 Chairwoman Velazquez: Yes, we can hear you. 1641 01:49:40.200 --> 01:49:43.302 Dwight Evans: Yes. I just want to follow up to something the 1642 01:49:43.369 --> 01:49:47.483 chairman's done to the to the professor regarding what you're 1643 01:49:47.550 --> 01:49:51.799 describing by state policy and federal budget. How do financial 1644 01:49:51.866 --> 01:49:55.845 tech technology leaders ensure compliance with equal credit 1645 01:49:55.913 --> 01:49:59.824 opportunities and other fair banking rules is what I heard 1646 01:49:59.891 --> 01:50:04.680 The discussion us having with the Chairman, is that the same situation? 1647 01:50:04.680 --> 01:50:08.275 Adam Levitin: No, that's not. So there's, there's no the rent 1648 01:50:08.351 --> 01:50:12.788 rentenbank situation does not enable non banks to to evade 1649 01:50:12.865 --> 01:50:17.531 fair lending laws. They're still subject to that. Whether you 1650 01:50:17.608 --> 01:50:22.580 whether it's the bank or the not or the non bank partner, someone 1651 01:50:22.657 --> 01:50:27.400 there is subject to fair lending laws. The problem on the fair 1652 01:50:27.476 --> 01:50:32.066 lending side is that the meaning that if you want to do fair 1653 01:50:32.143 --> 01:50:37.115 lending, enforcement are looking for disparate impact whether you 1654 01:50:37.192 --> 01:50:41.552 need to have data, and section 1071 of the Dodd Frank Act 1655 01:50:41.628 --> 01:50:46.371 enacted a decade ago, calls for the collection by the Consumer 1656 01:50:46.448 --> 01:50:51.191 Financial Protection Bureau of data on small business lending. 1657 01:50:51.267 --> 01:50:55.781 Unfortunately, the Consumer Financial Protection Bureau has 1658 01:50:55.857 --> 01:50:59.529 not yet implemented the regulations necessary to 1659 01:50:59.606 --> 01:51:04.196 effectuate that so we don't have any data being collected. I 1660 01:51:04.272 --> 01:51:08.939 would suggest that at least a temporary stopgap measure would 1661 01:51:09.015 --> 01:51:13.146 be for any further federal assistance that's given out 1662 01:51:13.223 --> 01:51:17.277 under carry out sort of additional, I'm not sure what 1663 01:51:17.353 --> 01:51:21.943 we're going to call it Cares Act around to or what have you, 1664 01:51:22.020 --> 01:51:26.304 heroes act. Any additional event, there'll be a day that 1665 01:51:26.380 --> 01:51:31.276 there'll be requirements for the lenders start collecting, start 1666 01:51:31.353 --> 01:51:35.484 collecting and submitting data on the on the race, the 1667 01:51:35.560 --> 01:51:40.227 ethnicity, and the gender at least of of the parties that are 1668 01:51:40.303 --> 01:51:45.046 assisting. So we have a better understanding of where of where 1669 01:51:45.123 --> 01:51:50.019 money is flowing and making sure that it is being made available 1670 01:51:50.095 --> 01:51:52.620 equitably to everyone in society. 1671 01:51:54.720 --> 01:51:56.550 Dwight Evans: Thank you, and I yield back the balance of my 1672 01:51:56.550 --> 01:51:58.650 time. Thank you, Madam Chairperson. And thank you for 1673 01:51:58.650 --> 01:51:59.310 your leadership. 1674 01:52:00.420 --> 01:52:03.580 Chairwoman Velazquez: Thank you. The gentleman yields back. And 1675 01:52:03.657 --> 01:52:08.129 let me thank you again to all our witnesses today for your 1676 01:52:08.206 --> 01:52:12.908 testimony, we have explore some of the risks. FinTech lending 1677 01:52:12.986 --> 01:52:17.842 can present for small businesses and also some of the benefits, 1678 01:52:17.919 --> 01:52:22.699 it is become clear to me that there is a way to leverage those 1679 01:52:22.776 --> 01:52:27.093 benefits, greater speed, affordability and accessibility 1680 01:52:27.171 --> 01:52:31.950 and translate them into gains for small business owners. Also, 1681 01:52:32.027 --> 01:52:36.884 we have heard from lenders who can sustainably make these loans 1682 01:52:36.961 --> 01:52:41.124 create the partnerships necessary to bring the mission 1683 01:52:41.201 --> 01:52:45.981 based lending model online and held this small businesses grow 1684 01:52:46.058 --> 01:52:49.836 and create jobs without resorting to deceptive or 1685 01:52:49.913 --> 01:52:54.538 abusive practices. However, it also remains clear to me that 1686 01:52:54.615 --> 01:52:59.241 much more needs to be done in this space to eliminate unfair 1687 01:52:59.318 --> 01:53:03.635 and abusive practices by predatory lenders, who have not 1688 01:53:03.712 --> 01:53:08.106 interested in helping small business grow weary community 1689 01:53:08.184 --> 01:53:12.347 flourish, only to enrich themselves at the cost of the 1690 01:53:12.424 --> 01:53:17.280 small businesses. Congress must follow the lead of New York and 1691 01:53:17.358 --> 01:53:21.829 California who are actively working to ensure a safe, they 1692 01:53:21.906 --> 01:53:26.840 are an affordable small business lending market. I ask unanimous 1693 01:53:26.917 --> 01:53:31.311 consent that members have five legislative days to submit 1694 01:53:31.388 --> 01:53:35.320 statements and supporting materials for the record. 1695 01:53:35.397 --> 01:53:40.177 Without objection, so order and if there's no further business 1696 01:53:40.254 --> 01:53:44.880 before the committee, we are adjourned. Thank you. Thank you